Document:

Exhibit 10.2

Response Genetics, Inc.

Terms and Conditions of

Proposed Senior Secured, Super-Priority

Debtor-in-Possession Credit Facility

 

The
terms outlined below in this Terms and Conditions (this “DIP Term Sheet”) are the terms and conditions for a
senior secured, super-priority debtor-in-possession credit facility (hereinafter referred to as the “DIP Facility”)
to be made available to the Debtor (as defined below). This DIP Term Sheet and the Final Order (as defined below) shall
collectively constitute the exclusive and definitive documentation and agreement among the parties for the DIP Facility (the “DIP
Financing Documents”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in that
certain Credit Agreement by and among DIP Lenders and Debtor, dated as of July 30, 2014 (as may be modified, amendment or restated
from time to time, the “Pre-Petition Credit Agreement”.) 

  

	Borrower:	
        Response Genetics, Inc. (the “Debtor”)

         

	Guarantor:	
        Response Genetics, LTD. (the “Guarantor”)

         

	Amount and Type of Facility:	
        After entry of the Final Order (as defined
        below), the DIP Facility will consist of a consolidated term loan in the aggregate principal amount of $16,250,000 (the “Term
        Loan Commitment”), inclusive of any amounts outstanding under the Pre-Petition Credit Agreement (the “DIP
        Facility”).

         

	
        Agent:

         
	
        SWK Funding LLC (“SWK”).

         

	DIP Lenders:	
        SWK, Swiftcurrent Partners LP, Swiftcurrent
        Offshore Master Ltd. (the “DIP Lenders”).

         

	
        Borrowing Availability:

         
	
        All new advances under the DIP Facility shall
        be limited to the following amounts on the following dates, unless the Termination Date shall have occurred before any such date:

         

        from the Petition Date through seventeen (17)
        days after the Petition Date: $1,300,000.

         

        from the eighteenth (18th) day after
        the Petition Date through the day that is twenty-six (26) days after the Petition Date: $200,000.

         

        from the twenty-seventh (27th) day after the
        Petition Date through the day that is thirty-five (35) days after the Petition Date: $500,000 and

         

        from the thirty-sixth (36th) day after the
        Petition Date through the day that is sixty (60) days after the Petition Date: $1,000,000 (the “Draw Schedule”).
        The Draw Schedule may be further modified and amended from time to time only with the consent of SWK and the Debtor.

 

     

     

    

  

	Budget and Variances:	
        Subject to the Budget Variances (as defined
        below) (i) the Debtor’s actual total cash receipts and cash disbursements from operations (excluding fees and expenses of
        third party professionals engaged by or for the benefit of Debtor or the DIP Lenders (collectively, “Professional Fees”))
        shall each be adhered to on a weekly period basis and a cumulative basis for the Budget (as defined below) period then ending as
        described below and (ii) the Debtor’s disbursements for Professional Fees (which shall be reported in a manner so that Professional
        Fees for each retained professional shall be reflected on its own line item) shall be adhered to on a cumulative basis for that
        portion of the Budget period then ending, except as to the DIP Lenders’ Professional Fees (which DIP Lender Professional
        Fees shall not be limited by the Budget).

         

        Actual amounts for total cash receipts and
        cash disbursements from operations line items (which shall not and does not include any Professional Fees) may not vary from the
        applicable Budget by (i) more than fifteen percent (15%) for cash receipts on a trailing two (2) week basis; (ii) more than ten
        percent (10%) for cash disbursements on a trailing two (2) week basis; or (iii) five percent (5%) on a cumulative basis for that
        portion of the Budget period then ended (collectively, the “Budget Variances”).

         

        On or before the third business day of each
        week, commencing with the first week following the Petition Date, the Debtor shall deliver to SWK an Approved Budget Variance Report.

         

	
        KEIP:

         
	
        Any KEIP Amounts shall be paid with proceeds
        from the closing of a 363 Sale that is consummated without objection from SWK.

         

	Fees:	
        Debtor shall pay all fees and other charges
        payable in the amounts and at the times as set forth in the Pre-Petition Credit Agreement in relation to the full amount of the
        Term Loan Commitment provided, however, that no origination fee shall be due and payable in relation to any new advances
        made to Debtor under this DIP Facility.

         

        Debtor also agrees to pay the costs and expenses
        of SWK as set forth in the Section titled “Fees and Expenses” below.

 

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	Termination Date:	
        The earliest to occur of: (a) the Maturity
        Date (as defined below); (b) twenty-five (25) days after the Petition Date (as defined below) if the Final Order has not been entered;
        (c) acceleration of the obligations under the DIP Facility due to an Event of Default; (d) the effective date of a confirmed plan
        of reorganization or liquidation that provides for indefeasible payment in full, in cash of all obligations owing under the DIP
        Facility or is otherwise acceptable to SWK in its sole discretion; (e) the date which is the closing date of any sale of all or
        substantially all of the Debtor’s assets; (f) the entry of an order by the Bankruptcy Court (as defined below) (i) granting
        relief from the automatic stay permitting foreclosure of any assets of the Debtor with a value in excess of $100,000 in the aggregate,
        (ii) granting any motion by SWK to terminate the use of cash collateral or lift the stay or otherwise exercise remedies against
        any cash collateral, (iii) appointing a trustee or an examiner with special powers, or (iv) dismissing or converting the Chapter
        11 Case (as defined below); and (g) the filing or support by Debtor of a plan of reorganization that (i) does not provide
        for indefeasible payment in full, in cash of all obligations owing under the DIP Facility and (ii) is not otherwise acceptable
        to SWK in its sole discretion. The date on which the earliest of clauses (a) through (g) above occurs and SWK provides notice thereof
        to the Debtor being referred to hereinafter as the “Termination Date.” On the Termination Date, the DIP Facility
        shall be deemed terminated, and SWK shall have no further obligation to provide financing pursuant to the DIP Facility or DIP Financing
        Documents.

