Document:

SEC Connect

 

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of January
__, 2017, is made by and among True Drinks Holdings, Inc., a
corporation organized under the laws of the State of Nevada (the
“Company”) and
each of the purchasers (individually, a “Purchaser” and collectively the
“Purchasers”)
set forth in the execution pages hereof (each, an
“Execution
Page” and collectively the “Execution Pages”).

RECITALS

 

WHEREAS, the Company and the Purchasers
are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by the provisions
of Regulation D (“Regulation
D”), as promulgated by the United States Securities
and Exchange Commission (the “SEC”) under the Securities Act of
1933, as amended (the “Securities Act”);

WHEREAS, upon the terms and subject to
the satisfaction of certain conditions set forth in this Agreement,
the Purchasers, severally and not jointly, desire to purchase, and
the Company desires to issue and sell to the Purchasers an
aggregate of Fifty Thousand (50,000) shares of the Company’s
newly created Series D Convertible Preferred Stock, par value
$0.001 per share (the “Preferred Stock”) for $100.00 per
share, which Preferred Stock shall have the rights, preferences and
privileges set forth in the Company’s Certificate of
Designation, Preferences, Rights and Limitations of Series D
Convertible Preferred Stock, filed by the Company with the
Secretary of State of the State of Nevada on January __, 2017, a
copy of which is attached hereto as Exhibit A (the
“Certificate of
Designation”);

 

WHEREAS, in connection with the purchase
of Preferred Stock by the Purchasers, each Purchaser shall receive
a five-year warrant, in the form attached hereto as Exhibit B (the
“Warrant(s)”),
to acquire that number of shares of the Company’s common
stock, par value $0.001 per share (“Common Stock”), at a price of
$0.15 per share (the “Exercise Price”), equal to 200%
of the Conversion Shares, as such term is defined below, issuable
upon conversion of the Preferred Stock purchased by such Purchaser
on any Closing Date. This Agreement, the Certificate of Designation
and the Warrant are collectively referred to herein as the
“Transaction
Documents”; and

 

WHEREAS, the shares of Common Stock
issuable upon conversion of the Preferred Stock are referred to
herein as the “Conversion
Shares” and the shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the
“Warrant
Shares.” The Preferred Stock, the Warrants, the
Conversion Shares and the Warrant Shares are collectively referred
to herein as the “Securities” and each of them may
individually be referred to herein as a “Security.”

 

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

 

1. PURCHASE AND SALE.

(a) Purchase Price. Subject to the
terms and conditions hereof, on any Closing Date (as defined
below), the Company shall issue and sell to each Purchaser, and
each Purchaser, severally and not jointly, shall purchase from the
Company, that number of shares of Preferred Stock set forth on such
Purchaser’s Execution Page, for a purchase price (as to each
Purchaser, the “Purchase
Price”) equal to $100.00 per share of Preferred
Stock.

(b) Closing. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6
below, closing of the transactions contemplated hereby (each a
“Closing” and
collectively, the “Closings”) shall occur at
the time and place as
the Company and the Purchasers may mutually agree (the
“Closing
Date”). The date of the first Closing shall be
referred to as the “Initial
Closing Date.”

 

 

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(c) Method of Funding. Upon
satisfaction of the conditions precedent set forth in Sections 6
and 7 below, each Purchaser shall fund the Purchase Price for the
shares of Preferred Stock and Warrants to be issued and sold to
such Purchaser on the applicable Closing Date by wire transfer of
immediately available funds to the Company using the wire
instructions attached hereto as Exhibit C.

(d) Delivery of Securities. Upon
satisfaction of the conditions set forth in Section 6 below, the
Company shall deliver to each Purchaser the shares of Preferred
Stock and Warrants purchased on the applicable Closing
Date.

2. PURCHASERS’ REPRESENTATIONS AND
WARRANTIES.

  Each
Purchaser, severally, but not jointly, represents and warrants to
the Company as follows:

(a) Purchase for Own Account, Etc.
Such Purchaser is purchasing the Securities for such
Purchaser’s own account, for investment purposes only, and
not with a view towards the public sale or distribution thereof,
except pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales registered under
the Securities Act. Such Purchaser has substantial experience in
evaluating and investing in private placement transactions of
securities in companies similar to the Company, and is capable of
evaluating the merits and risks of its investment in the Company.
Such Purchaser understands that it must bear the economic risk of
this investment indefinitely, unless the Securities are registered
pursuant to the Securities Act and any applicable state securities
or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of
registering the resale of any such Securities. Notwithstanding
anything in this Section 2(a) to the contrary, by making the
representations herein, such Purchaser does not agree to hold the
Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption from the
registration requirements under the Securities Act.

(b) Accredited Investor Status.
Such Purchaser is an “Accredited Investor”, as that
term is defined in Rule 501(a) of Regulation D.

(c) No Disqualification Events.
Such Purchaser is not subject to any of the “Bad Actor”
disqualifications described in Rule 506(d)(1)(i) to (viii) under
the Securities Act (a “Disqualification Event”), except
for a Disqualification Event covered by Rule 506(d)(2) or
(d)(3).

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

(e) Information. All materials
relating to the business, finances and operations of the Company
(including the Company’s most recent Annual Report on Form
10-K) and materials relating to the offer and sale of the
Securities which have been specifically requested by any Purchaser
or its counsel have been made available to such Purchaser and its
counsel, if any. Neither such inquiries nor any other investigation
conducted by such Purchaser or its counsel or any of such
Purchaser’s representatives shall modify, amend or affect
such Purchaser’s right to rely on the Company’s
representations and warranties contained in Section 3 below. Such Purchaser
understands that its investment in the Securities involves a high
degree of risk, including the risk of loss of its entire investment
in the Securities.

(f) Governmental Review. Such
Purchaser understands that no United States federal or state agency
or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the
Securities.

(g) Transfer or Resale. Such
Purchaser understands that (i) the sale or resale of the Securities
have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be
transferred unless (A) the transfer is made pursuant to and as set
forth in an effective registration statement under the Securities
Act covering the Securities; or (B) such Purchaser shall have
delivered to the Company an opinion of counsel (which opinion shall
be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an
exemption from such registration; or (C) sold under and in
compliance with Rule 144 promulgated under the Securities Act
(including any successor rule, “Rule 144”); or (D) sold or
transferred to an affiliate of such Purchaser that agrees to sell
or otherwise transfer the Securities only in accordance with the
provisions of this Section 2(g) and that is an Accredited Investor;
and (ii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or
any state securities laws. Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin
account or other lending arrangement, provided such pledge is
consistent with applicable laws, rules and
regulations.

(h) Legends. Such Purchaser
understands that the Preferred Stock, Warrants and, until such time
as the Conversion Shares and Warrant Shares may be sold by such
Purchaser under Rule 144, the certificates for the Conversion
Shares and Warrant Shares may bear a restrictive legend in
substantially the following form:

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR IN ANY OTHER
JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED,
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.

        The legend set forth
above shall be removed and the Company shall issue a certificate
without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws,
(i) the sale of such Security is registered under the Securities
Act (including registration pursuant to Rule 416 thereunder); (ii)
such holder provides the Company with an opinion of counsel, in
form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or
transfer of such Security may be made without registration under
the Securities Act; or (iii) such holder provides the Company with
reasonable assurances that such Security can be sold under Rule
144. In the event the above legend is removed from any Security and
thereafter the effectiveness of a registration statement covering
such Security is suspended or the Company determines that a
supplement or amendment thereto is required by applicable
securities laws, then, upon reasonable advance written notice to
such Purchaser, the Company may require that the above legend be
placed on any such Security that cannot then be sold pursuant to an
effective registration statement or under Rule 144 and such
Purchaser shall cooperate in the replacement of such legend. Such
legend shall thereafter be removed when such Security may again be
sold pursuant to an effective registration statement or under Rule
144.

(i) Authorization; Enforcement. The
Transaction Documents have been duly and validly authorized,
executed and delivered on behalf of such Purchaser and are valid
and binding agreements of such Purchaser, enforceable against such
Purchaser in accordance with their 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 creditors’ rights and
remedies.

(j) Residency. Such Purchaser is a
resident of the jurisdiction set forth under such Purchaser’s
name on the Execution Page hereto executed by such
Purchaser.

3. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.

   
    Except as set forth on a Disclosure Schedule,
executed and delivered by the Company to each Purchaser (the
“Disclosure
Schedule”), the Company represents and warrants to
each Purchaser as follows:

(a) Organization and Qualification;
Subsidiaries. The Company and each of its subsidiaries
(collectively, the “Subsidiaries”) is a corporation
duly organized and existing in good standing under the laws of the
jurisdiction in which it is incorporated or organized, and has the
requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have, or would
reasonably be expected to result in, a Material Adverse Effect. For
purposes of this Agreement, “Material Adverse Effect” means
any material adverse effect on (i) the Securities, (ii) the ability
of the Company to perform its obligations under this Agreement or
the other Transaction Documents or (iii) the business, operations,
properties, prospects, financial condition or results of operations
of the Company and its Subsidiaries, taken as a whole. Other than
the Subsidiaries set forth on the Disclosure Schedule, the Company
has no subsidiaries.

(b) Authorization; Enforcement. (i)
The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement and the
other Transaction Documents, to issue and sell the Preferred Stock
and Warrants in accordance with the terms hereof, to issue the
Conversion Shares upon conversion of the Preferred Stock in
accordance with the terms thereof and to issue the Warrant Shares
upon exercise of the Warrants in accordance with the terms thereof;
(ii) the execution, delivery and performance of this Agreement and
the other Transaction Documents by the Company and the consummation
by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Preferred Stock
and Warrants, and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares) have been duly authorized by
the Company’s Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or any
committee of the Board of Directors is required, and (iii) this
Agreement constitutes, and, upon execution and delivery by the
Company of the other Transaction Documents, such Transaction
Documents will constitute, valid and binding obligations of the
Company enforceable against the Company in accordance with their
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 creditors’
rights and remedies. Neither the execution, delivery or performance
by the Company of its obligations under this Agreement or the other
Transaction Documents, nor the consummation by it of the
transactions contemplated hereby or thereby (including, without
limitation, the issuance of the Preferred Stock and Warrants, or
the issuance or reservation for issuance of the Conversion Shares
or Warrant Shares) requires any consent or authorization of the
Company’s stockholders.

