Document:

Blueprint

 

Exhibit
10.1

 

SECURITIES PURCHASE AGREEMENT

 

This
Securities Purchase Agreement (this “Agreement”) is dated as
of November 9, 2017, between Sincerity Applied Materials Holdings
Corp, a Nevada corporation and its predecessors (the
“Company”), and each
purchaser identified on the signature pages hereto (each, including
its successors and permitted assigns, a “Purchaser” and
collectively, the “Purchasers”).

 

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

 

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

 

 

ARTICLE I.

DEFINITIONS

 

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

 

“Acquiring Person” shall
have the meaning ascribed to such term in Section
4.15.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Closing Form
8-K” shall have the
meaning ascribed to such term in Section 4.20.

 

“COJ” means the confession
of judgment in the form annexed hereto as Exhibit F.

 

 

1

 

 

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

 

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

 

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

 

“Company Counsel” means
CKR Law, LLP, 1330 Avenue of the Americas, 14th Floor, New York, NY
10019, Fax (212) 259–8200, Attention: Scott Rapfogel, Esq.,
E-mail Address: srapfogel@ckrlaw.com

 

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

 

“Conversion Shares” means
shares of the Company’s Common Stock issuable upon conversion
of the Note and interest in accordance with the terms of the
Note.

 

“Disclosure Schedules”
means the Disclosure Schedules of the Company delivered
concurrently herewith.

 

“Disqualification Event”
shall have the meaning ascribed to such term in Section
3.1(gg).

 

“End Date” shall mean the
latter of (i) two years after the Closing Date; or (ii) the date no
Purchaser owns any Securities.

 

“Escrow Agreement” means
the escrow agreement to be employed in connection with the sale of
the Securities, a copy of which is annexed hereto as Exhibit C.

 

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

 

“Exempt Issuance” means
the issuance of (a) shares of Common Stock and options to officers,
directors, employees, or consultants of the Company prior to and
after the Closing Date in the amounts and on the terms set forth on
Schedule 3.1(g),
(b) securities upon the exercise or exchange of or conversion of
Securities issued hereunder (subject to adjustment for forward and
reverse stock splits and the like that occur after the date hereof)
and/or other securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on
the date of this Agreement, provided that such securities and any
term thereof have not been amended since the date of this Agreement
to increase the number of such securities or to decrease the issue
price, exercise price, exchange price or conversion price of such
securities and which securities and the principal terms thereof are
set forth on Schedule 3.1(g), (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of
the disinterested directors of the Company, provided that any such
issuance shall only be to a Person (or to the equity holders of a
Person) which is, itself or through its subsidiaries, an operating
company or an owner of an asset in a business synergistic with the
business of the Company and shall be intended to provide to the
Company substantial additional benefits in addition to the
investment of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing
in securities, and (d) securities issued or issuable pursuant to
the Offering and this Agreement, the Note, the Warrants and other
Transaction Documents, or upon exercise or conversion of any such
securities.

 

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

 

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

 

 

2

 

 

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

 

“Financial Statements”
means the financial information regarding the Company filed with
the Commission prior to the date hereof.

 

“Fully-Diluted Basis”
means the assumption that all options, warrants or other
convertible securities or instruments or other rights to acquire
Common Stock or any other existing or future classes of capital
stock have been exercised or converted, as applicable, in full,
regardless of whether any such options, warrants, convertible
securities or instruments or other rights are then vested or
exercisable or convertible in accordance with their
terms.

 

“GAAP” shall mean United
States generally accepted accounting principals applied on a
consistent basis.

 

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

 

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

 

“Legal Opinion” means the
opinion letter of the Company’s attorneys in the form annexed
hereto as Exhibit E.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Notes” means the
convertible notes, in the form of Exhibit A hereto.

 

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

 

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

 

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

 

“Purchaser Counsel” shall
mean Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley
Stream, New York 11581, facsimile: (212) 697-3575.

 

“Purchaser Party” shall
have the meaning ascribed to such term in Section 4.6.

 

“Registrable Securities”
shall mean 2,000,000 shares of Common Stock, which includes
Underlying Shares and anti-dilution shares.

 

“Regulation D” means
Regulation D under the Securities Act.

 

 

3

 

 

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

 

“Required Minimum” means,
as of any date, the greater of 1,000,000 or five (5) times the
maximum aggregate number of shares of Common Stock then issued or
potentially issuable in the future pursuant to the Transaction
Documents, including but not limited to any Underlying Shares
issuable upon conversion in full of the Notes and the interest that
could accrue through three years after the term thereof and the
Warrant Shares issuable upon exercise of the Warrants, ignoring any
conversion or exercise limits set forth therein plus such
additional amounts as requested by the Purchaser pursuant to the TA
Letter.

 

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

 

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

 

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

 

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

 

“Subsidiary” means
with respect to any entity at any
date, any direct or indirect corporation, limited or general
partnership, limited liability company, trust, estate, association,
joint venture or other business entity of which (A) more than
25% of (i) the outstanding capital stock having (in the
absence of contingencies) ordinary voting power to elect a majority
of the board of directors or other managing body of such entity,
(ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership
or limited liability company or (iii) in the case of a trust,
estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity
business is, at the time of determination, owned or controlled
directly or indirectly through one or more intermediaries, by such
entity, or (B) is under the actual control of the Company.
Representations, undertakings and obligations set forth in this
Agreement shall be applicable only to Subsidiaries which exist or
have existed at the applicable and relevant
time.

 

“TA Letter” means the
letter to the Company’s Transfer Agent in the form annexed
hereto as Exhibit
D.

 

“Termination Date” shall
have the meaning ascribed to such term in Section 2.1.

 

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

 

“Trading Market” means any
of the following markets or exchanges: the NYSE MKT LLC, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select
Market, the New York Stock Exchange, the OTC Bulletin Board, the
OTCQB, the OTCPink, or the OTCQX (or any successors to any of the
foregoing).

 

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

 

“Transfer Agent” means the
transfer agent for the Common Stock, and any successor transfer
agent of the Company. As of the Closing Date, the Company’s
Transfer Agent is VStock Transfer LLC, 10 Lafayette Place,
Woodmere, NY 11598.

 

 

4

 

 

“Underlying Shares” means
the shares of Common Stock issued and issuable upon conversion of
the Notes and payment of interest on the Notes in accordance with
the terms of the Notes and upon exercise of the Warrants in
accordance with the terms of the Warrants.

 

“Unlegended Shares” shall
have the meaning ascribed to such term in Section
4.1(d).

 

“Warrants” means the Class
A and Class B Common Stock purchase warrants delivered to the
Purchasers at the Closing in accordance with Article II hereof, in
the forms of Exhibit B1
and B2, respectivley attached hereto.

 

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

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 Closing. On the Closing Dates,
upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Purchasers, severally and not
jointly, agree to purchase, an aggregate of up to $100,000.00
principal amount of Notes and Warrants as determined pursuant to
Section 2.2(a), such purchase and sale being the
“Closing”.
Each Purchaser shall deliver to the Company such Purchaser’s
Subscription Amount, and the Company shall deliver to each
Purchaser its respective Note and Warrants, as determined pursuant
to Section 2.2(a), and the Company and each Purchaser shall deliver
the other items set forth in Section 2.2 deliverable at a Closing.
Upon satisfaction of the covenants and conditions set forth in
Sections 2.2 and 2.3, the Closing shall occur at the offices of
G&M or such other location as the parties shall mutually agree.
Notwithstanding anything herein to the contrary, the Closing must
take place on or before November 31, 2017 (the “Termination Date”). With
respect to the Closing not held on or before the Termination Date,
the Company shall cause all subscription documents and funds, if
any, to be returned, without interest or deduction to each
prospective Purchaser.

 

2.2 Deliveries.

 

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

 

(i) this Agreement duly
executed by the Company with the schedules and exhibits thereto
current as of each such Closing Date;

 

(ii)

a Note with a
principal amount equal to 108% such Purchaser’s Subscription
Amount registered in the name of such Purchaser;

 

(iii)

Class A Warrants
registered in the names of such Purchaser equal to one warrant for
each share that the Purchaser could acquire if purchaser had
converted the entire Note immediately upon the Closing at the
Conversion Price then in effect. Such warrants shall have a per
share exercise price equal to $6.00, subject to adjustment as
provided therein;

 

(iv)

Class B Warrants
registered in the names of such Purchaser for 400,000 shares. Such
warrants shall have a per share exercise price equal to $7.50,
subject to adjustment as provided therein;

 

(v)

the TA Letter
executed by the Company and the Transfer Agent;

 

(vi) the
Legal Opinion executed by the Company’s
attorney;

 

(vii) a
COJ for each Purchaser; and

 

(viii) the
Escrow Agreement duly executed by the Company.

 

 

5

 

 

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

 

(i)

this Agreement duly
executed by such Purchaser;

 

(ii) such
Purchaser’s Subscription Amount by wire transfer or as
otherwise permitted under the Escrow Agreement, to the Escrow
Agent;

 

(iii) the
Escrow Agreement duly executed by such Purchaser; and

 

2.3 Closing
Conditions.

 

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

 

(i) the accuracy in all
material respects (determined without
regard to any materiality, Material Adverse Effect or other similar
qualifiers therein) on the Closing Date of the
representations and warranties of the Purchasers contained herein
(unless as of a specific date therein in which case they shall be
accurate as of such date);

 

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

 

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

 

(b) The respective
obligations of a Purchaser hereunder to effect the Closing, unless
waived by such Purchaser, are subject to the following conditions
being met:

 

(iv) the
accuracy in all material respects (determined without regard to any materiality,
Material Adverse Effect or other similar qualifiers therein)
on the Closing Date of the representations and warranties of the
Company contained herein (unless as of a specific date therein in
which case they shall be accurate as of such date);

 

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

 

(vi) the
Escrow Agent shall have received executed signature pages to this
Agreement with respect to the Subscription Amounts for which such
Closing is to occur;

 

(vii) the
delivery by the Company of the items set forth in Section 2.2(a) of
performed at or prior to the Closing Date shall have been
performed;

 

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

 

(ix) from
the date hereof to the Closing Date, trading in securities in the
United States generally as reported by Bloomberg L.P. shall not
have been suspended or limited, nor shall a banking moratorium have
been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the
reasonable judgment of such Purchaser, makes it impracticable or
inadvisable to purchase the Securities at the Closing.

 

 

 

6

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations
and Warranties of the Company. Except as set forth in the Disclosure
Schedules, which Disclosure Schedules shall be deemed a part hereof
and shall qualify any representation made herein to which it refers
and any other representation to the extent such Disclosure Schedule
reasonably relates thereto without a requirement of a
cross-reference. The Company hereby makes the following
representations and warranties to each Purchaser as of the date
hereof and the Closing Date unless as of a specific date therein in
which case they shall be accurate as of such date:

 

(a) Subsidiaries. The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all
of the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights to subscribe for or
purchase securities. If the Company has no Subsidiaries relevant to
any component of this Agreement as of a particular date, then such
reference shall not be applicable.

 

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

 

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

 

(d) No Conflicts. The execution,
delivery and performance by the Company of this Agreement and the
other Transaction Documents, the issuance and sale of the
Securities and the consummation by it of the transactions
contemplated hereby and thereby to which it is a party do not and
will not: (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles
of incorporation, bylaws or other organizational or charter
documents, (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or
by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or
affected.

 

 

 

7

 

 

(e) Filings, Consents and
Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than: (i) the filing of
Form D with the Commission, and (ii) such filings as are required
to be made under applicable state securities laws (collectively,
the “Required
Approvals”).

 

(f) Issuance of the Securities. The
Securities are duly authorized and, when issued and paid for in
accordance with the applicable Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of
all Liens other than those created by the Purchaser. The Company
has reserved from its duly authorized capital stock a number of
shares of Common Stock equal to the Required Minimum on the date
hereof. In order to ensure such reservation, the Company shall have
its Transfer Agent countersign the TA Letter, at the Closing. The
failure to comply with the terms of this section shall be a
material breach of the agreement.