         

	
        Non-Default Interest Rate

        and Payment Terms:

         

         
	
        Interest on all outstanding advances under
        the DIP Facility shall accrue from and after the Petition Date at a per annum floating rate equal to (a) the LIBOR Rate (as defined
        in the Pre-Petition Credit Agreement), plus (b) twelve and one-half percent (12.5%) (the “Non-Default Interest Rate”).
        The terms and provisions of Section 2.6.1(a) of the Pre-Petition Credit Agreement are hereby incorporated into this DIP Term Sheet.

         

        Interest with respect to any outstanding obligations
        under the Pre-Petition Credit Agreement shall accrue from and after the Petition Date at the Non-Default Interest Rate and be due
        and payable by the Debtor on the date that the full amount of the DIP Facility is immediately due and payable.

         

	Default Interest Rate

And Letter of Credit Fees:	
        Effective immediately upon the occurrence of
        an Event of Default unless waived in writing by SWK, interest on the outstanding loans under the DIP Facility shall accrue at a
        rate that is 2% per annum in excess of the Non-Default Interest Rate.

         

	Loan Payments:	All unpaid principal, interest, fees, costs and expenses on the DIP Facility shall be due and payable in full by the Debtor on the Termination Date, whether at maturity, upon acceleration or otherwise.

 

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	Use Of Proceeds:	
        Proceeds of the DIP Facility shall be used
        solely for the following purposes (and to the extent identified in the Budget): (a) to fund, after application of all other available
        cash, post-petition operating expenses and working capital needs of the Debtor, including, but not limited to, those activities
        required to remain in, or return to, compliance with laws in accordance with 28 U.S.C. § 1930; (b) to pay interest, fees and
        expenses to SWK in accordance with this DIP Term Sheet (whether or not such amounts are reflected in the Budget); (c) to fund fees
        and expenses incurred in connection with the 363 Sale (as defined below); (d) to pay permitted pre-petition claim payments and
        adequate protection payments, if any; (e) to pay Professional Fees provided for in the Budget; and (f) to pay certain other costs
        and expenses of administration of the Chapter 11 Case.

         

        Proceeds
        of the DIP Financing Documents or cash collateral shall not be used (a) to permit the Debtor, or any other party-in-interest or
        their representatives to challenge or otherwise contest or institute any proceeding to determine (i) the validity, perfection or
        priority of security interests in favor of SVB, the Pre-Petition Lenders or the DIP Lenders, (ii) the enforceability of the obligations
        of the Debtor or any Guarantor under the Pre-Petition Credit Agreement, any other Loan Documents, or the DIP Facility, or (iii)
        the enforceability of the obligations of the Debtor or any Guarantor to SVB under the Revolving Loan Documents, (b) to commence,
        prosecute or defend any claim, motion, proceeding or cause of action against SVB, the Pre-Petition Lenders, or the DIP Lenders
        and their agents, attorneys, advisors or representatives including, without limitation, any lender liability claims or subordination
        claims, (c) to commence, prosecute or defend any claim or proceeding or cause of action to disallow or challenge the obligations
        of Debtor or Guarantor under the Revolving Loan Documents, Pre-Petition Credit Agreement, any other Loan Documents or the DIP financing
        documents, or (d) to fund acquisitions, capital expenditures, capital leases, or any other similar expenditure other than capital
        expenditures specifically set forth in the Budget and approved by SWK, provided that a Committee and its professionals shall be
        permitted to investigate the liens, claims, and potential causes of action against the Pre-Petition Lenders in connection with
        the Pre-Petition Credit Agreement in an amount not to exceed $10,000.

         

	
        Cash Management

        Collections and Remittances:
	
        Debtor shall use a cash management system that
        is the same as or substantially similar to its pre-petition cash management system. Any material changes from such pre-petition
        cash management system must be acceptable to SWK in its sole discretion. The Interim Order and Final Order shall provide the DIP
        Lenders with a valid and enforceable lien and security interest on the cash held in the Debtor’s bank accounts, subject only
        to the relative priority provisions of that certain Intercreditor Agreement between SWK and SVB dated July 30, 2014 (the “Intercreditor
        Agreement”).

         

        For the purpose of crediting the Debtor’s
        loan account and calculating interest, all items of payment shall be deemed applied by SWK one (1) Business Day following the Business
        Day of SWK’s receipt thereof.

 

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	Pre-Petition Obligations:	
        As of the date of this DIP Term Sheet, the
        Debtor and the Guarantor owe certain obligations under the Pre-Petition Credit Agreement and other Loan Documents. Each lender
        party to the Pre-Petition Credit Agreement is herein referred to collectively as the “Pre-Petition Lenders”
        and each individually a “Pre-Petition Lender”) and SWK, in its role as Agent for the Pre-Petition Lenders, is
        hereinafter referred to as the “Pre-Petition Agent.” Upon entry of the Final Order, the Debtor’s obligations
        to the Pre-Petition Lenders under the Pre-Petition Credit Facility (including accrued, unpaid interest from the Petition Date)
        shall be deemed obligations under the DIP Facility, and all obligations of any Guarantor under the Pre-Petition Credit Facility
        and the other Loan Documents to which it is party shall be reaffirmed and/or remain in place as to the DIP Facility.

         

	Super-Priority

Administrative Claim:	
        Amounts owed by Debtor to SWK pursuant to the
        DIP Facility (including all accrued interest, fees, costs and expenses) shall constitute, in accordance with Section 364(c)(1)
        of the Bankruptcy Code (as defined below), a claim having priority over any or all administrative expenses of the kind specified
        in, among other sections, Sections 105, 326, 330, 331, 503(b), 506(c), 507(a), 507(b) and 726 of the Bankruptcy Code, subject to
        payment of the Carve Out. The foregoing superpriority claim in favor of SWK shall not be payable from any claims or causes of action
        arising under chapter 5 of the Bankruptcy Code or any applicable state fraudulent transfer statutes (together, “Avoidance
        Actions”) or any proceeds thereof.