 

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(c) Capitalization. The
capitalization of the Company as of the date hereof, including the
authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for
issuance pursuant to the Company’s stock option plans, the
number of shares issuable and reserved for issuance pursuant to
securities (other than the Preferred Stock and the Warrants)
exercisable or exchangeable for, or convertible into, any shares of
capital stock and the number of shares reserved for issuance upon
conversion of the Preferred Stock and exercise of the Warrants is
set forth in Section 3(c) of the Disclosure Schedule. All of such
outstanding shares of capital stock have been, or upon issuance in
accordance with the terms of any such exercisable, exchangeable or
convertible securities will be, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company
(including the Conversion Shares and the Warrant Shares) are
subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances. Except
for the Securities and as set forth in Section 3(c) of the
Disclosure Schedule, (i) 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 of
capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or
may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries, nor are any such issuances or
arrangements contemplated, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of its or their securities
under the Securities Act; (iii) there are no outstanding securities
or instruments of the Company which contain any redemption or
similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company is or may
become bound to redeem any security of the Company; and (iv) the
Company does not have any shareholder rights plan, “poison
pill” or other anti-takeover plans or similar arrangements.
Section 3(c) of the Disclosure Schedule sets forth all of the
securities or instruments issued by the Company or any of its
Subsidiaries that contain anti-dilution or similar provisions that
will be triggered by, and all of the resulting adjustments that
will be made to such securities and instruments as a result of, the
issuance of the Securities in accordance with the terms of this
Agreement, the Preferred Stock or the Warrants. The Company has no
knowledge of any voting agreements, buy-sell agreements, option or
right of first purchase agreements or other agreements of any kind
among any of the security holders of the Company relating to the
securities of the Company held by them. The Company can furnish,
upon request, true and correct copies of the Company’s
Articles of Incorporation as in effect on the date hereof
(“Articles of
Incorporation”), the Company’s Bylaws as in
effect on the date hereof (the “Bylaws”), and all other
instruments and agreements governing securities convertible into or
exercisable or exchangeable for capital stock of the Company. The
Company or one of its Subsidiaries has the unrestricted right to
vote, and (subject to limitations imposed by applicable law) to
receive dividends and distributions on, all capital securities of
its Subsidiaries as owned by the Company or any such
Subsidiary.

(d) Issuance of Securities. The
Preferred Stock and Warrants are duly authorized and, upon issuance
in accordance with the terms of this Agreement, (i) will be validly
issued and free from all taxes, liens, claims and encumbrances
(other than restrictions on transfer contained in this Agreement or
the Certificate of Designation or Warrants), (ii) will not be
subject to preemptive rights, rights of first refusal or other
similar rights of stockholders of the Company or any other person
and (iii) will not impose personal liability on the holder thereof.
The Conversion Shares and Warrant Shares are duly authorized and
reserved for issuance, and, upon conversion of the Preferred Stock
and exercise of the Warrants in accordance with the terms thereof,
(x) will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims and encumbrances (other than
restrictions on transfer contained in this Agreement), (y) will not
be subject to preemptive rights, rights of first refusal or other
similar rights of stockholders of the Company or any other person
and (z) will not impose personal liability upon the holder thereof.
Except for the filing of any notice prior or subsequent to any
Closing Date that may be required under applicable state and/or
federal securities laws (or comparable laws of any other
jurisdiction), no authorization, consent, approval, license,
exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency,
instrumentality or other third party, is or will be necessary for,
or in connection with, the execution and delivery by the Company of
this Agreement, for the offer, issue, sale, execution or delivery
of the Preferred Stock and Warrants, or for the performance by the
Company of its obligations under this Agreement. No “bad
actor” Disqualifying Event is applicable to the Company or,
to the Company’s knowledge, any Person listed in the first
paragraph of Rule 506(d)(1), except for a Disqualification Event as
to which Rule 506(d)(2)(ii–iv) or (d)(3), is
applicable.

 

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(e) No Conflicts. Except as set
forth in Section 3(e) of the Disclosure Schedule, the execution,
delivery and performance 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 Preferred Stock
and Warrants, and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares) will not (i) result in a
violation of the Articles of Incorporation or Bylaws, (ii) conflict
with, or constitute a default (or an event that 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
the Company or any of its Subsidiaries is a party, (iii) result in
a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws, rules
and regulations and rules and regulations of any self-regulatory
organizations to which either the Company or its securities are
subject) 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, or (iv) result in the imposition
of a mortgage, pledge, security interest, encumbrance, charge or
other lien on any asset of the Company or any Subsidiary (except,
with respect to clauses (ii) and (iii), for such conflicts,
defaults, terminations, amendments, accelerations, cancellations
and violations that would not, individually or in the aggregate,
have a Material Adverse Effect).

(f) Compliance. Neither the Company
nor any of its Subsidiaries is in violation of its Articles of
Incorporation, Bylaws or other organizational documents, and
neither the Company nor any of its Subsidiaries is in default (and
no event has occurred that with notice or lapse of time or both
would put the Company or any of its Subsidiaries in default) under,
nor has there occurred any event giving others (with notice or
lapse of time or both) 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. The businesses of the Company and its Subsidiaries are not
being conducted, and shall not be conducted so long as the
Purchaser (or any of its respective affiliates) own any of the
Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations the sanctions
for which either singly or in the aggregate have not had and would
not have a Material Adverse Effect. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or
other person acting on behalf of the Company or any Subsidiary has,
in the course of his actions for, or on behalf of, the Company,
used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political
activity, made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate
funds, violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee. The
Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal,
state, provincial or foreign regulatory authorities that are
material to the conduct to its business, and neither the Company
nor any of its Subsidiaries has received any notice of proceeding
relating to the revocation or modification of any such certificate,
authorization or permit. The Company has complied in all material
respects with and is not in default or violation in any material
respect of, and is not, to the Company’s knowledge, under
investigation with respect to or has not been, to the knowledge of
the Company, threatened to be charged with or given notice of any
violation of, any applicable federal, state, local or foreign law,
statute, ordinance, license, rule, regulation, policy or guideline,
order, demand, writ, injunction, decree or judgment of any federal,
state, local or foreign governmental or regulatory authority.
Except for statutory or regulatory restrictions of general
application, no federal, state, local or foreign governmental or
regulatory authority has placed any material restriction on the
business or properties of the Company.

 

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(g) SEC Documents, Financial
Statements. The Company has timely filed (within applicable
extension periods) all reports, schedules, forms, 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 “Exchange
Act”) (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements
and schedules thereto and documents incorporated by reference
therein, the “SEC
Documents”). As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the Exchange Act or the Securities Act, as the case may be, 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 light of the circumstances under which they
were made, not misleading. None of the statements made in any such
SEC Documents is, or has been, required to be amended or updated
under applicable law (except for such statements as have been
amended or updated in subsequent filings made prior to the date
hereof). As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and
the published rules and regulations of the SEC applicable with
respect thereto. Such financial statements have been prepared in
accordance with U.S. generally accepted accounting principles
(“GAAP”),
consistently applied, during the periods involved (except as may be
otherwise indicated in such financial statements or the notes
thereto or, in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to immaterial
year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the Select SEC Documents (as
defined below), the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of such financial
statements and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under
GAAP to be reflected in such financial statements, which
liabilities and obligations referred to in clauses (i) and (ii),
individually or in the aggregate, are not material to the financial
condition or operating results of the Company. For purposes of this
Agreement, “Select SEC
Documents” means the Company’s (A) Annual Report
on Form 10-K for the fiscal year ended December 31, 2015, (B)
Quarterly Reports on Form 10-Q for the periods ended March 31,
2016, June 30, 2016 and September 30, 2016 and (B) all Current
Reports on Form 8-K filed since November 14, 2016.

(h) Absence of Certain Changes.
Since November 14, 2016, (i) there has not been any change in the
capital stock (other than pursuant to the Company’s stock
plans pursuant to the Company’s Approved Share Plan (defined
below), pursuant to the conversion or exercise of outstanding
securities that are convertible into or exercisable for Common
Stock, or pursuant to publicly disclosed equity or debt financings)
or long-term debt of the company, or any dividend or distribution
of any kind declared, set aside for payment, paid or made by the
Company on any class of capital stock; (ii) the Company has not
entered into any transaction or agreement that is material to the
Company taken as a whole or incurred any liability or obligation,
direct or contingent, that is material to the Company and, except
as contemplated by this Agreement, has not made any material change
or amendment to a material contract or arrangement by which the
Company or any of its assets or properties is bound or subject;
(iii) the Company has not sustained any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
disturbance or dispute or any action, order or decree of any court
or arbitrator or governmental or regulatory authority; and (iv)
there has been no material adverse change and no material adverse
development in the business, properties, operations, prospects,
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole. The Company has not taken any
steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy or receivership law, nor does
the Company or any of its Subsidiaries have any knowledge or reason
to believe that its creditors intend to initiate involuntary
bankruptcy proceedings with respect to the Company or any of its
Subsidiaries.

(i) Transactions With Affiliates.
None of the officers, directors, or employees of the Company or any
of its Subsidiaries is presently a party to any transaction with
the Company or any of its Subsidiaries (other than for ordinary
course services solely in their capacity as officers, directors or
employees), including, without limitation, any contract, agreement
or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such officer,
director or employee or any corporation, partnership, trust or
other entity in which any such officer, director, or employee has
an ownership interest of five percent or more or is an officer,
director, trustee or partner.

(j) Absence of Litigation. Except
as disclosed in the Select SEC Documents, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body
(including, without limitation, the SEC) pending or affecting the
Company, any of its subsidiaries, or any of their respective
directors or officers in their capacities as such. To the knowledge
of the Company or any of its Subsidiaries, there are no actions,
suits, proceedings, inquiries or investigations before or by any
court, public board, government agency, self-regulatory
organization or body (including, without limitation, the SEC)
threatened against the Company, any of its Subsidiaries, or any of
their respective directors or officers in their capacities as such,
which, if determined adversely, could, either individually or in
the aggregate, have a Material Adverse Effect. There are no facts
which, if known by a potential claimant or governmental authority,
could give rise to a claim or proceeding which, if asserted or
conducted with results unfavorable to the Company or any of its
Subsidiaries, could reasonably be expected to have a Material
Adverse Effect.