 

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

 

(h) Financial Statements. The
Financial Statements have been prepared in accordance with GAAP.
The Financial Statements fairly present in all material respects
the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject to
normal, immaterial adjustments and inclusion of footnotes which
would be required pursuant to generally accepted accounting
principles. The Financial Statements include balance sheets as of
each of the most recent fiscal year ends and as of a month end
immediately preceding the relevant Closing date and income
statements as of the same dates.

 

(i) Material Changes; Undisclosed Events,
Liabilities or Developments. Since the date of the most
recently dated Financial Statements: (i) there has been no event,
occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any material liabilities (contingent or otherwise)
other than trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice, (iii)
the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of
cash or other property to its stockholders or purchased, redeemed
or made any agreements to purchase or redeem any shares of its
capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate.

 

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

 

 

 

8

 

 

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

 

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

 

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

 

(n) Title to Assets. Except as set
forth on Schedule 3.1(n), the Company and the Subsidiaries have
good and marketable title in all personal property owned by them
that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
(i) Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to
be made of such property by the Company and the Subsidiaries and
(ii) Liens for the payment of federal, state or other taxes, for
which appropriate reserves have been made and, the payment of which
is neither delinquent nor subject to penalties. The Company and
Subsidiaries do not own any real property. Any real property and
facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases with
which the Company and the Subsidiaries are in
compliance.

 

(o) Intellectual
Property.

 

(i) The term
“Intellectual
Property Rights” includes:

 

1. the name of the
Company and each Subsidiary, all fictional business names, trading
names, registered and unregistered trademarks, service marks, and
applications of the Company and each Subsidiary (collectively,
“Marks'');

 

2. all patents, patent
applications, and inventions and discoveries that may be patentable
of the Company and each Subsidiary (collectively,
“Patents'');

 

3. all copyrights in
both unpublished works and published works of the Company and each
Subsidiary (collectively, “Copyrights”);

 

 

 

9

 

 

4. all rights in mask
works of the Company and each Subsidiary (collectively,
“Rights in Mask
Works'');

 

5. all know-how, trade
secrets, confidential information, customer lists, software,
technical information, data, process technology, plans, drawings,
and blue prints (collectively, “Trade Secrets''); owned, used,
or licensed by the Company and each Subsidiary as licensee or
licensor; and

 

6. the license or
right to directly or indirectly use any of the foregoing, whether
perpetually or for a fixed term, whether or not subject to
defeasement, and whether or not reduced to writing or otherwise
memorialized.

 

(ii) Know-How
Necessary for the Business. The Intellectual Property Rights
are all those necessary for the operation of the Company’s
businesses as it is currently conducted or contemplated to be
conducted. The Company is the owner of all right, title, and
interest in and to each of the Intellectual Property Rights, free
and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims, and has the right to use all of
the Intellectual Property Rights. To the Company’s knowledge,
no employee of the Company has entered into any contract that
restricts or limits in any way the scope or type of work in which
the employee may be engaged or requires the employee to transfer,
assign, or disclose information concerning his work to anyone other
than of the Company.

 

(iii) Patents.
The Company is the owner of or licensee of all right, title and
interest in and to each of the Patents, free and clear of all Liens
and other adverse claims. All of the issued Patents are currently
in compliance with formal legal requirements (including payment of
filing, examination, and maintenance fees and proofs of working or
use), are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety days
after the Closing Date. No Patent has been or is now involved in
any interference, reissue, reexamination, or opposition proceeding.
To the Company’s knowledge: (1) there is no potentially
interfering patent or patent application of any third party, and
(2) no Patent is infringed or has been challenged or threatened in
any way. To the Company’s knowledge, none of the products
manufactured and sold, nor any process or know-how used, by the
Company infringes or is alleged to infringe any patent or other
proprietary right of any other Person.

 

(iv) Trademarks.
The Company is the owner of all right, title, and interest in and
to each of the Marks, free and clear of all Liens and other adverse
claims. All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all
formal legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject to
any maintenance fees or taxes or actions falling due within ninety
days after the Closing Date. No Mark has been or is now involved in
any opposition, invalidation, or cancellation and, to the
Company’s knowledge, no such action is threatened with
respect to any of the Marks. To the Company’s knowledge: (1)
there is no potentially interfering trademark or trademark
application of any third party, and (2) no Mark is infringed or has
been challenged or threatened in any way. To the Company’s
knowledge, none of the Marks used by the Company infringes or is
alleged to infringe any trade name, trademark, or service mark of
any third party.

 

(v) Copyrights. The Company is the
owner of all right, title, and interest in and to each of the
Copyrights, free and clear of all Liens and other adverse claims.
All the Copyrights have been registered and are currently in
compliance with formal requirements, are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling
due within ninety days after the date of the Closing. No Copyright
is infringed or, to the Company’s knowledge, has been
challenged or threatened in any way. To the Company’s
knowledge, none of the subject matter of any of the Copyrights
infringes or is alleged to infringe any copyright of any third
party or is a derivative work based on the work of a third party.
All works encompassed by the Copyrights have been marked with the
proper copyright notice.

 

(vi) Trade
Secrets. With respect to each Trade Secret, the
documentation relating to such Trade Secret is current, accurate,
and sufficient in detail and content to identify and explain it and
to allow its full and proper use without reliance on the knowledge
or memory of any individual. The Company has taken all reasonable
precautions to protect the secrecy, confidentiality, and value of
its Trade Secrets. The Company has good title and an absolute (but
not necessarily exclusive) right to use the Trade Secrets. The
Trade Secrets are not part of the public knowledge or literature,
and, to the Company’s knowledge, have not been used,
divulged, or appropriated either for the benefit of any Person
(other the Company) or to the detriment of the Company. No Trade
Secret is subject to any adverse claim or has been challenged or
threatened in any way.

 

 

 

10

 

 

(p) Insurance. The Company and the
Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company
and the Subsidiaries are engaged. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business without a significant
increase in cost. The Company has valid and subsisting insurance in
compliance with all applicable legal requirements.

 

(q) Transactions With Affiliates and
Employees. Except as set forth in the Financial Statements
and Transaction Documents, none of the officers or directors of the
Company or any Subsidiary and, to the knowledge of the Company,
none of the employees of the Company or any Subsidiary is presently
a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of
real or personal property to or from, providing for the borrowing
of money from or lending of money to or otherwise requiring
payments to or from any officer, director or such employee or, to
the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an
officer, director, trustee, stockholder, member or
partner.

 

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

 

(s) Investment Company. The Company
is not, and is not an Affiliate of, and immediately after receipt
of payment for the Securities, will not be or be an Affiliate of,
an “investment company” within the meaning of the
Investment Company Act of 1940, as amended. The Company shall
conduct its business in a manner so that it will not become an
“investment company” subject to registration under the
Investment Company Act of 1940, as amended. The Company is not
aware of any person that has been or will be paid (directly or
indirectly) remuneration for solicitation of purchasers in
connection with the sale of any Regulation D
Securities.

 

(t) Registration Rights. Except as
set forth on Schedule 3.1(t), no Person has any right to cause the
Company or any Subsidiary to effect the registration under the
Securities Act of any securities of the Company or any Subsidiary,
except for the Purchasers.

 

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

 

(v) Disclosure. All of the
disclosure furnished by or on behalf of the Company to the
Purchasers regarding the Company and its Subsidiaries, their
respective businesses and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, when taken
together as a whole, is true and correct in all material respects
and does not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which
they were made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or
warranties with respect to the transactions contemplated hereby
other than those specifically set forth in Section
3.2.

 

(w) Solvency. Based on the
consolidated financial condition of the Company as of the Closing
Date, and the Company’s good faith estimate of the fair
market value of its assets, after giving effect to the receipt by
the Company of the proceeds from the sale of the Securities
hereunder: (i) the fair saleable value of the Company’s
assets exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities
(including known contingent liabilities) as they mature, (ii) the
Company’s assets do not constitute unreasonably small capital
to carry on its business as now conducted and as proposed to be
conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the
Company, consolidated and projected capital requirements and
capital availability thereof, and (iii) the current cash flow of
the Company, together with the proceeds the Company would receive,
were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its liabilities when such amounts are
required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in
respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the
Closing Date. Except as otherwise set forth in the Schedules to
this Agreement, the Financial Statements set forth all outstanding
liens secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement,
“Indebtedness”
means (y) any liabilities for borrowed money or amounts owed in
excess of $50,000 in the aggregate and (z) the present value of any
lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with generally accepted accounting
principles. Neither the Company nor any Subsidiary is in default
with respect to any Indebtedness.

 

 

 

11

 

 

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

 

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

 

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

 

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

 

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

 

(cc) Private
Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as
contemplated hereby.

 

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

 

(ee) Indebtedness
and Seniority. Except as set forth on Schedule 3.1(ee), as
of the date hereof, all Indebtedness and Liens are as set forth on
the Financial Statements. Except as set forth on the Financial
Statements, as of the Closing Date, no Indebtedness, equity, Common
Stock Equivalent is senior to the Notes in right of payment,
whether with respect to interest or upon liquidation or
dissolution, or otherwise, and capital lease obligations (which is
senior only as to the property covered thereby).

 

 

 

12

 

 

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

 

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

 

(hh) Reporting
Company/Shell Company. The Company is a publicly-held
company subject to reporting obligations pursuant to Sections 12(g)
and 13 of the Exchange Act. Pursuant to the provisions of the
Exchange Act, the Company has filed all reports and other materials
required to be filed by the Company thereunder with the SEC during
the preceding twelve months. As of the Closing Date, the Company is
not a “shell company” but is a former “shell
company” as those terms are employed in Rule 144 under the
Securities Act. The Company is, and has no reason to believe that
it will not in the foreseeable future continue to be in compliance
with all such listing and maintenance requirements.

 

(ii) Survival.
The foregoing representations and warranties shall survive the
Closing Date.

 

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

 

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

 

 

 

13

 

 

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

 

(c) Purchaser Status. At the time
such Purchaser was offered the Securities, it was, and as of the
date hereof it is, and on each date on which it converts a Note or
exercises any Warrants, it will be either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a
“qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to
be registered as a broker-dealer under Section 15 of the Exchange
Act. Such Purchaser has the authority and is duly and legally
qualified to purchase and own the Securities. Such Purchaser is
able to bear the risk of such investment for an indefinite period
and to afford a complete loss thereof.

 

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

 

(e) Information on Company.
Purchasers are not deemed to have any knowledge of any information
not included in the Financial Statements or the Transaction
Documents unless such information is delivered in the manner
described in the next sentence.  Each Purchaser was
afforded (i) the opportunity to ask such questions as such
Purchaser deemed necessary of, and to receive answers from,
representatives of the Company concerning the merits and risks of
acquiring the Securities; (ii) the right of access to information
about the Company and its financial condition, results of
operations, business, properties, management and prospects
sufficient to enable such Purchaser to evaluate the Securities; and
(iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision
with respect to acquiring the Securities. In addition, such
Purchaser may have received in writing from the Company such other
information concerning its operations, financial condition and
other matters as such Purchaser has requested, identified thereon
as OTHER WRITTEN INFORMATION (such other information is
collectively, the “Other Written
Information”), and considered all factors such
Purchaser deems material in deciding on the advisability of
investing in the Securities.

 

(f) Compliance with Securities Act;
Reliance on Exemptions. Such Purchaser understands and
agrees that the Securities have not been registered under the 1933
Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under
the 1933 Act, and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or
any applicable state securities laws or is exempt from such
registration. Such Purchaser understands and agrees that the
Securities are being offered and sold to such Purchaser in reliance
on specific exemptions from the registration requirements of United
States federal and state securities laws and regulations and that
the Company is relying in part 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.