         

	Collateral Security:	The DIP Facility (including accrued interest, fees, costs and expenses) shall be secured, subject and subordinate to any valid, perfected prior liens and security interests existing as of the Petition Date other than those in favor of the Pre-Petition Agent and/or the Pre-Petition Lenders and consistent with the terms of the Intercreditor Agreement and subject in all events to payment of the Carve Out, by first priority senior and priming liens and security interests (the “DIP Liens”) in all of the Debtor’s property, including, without limitation, all of Debtor’s existing and future acquired property and interests of any nature whatsoever, real and personal, tangible and intangible, accounts receivable, general intangibles, payment intangibles, supporting obligations, investment property, commercial tort claims, inventory, rolling stock, machinery, equipment, subsidiary capital stock, chattel paper, documents, instruments, deposit accounts, contract rights, and tax refunds of the Debtor, excluding only Avoidance Actions and the proceeds thereof (collectively, the “DIP Collateral”).

 

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	Lien Validation

and Perfection:	
        All liens authorized and granted pursuant to
        the Interim Order or the Final Order entered by the Bankruptcy Court approving the DIP Facility or with respect to adequate protection
        shall be deemed effective and perfected as of the Petition Date, and no further filing, notice or act will be required to effect
        such perfection.

         

        The Debtor shall stipulate in the Interim Order
        and Final Order that (i) SWK’s liens securing the Pre-Petition Credit Facility are valid, perfected, encumber all assets
        of the Debtor, and have first priority subject only to the prior lien in favor of SVB in the “Revolving Loan Priority Collateral”
        (as defined in the Intercreditor Agreement) pursuant to the terms of the Intercreditor Agreement, (ii) SVB’s liens securing
        the obligations under the Revolving Loan Documents are valid, perfected, and encumber all assets of the Debtor, and (iii) the Debtor
        possesses no claims, offsets or any other type cause of action against SVB or SWK which would impair, in any manner, SVB’s
        or SWK’s liens against the Debtor’s assets, the Obligations of the Debtor to SWK under the Pre-Petition Credit Facility,
        or the obligations of the Debtor to SVB under the Revolving Loan Documents. The Debtor’s stipulations shall be binding upon
        all parties in interest in the Chapter 11 Case, including any committee that is appointed, unless (i) an adversary proceeding is
        filed (x) by any party-in-interest prior to the expiration of seventy-five (75) days after the Petition Date or (y) by the creditors’
        committee, if formed, sixty (60) days after its formation (the “Review Period”) against SWK or SVB (as
        applicable) challenging SVB or SWK’s liens (as applicable) or otherwise asserting estate claims against SWK or SVB (as applicable),
        and (ii) a final, non-appealable judgment is entered against SWK or SVB (as applicable) in such adversary proceeding; provided,
        however, any party-in-interest that fails to file an adversary proceeding within the Review Period shall be forever barred from
        asserting any claims against SVB and/or SWK (as applicable) on behalf of the Debtor’s estate, or challenging in any manner
        SVB’s or SWK’s liens and claims (as applicable) against the Debtor.

         

	Release of Claims	
        In consideration of the furnishing of the DIP
        Facility, the Debtor, subject to the rights of another party to bring a Challenge Action during the Review Period, and upon entry
        of the Final Order, hereby absolutely releases and forever discharges each of the Pre-Petition Agent and Pre-Petition Lenders and
        their affiliates, officers, directors, employees, attorneys, and other representatives from any and all claims and causes of action
        of every kind and nature that the Debtor may hold against such released parties.

         

	506(c) Surcharge	Upon entry of the Final Order, the Debtor hereby waives any right to surcharge the prepetition collateral or DIP Collateral, whether pursuant to Bankruptcy Code sections 506(c) or 105(a) or under any other applicable law.

 

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	Adequate Protection:	
        As adequate
        protection and in consideration for being primed by the DIP Lenders’ claims and liens, the Pre-Petition Lenders (a) shall
        receive a claim having priority over any and all expenses of the kind specified in, among other sections of the Bankruptcy Code,
        Sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 726, and 1114, subject to payment of the Carve Out and subject
        to the super-priority administrative claims of the DIP Lenders under the DIP Facility and existing claims of the Pre-Petition Lenders
        and SVB on their respective pre-petition collateral; and (b) shall have valid, binding, enforceable and perfected liens in all
        DIP Collateral, subject to payment of the Carve Out, the DIP Liens, and any prepetition liens or Revolving Loan Adequate Protection
        Liens held by SVB in the Revolving Loan Priority Collateral (as such term is defined in the Intercreditor Agreement), in each case
        equal to the sum of the aggregate diminution, if any, subsequent to the Petition Date, in the value of their respective pre-petition
        collateral (the “SWK Adequate Protection Liens”).

         

        As adequate
        protection and in consideration for the Debtor’s use of SVB’s cash collateral, SVB (a) shall receive a claim having
        priority over any and all expenses of the kind specified in, among other sections of the Bankruptcy Code, Sections 105, 326, 328,
        330, 331, 503(b), 506(c), 507(a), 507(b), 726, and 1114, subject to payment of the Carve Out and subject to the super-priority
        administrative claims of the DIP Lenders under the DIP Facility and existing claims of the Pre-Petition Lenders and SVB on their
        respective pre-petition collateral; and (b) shall have valid, binding, enforceable and perfected liens in all DIP Collateral, subject
        to payment of the Carve Out, the DIP Liens, and any prepetition liens or SWK Adequate Protection Liens held by the Pre-Petition
        Lenders in the Term Loan Priority Collateral (as such term is defined in the Intercreditor Agreement), in each case equal to the
        sum of the aggregate diminution, if any, subsequent to the Petition Date, in the value of their respective pre-petition collateral
        (the “Revolving Loan Adequate Protection Liens”, and collectively with the SWK Adequate Protection Liens,
        the “Adequate Protection Liens”).