(k) Intellectual Property. Each of
the Company and its Subsidiaries owns or is duly licensed (and, in
such event, has the unfettered right to grant sublicenses) to use
all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, inventions, discoveries,
processes, scientific, technical, engineering and marketing data,
object and source codes, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, “Intellectual Property”) used in
or necessary for the conduct of its business as now being conducted
and as presently contemplated to be conducted in the future
(collectively, the “Company
Intellectual Property”). Section 3(k) of the
Disclosure Schedule sets forth a list of all material Company
Intellectual Property owned and/or used by the Company in its
business. Except as set forth on the Disclosure Schedule, there are
no rights of third parties to any of the Company Intellectual
Property except through licensing agreements. Except as set forth
on the Disclosure Schedule, there are no outstanding options,
licenses or agreements of any kind relating to the Company
Intellectual Property, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the
Intellectual Property of any other person or entity (collectively,
the “Third Party
License Agreements”)
other than such licenses or agreements arising from the purchase of
generally available products, as to which the aggregate
consideration paid by or due from the Company does not exceed
$25,000 in value, or “off the shelf” products. All of
the Third Party License Agreements are valid, binding and in full
force and effect in all material respects and to the
Company’s knowledge enforceable by the Company in accordance
with their respective terms in all material respects, subject to
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally, the enforcement of creditors’
rights and remedies. The Company is not in breach of any such Third
Party License Agreements, other than such breaches as would not
result, individually or in the aggregate, in a Material Adverse
Effect. To the Company’s knowledge, no other party to any of
the Third Party License Agreements is in default thereunder, other
than such defaults as would not result, individually or in the
aggregate, in a Material Adverse Effect. Neither the Company nor
any Subsidiary of the Company infringes or is in conflict with any
right of any other person with respect to any third party
Intellectual Property. Neither the Company nor any of its
Subsidiaries has received written notice of any pending conflict
with or infringement upon any third party Intellectual Property.
There is no pending or, to the Company’s knowledge,
threatened action, suit, proceeding or claim by others challenging
the Company’s ownership of or licensing rights in or to any
Company Intellectual Property. Neither the Company nor any of its
Subsidiaries has entered into any consent agreement,
indemnification agreement, forbearance to sue or settlement
agreement with respect to the validity of the Company’s or
its Subsidiaries’ ownership of or right to use its Company
Intellectual Property and there is no reasonable basis for any such
claim to be successful. The Company Intellectual Property are valid
and enforceable and no registration relating thereto has lapsed,
expired or been abandoned or canceled or is the subject of
cancellation or other adversarial proceedings, and all applications
therefor are pending and in good standing. The Company has taken
all reasonable steps required to perfect its ownership of and
interest in its Company Intellectual Property and has taken
reasonable security measures to protect the secrecy,
confidentiality and value of all of its Company Intellectual
Property. The Company and its Subsidiaries have complied, in all
material respects, with their respective contractual obligations
relating to the protection of the Company Intellectual Property
used pursuant to licenses. No person is infringing on or violating
the Company Intellectual Property owned or used by the Company or
its Subsidiaries.

 

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(l)  Title. The Company and its
Subsidiaries have good and marketable title in fee simple to all
real property and good and merchantable title to all personal
property owned by them that is material to the business of the
Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as do not materially
affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held
under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions
as are not material and do not materially interfere with the use
made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.

(m) Tax Status. Except as set forth
on the Disclosure Schedule, the Company and each of its
Subsidiaries has made or filed all foreign, U.S. federal, state,
provincial and local income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and
has paid all taxes and other governmental assessments and charges
shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has
set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim. The Company has not executed a
waiver with respect to any statute of limitations relating to the
assessment or collection of any foreign, federal, state, provincial
or local tax. None of the Company’s tax returns is presently
being audited by any taxing authority.

(n) Key Employees. Each of the
Company’s directors and officers and any Key Employee (as
defined below) is currently serving the Company in the capacity
disclosed in the Select SEC Documents. No Key Employee is, or is
now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the
continued employment of each Key Employee does not subject the
Company or any of its Subsidiaries to any material liability with
respect to any of the foregoing matters. No Key Employee has, to
the knowledge of the Company and its Subsidiaries, any intention to
terminate or limit his employment with, or services to, the Company
or any of its Subsidiaries, nor is any such Key Employee subject to
any constraints which would cause such employee to be unable to
devote his full time and attention to such employment or services.
For purposes of this Agreement, “Key Employee” means the persons
listed in Section 3(n) of the Disclosure Schedule and any
individual who assumes or performs any of the duties of a Key
Employee.

(o) Employee Relations. (i) No
application or petition for certification of a collective
bargaining agent is pending and none of the employees of Company or
any of its Subsidiaries are or have been represented by any union
or other bargaining representative and no union has attempted to
organize any group of the Company's employees, and no group of the
Company's employees has sought to organize themselves into a union
or similar organization for the purpose of collective bargaining.
The Company and its Subsidiaries believe that their relations with
their employees are good; (ii) no executive officer (as defined in
Rule 501(f) of the Securities Act) has notified the Company that
such officer intends to leave the Company or otherwise terminate
such officer’s employment with the Company; and (iii) the
Company and its Subsidiaries are in compliance with all federal,
state and local laws and regulations and, to the Company’s
knowledge, all foreign laws and regulations, in each case
respecting employment and employment practices, terms and
conditions of employment and wages and hours, except where failure
to be in compliance would not, either individually or in the
aggregate, result in a Material Adverse Effect.

(p) Insurance. The Company and each
of its Subsidiaries has in force fire, casualty, product liability
and other insurance policies, with extended coverage, sufficient in
amount to allow it to replace any of its material properties or
assets which might be damaged or destroyed or sufficient to cover
liabilities to which the Company may reasonably become subject, and
such types and amounts of other insurance with respect to its
business and properties, on both a per occurrence and an aggregate
basis, as are customarily carried by persons engaged in the same or
similar business as the Company. No default or event has occurred
that could give rise to a default under any such
policy.

 

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(q) Environmental Matters. The
Company is in compliance with all foreign, federal, state and local
rules, laws and regulations relating to the use, treatment, storage
and disposal of Hazardous Substances and protection of health and
safety or the environment which are applicable to its business.
There is no environmental litigation or other environmental
proceeding pending or threatened by any governmental regulatory
authority or others with respect to the current or any former
business of the Company or any of its Subsidiaries or any
partnership or joint venture currently or at any time affiliated
with the Company or any of its Subsidiaries. No state of facts
exists as to environmental matters or Hazardous Substances (as
defined below) that involves the reasonable likelihood of a
material capital expenditure by the Company or any of its
Subsidiaries. No Hazardous Substances have been treated, stored or
disposed of, or otherwise deposited, in or on the properties owned
or leased by the Company or any of its Subsidiaries or by any
partnership or joint venture currently or at any time affiliated
with the Company or any of its Subsidiaries in violation of any
applicable environmental laws. The environmental compliance
programs of the Company and each of its Subsidiaries comply in all
respects with all environmental laws, whether foreign, federal,
state, provincial or local, currently in effect. For purposes of
this Agreement, “Hazardous
Substances” means any substance, waste, contaminant,
pollutant or material that has been determined by any governmental
authority to be capable of posing a risk of injury to health,
safety, property or the environment.

(r) Listing. The Company is not in
violation of the listing requirements of the OTC Pink Marketplace
(the “OTC
Pink”) on which it trades, does not reasonably
anticipate that the Common Stock will be delisted by the OTC Pink
for the foreseeable future, and has not received any notice
regarding the possible delisting of the Common Stock from the OTC
Pink.

(s) No General Solicitation.
Neither the Company nor any person acting for the Company has
conducted any “general solicitation” (as such term is
defined in Regulation D) with respect to any of the Securities
being offered hereby.

(t) No Brokers. The Company has
taken no action that would give rise to any claim by any person for
brokerage commissions, finder’s fees or similar payments by
any Purchaser relating to this Agreement or the transactions
contemplated hereby.

(u) Acknowledgment Regarding
Securities. The number of Conversion Shares issuable upon
conversion of the Preferred Stock and the number of Warrant Shares
issuable upon exercise of the Warrants may increase in certain
circumstances. The Company’s directors and executive officers
have studied and fully understand the nature of the Securities
being sold hereunder. The Company acknowledges that its obligation
to issue Conversion Shares upon conversion of the Preferred Stock
in accordance with the terms thereof and the Warrant Shares upon
the exercise of the Warrants in accordance with the terms thereof
is absolute and unconditional, regardless of the dilution that such
issuance may have on the ownership interests of other stockholders
and the availability of remedies provided for in this Agreement or
the Warrants relating to a failure or refusal to issue Conversion
Shares or Warrant Shares. Taking the foregoing into account, the
Company’s Board of Directors has determined in its good faith
business judgment that the issuance of the Preferred Stock and
Warrants hereunder and the consummation of the other transactions
contemplated hereby are in the best interests of the Company and
its stockholders.

(v) Internal Control over Financial
Reporting. The Company maintains a system of internal
control over financial reporting (as such term is defined in Rule
13a-15(f) of the Exchange Act) that complies with the requirements
of the Exchange Act and has been designed by the Company’s
principal executive officer and principal financial officer, or
under their supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
The Company does not have any material weaknesses in its internal
control over financial reporting. Since the date of the latest
audited financial statements included in the Select SEC Documents,
there has been no change in the Company’s internal control
over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s
internal control over financial reporting.

 

-7-

 

 

(w) Disclosure Controls and
Procedures. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) of the
Exchange Act) that comply with the requirements of the Exchange
Act. Such disclosure controls and procedures have been designed to
ensure that material information relating to the Company is
accumulated and communicated to the Company’s management,
including the Company’s principal executive officer and
principal financial officer, by others within those
entities.

(x) Sarbanes-Oxley Compliance. The
Company and the Company’s directors and officers, in their
capacities as such, are in compliance with any provision of the
Sarbanes-Oxley Act of 2002 and the rules and regulations
promulgated in connection therewith (“SOX”), including Section 402
related to loans and Sections 302 and 906 related to
certifications, and neither the Company nor any of its officers has
received notice from any governmental entity questioning or
challenging the accuracy, completeness, content, form or manner of
filing or submission of such certifications. The Company has no
reasonable basis to believe that it will not continue to be in
compliance with SOX as in effect on any Closing Date (including,
without limitation, the requirements of Section 404
thereof).

(y) Certain Agreements. Neither the
Company nor any of its Subsidiaries is party to, or bound by, any
agreement, understanding, instrument, contract or proposed
transaction pursuant to which any Change of Control, as such term
is defined in the Certificate of Designation, of the Company or any
of its Subsidiaries that would result in a breach of the terms,
conditions, or provisions thereof, or constitute a default
thereunder, or otherwise result in any payment or termination
right.

(z) Disclosure. All information
relating to or concerning the Company and/or any of its
Subsidiaries set forth in this Agreement or provided to the
Purchaser pursuant to Section 2(e) hereof or otherwise by the
Company in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or
its Subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation,
would be required to be disclosed by the Company in a registration
statement filed on the date hereof by the Company under the
Securities Act with respect to a primary issuance of the
Company’s securities.