 

(g) Communication of Offer. Such
Purchaser is not purchasing the Securities as a result of any
“general solicitation” or “general
advertising,” as such terms are defined in Regulation D,
which includes, but is not limited to, any advertisement, article,
notice or other communication regarding the Securities published in
any newspaper, magazine or similar media or on the internet or
broadcast over television, radio or the internet or presented at
any seminar or any other general solicitation or general
advertisement.

 

 

 

14

 

 

(h) No Governmental Review. Such
Purchaser understands that no United States federal or state agency
or any other governmental or state agency has passed on or made
recommendations or endorsement of the Securities or the suitability
of the investment in the Securities nor have such authorities
passed upon or endorsed the merits of the offering of the
Securities.

 

(i) No Conflicts. The execution,
delivery and performance of this Agreement and performance under
the other Transaction Documents and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or
relating hereto or thereto do not and will not (i) result in a
violation of such Purchaser’s charter documents, bylaws or
other organizational documents, if applicable, (ii) conflict with
nor constitute a default (or an event which with notice or lapse of
time or both would become a default) under any agreement to which
such Purchaser is a party, nor (iii) result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any
court or governmental agency applicable to such Purchaser or its
properties (except for such conflicts, defaults and violations as
would not, individually or in the aggregate, have a material
adverse effect on such Purchaser). Such Purchaser is not required
to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations
under this Agreement or perform under the other Transaction
Documents nor to purchase the Securities in accordance with the
terms hereof, provided that for purposes of the representation made
in this sentence, such Purchaser is assuming and relying upon the
accuracy of the relevant representations and agreements of the
Company herein.

 

(j) Survival. The foregoing
representations and warranties shall survive the Closing
Date.

 

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

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer
Restrictions.

 

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

 

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

 

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

 

 

15

 

 

(c) Pledge. The Company
acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act
and who agrees to be bound by the provisions of this Agreement and,
if required under the terms of such arrangement, such Purchaser may
transfer pledge or secure Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval
of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection
therewith. At such Purchaser’s expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection
with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the registration
statement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend
the list of selling stockholders thereunder.

 

(d) Legend Removal. Certificates
evidencing the Underlying Shares shall not contain any legend
(“Unlegended
Shares”) (including the legend set forth in Section
4.1(b) hereof): (i) while a registration statement covering the
resale of such security is effective under the Securities Act, (ii)
following any sale of such Underlying Shares pursuant to Rule 144,
(iii) if such Underlying Shares are eligible for sale under Rule
144, without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to
such Underlying Shares and without volume or manner-of-sale
restrictions or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to the Transfer Agent during the time any of the
aforedescribed conditions apply, to effect the removal of the
legend hereunder. If all or any Notes are converted or any portion
of a Warrant is exercised at a time when there is an effective
registration statement to cover the resale of the corresponding
Underlying Shares, or if such Underlying Shares may be sold under
Rule 144 or if such legend is not otherwise required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission) then such Underlying Shares shall be issued free of all
legends. The Company agrees that following such time as such legend
is no longer required under this Section 4.1(d), it will, no later
than five Trading Days following the delivery by the Purchaser to
the Company or the Transfer Agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend
(such fifth Trading Day, the “Legend Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and
other legends (however, the Corporation shall use reasonable best
efforts to deliver such shares within three (3) Trading Days). The
Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on
transfer set forth in this Section 4.1. Certificates for Underlying
Shares subject to legend removal hereunder shall be transmitted by
the Transfer Agent to the Purchaser by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company
System as directed by such Purchaser.

 

(e) Legend Removal Default. In
addition to such Purchaser’s other available remedies,
provided the conditions for legend removal set forth in Section
4.1(c) exist, the Company shall pay to a Purchaser, in cash, as
partial liquidated damages and not as a penalty, for each $1,000 of
Underlying Shares (based on the higher of the actual purchase price
of the Common Stock on the date such Securities are submitted to
the Transfer Agent) delivered for removal of the restrictive legend
and subject to Section 4.1(d), $10 per Trading Day for each Trading
Day after the Legend Removal Date (increasing to $20 per Trading
Day after the fifth Trading Day) until such certificate is
delivered without a legend. Nothing herein shall limit such
Purchaser’s right to pursue actual damages for the
Company’s failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such
Purchaser shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

 

(f) DWAC.
Commencing after the Closing, in lieu of delivering physical
certificates representing the Unlegended Shares, upon request of a
Purchaser, so long as the certificates therefor do not bear a
legend and the Purchaser is not obligated to return such
certificate for the placement of a legend thereon, the Company
shall cause its transfer agent to electronically transmit the
Unlegended Shares by crediting the account of Purchaser’s
prime broker with the Depository Trust Company through its Deposit
Withdrawal At Custodian system, provided that the Company’s
Common Stock is DTC eligible and the Company’s transfer agent
participates in the Deposit Withdrawal at Custodian system. Such
delivery must be made on or before the Legend Removal
Date.

 

 

 

16

 

 

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

 

(h) Remedies. In addition to such
Purchaser’s other available remedies, the Company shall pay
to a Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Conversion Shares or Warrant Shares
delivered for removal of the restrictive legend and Conversion
Shares delivered for conversion into Shares, $10 per Trading Day
for each Trading Day following the Legend Removal Date or the date
such Securities are to be delivered pursuant to the Note until such
Common Stock certificate is delivered without a legend pursuant to
Section 4.1(c) or such Conversion Shares. Nothing herein shall
limit such Purchaser’s right to elect in lieu of the
aforedescribed liquidated damages to pursue actual damages for the
Company’s failure to deliver certificates representing any
Underlying Shares as required by the Transaction Documents, and
such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation,
a decree of specific performance and/or injunctive
relief.

 

(i)  Injunction. In the event a
Purchaser shall request delivery of Securities as described in this
Section 4.1 or Common Stock pursuant to the Note and the Company is
required to deliver such Securities, the Company may not refuse to
deliver Securities based on any claim that such Purchaser or anyone
associated or affiliated with such Purchaser has not complied with
Purchaser’s obligations under the Transaction Documents, or
for any other reason, unless, an injunction or temporary
restraining order from a court, on notice, restraining and or
enjoining delivery of such unlegended shares shall have been sought
and obtained by the Company and the Company has posted a surety
bond for the benefit of such Purchaser in the amount of 120% of the
amount of the aggregate purchase price of the Securities intended
to be subject to the injunction or temporary restraining order,
which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Purchaser to the extent Purchaser obtains
judgment in Purchaser’s favor.

 

(j)  Buy-In. In addition to any
other rights available to Purchaser, if the Company fails to
deliver to a Purchaser Securities as required pursuant to this
Agreement or the Note and after the Legend Removal Date or required
delivery date pursuant to the Note the Purchaser, or a broker on
the Purchaser’s behalf, purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Purchaser of the shares of Common
Stock which the Purchaser was entitled to receive in unlegended
form from the Company (a “Buy-In”), then the
Company shall promptly pay in cash to the Purchaser (in addition to
any remedies available to or elected by the Purchaser) the amount,
if any, by which (A) the Purchaser’s total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (B) the aggregate purchase price of the
shares of Common Stock delivered to the Company for reissuance as
unlegended Shares or as are required to be delivered pursuant to
the Note, as the case may be, together with interest thereon at a
rate of 15% per annum accruing until such amount and any accrued
interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a
Purchaser purchases shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to $10,000 of
purchase price of Shares delivered to the Company for reissuance as
unlegended shares, the Company shall be required to pay the
Purchaser $1,000, plus interest, if any. The Purchaser shall
provide the Company written notice indicating the amounts payable
to the Purchaser in respect of the Buy-In.

 

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

 

 

 

17

 

 

4.3 Furnishing of
Information.

 

(a) At any time
commencing on the Closing Date and ending at the earliest of the
time that no Purchaser owns Securities, the Company covenants to
file all periodic reports with the Commission pursuant to Section
15(d) of the Exchange Act and under Section 12(b) or 12(g) of the
1934 Act, maintain the registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act and to timely file (or
obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act even if the Company is
not then subject to the reporting requirements of the Exchange
Act.

 

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

 

4.4 Conversion and Exercise
Procedures. Each of the form of Notice of Conversion
attached to the Note and form of Notice of Exercise included in the
Warrants sets forth the totality of the procedures required of the
Purchasers in order to convert the Note or exercise the Warrant. No
additional legal opinion, other information or instructions shall
be required of the Purchasers to convert their Note or exercise
their Warrants. The Company shall honor conversions of the Note and
exercises of the Warrants and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in
the Transaction Documents.

 

4.5 Use
of Proceeds. The proceeds of the offering will be employed
by the Company substantially for the purposes set forth on
Schedule
4.5.

 

4.6 Indemnification of Purchasers.
Subject to the provisions of this Section 4.6, the Company will
indemnify and hold each Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any
other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the
meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, shareholders, agents,
members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such
controlling persons (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that any such
Purchaser Party may suffer or incur as a result of or relating to
(a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against
Purchaser Parties in any capacity, or any of them or their
respective Affiliates, by any stockholder of the Company who is not
an Affiliate of such Purchaser Party, with respect to any of the
transactions contemplated by the Transaction Documents (unless such
action is based upon a breach of such Purchaser Party’s
representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser Party
may have with any such stockholder or any violations by such
Purchaser Party of state or federal securities laws or any conduct
by such Purchaser Party which constitutes fraud, gross negligence,
willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be
sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have
the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such
Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of counsel, a material conflict
on any material issue between the position of the Company and the
position of such Purchaser Party, in which case the Company shall
be responsible for the reasonable fees and expenses of no more than
one such separate counsel. The Company will not be liable to any
Purchaser Party under this Agreement (y) for any settlement by a
Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or
(z) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party’s
breach of its representations, warranties or covenants under the
Transaction Documents. The indemnification required by this Section
4.6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are
received or are incurred. The indemnity agreements contained herein
shall be in addition to any cause of action or similar right of any
Purchaser Party against the Company or others and any liabilities
the Company may be subject to pursuant to law.

 

 

 

18

 

 

4.7 Reservation and Listing of
Securities.

 

(a) The Company shall
maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount
as may then be required to fulfill its obligations in full under
the Transaction Documents, but not less than the Required
Minimum.

 

(b) If, on any date,
the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such
date, then the Board of Directors shall amend the Company’s
certificate or articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least the
Required Minimum at such time, as soon as possible and in any event
not later than the 60th day after such
date. In the event of a shortfall in the Required Minimum, any
shares reserved for issuance to the Company’s officers and
directors (not including Purchasers, if applicable) will be made
available for issuance to the Purchasers.

 

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

 

4.9 Most Favored Nation Provision.
From the date hereof and for so long as a Purchaser holds any
Securities, in the event that the Company issues or sells any
Common Stock or Common Stock Equivalents, if a Purchaser then
holding outstanding Securities reasonably believes that any of the
terms and conditions appurtenant to such issuance or sale are more
favorable to such investors than are the terms and conditions
granted to the Purchasers hereunder, upon notice to the Company by
such Purchaser within five (5) Trading Days after disclosure of
such issuance or sale, the Company shall amend the terms of this
transaction as to such Purchaser only so as to give such Purchaser
the benefit of such more favorable terms or conditions. This
Section 4.9 shall not apply with respect to an Exempt Issuance. The
Company shall provide each Purchaser with notice of any such
issuance or sale not later than ten (10) Trading Days before such
issuance or sale.

 

4.10 Equal
Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) shall be offered or paid
to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same
or substantially similar consideration is also offered,
mutatis mutandis, on a
ratable basis to all of the parties to this Agreement. For
clarification purposes, this provision constitutes a separate right
granted to each Purchaser by the Company and negotiated separately
by each Purchaser, and is intended for the Company to treat the
Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or
otherwise.