         

        Notwithstanding
        anything to the contrary herein, the super-priority claims and Adequate Protection Liens granted herein in favor of the Pre-Petition
        Lenders shall not be payable from Avoidance Actions or the proceeds thereof.

         

	Fees and Expenses:	Debtor shall promptly pay or reimburse SWK when invoiced for all reasonable costs and expenses of counsel (including, without limitation, local counsel) and financial advisors for SWK relating to the DIP Facility and the administration and interpretation of, and the enforcement of remedies under, the DIP Facility and including all due-diligence, including but not limited to environmental due-diligence, duplication or printing costs, consultation, travel, and attendance at court hearings, regardless of whether the DIP Facility is consummated. SWK shall have the right to charge the DIP Facility for any such fees and costs. Failure to pay such fees and expenses within ten Business Days of delivery of the applicable invoice shall be an Event of Default under the DIP Facility, provided that SWK shall concurrently provide copies of any invoices to the U.S. Trustee and the Committee and allow such parties at least five Business Days to review and object to any fees or expenses requested therein.  If any objection is asserted, the Bankruptcy Court shall decide the issue and the Debtor shall not be required to pay any disputed portion of such fees or expenses until the matter is resolved.

 

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	Conditions Precedent:	
        The closing of the DIP Facility shall be subject
        to (a) approval of the Interim Budget (as defined below) and Budget by SWK, together with all financial information and projections
        regarding the Debtor requested by SWK, all in form and substance satisfactory to SWK in its sole discretion, (b) entry of an Interim
        Order and the Final Order approving the DIP Facility, its superpriority administrative claims and all first priority (subject only
        to the liens in favor of SVB as described herein and payment of the Carve Out) and other liens securing the DIP Facility, and containing
        such other orders and findings as SWK may require, including automatic modification of the automatic stay upon the occurrence of
        an Event of Default enabling SWK to exercise certain rights and remedies against the DIP Collateral, which Interim Order or Final
        Order, as applicable, shall not have been modified or amended without reasonable approval of SWK, and shall not have been reversed,
        vacated or stayed pending appeal, in form and substance satisfactory to SWK in its sole discretion, (c) SWK’s approval of
        all material motions and orders filed in the Chapter 11 Case requiring the expenditure of cash, (d) continuation of Debtor’s
        present cash management system, and (e) SWK’s receipt of an affirmation (in form and substance satisfactory to SWK in its
        sole discretion) of the Guarantor’s guaranty of the Debtor’s obligations under the DIP Facility, Pre-Petition Credit
        Agreement or other Loan Documents.

         
	 
	
        Affirmative and

        Negative

        Covenants:

         
	
        To the extent not inconsistent with covenants
        herein, all covenants in the Pre-Petition Credit Agreement shall apply to the DIP Facility other that the covenants set forth in
        Section 7.13 of the Pre-Petition Credit Agreement.

         

        Debtor shall also comply with the
following affirmative and negative covenants: (a) compliance with Budget covenants consistent with the section titled “Budget
and Variances,” (b) the Debtor shall, from and after the Petition Date, satisfy the Milestones; and (c) the Debtor shall,
contemporaneously with closing a sale of substantially of all of its assets, remit the net proceeds of such sale to SWK for immediate
application to the obligations owed to SWK and the DIP Lenders in accordance with the waterfall set forth in Section 2.10.2 of
the Pre-Petition Credit Agreement (as such provision may be modified by agreements between SWK and the DIP Lenders), subject to
payment of the Carve Out.
	 

 

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	Bankruptcy Court Filings:	
        As soon as practicable in advance of filing
        with the Bankruptcy Court, Debtor shall furnish to SWK (i) the motion seeking approval of and proposed forms of the Interim Order
        and the Final Order, which motion shall be in form and substance satisfactory to SWK in its sole discretion, (ii) the motions seeking
        approval of the bidding procedures and the 363 Sale, and the proposed forms of the orders related thereto, which shall be in form
        and substance satisfactory to SWK, (iii) all other proposed orders and pleadings related to the DIP Facility, which orders and
        pleadings shall be in form and substance satisfactory to SWK in its sole discretion, (iv) any plan of reorganization or liquidation,
        and/or any disclosure statement related to such plan (which plan or disclosure statement shall comply with the requirements set
        forth herein), (v) any motion and proposed form of order seeking to extend or otherwise modify the Debtor’s exclusive periods
        set forth in section 1121 of the Bankruptcy Code, (vi) any motion seeking approval of any sale of the Debtor’s assets and
        any proposed form of a related bidding procedures order and sale order (other than those with respect to the bidding procedures
        and the 363 Sale), and (vii) any motion and proposed form of order filed with the Bankruptcy Court relating to any management equity
        plan, incentive plan or severance plan, the assumption, rejection, modification or amendment of any material contract (each of
        which must be in form and substance satisfactory to SWK in its sole discretion).

         
	 
	
        Sale Process:

         

         

         

         

         

         

         
	
        The Debtor shall conduct a sale process for
        the sale of substantially all of the assets of the Debtor in accordance with the Milestones defined below.

         

        The management team of the Debtor, together
        with Canaccord Genuity Inc., shall oversee the sale process on behalf of the Debtor, including all activities of any advisors retained
        by the Debtor in connection with the sale process, shall at all times be entitled to take any action necessary or appropriate to
        conduct the sale process, and shall exercise its commercially reasonable best efforts to provide SWK with access to all potential
        bidders and other interested parties and any information provided to the Debtor by such parties.