4. COVENANTS.

(a) Rights of First
Offer.  As long as a
Purchaser holds shares of Preferred Stock, such Purchaser shall
have a pro rata right, based on such Purchaser’s percentage
of Common Stock held (on a fully-diluted basis), to participate in
subsequent securities offerings undertaken by the Company;
provided, however, this Section 4(a) shall not apply to the
issuance of any Excluded Securities, as such term is defined in
Section 4(c) below.

(b) Warrant Exchange. Each
Purchaser agrees to, within thirty (30) days following any Closing
Date, submit the Warrants issued to such Purchaser on the
applicable Closing to the Company for cancellation, and, in return,
the Company agree to issue to such Purchaser one-half of one share
of Common Stock for each Warrant Share issuable upon exercise of
the cancelled Warrant (the “Warrant Exchange”). The Warrant
Exchange shall occur pursuant to the terms and conditions of the
Exchange Agreement, a copy of which is attached hereto as
Exhibit E (the
“Exchange
Agreement”).

 

-8-

 

 

(c) Additional Issuance of
Securities. The Company agrees that, for the period
commencing on the date hereof and ending on the earlier to occur of
(i) the date immediately following the first anniversary of the
Initial Closing Date; or (ii) the date that the arithmetic average
of the closing sale price of the Common Stock is at least $0.30 for
ten (10) consecutive trading days (the “Restricted Period”), neither the
Company nor any of its Subsidiaries shall directly or indirectly
issue, offer, sell, grant any option or right to purchase, or
otherwise dispose of (or announce any issuance, offer, sale, grant
of any option or right to purchase or other disposition of) any
equity security or any equity-linked or related security
(including, without limitation, any “equity security”
(as that term is defined under Rule 405 promulgated under the
Securities Act), any convertible securities, any debt, any
preferred stock or any purchase rights (any such issuance, offer,
sale, grant, disposition or announcement (whether occurring during
the Restricted Period or at any time thereafter) is referred to as
a “Subsequent
Placement”). Notwithstanding the foregoing, this
Section 4(c) shall not apply in respect of the issuance
of:

(i) shares of Common Stock or standard
options to purchase Common Stock to directors, officers,
consultants or employees of the Company in their capacity as such
pursuant to an Approved Share Plan (as defined below);

(ii) shares of Common Stock issued upon
the conversion or exercise of, or otherwise on account of,
Convertible Securities (other than standard options to purchase
Common Stock issued pursuant to an Approved Share Plan that are
covered by clause (A) above) issued prior to the date hereof,
provided that the conversion, exercise or other method of issuance
(as the case may be) of any such Convertible Security is made
solely pursuant to the conversion, exercise or other method of
issuance (as the case may be) provisions of such Convertible
Security that were in effect on the date immediately prior to the
date of this Agreement, the conversion, exercise or issuance price
of any such Convertible Securities (other than standard options to
purchase Common Stock issued pursuant to an Approved Share Plan
that are covered by clause (A) above) is not lowered, none of such
Convertible Securities are (other than standard options to purchase
Common Stock issued pursuant to an Approved Share Plan that are
covered by clause (A) above) (nor is any provision of any such
Convertible Securities) amended or waived in any manner (whether by
the Company or the holder thereof) to increase, or which results in
an increase in, the number of shares issuable thereunder and none
of the terms or conditions of any such Convertible Securities
(other than standard options to purchase Common Stock issued
pursuant to an Approved Share Plan that are covered by clause (A)
above) are otherwise changed or waived (whether by the Company or
the holder thereof) in any manner that adversely affects any of the
Purchasers;

(iii) the Conversion Shares,

(iv) the Warrants; and

(v) the Warrant Shares (each of the
foregoing in clauses (i) through (v), collectively the
“Excluded
Securities”).

“Approved Share Plan” means any
employee benefit plan which has been approved by the board of
directors of the Company, prior to or subsequent to the date hereof
pursuant to which shares of Common Stock and standard options to
purchase Common Stock may be issued to any employee, officer,
director or consultant for services provided to the Company in
their capacity as such.

“Convertible Securities” means any
capital stock, convertible debenture or other security of the
Company or any of its Subsidiaries that is, or may become, at any
time and under any circumstances directly or indirectly convertible
into, exercisable or exchangeable for, or which otherwise entitles
the holder thereof to acquire, any capital stock or other security
of the Company (including, without limitation, Common Stock) or any
of its Subsidiaries.”

 

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(d) Form D; Blue Sky Laws. The
Company shall timely file with the SEC a Form D with respect to the
Securities as required under Regulation D and provide a copy
thereof to each Purchaser promptly after such filing. The Company
shall, on or before the Initial Closing Date, take such action as
the Company shall reasonably determine is necessary to qualify the
Securities for sale to each Purchaser pursuant to this Agreement
under applicable securities or “blue sky” laws of the
states of the United States or obtain exemption therefrom, and
shall provide evidence of any such action so taken to each
Purchaser on or prior to each Closing Date. Within four business
days after the execution of this Agreement, the Company shall file
a Form 8-K with the SEC concerning this Agreement and the
transactions contemplated hereby, which Form 8-K shall attach this
Agreement and its Exhibits as exhibits to such Form 8-K, and,
within four business days after each subsequent Closing Date, the
Company shall file a Form 8-K with the SEC concerning the issuance
of additional Securities to each Purchaser on such dates if
required by Item 3.02 of Form 8-K (the “8-K Filings”). From and after the
8-K Filings, the Company hereby acknowledges that no Purchaser
shall be in possession of any material nonpublic information
received from the Company, any of its Subsidiaries or any of its
respective officers, directors, employees or agents, that is not
disclosed in the 8-K Filings. The Company shall not, and shall
cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents not to, provide any
Purchaser with any material nonpublic information regarding the
Company or any of its Subsidiaries from and after the 8-K Filings
without the express written consent of such Purchaser.

(e) Reporting Status. So long as
any Purchaser (or any of its affiliates) beneficially owns any of
the Securities, the Company shall timely file all reports required
to be filed with the SEC pursuant to the Exchange Act, and the
Company shall not terminate its status as an issuer required to
file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination. In
addition, the Company shall take all actions necessary to meet the
“registrant eligibility” requirements set forth in the
general instructions to Form S-1 or any successor form thereto, to
continue to be eligible to register the resale of its Common Stock
on a registration statement on Form S-1 under the Securities
Act.

(f) Use of Proceeds. The Company
shall use the proceeds from the sale and issuance of the Preferred
Stock and Warrants for general corporate purposes and working
capital; provided that such proceeds shall not be used to (i) pay
dividends; (ii) purchase debt or equity securities of any entity
(including redeeming the Company’s own securities), except
for (A) evidences of indebtedness issued or fully guaranteed by the
United States of America and having a maturity of not more than one
year from the date of acquisition, (B) certificates of deposit,
notes, acceptances and repurchase agreements having a maturity of
not more than one year from the date of acquisition issued by a
bank organized in the United States, (C) the highest-rated
commercial paper having a maturity of not more than one year from
the date of acquisition, and (D) “Money Market” fund
shares, or money market accounts fully insured by the Federal
Deposit Insurance Corporation and sponsored by banks and other
financial institutions, provided that the investments consist
principally of the types of investments described in clauses (A),
(B), or (C) above; (iii) make any repayment of principal or
interest on the Company’s outstanding promissory notes; or
(iv) make any investment not directly related to the current
business of the Company.

(g) Reservation of Shares. Within
ninety (90) days following the Initial Closing Date, the Company
shall reserve such number of shares of its authorized but unissued
shares of Common Stock to provide for full conversion of the
Preferred Stock and the issuance of the Conversion Shares in
connection therewith, the full exercise of the Warrants and the
issuance of the Warrant Shares in connection therewith, and as
otherwise required by the Preferred Stock and the Warrants
(collectively, the “Issuance
Obligations”). In the event such number of shares
becomes insufficient to satisfy the Issuance Obligations, the
Company shall take all necessary action to authorize and reserve
such additional shares of Common Stock necessary to satisfy the
Issuance Obligations.

 

-10-

 

 

(h) Listing. The Company shall
maintain, so long as any Purchaser (or any of its affiliates)
beneficially owns any Securities, the listing of all Conversion
Shares and Warrant Shares from time to time issuable upon
conversion of the Preferred Stock and exercise of the Warrants on
each national securities exchange, automated quotation system or
electronic bulletin board on which shares of Common Stock are
currently listed. The Company will use its best efforts to continue
the listing and trading of its Common Stock on the OTC Pink or the
NASDAQ Capital Market (the “NASDAQ”) or the NYSE MKT Exchange
(the “NYSE
MKT”) and will comply in all respects with the
reporting, filing and other obligations under the bylaws or rules
of the Financial Industry Regulatory Authority (“FINRA”), such exchanges, or such
electronic system, as applicable. The Company shall promptly
provide to each Purchaser copies of any notices it receives
regarding the continued eligibility of the Common Stock for trading
on the OTC Pink or on any securities exchange or automated
quotation system on which securities of the same class or series
issued by the Company are then listed or quoted, if
any.

(i) 
Fees.  The
Company shall reimburse V3 Capital Partners, LLC
(“V3”),
as the lead Purchaser, for all costs and expenses incurred by V3,
or its affiliates, in connection with the transactions contemplated
by the Transaction Documents (including, without limitation, all
legal fees and disbursements in connection therewith, structuring,
documentation and implementation of the transactions contemplated
by the Transaction Documents and due diligence and regulatory
filings in connection therewith); provided,
however, such expenses shall
not exceed $15,000, which amount shall be withheld from the
Purchase Price payable by V3 on the applicable Closing Date,
and such expenses shall be deemed to have been paid in full by
the Company at the applicable Closing Date. Except as otherwise set
forth in the Transaction Documents, each party to this Agreement
shall bear its own expenses in connection with the sale of the
Securities to the Purchasers.

(j) Corporate Existence. So long as
any Purchaser (or any of its affiliates) beneficially owns any
Securities, the Company shall maintain its corporate existence, and
in the event of a merger, consolidation or sale of all or
substantially all of the Company’s assets, the Company shall
ensure that the surviving or successor entity in such transaction
and, if an entity different from the successor or acquiring entity,
the entity whose securities into which the Common Stock shall
become convertible or exchangeable in such transaction (i) assumes
the Company’s obligations under this Agreement and the other
Transaction Documents and the agreements and instruments entered
into in connection herewith and therewith regardless of whether or
not the Company would have had a sufficient number of shares of
Common Stock authorized and available for issuance in order to
effect the conversion of all the Preferred Stock and exercise in
full of all Warrants outstanding as of the date of such transaction
and (ii) except in the event of a merger, consolidation of the
Company into any other corporation, or the sale or conveyance of
all or substantially all of the assets of the Company where the
consideration consists solely of cash, the surviving or successor
entity and, if an entity different from the successor or acquiring
entity, the entity whose securities into which the Common Stock
shall become convertible or exchangeable in such transaction, is a
publicly traded corporation whose common stock is listed for
trading on NASDAQ or the NYSE MKT.