 

4.11 Integration.
The Company shall not sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale or resale of the
Securities.

 

4.12 Maintenance
of Property and Insurance. Until the End Date, the Company
shall keep all of its property, which is necessary or useful to the
conduct of its business, in good working order and condition,
ordinary wear and tear excepted. Until the End Date, the Company
will maintain insurance coverage of the type and not less than the
amount in effect as of the Closing Date.

 

4.13                   Preservation
of Corporate Existence. Until the End Date, the Company
shall preserve and maintain its corporate existence, rights,
privileges and franchises in the jurisdiction of its incorporation,
and qualify and remain qualified, as a foreign corporation in each
jurisdiction in which such qualification is necessary in view of
its business or operations and where the failure to qualify or
remain qualified might reasonably have a Material Adverse Effect
upon the financial condition, business or operations of the Company
taken as a whole.

 

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

 

 

 

19

 

 

4.15                   Reimbursement.
If any Purchaser becomes involved in any capacity in any Proceeding
by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder),
solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement, the Company will reimburse such
Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection
therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company
may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Purchasers who are actually named in such
action, proceeding or investigation, and partners, directors,
agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchasers and any
such Affiliate and any such Person. The Company also agrees that
neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf
of or in right of the Company solely as a result of acquiring the
Securities under this Agreement.

 

4.16                   Registrations.

 

(a)                   On
or prior to the 30th day after the
Closing Date (the “Filing Date”), the
Company shall prepare and file with the Commission a registration
statement (the “Registration Statement”)
covering the resale of all of the Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement required hereunder shall be on Form
S-1.  The Company shall cause the Registration Statement to be
declared effective under the Securities Act as promptly as possible
after the filing thereof, but in any event not later than the
120th day
after the Closing Date (the “Effectiveness Date”), and
shall use its best efforts to keep the Registration Statement
continuously effective under the Securities Act until the earlier
of (i) three years from the Effectiveness Date, (ii) the date when
all securities underlying the Notes and Warrants have been sold
thereunder or pursuant to Rule 144; or (iii)the date when all
securities underlying the Notes and Warrants may be sold without
volume or manner-of-sale restrictions pursuant to Rule 144 and
without the requirement for the Company to be in compliance with
the current public information requirement under Rule 144, as
determined by counsel to the Company pursuant to a written opinion
letter to such effect, addressed and acceptable to the
Company’s transfer agent and the Purchaser (the
“Effectiveness
Period”). The maximum amount of Registrable Securities
that may be included in the Registration Statement at any one time
shall be limited by Rule 415 or as may otherwise be required by the
Commission. In the event that there is a limitation by the
Commission on the number of Registrable Securities that may be
included for registration on the Registration Statements at one
time, the removal of the securities shall be applied, first to the
Conversion Shares then to the Warrant Shares issuable upon exercise
of the Warrants (the “Order of Cutback”). The
foregoing notwithstanding, the Company undertakes to register a
minimum of 2,000,000 shares of Common Stock on behalf of Purchaser
in the Registration Statement (the “Registration
Shares”). In the event, any Registrable Securities shall be
removed from the Registration Statement, the Company shall promptly
advise any Purchaser holding such Registrable
Securities.

 

(b)                   If
at any time until two years after the Closing Date there is not an
effective registration statement covering all of the Conversion
Shares, and Warrant Shares and the Company shall determine to
prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of
others under the 1933 Act of any of its equity securities, but
excluding Forms S-4 or S-8 and similar forms which do not permit
such registration, then the Company shall send to each holder of
any of the Securities written notice of such determination and, if
within fifteen calendar days after receipt of such notice, any such
holder shall so request in writing, the Company shall include in
such registration statement all or any part of the Conversion
Shares, and Warrant Shares such holder requests to be registered,
subject to customary underwriter cutbacks applicable to all holders
of registration rights and any cutbacks in accordance with guidance
provided by the Securities and Exchange Commission (including, but
not limited to, Rule 415). The obligations of the Company under
this Section may be waived by any holder of any of the Securities
entitled to registration rights under this Section 11.1. The
holders whose Conversion Shares, and Warrant Shares are included or
required to be included in such registration statement are granted
the same rights, benefits, liquidated or other damages and
indemnification granted to other holders of securities included in
such registration statement. Notwithstanding anything to the
contrary herein, the registration rights granted hereunder to the
holders of Securities shall not be applicable for such times as
such Conversion Shares, and Warrant Shares may be sold by the
holder thereof without restriction pursuant to Section 144(b)(1) of
the 1933 Act. In no event shall the liability of any holder of
Securities or permitted successor in connection with any Conversion
Shares, and Warrant Shares included in any such registration
statement be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of the
Conversion Shares, and Warrant Shares sold pursuant to such
registration or such lesser amount in proportion to all other
holders of Securities included in such registration statement. All
expenses incurred by the Company in complying with Section 11,
including, without limitation, all registration and filing fees,
printing expenses (if required), fees and disbursements of counsel
and independent public accountants for the Company, fees and
expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or “blue sky”
laws, fees of the NASD, transfer taxes, and fees of transfer agents
and registrars, are called “Registration Expenses.” All
underwriting discounts and selling commissions applicable to the
sale of registrable securities are called "Selling Expenses." The
Company will pay all Registration Expenses in connection with the
registration statement under Section 11. Selling Expenses in
connection with each registration statement under Section 11 shall
be borne by the holder and will be apportioned among such holders
in proportion to the number of Shares included therein for a holder
relative to all the Securities included therein for all selling
holders, or as all holders may agree.

 

 

20

 

 

4.17                   Capital
Raise. Within one (1) business day after the closing of a
transaction or series of transaction resulting in a capital raise
of at least $100,000.00, the Company shall pay to the Purchasers,
pro rata to the principal amount of their Notes outstanding at the
time of such closing, 25% of the gross proceeds as a payment toward
amount due on the Notes.

 

4.18                   Subsequent
Equity Sales. From the date hereof until the Notes are no
longer outstanding, the Company will not, without the consent of
the Purchasers, enter into any Equity Line of Credit or similar
agreement nor issue nor agree to issue any common stock at a per
share price less than the then in effect Conversion Price, floating
or Variable Priced Equity Linked Instruments nor any of the
foregoing or equity with price reset rights (subject to adjustment
for stock splits, distributions, dividends, recapitalizations and
the like) (collectively, the “Variable Rate
Transaction”). For purposes hereof, “Equity Line of
Credit” shall include any transaction involving a written
agreement between the Company and an investor or underwriter
whereby the Company has the right to “put” its
securities to the investor or underwriter over an agreed period of
time and at an agreed price or price formula, and “Variable
Priced Equity Linked Instruments” shall include: (A) any debt
or equity securities which are convertible into, exercisable or
exchangeable for, or carry the right to receive additional shares
of Common Stock either (1) at any conversion, exercise or exchange
rate or other price that is based upon and/or varies with the
trading prices of or quotations for Common Stock at any time after
the initial issuance of such debt or equity security, or (2) with a
fixed conversion, exercise or exchange price that is subject to
being reset at some future date at any time after the initial
issuance of such debt or equity security due to a change in the
market price of the Company’s Common Stock since date of
initial issuance, and (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required
or has the option to (or any investor in such transaction has the
option to require the Company to) make such amortization payments
in shares of Common Stock which are valued at a price that is based
upon and/or varies with the trading prices of or quotations for
Common Stock at any time after the initial issuance of such debt or
equity security (whether or not such payments in stock are subject
to certain equity conditions). For purposes of determining the
total consideration for a convertible instrument (including a right
to purchase equity of the Company) issued, subject to an original
issue or similar discount or which principal amount is directly or
indirectly increased after issuance, the consideration will be
deemed to be the actual net cash amount received by the Company in
consideration of the original issuance of such convertible
instrument. From the Closing Date until the date on which the Notes
are no longer outstanding, except for Exempt Issuances, the Company
will not issue any Common Stock or Common Stock Equivalents to
officers, directors, employees, consultants and service providers
of the Company in an amount, on an aggregate basis, in excess of
5,000,000 shares. For so long as the Notes are outstanding the
Company will not amend the terms of any securities, except as
applicable to presently outstanding securities (provided such
change shall result in a reset under the Notes and Warrants), or
Common Stock Equivalents or of any agreement outstanding or in
effect as of the date of this Agreement or at any time thereafter,
pursuant to which same were or may be acquired, if such issuance or
the result of such amendment would be at an effective price per
share of Common Stock less than the Conversion Price in effect at
the time of such amendment.

 

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

 

4.20                   Securities
Laws Disclosure; Publicity. The Company shall, file a
Current Report on Form 8-K including the Transaction Documents as
exhibits thereto (the “Closing Form 8-K”
mutatis mutandem) within
one Business Day of the date hereof.

 

4.21                   Par
Value. In the event the Conversion Price of the Notes is
reduced below the par value of the common stock, the Company shall
within 30 days thereafter, reduce the par value of its common stock
so that the Conversion Price shall be greater than the par value of
the Common Stock.

 

 

 

21

 

 

ARTICLE V.

MISCELLANEOUS

 

5.1 Termination.  This
Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the other parties, if the Closing
has not been consummated on or before November 31, 2017;
provided,
however, that such
termination will not affect the right of any party to sue for any
breach by any other party or parties.

 

5.2 Fees and Expenses. Except as
expressly set forth on Schedule 3.1(r), each party
shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company
shall pay all Transfer Agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities to
the Purchasers. The Company agrees to
pay pursuant to the Escrow Agreement legal fees and Escrow Agent
fees of G&M, counsel to some of the Purchasers, in the amount
of $4,500 (“Legal Fees”), incurred in connection with
the preparation, execution and delivery of the Transaction
Documents and Closing.

 

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

 

5.4 Notices. All notices, demands,
requests, consents, approvals, and other communications required or
permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by hand delivery,
telegram, email or facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile or email, with accurate
confirmation generated by the transmitting facsimile machine or
transmitting computer (email), at the address or number designated
below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be: (i) if to
the Company, to: Sincerity Applied Materials Holdings Corp, Level
4, 10 Yarra Street, South Yarra, VIC 3141 Australia, Attn: Zhang
(“James”) Yiwen, President and CEO, email: james@sincerityplastics.com,
with a copy by fax or email only to (which shall not constitute
notice): Scott Rapfogel, Esq., Fax: (212) 259–8200 e-Mail:
srapfogel@ckrlaw.com
and (ii) if to the Purchasers, to: the addresses and fax numbers
indicated on the signature pages hereto, with an additional copy by
fax only to (which shall not constitute notice): Grushko &
Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581,
Attn: Eliezer Drew, Esq., facsimile: (212) 697-3575.

 

5.5 Amendments; Waivers. No
provision of this Agreement nor any other Transaction Document may
be waived, modified, supplemented or amended nor consent obtained
or approval deemed granted except in a written instrument signed,
in the case of an amendment, by the Company and the Purchasers or,
in the case of a waiver, by the party against whom enforcement of
any such waived provision is sought. No waiver of any default with
respect to any provision, condition or requirement of this
Agreement nor any other Transaction Document shall be deemed to be
a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or
requirement thereof, nor shall any delay or omission of any party
to exercise any right thereunder in any manner impair the exercise
of any such right. Any Purchaser may waive in writing any right or
benefit granted to or available to such Purchaser pursuant to the
Transaction Documents.

 

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

 

 

 

22

 

 

5.7 Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The Company may
not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by
merger). Following the Closing, any Purchaser may assign, on ten
(10) Business Day prior notice any or all of its rights under this
Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided that such transferee agrees in writing to
be bound with respect to the transferred Securities by the
provisions of the Transaction Documents that apply to the
“Purchasers” and is able to make each and every
representation made by Purchasers in this Agreement. No assignment
by a Purchaser will be allowed if the result would be an increase
in the number of actual or beneficial owners of the assigned
securities.