         

        In addition to the reporting required under
        the Pre-Petition Credit Agreement, the Debtor shall provide or cause to be provided to SWK a written report from Canaccord Genuity
        or the management team of the Debtor bi-weekly (or more frequently as reasonably requested by SWK) in form and substance satisfactory
        to, and addressing such items as are reasonably requested by SWK, including addressing the status of the marketing and sale process
        of the Debtor. Debtor shall also cause its management team and Cannacord Genuity to be made available to provide periodic telephonic
        updates of such reports to SWK from time to time (but not less than weekly), as reasonably requested by SWK.

         

 

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        Milestones. The Debtor shall
        be required to comply with the following (the “Milestones”):

         

        (a)        On
        or before the day that is three (3) days after the Petition Date, or such later date to which SWK consents in writing in its sole
        discretion, the Debtor shall file a motion, in form and substance acceptable to SWK, requesting entry of the Sale Procedure Order
        (as defined below).

         

        (b)        On
        or before the date that is twenty-five (25) days after the Petition Date, or such later date to which SWK consents in writing in
        its sole discretion, the Bankruptcy Court shall have entered the Sale Procedure Order.

         

        (c)        On
        or before the date that is forty-eight (48) days after the Petition Date, or such later date to which SWK consents in writing in
        its sole discretion, the Debtor shall have held the Auction (as defined below).

         

        (d)        On
        or before the date that is fifty (50) days after the Petition Date, or such later date to which SWK consents in writing in its
        sole discretion, the Bankruptcy Court shall have entered the Sale Order (as defined below) approving the 363 Sale, the results
        of the Auction and the winning bid received at the Auction.

         

        (e)        On
        or before the date that is three (3) days after entry of the Sale Order, provided that the Bankruptcy Court has waived the stay
        imposed by Bankruptcy Rule 6004(h) or such later date to which SWK consents in writing in its sole discretion, the Sale shall be
        closed, with proceeds of the Sale paid directly to SWK to be applied to the obligations under the DIP Facility, subject to payment
        of the Carve Out.

         

        Notwithstanding anything to the contrary
        herein, the Bankruptcy Court may set dates with respect to the Milestones beyond the outer dates specified above to accommodate
        its own schedule and to the extent the Bankruptcy Court makes such an extension, the Milestones hereunder shall be automatically
        extended by the same period as the Bankruptcy Court’s extension.

         

        SWK shall have the right to
“credit bid” any secured obligations owed to it in any sale of the Debtor’s assets.

 

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	Representations and

Warranties:	The representations and warranties of Debtor set forth in the Pre-Petition Credit Agreement (other than those set forth in Sections 5.4, 5.5, 5.11, and 5.14 thereof and subject to Bankruptcy Court approval as to Sections 5.2 and 5.3), except as otherwise previously disclosed to the Agent, are hereby incorporated in all material respects into this DIP Term Sheet as if made on the date hereof (except to the extent such representations and warranties expressly relate to an earlier date, in which case they are true and correct in all material respects as of such earlier date).	 
	 	 	 
	Additional Conditions to Each

Borrowing Under the

Facility:	
        There shall exist no Event of Default (or event
        that would constitute an Event of Default with the giving of notice or lapse of time) under any of the DIP Financing Documents,
        and the representations and warranties therein shall be true and correct in all material respects.

         

        There shall have occurred
        no material adverse change in the Debtor’s (financial, environmental, or otherwise) operations, performance, or properties
        (other than, in each case, the commencement of the Chapter 11 Case), since the date of this DIP Term Sheet, that in the reasonable
        judgment of SWK, has or can reasonably be expected to have a material adverse effect on the rights and remedies of SWK or on the
        ability of the Debtor to perform its obligations to them under the DIP Facility.

         

        SWK shall be reasonably
        satisfied that Debtor is continuing to take action and demonstrating progress toward the Milestones.

         

	Remedies:	
        Following the Termination Date and provided
        that the Bankruptcy Court does not enter any order to the contrary within five Business Days’ following the Debtor’s
        receipt of a Default Notice as defined below, SWK shall have customary remedies, including, without limitation, the right to realize
        on all DIP Collateral, the right to exercise any remedy available under applicable law, without the necessity of obtaining any
        further relief or order from the Bankruptcy Court. Consistent with the foregoing sentence, section 362 relief from the stay in
        favor of SWK shall be embodied in any order approving the DIP Facility and the use of cash collateral. Subject to the foregoing,
        the terms and conditions of 8.2 of the Pre-Petition Credit Agreement are hereby incorporated in the DIP Term Sheet.

         

	Additional Conditions To

Financing:	
        Compliance with Bankruptcy Rule 4001 and any
        applicable Local Bankruptcy Rules, the entry of the Interim Order and the Final Order, together with any other order requested
        by SWK authorizing and approving the DIP Facility in form, substance and amount and providing for the DIP Collateral, all acceptable
        to SWK in its sole discretion.

         

        Payment of all fees and expenses owing to SWK
        in connection with the DIP Facility.

 

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        The Interim and Final Orders shall include
        such waivers, indemnities, and other provisions as are acceptable to SWK in its sole discretion.

         

	Events of Default:	
        Defaults and Events of Default shall mean the
        occurrence of any of the following:

         

        ·      The
        Chapter 11 Case shall be converted to a case under Chapter 7 of the Bankruptcy Code or be dismissed or a motion requesting
        such relief shall have been filed.

         

        ·      Filing
        or support of a proposed plan of reorganization by Debtor that does not provide for the indefeasible payment in full and in cash
        of Debtor’s obligations outstanding under the DIP Facility, unless otherwise agreed in writing by SWK in its sole discretion.

         

        ·      Entry
        of an order confirming (or the filing of any motion or pleading requesting confirmation of) a plan of reorganization that does
        not require the indefeasible repayment in full, in cash of the DIP Facility as of the effective date of the plan, unless otherwise
        agreed in writing by SWK in its sole discretion.

         

        ·      Appointment
        of a trustee under Section 1104 of the Bankruptcy Code without the express written consent of SWK, or the filing of any motion
        or other pleading requesting such relief which the Debtor fails to timely oppose.