(k) No Integrated Offerings. The
Company shall not make any offers or sales of any security (other
than the Securities and the Preferred Stock issuable in connection
with the Exchange Agreement) under circumstances that would require
registration of the Securities being offered or sold hereunder
under the Securities Act or cause this offering of the Securities
to be integrated with any other offering of securities by the
Company for purposes of any stockholder approval provision
applicable to the Company or its securities.

(l) Legal Compliance. The Company
shall conduct its business and the business of its Subsidiaries in
compliance with all laws, ordinances or regulations of governmental
entities applicable to such businesses, except where the failure to
do so would not have a Material Adverse Effect.

 

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5. TRANSFER AGENT
INSTRUCTIONS.

(a) Upon conversion of the Preferred Stock
or exercise of the Warrants by any person, (i) if the DTC Transfer
Conditions (as defined below) are satisfied, the Company shall
cause its transfer agent to electronically transmit all Conversion
Shares and Warrant Shares by crediting the account of the Purchaser
or its nominee with the Depository Trust Company
(“DTC”) through
its Deposit Withdrawal Agent Commission system; or (ii) if the DTC
Transfer Conditions are not satisfied, the Company shall issue and
deliver, or instruct its transfer agent to issue and deliver,
certificates (subject to the legend and other applicable provisions
hereof and the Certificate of Designation and Warrants), registered
in the name of such person its nominee, physical certificates
representing the Conversion Shares and Warrant Shares, as
applicable. Even if the DTC Transfer Conditions are satisfied, any
person effecting a conversion of Preferred Stock or exercising
Warrants may instruct the Company to deliver to such person or its
nominee physical certificates representing the Conversion Shares
and Warrant Shares, as applicable, in lieu of delivering such
shares by way of DTC Transfer. For purposes of this Agreement,
“DTC Transfer
Conditions” means that (A) the Company’s
transfer agent is participating in the DTC Fast Automated
Securities Transfer program and (B) the certificates for the
Conversion Shares or Warrant Shares required to be delivered do not
bear a legend and the person effecting such conversion or exercise
is not then required to return such certificate for the placement
of a legend thereon.

(b) The Company warrants that no
instruction, other than such instructions referred to in this
Section 5 and stop transfer instructions to give effect to Section
2(g) hereof in the case of the transfer of the Conversion Shares or
Warrant Shares prior to registration of the Conversion Shares and
Warrant Shares under the Securities Act or without an exemption
therefrom, shall be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in
this Agreement. Nothing in this Section shall affect in any way the
Purchasers’ obligations and agreement set forth in Section
2(g) hereof to resell the Securities pursuant to an effective
registration statement or under an exemption from the registration
requirements of applicable securities law.

(c) If any Purchaser provides the Company
and the transfer agent with an opinion of counsel, which opinion of
counsel shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that
the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, or any Purchaser
provides the Company with reasonable assurances that such
Securities may be sold under Rule 144, the Company shall permit the
transfer and, in the case of the Conversion Shares and Warrant
Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by
the Purchasers.

6. CONDITIONS TO THE COMPANY’S
OBLIGATION TO SELL.

  The
obligation of the Company hereunder to issue and sell the Preferred
Stock and Warrants to each Purchaser is subject to the
satisfaction, on 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:

(a) Each Purchaser shall have executed
such Purchaser’s Execution Page to this Agreement and each
other Transaction Document to which such Purchaser is a party and
delivered the same to the Company.

(b) Each Purchaser shall have delivered
the full amount of such Purchaser’s applicable Purchase Price
for such Closing Date in accordance with Section 1
hereof.

 

-12-

 

 

(c) The representations and warranties of
each Purchaser shall be true and correct as of the date when made
and the applicable Closing Date as though made at that time (except
for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and
correct as of such date), and such Purchaser 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 Purchaser on or prior
to such Closing Date.

(d) No statute, rule, regulation,
executive order, decree, ruling, injunction, action or proceeding
shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.

7. CONDITIONS TO THE PURCHASER’S
OBLIGATION TO PURCHASE.

  The
obligation of each Purchaser hereunder to purchase the Preferred
Stock and Warrants on each Closing Date is subject to the
satisfaction of each of the following conditions, provided that
such conditions are for each Purchaser’s individual and sole
benefit and may be waived by such Purchaser at any time in such
Purchaser’s sole discretion:

(a) The Company shall have executed such
Purchaser’s Execution Page to this Agreement and each other
Transaction Document to which the Company is a party and delivered
executed originals of the same to such Purchaser.

(b) All consents, approvals and waivers
required for the consummation of the transactions contemplated
hereby shall have been obtained.

(c) The Company shall have delivered to
such Purchaser duly executed certificates representing the
Preferred Stock and Warrants for the number of shares of Preferred
Stock and Warrants being purchased by such Purchaser on each
respective Closing Date, registered in such Purchaser’s
name.

(d) The Common Stock shall be authorized
for quotation and listed on the OTC Pink and trading in the Common
Stock (or on the OTC Pink generally) shall not have been suspended
by the SEC or the OTC Pink.

(e) The representations and warranties of
the Company shall be true and correct as of the date when made and
as of each Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as
of such date) and the Company 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 the Company on or prior to such
Closing Date. In connection with the issuance of the Securities on
each Closing Date, such Purchaser shall have received a
certificate, executed by the Chief Executive Officer of the Company
after reasonable investigation, dated as of such Closing Date to
the foregoing effect and as to such other matters as may reasonably
be requested by such Purchaser.

(f) No statute, rule, regulation,
executive order, decree, ruling, injunction, action or proceeding
shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters
contemplated hereby which questions the validity of, challenges or
prohibits the consummation of, any of the transactions contemplated
by this Agreement.

 

-13-

 

 

(g) Such Purchaser shall have received an
opinion of the Company’s counsel, dated as of the Initial
Closing Date, in substantially the form attached hereto as
Exhibit
D.

(h) There shall have been no material
adverse changes and no material adverse developments in the
business, properties, operations, prospects, financial condition or
results of operations of the Company and its Subsidiaries, taken as
a whole, since the date hereof, and no information that is
materially adverse to the Company and of which such Purchaser is
not currently aware shall come to the attention of such
Purchaser.

(i) Such Purchaser shall have received a
copy of resolutions, duly adopted by the Board of Directors of the
Company, which shall be in full force and effect at the time of
each Closing Date, authorizing the execution, delivery and
performance by the Company of this Agreement and the other
Transaction Documents and the consummation by the Company of the
transactions contemplated hereby and thereby, certified as such by
the Secretary or Assistant Secretary of the Company on or before
the Initial Closing Date, and such other documents they reasonably
request in connection with the issuance of the Securities on any
Closing Date.

8. GOVERNING LAW;
MISCELLANEOUS.

(a) Governing Law; Jurisdiction.
This Agreement shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts
made and to be performed in the State of California. The Company
and each Purchaser irrevocably consent to the exclusive
jurisdiction of the United States federal courts and the state
courts located in the County of Orange, State of California, in any
suit or proceeding based on or arising under this Agreement and
irrevocably agree that all claims in respect of such suit or
proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Company further agrees
that service of process upon the Company mailed by first class mail
shall be deemed in every respect effective service of process upon
the Company in any such suit or proceeding. Nothing herein shall
affect the right of any Purchaser to serve process in any other
manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on
such judgment or in any other lawful manner.

(b) Counterparts. This Agreement
may be executed in two or more 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. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission or
electronic mail of a copy of this Agreement bearing the signature
of the party so delivering this Agreement.

(c) Construction. Whenever the
context requires, the gender of any word used in this Agreement
includes the masculine, feminine or neuter, and the number of any
word includes the singular or plural. Unless the context otherwise
requires, all references to articles and sections refer to articles
and sections of this Agreement, and all references to schedules are
to schedules attached hereto, each of which is made a part hereof
for all purposes. The descriptive headings of the several articles
and sections of this Agreement are inserted for purposes of
reference only, and shall not affect the meaning or construction of
any of the provisions hereof.

(d) Severability. If any provision
of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect
the validity or enforceability of the remainder of this Agreement
or the validity or enforceability of this Agreement in any other
jurisdiction.

 

-14-

 

 

(e) Entire Agreement; Amendments.
This Agreement and the other Transaction Documents (including any
schedules and exhibits hereto and thereto) contain the entire
understanding of the Purchasers, the Company, their affiliates and
persons acting on their behalf with respect to the matters covered
herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived other
than by an instrument in writing signed by the party to be charged
with enforcement, and no provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and
each Purchaser.

(f) Notices. Any notices required
or permitted to be given under the terms of this Agreement shall be
sent by certified or registered mail (return receipt requested) or
delivered personally, by responsible overnight carrier or by
confirmed facsimile, and shall be effective five days after being
placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by responsible overnight
carrier or confirmed facsimile, in each case addressed to a party.
The initial addresses for such communications shall be as follows,
and each party shall provide notice to the other parties of any
change in such party’s address:

(i) If to the Company:

True
Drinks Holdings, Inc.

18662
MacArthur Boulevard, Suite 110

Irvine,
CA 92612

Telephone: (949)
203-3500

Attention: Chief
Financial Officer

 

with a
copy simultaneously transmitted by like means (which transmittal
shall not constitute notice hereunder) to:

 

Disclosure Law
Group LLP

600
West Broadway, Suite 700

San
Diego, CA 92101

Telephone: (619)
795-1134

Facsimile: (619)
330-2101

Attention: Daniel
W. Rumsey, Esq.

 

(ii) If to any Purchasers, to the address
set forth under such Purchaser’s name on the Execution Page
hereto executed by such Purchaser.

 

-15-

 

 

(g) Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns. Except as provided
herein, the Company shall not assign this Agreement or any rights
or obligations hereunder. Any Purchaser may assign or transfer the
Securities pursuant to the terms of this Agreement and of such
Securities. Any Purchaser may assign such Purchaser’s rights
hereunder or thereunder to any other person or entity, except for
direct competitors of the Company or persons or entities that have
publicly announced plans to compete directly with the Company. In
addition, and notwithstanding anything to the contrary contained in
this Agreement or the other Transaction Documents, the Securities
may be pledged and all rights of any Purchaser under this Agreement
or any other Transaction Document may be assigned, without further
consent of the Company, to a bona fide pledgee in connection with
such Purchaser’s margin or brokerage account.