 

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

 

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

 

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

 

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

 

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

 

 

 

23

 

 

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

 

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

 

5.15 Remedies.
In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of
the Purchasers and the Company will be entitled to specific
performance under the Transaction Documents. The parties agree that
monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agree to waive and not to assert
in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate. The Company’s
obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of
the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding
the fact that the instrument or security pursuant to which such
partial liquidated damages or other amounts are due and payable
shall have been canceled.

 

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

 

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

 

 

 

24

 

 

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

 

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

 

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

 

5.21                   Equitable
Adjustment. The Conversion
Price, Warrant exercise price, trading volume amounts, price/volume
amounts and similar figures in the Transaction Documents shall be
equitably adjusted (but without duplication) to offset the effect
of stock splits, similar events and as otherwise described in the
Transaction Documents.

 

 

 

(Signature Pages Follow)

 

 

 

25

 

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

 

	

Sincerity Applied Materials Holdings Corp

	

Address for Notice:

 

Level
4, 10 Yarra Street

South
Yarra, VIC 3141

Australia

Email:
james@sincerityplastics.com

 

	

By:
/s/ Zhang Yiwen

      Name:
Zhang Yiwen

      Title: President and
CEO

 

 

	
 

	
 

	
 

 

 

 

 

 

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

 

SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

 

 

 

26

 

[PURCHASER
SIGNATURE PAGE TO SINCERITY APPLIED MATERIALS HOLDINGS
CORP

 

SECURITIES PURCHASE
AGREEMENT]

 

 

 

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

 

Name of
Purchaser: Emunah Funding,
LLC _______________________________________

 

Signature of Authorized Signatory of
Purchaser: /s/ Gabriel
Berkowitz_______________________

 

Name of
Authorized Signatory: _Gabriel
Berkowitz_____________________________________

 

Title
of Authorized Signatory: _Manager______________________________________________

 

Email
Address of Authorized Signatory: _gabriel@arcadia.capital__________________________

 

Facsimile Number of
Authorized Signatory:
__________________________________________

 

Address
for Notice to Purchaser:

 

 

 

1361
East 10th Street

 

Brooklyn,
NY 11730

 

Fax:
(727) 547-7350

 

 

 

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

 

 

______________________________________________________________________________

 

 

______________________________________________________________________________

 

 

______________________________________________________________________________

 

 

 

 

27

 

 

 

Subscription
Amount: $50,000.00

 

 

Note
Principal: $54,000.00

 

 

Warrants:
___Class A 51,429 and Class B
400,000___________

 

 

EIN
Number, if applicable, will be provided under separate cover:
________________________

 

 

 

 

[SIGNATURE
PAGES CONTINUE]

 

 

28

 

[PURCHASER
SIGNATURE PAGE TO SINCERITY APPLIED MATERIALS HOLDINGS
CORP

 

SECURITIES PURCHASE
AGREEMENT]

 

 

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

 

Name of
Purchaser: Fourth Man,
LLC _______________________________________

 

Signature of Authorized Signatory of
Purchaser: /s/ Edward H.
Deese _____________

 

Name of
Authorized Signatory: _ Edward H.
Deese _____________________________________

 

Title
of Authorized Signatory: _Manager______________________________________________

 

Email
Address of Authorized Signatory: _ edeese@sbcglobal.net
__________________________

 

Facsimile Number of
Authorized Signatory:
__________________________________________

 

Address
for Notice to Purchaser:

 

 

2522
Chambers Road, Suite 100

 

Tustin,
CA 92780

 

 

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

 

______________________________________________________________________________

 

______________________________________________________________________________

 

______________________________________________________________________________

 

 

 

29

 

 

 

Subscription
Amount: $50,000.00

 

Note
Principal: $54,000.00

 

Warrants:
___Class A 51,429 and Class B
400,000___________

 

 

EIN
Number, if applicable, will be provided under separate cover:
________________________

 

 

 

 

[SIGNATURE
PAGES CONTINUE]

 

 

 

30

 

 

 

EXHIBITS AND SCHEDULES

 

 

 

Exhibit
A    Form of Note

 

Exhibit
B1    Form of Class A Warrant

 

Exhibit
B2    Form of Class B Warrant

 

Exhibit
C    Escrow Agreement

 

Exhibit
D    TA Letter

 

Exhibit
E    Legal Opinion

 

Exhibit
F    COJ

 

 

Schedule
3.1(g)    Capitalization

 

Schedule
3.1(n)    Liens

 

Schedule
3.1(r)    Broker’s Fees

 

Schedule
3.1(t)    Registration Rights

 

Schedule
3.1(ee)    Indebtedness

 

Schedule
4.5    Use of Proceeds

 

 

 

31

 

 

SCHEDULES
TO SECURITIES PURCHASE AGREEMENT

 

Schedule
3.1(g)

 

A.

Pending Stock
Issuances to Company Officers, Directors, Employees or
Consultants

 

	              
Name	Relationship	Number of Shares to be
Issued
	              
Nils Ollquist	Officer,
Director	1,000,000

 

 

B.

Outstanding Company
Securities Subject to Exercise or Conversion

 

i.            

$150,000 Promissory
Note (presently convertible into 500,010 shares)

 

ii.            

15 Warrants to
purchase an aggregate of 500,010 shares (33,334 shares per
Warrant)

 

The
foregoing securities have anti-dilution rights as set forth therein
and the number of shares issuable upon conversion or exercise is
subject to adjustment. See form of Note and Warrant filed as
Exhibit 10.3 and 10.4 to the Company’s Form 8-K filed with
the SEC on September 25,2017.

 

C.

Company
Capitalization

 

i.       
     48,333,334 shares of common stock presently
issued and outstanding

 

ii.       
    1,000,000 shares of common stock to be issued per (A)
above

 

iii.           1,020,000
shares of common stock underlying the Notes and Warrants referenced
in (B) above

 

D.

2013 Equity
Incentive Plan

 

62,074
shares of common stock remain available for issuance under the
Company’s 2013 Equity Incentive Plan No Plan awards are
presently issued and outstanding.

 

Schedule 3.1(n)

 

The
holder of the Notes and Warrants referenced in Schedule 3.1(g)(B)
has a security interest in the Company’s assets as set forth
in the September 19, 2017 Security Agreement filed as Exhibit 10.6
to the Company’s Form 8-K filed on September 25,
2017.

 

Schedule 3.1(r)

 

Not
applicable.

 

Schedule 3.1(t)

 

The
holder of the Notes and Warrants referenced in Schedule 3.1(g)(B)
and CKR Law LLP have registration rights with respect to the shares
underlying the Notes and Warrants (1,020,000 shares plus
anti-dilution shares) and the common stock owned (or to be owned by
CKR following a pending transfer) by CKR Law LLP (3,840,565
shares).

 

 

 

32

 

 

Schedule 3.1(ee)

 

The
Company’s June 30, 2017 financial statements do not include
(i) Indebtedness incurred in the ordinary course of business since
June 30, 2017; (ii) reference to the Notes and Warrants referenced
in Schedule 3.1(g)(B), which Notes and Warrants was issued
subsequent to June 30, 2017; or (iii) reference to the Security
Interest in favor of the holder of the Notes and Warrants
referenced in Schedule 3.1(g)(B). Such Notes and Warrants are
senior in right of payment to the Notes being issued pursuant to
the Securities Purchase Agreement.

 

Schedule 4.5

 

The
proceeds of the Offering will be utilized by the Company for
general working capital purposes.

 

 

 

 

33Blueprint

 

Exhibit 10.2

 

 

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

 

                                                                                                                                                                                                                                              
Original Issue Date:
November 9,
2017

 

Principal Amount: $54,000.00

Purchase Price: $50,000.00

 

CONVERTIBLE NOTE

DUE NOVEMBER 9, 2018

 

THIS
CONVERTIBLE NOTE is issued by Sincerity Applied Materials
Holdings Corp., a Nevada corporation, (the
“Borrower”), due November 9, 2018 (this note, the
“Note”
and, collectively with the other notes of such series, the
“Notes”).

 

FOR
VALUE RECEIVED, Borrower promises to pay to ______________ or its registered assigns
(the “Holder”), with an address
at _________________________, or shall have paid pursuant to the
terms hereunder, the principal sum of Fifty Four Thousand Dollars ($54,000.00)
on November 9, 2018 (the “Maturity Date”) or such
earlier date as this Note is required or permitted to be repaid or
such later date if extended by the Holder as provided hereunder,
and to pay interest, if any, to the Holder on the aggregate
unconverted and then outstanding principal amount of this Note in
accordance with the provisions hereof.

 

This
Note is subject to the following additional
provisions:

 

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

 

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

 

“Asset Disposition” means
the sale, transfer, lease, license, contribution or other
conveyance of assets of Borrower in one or more dispositions not in
the ordinary course of business that results in net cash proceeds
to Borrower of $10,000 or more, in the aggregate.

 

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

 

 

1

 

 

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

 

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

 

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

 

“Change of Control
Transaction” means, other than by means of conversion
or exercise of the Notes and the Securities issued together with
the Notes, the occurrence after the date hereof of any of (a) an
acquisition after the date hereof by an individual or legal entity
or “group” (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of Borrower,
by contract or otherwise) of in excess of 50% of the voting
securities of Borrower, (b) Borrower merges into or consolidates
with any other Person, or any Person merges into or consolidates
with Borrower and, after giving effect to such transaction, the
stockholders of Borrower immediately prior to such transaction own
less than 50% of the aggregate voting power of Borrower or the
successor entity of such transaction, (c) Borrower sells or
transfers all or substantially all of its assets to another Person
and the stockholders of Borrower immediately prior to such
transaction own less than 50% of the aggregate voting power of the
acquiring entity immediately after the transaction, (d) a
replacement at one time or within a three year period of more than
one-half of the members of the Board of Directors which is not
approved by a majority of those individuals who are members of the
Board of Directors on the Original Issue Date (or by those
individuals who are serving as members of the Board of Directors on
any date whose nomination to the Board of Directors was approved by
a majority of the members of the Board of Directors who are members
on the date hereof), or (e) the execution by Borrower of an
agreement to which Borrower is a party or by which it is bound,
providing for any of the events set forth in clauses (a) through
(d) above.

 

“Closing Price” means on
any particular date (a) the last reported closing bid price
per share of Common Stock on such date on the Trading Market (as
reported by Bloomberg L.P. at 4:15 p.m. (New York City time)), or
(b) if there is no such price on such date, then the closing bid
price on the Trading Market on the date nearest preceding such date
(as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)),
or (c)  if the Common Stock is not then listed or quoted on a
Trading Market and if prices for the Common Stock are then reported
in the “pink sheets” published by OTC Markets Group,
Inc. (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share
of the Common Stock so reported, or (d) if the shares of
Common Stock are not then publicly traded the fair market value of
a share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable to
Borrower, the fees and expenses of which shall be paid by
Borrower.

 

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

 

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

 

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

 

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

 

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

 

“Equity Conditions” means,
during the period in question, 
(a) Borrower shall have duly honored all conversions scheduled to
occur or occurring by virtue of one or more Notices of Conversion
of the applicable Holder on or prior to the dates so requested or
required, if any, (b) Borrower shall have paid all liquidated
damages and other amounts owing to the applicable Holder in respect
of this Note and the other Transaction Documents, (c) there
is an effective registration statement pursuant to which the
Holders are permitted to utilize the prospectus thereunder to
resell all of the Conversion Shares and Warrant Shares issuable
pursuant to the Transaction Documents (and Borrower believes, in
good faith, that such effectiveness will continue uninterrupted for
the foreseeable future), and Company counsel has delivered to the
Company’s transfer agent and Holder a standing, written
unqualified opinion that resales may then be made by the Holder of
all of the Holders Conversion Shares and Warrant Shares pursuant to
such effective registration statement, (d) the Common Stock is
listed or traded on a Trading Market, (e) there is a sufficient
number of authorized, but unissued and otherwise unreserved, shares
of Common Stock for the issuance of all of the shares then issuable
pursuant to the Transaction Documents, (f) an Event of Default has
not occurred, whether or not such Event of Default has been cured,
(g) there is no existing event which, with the passage of time or
the giving of notice, would constitute an Event of Default, (h) the
issuance of the shares in question to the applicable Holder would
not exceed the Beneficial Ownership Limitation, 
(i) there has been no public announcement of a pending or proposed
Fundamental Transaction or Change of Control Transaction that has
not been consummated, and (j) the applicable Holder is not in
possession of any information provided by Borrower that
constitutes, or may constitute, material non-public
information.