         

        ·      Appointment
        of an examiner with enlarged powers (powers beyond those set forth in Section 1106(a)(3) and (4) of the Bankruptcy Code) under
        Section 1106(b) of the Bankruptcy Code without the prior written consent of SWK, or the filing of a motion or other pleading requesting
        such relief which the Debtor fails to timely oppose.

         

        ·      Entry
        of an order by the Bankruptcy Court amending, supplementing, staying, vacating or otherwise modifying the DIP Facility, the Interim
        Order or Final Order approving the DIP Facility, without the prior written consent of SWK or the filing of a motion or other pleading
        requesting such relief which the Debtor fails to timely oppose.

         

        ·      Any
        attempt by Debtor to obtain, or if any other party in interest obtains, an order of the Bankruptcy Court or other judgment, and
        the effect of such order or judgment is to, invalidate, reduce or otherwise impair SWK’s claims, or to subject any of SWK’s
        collateral to a surcharge pursuant to Section 506(c) of the Bankruptcy Code.

 

    	12

     

    

  

	 	
        ·      Debtor
        shall apply for an order substituting any assets for all or any portion of the DIP Collateral.

         

        ·      Any
        payment on, or application for authority to pay any pre-petition claim owing to terminated employees or lease rejection damages
        without prior written consent of SWK or as otherwise set forth in the Budget.

         

        ·      If
        at any time, Canaccord Genuity Inc. ceases to be engaged by the Debtor, ceases to be involved in the sales process, or the sales
        process is halted.

         

        ·      A
        final order is entered granting any creditor with a claim in excess of $100,000 relief from the automatic stay.

         

        ·      Failure
        to make all payments under the DIP Facility when due.

         

        ·      Failure
        to pay any post-petition material indebtedness.

         

        ·      Breach
        of any covenant set forth in any DIP Financing Document.

         

        ·      Any
        material representation or warranty by Debtor is incorrect or misleading in any material respect when made.

         

        ·      Exclusivity
        shall have been terminated or the Debtor shall have agreed to any such termination.

         

        ·      After
        entry thereof, either of the Sale Procedure Order or the Sale Order shall cease to be in full force and effect, shall have been
        reversed, stayed, vacated or subject to stay pending appeal or shall have been modified or amended without the prior written consent
        of SWK.

         

        ·      Any
        “Stalking Horse” bidder designated in the motion seeking approval of the Sale Procedures Order shall drop out of the
        sale process or otherwise indicate that it is unable to close the sale process within sixty (60) days of the Petition Date.

         

        ·      Debtor
        or Guarantor shall take (or support any other Person in taking) any action in order to restrict or prohibit SWK or any DIP Lender
        from submitting a “credit bid” for any assets of the Debtor.

         

        ·      The
        Debtor fails to disburse the sale proceeds to the DIP Lenders contemporaneously with the closing of a sale of substantially all
        of their assets, subject to payment of the Carve Out.

 

    	13

     

    

  

	Indemnification:	
        The Debtor
        shall indemnify and hold SWK, the DIP Lenders, and their officers, directors, employees and agents (including all of their professionals)
        (each an “Indemnified Party”) harmless from and against any and all claims, damages, losses, liabilities and
        expenses (including, without limitation, all fees and disbursements of attorneys and other professionals) to which any Indemnified
        Party may become liable or which may be incurred by or asserted against any Indemnified Party, in each case in connection with
        or arising out of or by reason of any investigation, litigation or proceeding arising out of or relating to or in connection with
        the DIP Facility, the DIP Financing Documents, any obligation, or any act, event or transaction related or attendant thereto or
        any use or intended use of the proceeds of the DIP Facility, except to the extent the same is found in a final, nonappealable judgment
        by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct.
        Subject to entry of the Final Order, the terms and conditions of section 9.7 of the Pre-Petition Credit Agreement are hereby incorporated
        in this DIP Term Sheet.

         

	Governing Law:	All documentation in connection with the DIP Facility shall be governed by the laws of the state of New York, subject to applicable federal bankruptcy laws.

 

    	14

     

    

 

	Other Definitions:	
        “363 Asset Purchase Agreement”
        means a Third-Party Asset Purchase Agreement satisfactory to SWK, in its sole discretion.

         

        “363 Sale” means the sale
        of all or substantially all of the assets of the Debtor under Section 363 of the Bankruptcy Code.

         

        “Approved Budget Variance Report”
        means a current report that: (i) details the actual amount of cash receipts and disbursements for the prior week for each line
        item included in the Budget (on a weekly and cumulative basis), (ii) compares such actual cash receipts and disbursements (on a
        line item by line item basis) with the weekly and cumulative budgeted amounts for each such line item set forth in the Budget for
        such period, and (iii) provides an explanation for all variances between budgeted and actual amounts. Each Approved Budget Variance
        Report will be certified as true and correct by the Debtor’s chief financial officer or chief executive officer.

         

        “Auction” means an
        auction held in connection with the 363 Sale and in accordance with the provisions set forth in the Sale Procedure Order.

         

        “Bankruptcy Code” means
        Title 11 of the United States Code (11 U.S.C. § 101 et seq.), as amended.

         

        “Bankruptcy Court” means
        the United States Bankruptcy Court for the District of Delaware presiding over the Chapter 11 Case.

         

        “Budget” means the budget
        of Debtor relative to the operations of the Debtor in the Chapter 11 Case for any fiscal period, as delivered to SWK in form and
        substance satisfactory to SWK. A Budget for the first 8 weeks of the Chapter 11 Case (the “Interim Budget”)
        must be approved by SWK and must be attached to the Interim Order. A Budget covering the period from the date of entry of the Final
        Order through the Maturity Date must be delivered by the Debtor to SWK (and approved by SWK in its sole discretion) at least two
        Business Days before any hearing related to final approval of the DIP Facility and must be attached to the Final Order.