(h) Third Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any
other person.

(i) Survival. The representations
and warranties of the Company and the agreements and covenants set
forth in Sections 2, 3, 4, 6 and 7 hereof shall survive each of the
Closing Dates notwithstanding any due diligence investigation
conducted by or on behalf of any Purchaser. Moreover, none of the
representations and warranties made by the Company herein shall act
as a waiver of any rights or remedies any Purchaser may have under
applicable U.S. federal or state securities laws.

(j) Further Assurances. Each party
shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such
other agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.

(k) Indemnification. In
consideration of each Purchaser’s execution and delivery of
this Agreement and the other Transaction Documents and purchase of
the Securities hereunder, and in addition to all of the
Company’s other obligations under this Agreement and the
other Transaction Documents, from and after each of the Closing
Dates, the Company shall defend, protect, indemnify and hold
harmless each Purchaser and each other holder of the 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 this Agreement,
any other Transaction Document or any other certificate, instrument
or document contemplated hereby or thereby, (ii) any breach of any
covenant, agreement or obligation of the Company contained in this
Agreement, any other Transaction Document or any other certificate,
instrument or document contemplated hereby or thereby or (iii) any
cause of action, suit 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) and arising out
of or resulting from (A) the execution, delivery, performance or
enforcement of this Agreement, any other Transaction Document or
any other certificate, instrument or document contemplated hereby
or thereby, (B) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the
issuance and sale of the Securities, or (C) the status of such
Purchaser or holder of the Securities as an investor in the
Company. 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.

(l) Joint Participation in
Drafting. Each party to this Agreement has participated in
the negotiation and drafting of this Agreement and the other
Transaction Documents. As such, the language used herein and
therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict
construction will be applied against any party to this
Agreement.

(m) Knowledge. As used in this
Agreement, the term “knowledge” of any person or entity
shall mean and include (i) with respect to the Company, the actual
knowledge of any of the Company’s officers or directors and
(ii) that knowledge which a reasonably prudent business person
could have obtained in the management of his or her business
affairs after making due inquiry and exercising due diligence which
a prudent business person should have made or exercised, as
applicable, with respect thereto.

(n) Exculpation Among Purchasers.
The Company acknowledges that the obligations of each Purchaser
under this Agreement and each of the other Transaction Documents
are several and not joint with the obligations of any other
Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under the
Transaction Documents. Each Purchaser acknowledges that it has
independently evaluated the merits of the transactions contemplated
by this Agreement and the other Transaction Documents, that it has
independently determined to enter into the transactions
contemplated hereby and thereby, that it is not relying on any
advice from or evaluation by any other Purchaser, and that it is
not acting in concert with any other Purchaser in making its
purchase of securities hereunder or in monitoring its investment in
the Company. The Purchasers and, to its knowledge, the Company
agree that the no action taken by any Purchaser pursuant hereto or
to the other Transaction Documents shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or would deem such
Purchasers to be members of a “group” for purposes of
Section 13(d) of the Exchange Act, and the Purchasers have not
agreed to act together for the purpose of acquiring, holding,
voting or disposing of equity securities of the Company. The
Company has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and
not because it was required or requested to do so by the
Purchasers. The Company acknowledges that such procedure with
respect to the Transaction Documents in no way creates a
presumption that the Purchasers are in any way acting in concert or
as a “group” for purposes of Section 13(d) of the
Exchange Act with respect to the Transaction Documents or the
transactions contemplated hereby or thereby. Each Purchaser
acknowledges that it has been represented by its own separate legal
counsel in their review and negotiation of the Transaction
Documents.

(o) Business Days and Trading Days.
For purposes of this Agreement, the term “business day”
means any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or
obligated by law, regulation or executive order to close, and the
term “trading day” means any day on which the OTC Pink
or, if the Common Stock is not then traded on the OTC Pink, the
principal national securities exchange, automated quotation system
or other trading market where the Common Stock is then listed,
quoted or traded, is open for trading.

 

[REMAINDER OF PAGE
LEFT BLANK INTENTIONALLY]

 

 

-16-

 

 

   
    IN WITNESS WHEREOF, the Purchaser and the
Company have caused this Agreement to be duly executed as of the
date first above written.

 

TRUE
DRINKS HOLDINGS, INC.

 

By: 

Name:
Dan Kerker

Title:
Chief Financial Officer

 

PURCHASER:

 

(Print
or Type Name of Purchaser)

 

By:

Name:

Title:

 

ADDRESS:                      

Telephone:                                                      

Facsimile:                                                      

Attention:                                                      

 

SUBSCRIPTION
AMOUNT:

 

Number of shares of
Preferred
Stock:                                                                                     

Number of
Warrants:                                                                                                            

Purchase Price
($100.00 per share of Preferred
Stock):                                               

 

 

 

-17-

 

 

EXHIBIT A

 

Certificate
of Designation

 

 

A-1

 

 

EXHIBIT B

 

Form
of Warrant

 

 

B-1

 

 

EXHIBIT C

 

Wiring
Instructions

 

 

C-1

 

EXHIBIT D

 

Legal
Opinion

 

 

D-1

 

EXHIBIT E

 

Form
of Exchange Agreement

 

 

E-1Blueprint

 

Exhibit 10.2

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND, ACCORDINGLY, MAY NOT BE
TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR
SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH
SECURITIES MAY BE SOLD PURSUANT TO RULE 144, OR (III) THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.

 

PURSUANT TO THE TERMS OF SECTION 1 OF THIS WARRANT, ALL OR A
PORTION OF THIS WARRANT MAY HAVE BEEN EXERCISED, AND THEREFORE THE
ACTUAL NUMBER OF WARRANT SHARES REPRESENTED BY THIS WARRANT MAY BE
LESS THAN THE AMOUNT SET FORTH ON THE FACE HEREOF.

 

True Drinks Holdings, Inc.

 

Warrant To Purchase Common Stock

 

Warrant
No.: ____________

Number
of Shares of Common Stock: ____________

Date of
Issuance: January __, 2017 (“Issuance Date”)

 

True
Drinks Holdings, Inc., a Nevada corporation (the
“Company”),
hereby certifies that, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
______________, the registered holder hereof or its permitted
assigns (the “Holder”), is entitled, subject to
the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of
this Warrant to Purchase Common Stock (including any Warrants to
Purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any time or times
on or after the Issuance Date (the “Exercisability Date”), but not
after 11:59 p.m., Pacific Standard Time, on the Expiration Date (as
defined below), ______________________ (_____________), fully paid
nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as
otherwise defined herein, capitalized terms in this Warrant shall
have the meanings set forth in Section 14. This Warrant is one
of the Series D Warrants to purchase Common Stock issued pursuant
to the Securities Purchase Agreement (the “Purchase Agreement”), dated as of
January __, 2017 (the “Purchase Date”), by and between
the Company and the Holder. This Warrant is one of a series of
warrants containing substantially identical terms and conditions
issued pursuant to the Purchase Agreement (collectively, the
“Warrants”).

1.
EXERCISE OF
WARRANT.

(a)
Mechanics of
Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in
Section 1(e)), this Warrant may be exercised by the Holder on any
day on or after the Exercisability Date, in whole or in part (but
not as to fractional shares), by (i) delivery of a written notice,
in the form attached hereto as Exhibit A (the
“Exercise
Notice”), of the Holder’s election to exercise
this Warrant and (ii) if the Holder is not electing a Cashless
Exercise (as defined below) pursuant to Section 1(d) of this
Warrant, payment to the Company of an amount equal to the
applicable Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (the
“Aggregate Exercise
Price”) in cash or wire transfer of immediately
available funds (a “Cash
Exercise”) (the items under (i) and (ii) above, the
“Exercise Delivery
Documents”). The Holder shall not be required to
surrender this Warrant in order to effect an exercise hereunder;
provided, however, that in
the event that this Warrant is exercised in full or for the
remaining unexercised portion hereof, the Holder shall deliver this
Warrant to the Company for cancellation within a reasonable time
after such exercise. On or before the first Trading Day following
the date on which the Company has received the Exercise Delivery
Documents (the date upon which the Company has received all of the
Exercise Delivery Documents, the “Exercise Date”), the Company
shall transmit by facsimile or e-mail transmission

 

 

-1-

 

 

an
acknowledgment of confirmation of receipt of the Exercise Delivery
Documents to the Holder and the Company’s transfer agent for
the Common Stock (the “Transfer Agent”). On or before
the second Trading Day following the date on which the Company has
received all of the Exercise Delivery Documents (the
“Share Delivery
Date”), the Company shall, (X) provided that the Transfer Agent is
participating in The Depository Trust Company (“DTC”) Fast Automated Securities
Transfer Program (the “FAST
Program”) and so long as the certificates therefor are
not required to bear a legend regarding restriction on
transferability, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise to the Holder’s or its
designee’s balance account with DTC through its Deposit
Withdrawal Agent Commission system, or (Y), if the Transfer Agent
is not participating in the FAST Program or if the certificates are
required to bear a legend regarding restriction on transferability,
issue and dispatch by overnight courier to the address as specified
in the Exercise Notice, a certificate, registered in the
Company’s share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the
Holder is entitled pursuant to such exercise. Upon delivery of the
Exercise Delivery Documents, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date such Warrant Shares are
credited to the Holder’s DTC account or the date of delivery
of the certificates evidencing such Warrant Shares, as the case may
be. If this Warrant is submitted in connection with any exercise
pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than
the number of Warrant Shares being acquired upon an exercise, then
the Company shall as soon as practicable and in no event later than
three Trading Days after any such submission and at its own
expense, issue a new Warrant (in accordance with Section 6(d))
representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant,
less the number of Warrant Shares with respect to which this
Warrant has been and/or is exercised. The Company shall pay any and
all taxes and other expenses of the Company (including overnight
delivery charges) that may be payable with respect to the issuance
and delivery of Warrant Shares upon exercise of this Warrant;
provided,
however, that the
Company shall not be required to pay any tax which may be payable
in respect of any transfer involved in the registration of any
certificates for Warrant Shares or Warrants in a name other than
that of the Holder or an affiliate thereof. The Holder shall be
responsible for all other tax liability that may arise as a result
of holding or transferring this Warrant or receiving Warrant Shares
upon exercise hereof.

(b)
Exercise Price. For
purposes of this Warrant, “Exercise Price” means $0.15,
subject to adjustment as provided herein.