 

 

2

 

 

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

 

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

 

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

 

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

 

“Mandatory Default Amount”
means the sum of (a) the greater of (i) the outstanding principal
amount of this Note divided by the Conversion Price on the date the
Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default), (B) otherwise
due, or (C) paid in full, whichever is lowest, multiplied by the
VWAP on the date the Mandatory Default Amount is either (x)
demanded, (y) due, or (z) paid in full, whichever is highest, or
(ii) 120% of the outstanding principal amount of this Note plus (b)
all other amounts, costs, expenses and liquidated damages due in
respect of this Note.

 

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

 

“Note Register” shall have
the meaning set forth in Section 3(c).

 

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

 

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

 

“Other Holder” means a
holder of one or more Other Notes (collectively,
“Other
Holders”).

 

“Other Notes” means Notes
nearly identical to this Note issued to other Holders pursuant to
the Purchase Agreement.

 

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

 

“Purchase Agreement” means
the Securities Purchase Agreement, dated as of November 9, 2017
among Borrower and the original Holders, as amended, modified or
supplemented from time to time in accordance with its
terms.

 

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

 

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

 

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

 

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

 

 

3

 

 

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

 

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

 

Section
2.       
 Interest and
Payment.

 

a)           Interest
in Cash or in Kind. Holders shall be entitled to receive,
and Borrower shall pay, cumulative interest on the outstanding
principal amount of this Note at the annual rate of twelve percent
(12%) (as subject to increase as set forth in this Note) from the
Original Issue Date through the Maturity Date.

 

b)           Payment
Grace Period. Except as set forth herein, the Borrower shall
not have any grace period to pay any monetary amounts due under
this Note.

 

c)                 Conversion
Privileges. The Conversion Rights set forth in Section 4
shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the
occurrence of an Event of Default. This Note shall be payable in
full on the Maturity Date, unless previously converted into Common
Stock in accordance with Section 4 hereof.

 

d)                 Application
of Payments. Interest on this Note shall be calculated on
the basis of a 360-day year and the actual number of days elapsed.
Payments made in connection with this Note shall be applied first
to amounts due hereunder other than principal and interest,
thereafter to interest and finally to principal.

 

e)                 Pari
Passu. Except as otherwise set forth herein, all payments
made on this Note and the Other Notes and all actions taken by the
Borrower with respect to this Note and the Other Notes, including
but not limited to Optional Redemption, shall be made and taken
pari passu with respect to
this Note and the Other Notes. Notwithstanding anything to the
contrary contained herein or in the Transaction Documents, it shall
not be considered non-pari
passu for a Holder or Other Holder to elect to receive
interest paid in shares of Common Stock or for the Borrower to
actually pay interest in shares of Common Stock to such electing
Holder or Other Holder, nor for a Holder of a Note or Other Note to
accept a prepayment provided a prepayment offer was made to the
Holder and holders of Other Notes on a pari passu basis.

 

f)                 Installment
Payments. Commencing on the third monthly anniversary after
the Issue Date, the Borrower shall make monthly payments equal to
all the accrued interest and fifteen percent (15%) of the original
principal amount of the Note.

 

G)           Manner
and Place of Payment. Principal and interest on this Note
and other payments in connection with this Note shall be payable at
the Holder’s offices as designated above in lawful money of
the United States of America in immediately available funds without
set-off, deduction or counterclaim. Upon assignment of the interest
of Holder in this Note, Borrower shall instead make its payment
pursuant to the assignee’s instructions upon receipt of
written notice thereof. Except as set forth herein, this Note may
not be prepaid or mandatorily converted without the consent of the
Holder.

 

 

4

 

 

Section
3.       
   Registration of Transfers and
Exchanges.

 

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

 

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

 

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

 

Section
4.     
     Conversion.

 

a)
         Voluntary Conversion. At any
time after the 170th day after the
Original Issue Date until this Note is no longer outstanding, this
Note shall be convertible, in whole or in part, into shares of
Common Stock at the option of the Holder, at any time and from time
to time (subject to the conversion limitations set forth in
Section 4(d) hereof). The Holder shall effect conversions by
delivering to Borrower a Notice of Conversion, the form of which is
attached hereto as Annex
A (each, a “Notice of Conversion”),
specifying therein the principal amount of this Note and accrued
interest, if any, to be converted at the election of the Holder and
the date on which such conversion shall be effected (such date, the
“Conversion
Date”). If no Conversion Date is specified in a Notice
of Conversion, the Conversion Date shall be the date that such
Notice of Conversion is deemed delivered hereunder. To effect
conversions hereunder, the Holder shall not be required to
physically surrender this Note to Borrower unless the entire
principal amount of this Note has been so converted. Conversions of
principal hereunder shall have the effect of lowering the
outstanding principal amount of this Note in an amount equal to the
applicable conversion. The Holder and Borrower shall maintain
records showing the principal amount(s) converted and the date of
such conversion(s). Borrower may deliver an objection to any Notice
of Conversion within one (1) Business Day of delivery of such
Notice of Conversion. In the event of any dispute or discrepancy,
the records of the Holder shall be controlling and determinative in
the absence of manifest error. The
Holder, and any assignee by acceptance of this Note, acknowledge
and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Note, the unpaid and
unconverted principal amount of this Note may be less than the
amount stated on the face hereof.

 

b)
         Conversion Price. The
conversion price for the principal and interest in connection with
voluntary conversions by the Holder shall be 75% multiplied by the
Market Price (as defined herein)(representing a discount rate of
25%). “Market Price” means the lowest one (1) Trading
Prices (as defined below) for the Common Stock during the twenty
(20) Trading Day period ending on the last complete Trading Day
prior to the Conversion Date. “Trading Prices” means,
for any security as of any date, the lowest traded price on the
Over-the Counter Pink Marketplace, OTCQB, or applicable trading
market (the “OTCQB”) as reported by a reliable
reporting service (“Reporting Service”) designated by
the Holder (i.e. www.Nasdaq.com) or, if the OTCQB is not the
principal trading market for such security, on the principal
securities exchange or trading market where such security is listed
or traded or, if the lowest intraday trading price of such security
is not available in any of the foregoing manners, the lowest
intraday price of any market makers for such security that are
quoted on the OTC Markets, per share of Common Stock, subject to
adjustment as described herein (“Conversion Price”). If at
any time the Conversion Price as determined hereunder for any
Conversion would be less than the par value of the Common Stock,
then the Company shall have right to increase the Conversion Price
hereunder for such conversion to par value and increase the
Conversion Amount for such Conversion to include, as liquidated
damages, Additional Principal. “Additional Principal”
means such additional amount to be added to the Conversion Amount
to the extent necessary to cause the number of Conversion Shares
issuable upon such Conversion to equal the same number of
Conversion Shares as would have been issued had the Conversion
Price not been subject to the minimum price set forth in this
Section.

 

 

5

 

 

c)
         Mechanics of
Conversion.

 

i.       
  Conversion
Shares Issuable Upon Conversion of Principal Amount. The
number of Conversion Shares issuable upon a conversion hereunder
shall be determined by the quotient obtained by dividing (x) the
outstanding principal amount of this Note to be converted plus
interest, if any, elected by the Holder to be converted by (y) the
Conversion Price.

 

ii.         Delivery
of Certificate Upon Conversion. Not later than five (5)
Trading Days after each Conversion Date (the “Share Delivery Date”),
Borrower shall deliver, or cause to be delivered, to the Holder a
certificate or certificates representing the Conversion Shares
which, on or after the earlier of (i) the first anniversary of the
Original Issue Date or (ii) the Effective Date, shall be free of
restrictive legends and trading restrictions (other than those
which may then be required by Section 4.1(d) the Purchase
Agreement) representing the number of Conversion Shares being
acquired upon the conversion of this Note. On or after the earlier
of (i) the first anniversary of the Original Issue Date or (ii) the
Effective Date, Borrower shall use its commercially reasonable
efforts to deliver any certificate or certificates required to be
delivered by Borrower under this Section 4(c) electronically
through the Depository Trust Company or another established
clearing corporation performing similar functions.

 

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

 

iv.         Obligation
Absolute. Borrower’s obligations to issue and deliver
the Conversion Shares upon conversion of this Note in accordance
with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to
enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to Borrower or any
violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might
otherwise limit such obligation of Borrower to the Holder in
connection with the issuance of such Conversion Shares;
provided,
however, that such
delivery shall not operate as a waiver by Borrower of any such
action Borrower may have against the Holder. In the event the
Holder of this Note shall elect to convert any or all of the
outstanding principal amount hereof, Borrower may not refuse
conversion based on any claim that the Holder or anyone associated
or affiliated with the Holder has been engaged in any violation of
law, agreement or for any other reason, unless an injunction from a
court, on notice to Holder, restraining and or enjoining conversion
of all or part of this Note shall have been sought and obtained,
and Borrower posts a surety bond for the benefit of the Holder in
the amount of 150% of the outstanding principal amount of this
Note, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the
underlying dispute and the proceeds of which shall be payable to
the Holder to the extent it obtains judgment. In the absence of
such injunction, Borrower shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion. If Borrower
fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(c)(ii) by the Share Delivery
Date, Borrower shall pay to the Holder, in cash, as liquidated
damages and not as a penalty, for each $1,000 of principal amount
being converted, $10 per Trading Day (increasing to $20 per Trading
Day on the fifth (5th) Trading Day after
such liquidated damages being to accrue) for each Trading Day after
such Share Delivery Date until such certificates are delivered or
Holder rescinds such conversion. Nothing herein shall limit a
Holder’s right to pursue actual damages or declare an Event
of Default pursuant to Section 8 hereof for Borrower’s
failure to deliver Conversion Shares within the period specified
herein and the Holder shall have the right to pursue all remedies
available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive
relief. The exercise of any such rights shall not prohibit the
Holder from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.

 

 

6

 

 

v.           Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the
Holder, if Borrower fails for any reason to deliver to the Holder
such certificate or certificates by the Share Delivery Date
pursuant to Section 4(c)(ii), and if after such Share Delivery Date
the Holder is required by its brokerage firm to purchase (in an
open market transaction or otherwise), or the Holder or
Holder’s brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the
Conversion Shares which the Holder was entitled to receive upon the
conversion relating to such Share Delivery Date (a
“Buy-In”), then Borrower
shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount, if any,
by which (x) the Holder’s total purchase price (including any
brokerage commissions) for the Common Stock so purchased exceeds
(y) the product of (1) the aggregate number of shares of Common
Stock that the Holder was entitled to receive from the conversion
at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed
(including any brokerage commissions) and (B) at the option of the
Holder, either reissue (if surrendered) this Note in a principal
amount equal to the principal amount of the attempted conversion
(in which case such conversion shall be deemed rescinded) or
deliver to the Holder the number of shares of Common Stock that
would have been issued if Borrower had timely complied with its
delivery requirements under Section 4(c)(ii). For example, if the
Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion
of this Note with respect to which the actual sale price of the
Conversion Shares (including any brokerage commissions) giving rise
to such purchase obligation was a total of $10,000 under clause (A)
of the immediately preceding sentence, Borrower shall be required
to pay the Holder $1,000. The Holder shall provide Borrower written
notice indicating the amounts payable to the Holder in respect of
the Buy-In and, upon request of Borrower, evidence of the amount of
such loss. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to
Borrower’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of this Note as
required pursuant to the terms hereof.