         

        “Carve Out” means:

         

        (a)        unpaid, postpetition fees and expenses
        of the Clerk of the Court and the U.S. Trustee pursuant to 28 U.S.C. § 1930(a) in such amount, with respect to the U.S. Trustee
        as agreed to by the U.S. Trustee or as determined by the Court (collectively, the “Statutory Fees”);

 

    	15

     

    

  

	 	
        (b)        (i) accrued, but unpaid postpetition
        payroll obligations and payroll taxes of the Debtor up to the amounts set forth in the Budget (prorated on a daily basis) through
        the date of the Default Notice (as defined below), and (ii) any accrued prepetition PTO Carve Out;

         

        (c)        the unpaid postpetition fees and expenses
        of the professionals retained by the Debtor and by the Committee, whose retentions are approved pursuant to final orders of the
        Court under sections 327, 328, 363 or 1103(a) of the Bankruptcy Code (the “Chapter 11 Professionals”), but only
        to the extent that such fees and expenses are (i) incurred prior to the giving of a notice of the occurrence of the Termination
        Date by SWK to the Debtor and the Committee (the “Default Notice”), (ii) within the amounts set forth in the
        Budget approved by SWK, (iii) subsequently allowed by the Bankruptcy Court under sections 330, 331, or 363 of the Bankruptcy Code,
        and (iv) not otherwise paid from retainers, the Expense Reserve Account, or any professional expense escrow account established
        by the Debtor; and

         

        (d)         postpetition fees and expenses of the
        Chapter 11 Professionals incurred after SWK’s transmission of notice of the Termination Date in an aggregate amount not to
        exceed $100,000, to the extent such fees and expenses are (i) subsequently allowed by the Bankruptcy Court under sections 330,
        331, or 363 of the Bankruptcy Code, and (ii) not otherwise paid from any retainers, the Expense Reserve Account, or any other professional
        expense escrow account established by the Debtor.

         

        Following entry of the Interim Order, so long
        as the Debtor is entitled to make draws under the DIP Facility and no Event of Default shall have occurred, the Debtor shall be
        authorized to transfer funds to the Pachulski Stang Ziehl & Jones LLP Client Trust Account (the “Expense Reserve Account”)
        on a weekly basis, the amounts that the Chapter 11 Professionals may be paid pursuant to the Budget for such week. Such funds shall
        be held for the benefit of the Chapter 11 Professionals, to be applied to the fees and expenses of such Chapter 11 Professionals
        that are approved for payment pursuant to one or more orders of the Bankruptcy Court.

         

        For the avoidance of doubt, fees and
expenses payable to the Chapter 11 Professionals shall be paid first out of the Expense Reserve Account, and all amounts deposited
in the Expense Reserve Account shall reduce, on a dollar for dollar basis, the Carve-Out. To the extent that the fees and expenses
of the Chapter 11 Professionals performed prior to the Termination Date and allowed pursuant to one or more orders of the Bankruptcy
Court are less than the amounts funded into the Expense Reserve Account, the excess amounts in the Expense Reserve Account shall
be remitted to SWK. 

 

    	16

     

    

 

	 	
        “PTO Carve Out” means
        paid time off due and owing to the Debtor’s employees in an amount not to exceed the lesser of (a) the amounts set forth
        in the Budget for payment of such paid time off (whenever such amounts are budgeted); or (b) as of the date of termination of such
        employees an amount up to (but not to exceed) $12,475 per employee; provided, however, that PTO Carve Out shall not include:
        (a) any accrued paid time off obligations that are assumed by a 363 Sale Purchaser; or (b) any accrued paid time off obligations
        that are also incorporated into the calculation of, reduced through the payment of, or otherwise duplicative of any KEIP Amounts.

         

        “Chapter 11 Case” means
        the voluntary Chapter 11 case commenced by the Debtor to be commenced in the Bankruptcy Court.

         

        “Committee” means any statutory
        committee appointed in the Chapter 11 Case.

         

        “Final Order” means a final,
        non-appealable order of the Bankruptcy Court, that, without limitation, approves the DIP Facility and grants the liens and security
        interests contained therein, on terms satisfactory to SWK in its sole discretion.

         

        “Interim Order” means an
        interim order of the Bankruptcy Court authorizing Debtor, among other things, to obtain interim financing and incur post-petition
        indebtedness on terms satisfactory to SWK in its sole discretion.

         

        “KEIP Amount” means any
        payments set forth in the Budget proposed to be made by the Debtor pursuant to a key employee incentive plan that is subject to
        approval by SWK in its sole discretion.

         

        “Maturity Date” means the
        date that is sixty (60) days after the Petition Date, or such later date to which SWK consents in writing.

         

        “Petition Date” means the
        date on which the Chapter 11 Case for such Debtor was filed with the Bankruptcy Court.

         

        “Revolving Loan Agreement”
        has the meaning ascribed to it in the Intercreditor Agreement.

         

        “Revolving Loan Documents”
        has the meaning ascribed to it in the Intercreditor Agreement.

         

        “Sale” means a sale of all
        or substantially all of the Debtor’s assets.

 

    	17

     

    

  

	 	
        “Sale Order” means the order
        entered by the Bankruptcy Court in form and substance satisfactory to SWK (in its sole discretion) that, among other things, approves
        the 363 Sale, the results of the Auction (if applicable) and the Winning Bidder’s bid.

         

        “Sale Procedure Order” means
        an order in form and substance satisfactory to SWK approving (a) the bidding procedures to be applicable to the 363 Sale and (b)
        subject to higher and better bid, the 363 Asset Purchase Agreement.

         

        “SVB” means Silicon Valley
        Bank, the lender under the Revolving Loan Agreement.

         

        “Third-Party Asset Purchase Agreement”
        means an asset purchase agreement by and among the Debtor and a third party purchaser that provides for the purchase and sale of
        substantially all of the assets of the Debtor, which third party purchaser and asset purchase agreement are satisfactory to SWK
        in its sole discretion.