(c)
Company’s Failure to
Timely Deliver Securities. If the Company shall fail for any
reason or for no reason to issue to the Holder within five (5)
Business Days of the Exercise Date a certificate for the number of
shares of Common Stock to which the Holder is entitled and register
such shares of Common Stock on the Company’s share register
or to credit the Holder’s balance account with DTC for such
number of shares of Common Stock to which the Holder is entitled
upon the Holder’s exercise of this Warrant, and if on or
after such Trading Day the Holder, or any third party on behalf of
the Holder or for the Holder’s account, purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving
from the Company (a “Buy-In”), then the Company shall,
within three (3) Business Days after the Holder’s written
request and in the Holder’s discretion, either (i) pay
cash to the Holder in an amount equal to the Holder’s total
purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to
issue such Warrant Shares) shall terminate, or (ii) promptly honor
its obligation to deliver to the Holder a certificate or
certificates representing such Warrant Shares and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common
Stock, times (B) the Closing Bid Price on the date of
exercise.

 

 

-2-

 

 

(d)
Cashless Exercise.
Notwithstanding anything contained herein to the contrary, the
Holder may, in its sole discretion, exercise this Warrant in whole
or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive
upon such exercise the “Net
Number” of shares of Common Stock determined according
to the following formula (a “Cashless Exercise”):

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

B

For
purposes of the foregoing formula:

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

B= the
arithmetic average of the Closing Sale Prices of the Common Stock
for the five (5) consecutive Trading Days ending on the date
immediately preceding the date of the Exercise Notice.

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

 

(e)
Rule 144. For
purposes of Rule 144(d) promulgated under the Securities Act of
1933, as amended, as in effect on the date hereof, assuming the
Holder is not an affiliate of the Company, it is intended that the
Warrant Shares issued in a Cashless Exercise shall be deemed to
have been acquired by the Holder, and the holding period for the
Warrant Shares shall be deemed to have commenced, on the date this
Warrant was originally issued pursuant to the Purchase
Agreement.

(f)
Disputes. In the
case of a dispute as to the determination of the Exercise Price or
the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are
not disputed.

(g)
Beneficial
Ownership. The Company shall not effect the exercise of this
Warrant, and the Holder shall not have the right to exercise this
Warrant, to the extent that after giving effect to such exercise,
such Person (together with such Person’s affiliates) would
beneficially own in excess of 4.99% (the “Maximum Percentage”) of the
shares of Common Stock outstanding immediately after giving effect
to such exercise; provided, however, the Holder, upon notice to the Company, may waive
this limitation by providing to the Company no less than 61 days
written notice of such Holder’s intent to waive Section 1(g)
of this Warrant with regard to any and all Warrant Shares issuable
upon exercise of this Warrant (a “Waiver
Notice”). In the event
the Company received a Waiver Notice from a Holder, this Section
1(g) shall be of no force or effect with regard to those Warrant
Shares referenced in the Waiver Notice.

For
purposes of the foregoing sentence, the aggregate number of shares
of Common Stock beneficially owned by such Person and its
affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude
shares of Common Stock which would be issuable upon (i) exercise of
the remaining, unexercised portion of this Warrant beneficially
owned by such Person and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other
securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for purposes
of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act). For
purposes of this Warrant, in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in the most recent
of (1) the Company’s most recent Form 10-K, Form 10-Q,
Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more
recent public announcement by the Company or (3) any other notice
by the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding. For any reason at any time,
upon the written or oral request of the Holder, the Company shall
within two (2) Business Days confirm to the Holder the number of
shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock
was reported.

 

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

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

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

(c) Adjustment Upon Issuance of Shares of
Common Stock. If and whenever on or after the date of the
Purchase Agreement while this Warrant remains outstanding, the
Company issues or sells, or in accordance with this Section 2(c) is
deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding any
Excluded Securities (as defined in the Purchase Agreement) issued
or sold or deemed to have been issued or sold) for a consideration
per share (the “New Issuance
Price”) less than a price equal to the Exercise Price
in effect immediately prior to such issue or sale or deemed
issuance or sale (such Exercise Price then in effect is referred to
as the “Applicable
Price”) (the foregoing a “Dilutive Issuance”), then
immediately after such Dilutive Issuance, the Exercise Price then
in effect shall be reduced to an amount equal to the New Issuance
Price; provided, however, no adjustments to the Applicable Price
shall be made as a result of the foregoing in the event the
Preferred Stock beneficially owned by Holder is converted into
Common Stock under the terms of the Certificate of Designation,
Preferences, Rights and Limitations of the Preferred Stock;
provided, further, that no adjustment pursuant to this Section
2(c) shall be made if such adjustment
would result in an increase of the Exercise Price then in effect.
For all purposes of the foregoing (including, without limitation,
determining the adjusted Exercise Price and consideration per share
under this Section 2(c)), the following shall be
applicable:

(1) Issuance of Options. If the
Company in any manner grants or sells any Options and the lowest
price per share for which one share of Common Stock is issuable
upon the exercise of any such Option or upon conversion, exercise
or exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the granting or sale
of such Option for such price per share. For purposes of this
Section 2(c)(1), the “lowest price per share for
which one share of Common Stock is issuable upon the exercise of
any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such
Option” shall be equal to the lower of (x) the sum of the
lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon the
granting or sale of such Option, upon exercise of such Option and
upon conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option and (y) the lowest exercise
price set forth in such Option for which one share of Common Stock
is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option. Except as contemplated
below, no further adjustment of the Exercise Price shall be made
upon the actual issuance of such shares of Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities.

 

 

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(2)
Issuance of Convertible
Securities. If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or
exchange thereof is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale
of such Convertible Securities for such price per share. For the
purposes of this Section 2(c)(2), the “lowest price per share
for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof” shall be equal to
the lower of (x) the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible
Security and upon conversion, exercise or exchange of such
Convertible Security and (y) the lowest conversion price set forth
in such Convertible Security for which one share of Common Stock is
issuable upon conversion, exercise or exchange thereof. Except as
contemplated below, no further adjustment of the Exercise Price
shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to
other provisions of this Section 2(c),
except as contemplated below, no further adjustment of the Exercise
Price shall be made by reason of such issue or sale.

(3) Change in Option Price or Rate of
Conversion. If the purchase or exercise price provided for
in any Options, the additional consideration, if any, payable upon
the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of
Common Stock increases or decreases at any time, the Exercise Price
in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price which would have been in effect at
such time had such Options or Convertible Securities provided for
such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the
case may be, at the time initially granted, issued or sold. For
purposes of this Section 2(c)(3), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of this
Warrant are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or
decrease.

(4)
Calculation of
Consideration Received. If (i) any Option or Convertible
Security is issued in connection with the issuance or sale or
deemed issuance or sale of any other securities of the Company,
together comprising one integrated transaction, and (ii) all such
Options or Convertible Securities (as applicable) so issued or sold
are, or may become, exercisable and/or convertible for an aggregate
number of shares of Common Stock that exceeds (as applicable)
either (1) if Common Stock was the primary security issued or sold
in such transaction, the aggregate number of shares of Common Stock
so issued or sold in such transaction or (2) if an Option or
Convertible Security was the primary security issued or sold in
such transaction, the aggregate number of shares of Common Stock so
deemed issued or sold in such transaction that underlie all Options
or Convertible Securities that constituted the primary securities
in such transaction, then (x) such Option or Convertible Security
(as applicable) will be deemed to have been issued for
consideration equal to the fair market value thereof and (y) the
other securities issued or sold or deemed to have been issued or
sold in such integrated transaction shall be deemed to have been
issued for consideration equal to the difference of (I) the
aggregate consideration received by the Company minus (II) the fair
market value of each such Option or Convertible Security (as
applicable). If any shares of Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be
the net amount of consideration received by the Company therefor.
If any shares of Common Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount
of such consideration received by the Company will be the fair
market value of such consideration, except where such consideration
consists of publicly traded securities, in which case the amount of
consideration received by the Company for such securities will be
the arithmetic average of the volume-weighted average price of such
security for each of the five (5) Trading Days immediately
preceding the date of receipt. If any shares of Common Stock,
Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair market value of such portion
of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair market value of any
consideration other than cash or publicly traded securities will be
determined jointly by the Company and the Holder. If such parties
are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (a “Valuation Event”), the fair
market value of such consideration shall be determined in
accordance with Section 12.

 

 

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(5)
Record Date. If the
Company takes a record of the holders of shares of Common Stock for
the purpose of entitling them (A) to receive a dividend or other
distribution payable in shares of Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase shares
of Common Stock, Options or Convertible Securities, then such
record date will be deemed to be the date of the issue or sale of
the shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase (as the case may be).

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

3.
FUNDAMENTAL
TRANSACTIONS.

(a)
Fundamental
Transactions. Following the Issuance Date, the Company shall
not enter into or be party to a Fundamental Transaction unless (i)
the Successor Entity assumes (unless the Company is the Successor
Entity) all of the obligations of the Company under this Warrant
and the other Transaction Documents in accordance with the
provisions of this Section 3(a), pursuant to a written agreement to
deliver to each holder of the Warrants in exchange for such
Warrants a security of the Successor Entity evidenced by a written
instrument reasonably satisfactory in form and substance to the
Holder and substantially similar in form and substance to this
Warrant, including, without limitation, providing that the
successor security shall be exercisable for a corresponding number
of shares of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to
such Fundamental Transaction, and an adjusted exercise price which
applies the exercise price hereunder to such shares of capital
stock (but taking into account the relative value of the shares of
Common Stock pursuant to such Fundamental Transaction and the value
of such shares of capital stock, such number of shares of capital
stock and such exercise price being for the purpose of protecting
the economic value of this Warrant immediately prior to the
consummation of such Fundamental Transaction), and (ii) the
Successor Entity (including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading
on an Eligible Market. Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant referring
to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this
Warrant with the same effect as if such Successor Entity had been
named as the Company herein.

(b)
Applicability to
Successive Transactions. The provisions of this Section
shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations
on the exercise of this Warrant.

4.
NONCIRCUMVENTION.
The Company hereby covenants and agrees that the Company will not,
by amendment of its Articles of Incorporation, Bylaws or through
any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or
any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, and will at all
times in good faith comply with all the provisions of this Warrant
and take all actions consistent with effectuating the purposes of
this Warrant. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the
Exercise Price then in effect, (ii) shall take all such
actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (iii)
shall, so long as this Warrant is outstanding, take all action
necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of
effecting the exercise of this Warrant, 100% of the number of
shares of Common Stock issuable upon exercise of this Warrant then
outstanding (without regard to any limitations on
exercise).

 

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5.
WARRANT HOLDER NOT DEEMED
A STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person’s capacity as a
holder of this Warrant, shall not be entitled to vote or receive
dividends or be deemed the holder of share capital of the Company
for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in such Person’s
capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue
of stock, reclassification of stock, consolidation, merger,
conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is
then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities
(upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company
or by creditors of the Company.