 

vi.         Reservation
of Shares Issuable Upon Conversion. Borrower covenants that
it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose
of issuance upon conversion of this Note as herein provided, free
from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder (and the other holders of
the Notes), not less than three times such aggregate number of
shares of the Common Stock as shall (subject to the terms and
conditions set forth in the Purchase Agreement) be issuable (taking
into account the adjustments and restrictions of Section 5) upon
the conversion of the then outstanding principal amount of this
Note and interest which has accrued and would accrue on such
principal amount, assuming such principal amount was not converted
through three years after the Original Issue Date. Borrower
covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid
and nonassessable.

 

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

 

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

 

 

7

 

 

d)
          Holder’s
Conversion Limitations. From and after the date that the
Conversion Shares are of a class of equity of the borrower
registered under Section 12(g) of the Exchange Act or the Company
is subject to the reporting requirements of Section 13 or Section
15(d) of the Exchange Act, Borrower shall not affect any conversion
of this Note, and a Holder shall not have the right to convert any
portion of this Note, to the extent that after giving effect to the
conversion set forth on the applicable Notice of Conversion, the
Holder (together with the Holder’s Affiliates, and any
Persons acting as a group together with the Holder or any of the
Holder’s Affiliates) would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below).  For
purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its Affiliates shall
include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which such determination is
being made, but shall exclude the number of shares of Common Stock
which are issuable upon (i) conversion of the remaining,
unconverted principal amount of this Note beneficially owned by the
Holder or any of its Affiliates and (ii) exercise or conversion of
the unexercised or unconverted portion of any other securities of
Borrower subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without
limitation, any other Notes or the Warrants) beneficially owned by
the Holder or any of its Affiliates.  Except as set forth in
the preceding sentence, for purposes of this Section 4(d),
beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. To the extent that the limitation contained in this
Section 4(d) applies, the determination of whether this Note is
convertible (in relation to other securities owned by the Holder
together with any Affiliates) and of which principal amount of this
Note is convertible shall be in the sole discretion of the Holder,
and the submission of a Notice of Conversion shall be deemed to be
the Holder’s determination of whether this Note may be
converted (in relation to other securities owned by the Holder
together with any Affiliates) and which principal amount of this
Note is convertible, in each case subject to the Beneficial
Ownership Limitation. To ensure compliance with this restriction,
the Holder will be deemed to represent to Borrower each time it
delivers a Notice of Conversion that such Notice of Conversion has
not violated the restrictions set forth in this paragraph and
Borrower shall have no obligation to verify or confirm the accuracy
of such determination. In addition, a determination as to any group
status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. For purposes of this Section 4(d), in
determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock
as stated in the most recent of the following: (i) Borrower’s
most recent periodic or annual report filed with the Commission, as
the case may be, (ii) a more recent public announcement by
Borrower, or (iii) a more recent written notice by Borrower or
Borrower’s transfer agent setting forth the number of shares
of Common Stock outstanding.  Upon the written or oral request
of a Holder, Borrower shall within two Trading Days confirm orally
and in writing to the Holder the number of shares of Common Stock
then outstanding.  In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of Borrower, including
this Note, by the Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was
reported. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of
the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon conversion of this
Note held by the Holder. The Holder may decrease the Beneficial
Ownership Limitation at any time and the Holder, upon not less than
61 days’ prior notice to Borrower, may increase the
Beneficial Ownership Limitation provisions of this Section 4(d),
provided that the Beneficial Ownership Limitation in no event
exceeds 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of
shares of Common Stock upon conversion of this Note held by the
Holder and the Beneficial Ownership Limitation provisions of this
Section 4(d) shall continue to apply. Any such increase will not be
effective until the 61st day after such
notice is delivered to Borrower. The Beneficial Ownership
Limitation provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with
the terms of this Section 4(d) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the
intended Beneficial Ownership Limitation contained herein or to
make changes or supplements necessary or desirable to properly give
effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this
Note.

 

Section 5.       
   Certain
Adjustments.

 

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

 

 

8

 

 

b)
         Subsequent Rights Offerings.
In addition to any adjustments
pursuant to Section 5(a) above, if at any time Borrower grants,
issues or sells any Common Stock Equivalents or rights to purchase
stock, warrants, securities or other property pro rata to the
record holders of any class of shares of Common Stock (the
“Purchase
Rights”), then the Holder
will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder
could have acquired if the Holder had held the number of shares of
Common Stock acquirable upon complete conversion of this Note
(without regard to any limitations on exercise hereof, including
without limitation, the Beneficial Ownership Limitation)
immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares
of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights (provided, however, to the extent that the
Holder’s right to participate in any such Purchase Right
would result in the Holder exceeding the Beneficial Ownership
Limitation, then the Holder shall not be entitled to participate in
such Purchase Right to such extent (or beneficial ownership of such
shares of Common Stock as a result of such Purchase Right to such
extent) and such Purchase Right to such extent shall be held in
abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Beneficial
Ownership Limitation).

 

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

 

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

 

 

9

 

 

e)           Adjustment
Upon Issuance of Shares of Common Stock. If and whenever on
or after the date hereof, the Company issues or sells, or in
accordance with this Section 5 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 Exempt Issuance 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 Fixed
Conversion Price in effect immediately prior to such issue or sale
or deemed issuance or sale (such Fixed Conversion Price then in
effect is referred to as the “Applicable Price”) (the
foregoing a “Dilutive Issuance”), then
immediately after such Dilutive Issuance, the Fixed Conversion
Price then in effect shall be reduced to the New Issuance Price.
For all purposes of the foregoing (including, without limitation,
determining the adjusted Fixed Conversion Price and consideration
per share under this Section 5(e)), the following shall be
applicable:

 

(i) Issuance of Options. If the
Company in any manner grants or sells any options (other than
options that qualify as Exempt Issuances) 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 Common Stock Equivalents 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 5(e)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such
options or upon conversion, exercise or exchange of any Common
Stock Equivalents issuable upon exercise of any such option”
shall be equal to (1) 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 Common Stock
Equivalent 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 Common Stock
Equivalents issuable upon exercise of any such option minus (2) the
sum of all amounts paid or payable to the holder of such option (or
any other Person) upon the granting or sale of such option, upon
exercise of such option and upon conversion, exercise or exchange
of any Common Stock Equivalent issuable upon exercise of such
option plus the value of any other consideration received or
receivable by, or benefit conferred on, the holder of such option
(or any other Person). Except as contemplated below, no further
adjustment of the Fixed Conversion Price shall be made upon the
actual issuance of such shares of Common Stock or of such Common
Stock Equivalents upon the exercise of such options or upon the
actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Common Stock Equivalents.

 

(ii) Issuance
of Common Stock Equivalents. If the Company in any manner
issues or sells any Common Stock Equivalents (other than Common
Stock Equivalents that qualify as Exempt Issuances) 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 Common Stock
Equivalents for such price per share. For the purposes of this
Section 5(e)(ii), 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 (1) 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 Common Stock Equivalent and upon
conversion, exercise or exchange of such Common Stock Equivalent
and (y) the lowest conversion price set forth in such Common Stock
Equivalent for which one share of Common Stock is issuable upon
conversion, exercise or exchange thereof minus (2) the sum of all
amounts paid or payable to the holder of such Common Stock
Equivalent (or any other Person) upon the issuance or sale of such
Common Stock Equivalent plus the value of any other consideration
received or receivable by, or benefit conferred on, the holder of
such Common Stock Equivalent (or any other Person). Except as
contemplated below, no further adjustment of the Fixed Conversion
Price shall be made upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such Common
Stock Equivalents, and if any such issue or sale of such Common
Stock Equivalents is made upon exercise of any Options for which
adjustment of this Note has been or is to be made pursuant to other
provisions of this Section 5(e), except as contemplated below, no
further adjustment of the Fixed Conversion Price shall be made by
reason of such issue or sale.

 

 

 

10

 

 

(iii) 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 Common Stock Equivalents, or the rate at which
any Common Stock Equivalents are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at
any time, the Fixed Conversion Price in effect at the time of such
increase or decrease shall be adjusted to the Fixed Conversion
Price which would have been in effect at such time had such options
or Common Stock Equivalents 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
5(e)(iii), if the terms of any option or Common Stock Equivalent
that was outstanding as of the date of issuance of this Note are
increased or decreased in the manner described in the immediately
preceding sentence, then such option or Common Stock Equivalent 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. No adjustment pursuant
to this Section 5(e) shall be made if such adjustment would result
in an increase of the Fixed Conversion Price then in
effect.

 

(iv)           Calculation
of Consideration Received. If any option and/or Common Stock
Equivalent and/or Adjustment Right is issued in connection with the
issuance or sale or deemed issuance or sale of any other securities
of the Company (as determined by the Holder, the
“Primary
Security”, and such option and/or Common Stock
Equivalent and/or Adjustment Right, the “Secondary Securities”),
together comprising one integrated transaction, the consideration
per share of Common Stock with respect to such Primary Security
shall be deemed to be equal to the difference of (x) the lowest
price per share for which one share of Common Stock was issued in
such integrated transaction (or was deemed to be issued pursuant to
Section 5(e)(i) or 5(e)(ii) above, as applicable) solely with
respect to such Primary Security, minus (y) with respect to such
Secondary Securities, the sum of (I) the Black Scholes
Consideration Value of each such option, if any, (II) the fair
market value (as determined by the Holder) or the Black Scholes
Consideration Value, as applicable, of such Adjustment Right, if
any, and (III) the fair market value (as determined by the Holder)
of such Common Stock Equivalent, if any, in each case, as
determined on a per share basis in accordance with this Section
5(e)(iv). If any shares of Common Stock, options or Common Stock
Equivalents are issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor (for the purpose
of determining the consideration paid for such Common Stock, option
or Common Stock Equivalent, but not for the purpose of the
calculation of the Black Scholes Consideration Value) will be
deemed to be the net amount of consideration received by the
Company therefor. If any shares of Common Stock, options or Common
Stock Equivalents are issued or sold for a consideration other than
cash (for the purpose of determining the consideration paid for
such Common Stock, option or Common Stock Equivalent, but not for
the purpose of the calculation of the Black Scholes Consideration
Value), the amount of such consideration received by the Company
will be the fair 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 VWAPs 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 Common Stock Equivalents are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity (for the purpose of determining the
consideration paid for such Common Stock, option or Common Stock
Equivalent, but not for the purpose of the calculation of the Black
Scholes Consideration Value), the amount of consideration therefor
will be deemed to be the fair 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 Common Stock
Equivalents, as the case may be. The fair value of any
consideration other than cash or publicly traded securities (for
the purpose of determining the consideration paid for such Common
Stock, option or Common Stock Equivalent, but not for the purpose
of the calculation of the Black Scholes Consideration Value) 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 (the
“Valuation
Event”), the fair value of such consideration will be
determined within five (5) Trading Days after the tenth
(10th) day
following such Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Holder. The
determination of such appraiser shall be final and binding upon all
parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company.

 

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

 

 

11

 

 

g)
         Notice to the
Holder.