         

        “Winning Bidder” means the
        bidder that (a) agrees (at the Auction if applicable) to purchase all or substantially all of the assets of the Debtor pursuant
        to a Third-Party Asset Purchase Agreement, and (b) is acceptable to SWK.

 

    	18

     

    

  

IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first set forth above.

	 	borrower:
	 	 
	 	Response Genetics, Inc., 
	 	a Delaware corporation
	 	 
	 	By:	 
	 	Name:	Thomas A. Bologna
	 	Title:	Chief Executive Officer

 

    	19

     

    

  

	 	AGENT:
	 	 
	 	SWK FUNDING LLC
	 	 
	 	By:	 
	 	Name:	Winston Black
	 	Title:	Managing Director
	 	 	 
	 	lender:
	 	 
	 	SWK FUNDING LLC
	 	 	 
	 	By:	 
	 	Name:	Winston Black
	 	Title:	Managing Director

 

    	20ex41to8k08066001_08052015.htm

Exhibit 4.1

 

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 APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date:  August 5, 2015

Original Conversion Price (subject to adjustment herein): $0.10

ORIGINAL ISSUE DISCOUNT

SENIOR SECURED CONVERTIBLE DEBENTURE

DUE NOVEMBER 3, 2015

THIS ORIGINAL ISSUE DISCOUNT SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Senior Secured Convertible Debentures of SG Blocks, Inc., a Delaware corporation, (the “Company”), having its principal place of business at 400 Madison Avenue, Suite 16C, New York, NY 10017, designated as its Original Issue Discount Senior Secured Convertible Debenture due on the Maturity Date (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

FOR VALUE RECEIVED, the Company promises to pay to Hillair Capital Investments L.P. or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $162,000 on the Maturity Date or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof.  This Debenture is subject to the following additional provisions:

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

 

  

1

  

 

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

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

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

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

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

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

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

 

  

2

  

 

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

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

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

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

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

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

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

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

 

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

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

 

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

“Maturity Date” means November 3, 2015, unless the Company has not filed its Form 10-Q for the period ended June 30, 2015 by August 30, 2015, in which case the Maturity Date shall be February 2, 2016.

 

  

3

  

 

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

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

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

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

“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures, and (b) lease obligations, purchase money indebtedness incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, and the indebtedness existing on the Closing Date and set forth on Schedule 3.1(aa) to the Purchase Agreement, of up to $300,000, in the aggregate.

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

 

  

4

  

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of August 5, 2015 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Registration Statement” means a registration statement covering the resale of the Underlying Shares by the Holder.

“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(e).

 

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

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

 

  

5

  

 

Section 2.

a)           No regularly scheduled Interest.   The parties acknowledge that this Debenture was issued at an original issue discount, and does not have any regularly scheduled interest payments.

b)           Late Fee.  All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

 

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

Section 3.            Registration of Transfers and Exchanges.

 

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

 

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

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

Section 4.            Conversion.

 

a)           Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof).  The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder.  To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion.  The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s).  The Company may deliver an objection to any Notice of Conversion within two (2) Business Days of delivery of such Notice of Conversion.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

  

6

  

b)           Conversion Price.  The conversion price in effect on any Conversion Date shall be equal to $0.10, subject to adjustment herein (the “Conversion Price”); provided, however, if the Company does not file its 10-Q for the period ended June 30, 2015 by August 30, 2015, the Conversion Price shall immediately be reduced to $0.01 per share, subject to adjustment herein.

c)           Mechanics of Conversion.

 

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

ii.           Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture  and (B) a bank check in the amount of accrued and unpaid interest. On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall use its commercially reasonable efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

 

  

7

  

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

 

iv.           Obligation Absolute; Partial Liquidated Damages.  The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder.  In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment.  In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.  If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $15 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion.    Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

  

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

 

  

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vi.           Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture.  The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement.

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

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

 

  

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

  

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Section 5.            Certain Adjustments.

 

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

 

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

 

  

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

 

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

 

  

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

 

  

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

g)           Notice to the Holder.

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

 

 

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

 

  

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Section 6.            [RESERVED]

 

Section 7.            Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

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

 

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

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

d)           repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $150,000 for all officers and directors during the term of this Debenture;

e)           repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures if on a pro-rata basis; or

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

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

 

  

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

 

Section 8.            Events of Default.

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

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

 

ii.           the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 20 Trading Days after the Company has become or should have become aware of such failure;

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

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

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

 

vi.           the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $500,000, 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;

 

  

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

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

ix.           the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

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

xi.           any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $300,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

b)           Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount.  Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.  Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company.  In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law.  Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b).  No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

  

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Section 9.            Miscellaneous.

 

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

 

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

 

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

 

  

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

 

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

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

 

  

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g)           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.

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

i)           Secured Obligation.  The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of August 5, 2015 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

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

 

(Signature Pages Follow)

 

  

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

 

	  	
SG BLOCKS, INC.

	  	  
	  	
By:

	  
	  	  	
Name:

	  
	  	  	
Title:

	  
	 	 	Facsimile No. for delivery of Notices:	 

 

 

  

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ANNEX A

NOTICE OF CONVERSION

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

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

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

Conversion calculations:

	  	
Date to Effect Conversion:

	  	  
	  	
Principal Amount of Debenture to be Converted:

	  	  
	  	
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:

	  

 

  

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Schedule 1

CONVERSION SCHEDULE

This Original Issue Discount Senior Secured Convertible Debentures due on the Maturity Date in the original principal amount of $162,000 is issued by SG Blocks, Inc., a Delaware corporation.  This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

	
Date of Conversion

(or for first entry, Original Issue Date)

	
Amount of Conversion

	
Aggregate Principal Amount Remaining Subsequent to Conversion

(or original Principal Amount)

	
Company Attest

	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  

  

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