6.
REISSUANCE OF
WARRANTS.

(a)
Transfer of
Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company and deliver the
completed and executed Assignment Form, in the form attached hereto
as Exhibit B,
whereupon the Company will forthwith issue and deliver upon the
order of the Holder a new Warrant (in accordance with Section
6(d)), registered as the Holder may request, representing the right
to purchase the number of Warrant Shares being transferred by the
Holder and, if less then the total number of Warrant Shares then
underlying this Warrant is being transferred, a new Warrant (in
accordance with Section 6(d)) to the Holder representing the right
to purchase the number of Warrant Shares not being
transferred.

(b)
Lost, Stolen or Mutilated
Warrant. Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to
the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company shall
execute and deliver to the Holder a new Warrant (in accordance with
Section 6(d)) representing the right to purchase the Warrant Shares
then underlying this Warrant.

(c)
Exchangeable for Multiple
Warrants. This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 6(d))
representing in the aggregate the right to purchase the number of
Warrant Shares then underlying this Warrant, and each such new
Warrant will represent the right to purchase such portion of such
Warrant Shares as is designated by the Holder at the time of such
surrender; provided, however, that no Warrants for fractional
shares of Common Stock shall be given. Notwithstanding anything to
the contrary herein, in no event shall the original Warrant be
subdivided into more than three (3) separate Warrants and such new
Warrants shall not be further subdivided.

(d)
Issuance of New
Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i)
shall be of like tenor with this Warrant, (ii) shall represent, as
indicated on the face of such new Warrant, the right to purchase
the Warrant Shares then underlying this Warrant (or in the case of
a new Warrant being issued pursuant to Section 6(a) or Section
6(c), the Warrant Shares designated by the Holder which, when added
to the number of shares of Common Stock underlying the other new
Warrants issued in connection with such issuance, does not exceed
the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new
Warrant which is the same as the Issuance Date, and (iv) shall have
the same rights and conditions as this Warrant.

7.
NOTICES.

(a)
Whenever the Exercise Price or the number of shares of Common Stock
issuable upon exercise of this Warrant is adjusted pursuant to the
terms hereof, the Company shall promptly mail to the Holder a
notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.

 

 

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(b) If
during the term during which this Warrant may be exercised (i) the
Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (ii) the Company shall declare
a special nonrecurring cash dividend on or a redemption of the
Common Stock, (iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights,
(iv) the approval of any stockholders of the Company shall be
required in connection with any consolidation or merger to which
the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property, or (v) the Company shall authorize
the voluntary or involuntary dissolution, liquidation or winding up
of the affairs of the Company, then, in each case, the Company
shall cause to be mailed to the Holder, at least ten (10) days
prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled
to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such consolidation,
merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that
holders of the Common Stock of record shall be entitled to exchange
their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer or share exchange; provided that the failure
to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to
be specified in such notice. To the extent that any notice provided
hereunder constitutes, or contains, material, non-public
information regarding the Company or any of the subsidiaries of the
Company, the Company shall simultaneously file such notice with the
SEC pursuant to a Current Report on Form 8-K. The Holder shall
remain entitled to exercise this Warrant during the period
commencing on the date of such notice to the effective date of the
event triggering such notice except as may otherwise be expressly
set forth herein.

(c)
Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance
with the Purchase Agreement.

8.
AMENDMENT AND
WAIVER. Except as otherwise provided herein, the provisions
of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written
consent of the Required Holders; provided, that the number of
Warrant Shares subject to this Warrant, the Exercise Price and the
Expiration Date may not be amended, and the right to exercise this
Warrant may not be altered or waived, without the written consent
of the Holder. Any such amendment shall apply to all Warrants and
be binding upon all registered holders of such
Warrants.

9.
GOVERNING LAW; CONSENT TO
JURISDICTION; WAIVER OF JURY TRIAL. This Warrant shall be
governed by, and construed in accordance with, the internal laws of
the State of California, without reference to the choice of law
provisions thereof. The Company and, by accepting this Warrant, the
Holder, each irrevocably submits to the exclusive jurisdiction of
the courts of the State of California located in Orange County and
the United States District Court for the Central District of
California for the purpose of any suit, action, proceeding or
judgment relating to or arising out of this Warrant and the
transactions contemplated hereby. Service of process in connection
with any such suit, action or proceeding may be served on each
party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Warrant. The Company
and, by accepting this Warrant, the Holder, each irrevocably
consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. The
Company and, by accepting this Warrant, the Holder, each
irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably
waives any claim that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum. EACH
OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE HOLDER HEREBY
WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH
RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

 

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10.
CONSTRUCTION;
HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against
any person as the drafter hereof. The headings of this Warrant are
for convenience of reference and shall not form part of, or affect
the interpretation of, this Warrant.

11.
DISPUTE RESOLUTION.
In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two (2) Business Days of receipt
of the Exercise Notice giving rise to such dispute, as the case may
be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price
or the Warrant Shares within three Business Days of such disputed
determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within two (2) Business Days submit
via facsimile the disputed determination of the Exercise Price to
an independent, reputable investment bank selected by the Company
and approved by the Holder, which approval shall not be
unreasonably withheld. The Company shall cause the investment bank
or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the
Holder of the results no later than ten Business Days from the time
it receives the disputed determinations or calculations. The
prevailing party in any dispute resolved pursuant to this Section
11 shall be entitled to the full amount of all reasonable expenses,
including all costs and fees paid or incurred in good faith, in
relation to the resolution of such dispute. Such investment
bank’s or accountant’s determination or calculation, as
the case may be, shall be binding upon all parties absent
demonstrable error.

12.
REMEDIES, OTHER
OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, at law or in equity
(including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the right of the Holder to
pursue actual damages for any failure by the Company to comply with
the terms of this Warrant.

13.
TRANSFER. Subject
to applicable laws and the restrictions on transfer set forth in
the Purchase Agreement, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of the Warrant at
the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in
the form of the Assignment Form attached hereto duly executed by
the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee
or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be
cancelled. The Warrant, if properly assigned in accordance
herewith, may be exercised by a new holder for the purchase of
Warrant Shares without having a new Warrant issued.

14.
CERTAIN
DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:

(a)
“Bloomberg”
means Bloomberg Financial Markets.

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

(c)
“Closing Bid
Price” and “Closing Sale Price” means, for
any security as of any date, the last closing bid price or last
trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed
or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any
market makers for such security as reported on the OTCQB
Marketplace. If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale
Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the
Holder. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.

 

 

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

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

(f)
“Eligible
Market” means the New York Stock Exchange, Inc., the
NYSE MKT, the NASDAQ Global Market, the NASDAQ Global Select
Market, or the NASDAQ Capital Market.

(g)
“Exchange Act”
means the Securities Exchange Act of 1934, as amended.

(h)
“Expiration
Date” means the fifth anniversary of the
Exercisability Date or, if such date falls on a day other than a
Trading Day or on which trading does not take place on the
Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal
securities exchange or securities market on which the Common Stock
is then traded (a “Holiday”), the next date that is
not a Holiday.

(i)
“Fundamental
Transaction” means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving
corporation) another Person (but excluding a migratory merger
effected solely for the purpose of changing the jurisdiction of
incorporation of the Company), or (ii) sell, lease, license,
assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to
another Person, or (iii) allow another Person to make a purchase,
tender or exchange offer that is accepted by the holders of more
than the 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the Person or Persons
making or party to, or associated or affiliated with the Persons
making or party to, such purchase, tender or exchange offer), or
(iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another
Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making
or party to, such stock purchase agreement or other business
combination), (v) reorganize, recapitalize or reclassify its Common
Stock, or (vi) any “person” or “group” (as
these terms are used for purposes of Sections 13(d) and 14(d) of
the Exchange Act) is or shall become the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% of the aggregate ordinary voting
power represented by issued and outstanding Common
Stock.

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

(k)
 “Parent Entity” of a Person means
an entity that, directly or indirectly, controls the applicable
Person and whose common stock or equivalent equity security is
quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with
the largest public market capitalization as of the date of
consummation of the Fundamental Transaction.

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

(m)
“Principal
Market” means the OTCQB Marketplace.

(n)
"Required Holders" means
the Holders of at least a majority of the outstanding
Warrants.

 

 

-10-

 

 

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

(p)
“Trading Day”
means any day on which the Common Stock are traded on the Principal
Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock are then
traded; provided that
“Trading Day” shall not include any day on which the
Common Stock are scheduled to trade on such exchange or market for
less than 4.5 hours or any day that the Common Stock are suspended
from trading during the final hour of trading on such exchange or
market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during
the hour ending at 4:00:00 p.m., New York time).

 [Signature Page Follows]

 

-11-

 

 

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

 

	
 

	
 

TRUE
DRINKS HOLDINGS, INC.

 

By:
___________________________ 

Name:   
Daniel Kerker

Title:     
Chief Financial Officer

 

 

 

-12-

 

  EXHIBIT A

 

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS

WARRANT TO PURCHASE COMMON STOCK

 

True Drinks Holdings, Inc.

 

The
undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock
(“Warrant
Shares”) of True Drinks Holdings, Inc., a Nevada
corporation (the “Company”), evidenced by the
attached Warrant to Purchase Common Stock (the “Warrant”) (only if exercised in
full). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the
Warrant.

 

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

 

____________ 

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

 

____________ 

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

 

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

 

3.
Delivery of Warrant
Shares. The Company shall deliver to the holder __________
Warrant Shares in accordance with the terms of the Warrant and,
after delivery of such Warrant Shares, _____________ Warrant Shares
remain subject to the Warrant.

 

Date:
_________________ __, ______

 

 

________________________________

   Name
of Registered Holder

 

 

By: 
____________________________

        Name:

        Title:

 

A-1

 

 

  EXHIBIT B

 

ASSIGNMENT
FORM

True Drinks Holdings, Inc.

 

(To assign the foregoing Warrant, execute this form and supply
required information. Do not use this form to purchase
shares.)

FOR
VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to

	

Name:

	
 

	
 

	

(Please
Print)

 

	

Address:

	
 

	
 

	

(Please
Print)

 

	

Dated:
_______________ __, ______

 

	
 

	

Holder’s
Signature:                                                                 

 

	
 

	

Holder’s
Address:                                                                 

 

	
 

NOTE:
The signature to this Assignment Form must correspond with the name
as it appears on the face of the Warrant, without alteration or
enlargement or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative capacity should
file proper evidence of authority to assign the foregoing
Warrant.

 

B-1

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