 

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

 

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

 

Section
6.          Negative
Covenants. As long as any principal amount of this Note
remains outstanding, Borrower shall not, and shall not permit any
of the Subsidiaries to, directly or indirectly, without the prior
written consent of the Holder:

 

a)           enter
into any transaction pursuant to Section 3(a)(10) of the Securities
Act;

 

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

 

c)           amend
its charter documents, including, without limitation, its
certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the
Holder;

 

d)           repay,
repurchase or offer to repay, repurchase or otherwise acquire more
than a de
minimis number of
shares of its Common Stock or Common Stock Equivalents other than
as to the Conversion Shares or Warrant Shares as permitted or
required under the Transaction Documents;

 

e)           redeem,
defease, repurchase, repay or make any payments in respect of, by
the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private
transactions or otherwise), all or any portion of any Indebtedness
(other than the Notes if on a pro-rata basis), whether by way of
payment in respect of principal of (or premium, if any) or interest
on, such Indebtedness;

 

 

12

 

 

f)           declare
or make any dividend or other distribution of its assets or rights
to acquire its assets to holders of shares of Common Stock,
preferred stock, or any other equity security by way of return of
capital or otherwise including, without limitation, any
distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar
transaction;

 

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

 

h)           enter
into any capital transaction 30 days after the Original Issue Date;
or

 

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

 

Section
7.          
  Events of
Default.

 

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

 

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

 

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

 

iii.           a
default or event of default (subject to any grace or cure period
provided in the applicable agreement, document or instrument) shall
occur under (A) any of the Transaction Documents, including but not
limited to failure to strictly comply with the provisions of the
Transaction Documents, or (B) any other material agreement, lease,
document or instrument to which Borrower or any Subsidiary is
obligated (and not covered by clause (vi) below), which, in the
case of subsection (B), would reasonably be expected to have a
Material Adverse Effect;

 

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

 

v.           Borrower
or any Subsidiary shall be subject to a Bankruptcy
Event;

 

vi.           Borrower
or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money or money due under any long term
leasing or factoring arrangement that (a) involves an obligation
greater than $100,000, whether such indebtedness now exists or
shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable;

 

vii.           Borrower
shall be a party to any Change of Control Transaction or
Fundamental Transaction;

 

 

13

 

 

viii.           Borrower
does not meet the current public information requirements under
Rule 144;

 

ix.           Borrower
shall fail for any reason to deliver certificates to a Holder prior
to the fifth (5th) Trading Day after
a Conversion Date pursuant to Section 4(c) or Borrower shall
provide at any time notice to the Holder, including by way of
public announcement, of Borrower’s intention to not honor
requests for conversions of any Notes in accordance with the terms
hereof;

 

x.           any
Person shall breach any material term of any agreement delivered to
the initial Holders pursuant to Section 2.2(a) of the Purchase
Agreement;

 

xi.           any
monetary judgment, writ or similar final process shall be entered
or filed against Borrower, any subsidiary or any of their
respective property or other assets for more than $50,000, and such
judgment, writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 90 calendar days;

 

xii.           any
dissolution, liquidation or winding up by Borrower or a material
Subsidiary of a substantial portion of their business;

 

xiii.           cessation
of operations by Borrower or a material Subsidiary;

 

xiv.           an
event resulting in the Common Stock no longer being listed or
quoted on a Trading Market, or notification from a Trading Market
that the Borrower is not in compliance with the conditions for such
continued quotation and such non-compliance continues for twenty
(20) days following such notification;

 

xv.           a
Commission or judicial stop trade order or suspension from the
Borrower’s Principal Trading Market;

 

xvi.           the
Borrower effectuates a reverse split of its Common Stock without
ten (10) days prior written notice to the Holder;

 

xvii.           a
failure by Borrower to notify Holder of any material event of which
Borrower is obligated to notify Holder pursuant to the terms of
this Note or any other Transaction Document;

 

xviii.                                 a
default by the Borrower of a material term, covenant, warranty or
undertaking of any other agreement to which the Borrower and Holder
are parties, or the occurrence of an event of default under any
such other agreement to which Borrower and Holder are parties which
is not cured after any required notice and/or cure period or
waived;

 

xix.           the
occurrence of an Event of Default under any Other
Note;

 

xx.           any
material provision of any Transaction Document shall at any time
for any reason (other than pursuant to the express terms thereof)
cease to be valid and binding on or enforceable against the
Borrower, or the validity or enforceability thereof shall be
contested by Borrower, or a proceeding shall be commenced by
Borrower or any governmental authority having jurisdiction over
Borrower or Holder, seeking to establish the invalidity or
unenforceability thereof, or Borrower shall deny in writing that it
has any liability or obligation purported to be created under any
Transaction Document;

 

xxi.           the
failure by Borrower or any material Subsidiary to maintain any
material intellectual property rights, personal, real property,
equipment, leases or other assets which are necessary to conduct
its business (whether now or in the future) and such breach is not
cured with twenty (20) days after the first day of such occurrence;
or

 

xxii.           the
restatement after the date hereof of any financial statements filed
by the Borrower with the Commission for any date or period from and
after the Original Issue Date and until this Note is no longer
outstanding, if the result of such restatement would, by comparison
to the unrestated financial statements, have constituted a Material
Adverse Effect. For the avoidance of doubt, any restatement related
to new accounting pronouncements shall not constitute a default
under this Section.

 

 

14

 

 

xxiii           the
Conversion Price falls below the par value of the common stock
subject to cure as set forth above.

 

xxiv           the
Borrower fails to deliver original “wet” signature
signed copies of the Notes, Warrants and COJ to Purchaser Counsel
on or before November 14, 2017.

 

In the
event more than one grace, cure or notice period is applicable to
an Event of Default, then the shortest grace, cure or notice period
shall be applicable thereto.

 

b)
         Remedies Upon Event of Default,
Fundamental Transaction and Change of Control Transaction.
If any Event of Default or a Fundamental Transaction or a Change of
Control Transaction occurs, the outstanding principal amount of
this Note, liquidated damages and other amounts owing in respect
thereof through the date of acceleration, shall become, at the
Holder’s election, immediately due and payable in cash at the
Mandatory Default Amount. Commencing on the Maturity Date and also
five (5) days after the occurrence of any Event of Default interest
on this Note shall accrue at an interest rate equal to the lesser
of 24% per annum or the maximum rate permitted under applicable
law. Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Note to or as directed by
Borrower. In connection with such acceleration described herein,
the Holder need not provide, and Borrower hereby waives, any
presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such
acceleration may be rescinded and annulled by Holder at any time
prior to payment hereunder and the Holder shall have all rights as
a holder of the Note until such time, if any, as the Holder
receives full payment pursuant to this Section 7(b). No such
rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.

 

Section
8.                      Redemption.
The Borrower will have the option at
any time up to the 179th
day after the Closing Date, of
prepaying the outstanding Principal amount of this Note
(“Optional
Redemption”), in whole or
in part, by paying to the Holder a sum of money in cash equal to
one hundred and eighteen percent (118%) of the Principal amount to
be redeemed, together with accrued but unpaid interest thereon and
any and all other sums due, accrued or payable to the Holder
arising under this Note through the Redemption Payment Date as
defined below (the “Redemption
Amount”).
Borrower’s election to exercise its right to prepay must be
by notice in writing (“Notice of
Redemption”). The Notice
of Redemption shall specify the date for such Optional Redemption
(the “Redemption Payment
Date”), which date shall
be a date certain not sooner than five (5) business days after the
date of the Notice of Redemption (the “Redemption
Period”). At all times up
to the Redemption Payment Date, the Holder may convert any portion
of this Note, except as otherwise prohibited herein. On the
Redemption Payment Date, the Redemption Amount, less any portion of
the Redemption Amount against which the Holder has permissibly
exercised its conversion rights, shall be paid in good funds to the
Holder. In the event the Borrower fails to pay the Redemption
Amount on the Redemption Payment Date as set forth herein, then (i)
such Notice of Redemption will be null and void, (ii) Borrower will
have no right to deliver another Notice of Redemption, and (iii)
Borrower’s failure may be deemed by Holder to be a
non-curable Event of Default.

 

Section
9.      
    Miscellaneous.

 

a)
         Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall
be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, e-mail or facsimile,
addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery by
facsimile, or e-mail with accurate confirmation generated by the
transmitting facsimile machine or transmitting computer(e-mail), at
the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be
received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business
day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to Borrower, to: Sincerity
Applied Materials Holdings Corp., Level 4, 10 Yarra Street, South
Yarra, VIC 3141 Australia, Attn: Zhang Yiwen, President and CEO,
email: James@sincerityplastics.com, with a copy by fax or email
only to (which shall not constitute notice): Scott Rapfogel, Esq.,
Fax: (212) 259–8200, Email: srapfogel@ckrlaw.com
and (ii) if to the Holder, to: the address and fax number indicated
on the front page of this Note, with an additional copy by fax only
to (which shall not constitute notice): Grushko & Mittman,
P.C., 515 Rockaway Avenue, Valley Stream, New York 11581,
facsimile: (212) 697-3575.

 

 

15

 

 

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

 

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

 

d)
         Governing Law. All questions
concerning the construction, validity, enforcement and
interpretation of this Note shall be governed by and construed and
enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflict of laws thereof.
Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in
the state and federal courts sitting in the City of New York,
Borough of Manhattan (the “New York Courts”). Each
party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that
such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any other
manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions
contemplated hereby. If any party shall commence an action or
proceeding to enforce any provisions of this Note, then the
prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorneys’ fees and other costs
and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding. This Note shall be deemed an unconditional
obligation of Borrower for the payment of money and, without
limitation to any other remedies of Holder, may be enforced against
Borrower by summary proceeding pursuant to New York Civil Procedure
Law and Rules Section 3213 or any similar rule or statute in the
jurisdiction where enforcement is sought. For purposes of such rule
or statute, any other document or agreement to which Holder and
Borrower are parties or which Borrower delivered to Holder, which
may be convenient or necessary to determine Holder’s rights
hereunder or Borrower’s obligations to Holder are deemed a
part of this Note, whether or not such other document or agreement
was delivered together herewith or was executed apart from this
Note.

 

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

 

f)         Severability.
If any provision of this Note is invalid, illegal or unenforceable,
the balance of this Note shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall
nevertheless remain applicable to all other Persons and
circumstances.

 

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

 

 

16

 

 

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

 

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

 

j)         Amendment.
Unless otherwise provided for hereunder, this Note may not be
modified or amended or the provisions hereof waived without the
written consent of Borrower and the
Holder.

 

k)
       Facsimile Signature. In the
event that the Borrower’s signature is delivered by facsimile
transmission, PDF, electronic signature or other similar electronic
means, such signature shall create a valid and binding obligation
of the Borrower with the same force and effect as if such signature
page were an original thereof.

 

 

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

 

(Signature Pages Follow)

 

 

17

 

 

IN WITNESS WHEREOF, Borrower has caused
this Note to be signed in its name by an authorized officer as of
the Date written above.

 

                                                                                   

Sincerity
Applied Materials Holdings Corp.

 

 

By:
_______________________________

                                                                                            
Name: Zhang Yiwen

       
Title: President and CEO

 

 

 

18

 

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The
undersigned hereby elects to convert principal under the
Convertible Note due November 9, 2018 of Sincerity Applied
Materials Holdings Corp., a Nevada corporation (the
“Company”), into shares of
common stock (the “Common Stock”), of
Borrower according to the conditions hereof, as of the date written
below. If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by
Borrower in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if
any.

 

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

 

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

 

Conversion
calculations:

	
 

	

Date to
Effect Conversion: ____________________________

	
 

	
 

	
 

	

Principal
Amount of Note to be Converted: $__________________

	
 

	
 

	
 

	

Additional
Interest to be Converted: $_______________

	
 

	
 

	
 

	

Number
of shares of Common Stock to be issued: ______________

	
 

	
 

	
 

	

Signature:
_________________________________________

	
 

	
 

	
 

	

Name:
____________________________________________

	
 

	
 

	
 

	

Address
for Delivery of Common Stock Certificates: __________

	
 

	

_____________________________________________________ 

	
 

	

_____________________________________________________

	
 

	
 

	
 

	

Or

	
 

	
 

	
 

	

DWAC
Instructions: _________________________________

	
 

	
 

	
 

	

Broker
No:_____________

	
 

	

Account
No: _______________

  

 

 

 

 

 

 

 

19

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