UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
June 3, 2014
ECO BUILDING PRODUCTS, INC.
(Exact name of registrant as specified in
its charter)
Colorado |
000-53875 |
20-8677788 |
(State or other
jurisdiction
of incorporation) |
(Commission File
Number) |
(IRS Employer
Identification No.) |
909 West Vista Way,
Vista, CA 92083
(Address of principal
executive offices)(Zip Code)
Registrant’s telephone number, including
area code: 760-732-5826
N/A
(Former name of former address, if changed
since last report.)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry into a Material Definitive
Agreement
Securities Purchase Agreement
On June 3, 2014,
Eco Building Products, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”)
with Dominion Capital, LLC, (“Dominion”) Redwood Management, LLC, Redwood Fund II, LLC and Redwood Fund III, LLC (together
with Redwood Management, LLC and Redwood Fund II, LLC, “Redwood”), (Redwood and Dominion together, the “Investors”)
whereby the Investors agreed to fund the Company with a total of up to $3,400,000 in a newly created Series C 12% Convertible Preferred
Stock (the “Preferred Stock”). Pursuant to the Agreement, the Company sold (i) $325,000 of Preferred Stock to Dominion
and (ii) $75,000 of Preferred Stock to Redwood. On the three week anniversary of the Agreement the Company will sell an additional
(i) $325,000 of Preferred Stock to Dominion and (ii) $75,000 of Preferred Stock to Redwood. This funding will be used for Company
capital investment and expansion with a portion to pay off outstanding convertible notes to institutional investors. As a result
of this transaction, the only outstanding convertible debt will be held by management of the Company and the Investors.
Additionally,
at least once per month, the Company agrees to sell to each of Dominion and Redwood, on an equal basis, an amount of Preferred
Stock equal to the amount of aged accounts payable of the Company to be held by Dominion and Redwood on such date, up to a maximum
of $1,200,000 of face amount of accounts payable in the aggregate during the term of this Agreement. The Company anticipates that
as a result of this funding the Company will be able to retire aged debt and maintain a healthy balance sheet moving forward.
Substantially
concurrent with the execution and delivery of this Agreement by the parties hereto, and on each of the next three monthly anniversaries
of the date of this Agreement, the Company agrees to sell (i) $175,000 of Preferred Stock to Dominion and (ii) $175,000 of Preferred
Stock to Redwood. This funding will be used to cover Company overhead costs, including, but not limited to, payroll, facility rents,
tax payments, investor and public relations, professional and administrative services, insurance, travel and warehouse supplies.
Series C Preferred
Stock Financing
In accordance
with the Agreement, the Company agreed to designate and issue to the Investors up to 34,000 shares of Preferred Stock, for
an aggregate purchase price of up to $3,400,000 (the “Financing”) which are convertible into shares of the Company’s
common stock (the “Common Stock”). The initial closing of the sale of these securities took place on June
3, 2014 (the “Closing”).
Subject to certain
ownership limitations as described below, shares of Preferred Stock are convertible at any time at the option of the holder into
shares of Common Stock (the “Conversion Shares”) at a conversion price equal to 60% of the lowest VWAP during the 30
trading day period immediately prior to the applicable conversion date, subject to adjustment (the “Conversion Price”);
provided, however, that each of Dominion and Redwood have the ability on up to twenty (20) distinct occasions to calculate the
Conversion Price using the following formula: 60% of the lowest VWAP during the 60 Trading Day-period immediately prior to the
applicable conversion date, subject to adjustment as set forth in the Agreement. The shares of Preferred Stock are convertible
into Common Stock by dividing the Stated Value (defined below) of such share of Preferred Stock by the Conversion Price. The Conversion
Price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the Conversion Price. Subject to limited exceptions, holders of shares of Preferred
Stock will not have the right to convert any portion of their Preferred Stock if the holder, together with its affiliates, would
beneficially own in excess of 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving
effect to its conversion. In addition, the Investors, together, may not convert into or otherwise beneficially own in
excess of 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to its
conversion.
Shares of Preferred
Stock have a liquidation preference equal to the stated value of each share of Preferred Stock or $100 per share (the “Stated
Value”) plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing. The
shares of Preferred Stock do not have any voting rights other than if the Company seeks to alter or adversely affect the rights
of the Preferred Stock.
The Preferred
Stock was issued and sold without registration under the Securities Act of 1933 (the “Securities Act”) in reliance
on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder and in reliance
on similar exemptions under applicable state laws. Accordingly, the Investors may sell the Preferred Stock or the Conversion
Shares only pursuant to an effective registration statement under the Securities Act covering the resale of those shares, an exemption
under Rule 144 under the Securities Act or another applicable exemption under the Securities Act.
Leak Out Agreement
The
Company, Dominion and Redwood agree
that: Commencing on June 3, 2014 (the “Leak Out Date”), Dominion and Redwood the (Note Holders) shall be entitled to
convert the Notes, pursuant to the terms of the Notes, in not more than a principal amount equal to 30% of the dollar volume of
the Company’s Common Stock traded during the prior trading week, per calendar week, (which sum upon completion of each conversion
shall be deducted from the then outstanding Remaining Principal Balance), (the “Weekly Allotment”), until that date
which is six (6) months from the Leak Out Date, at which time the Holders shall no longer be subject to the Weekly Allotment restrictions,
and shall be entitled to convert the then Remaining Principal Balance, as the Holders in its sole discretion may elect pursuant
to the terms of the Notes.
Exchange Agreements
In
connection with the Agreement, the Investors have agreed to enter into exchange agreements whereby they will exchange outstanding
promissory notes and Series B Preferred Stock for Series C Preferred Stock in the Company. A total of 9,250 Series B Preferred
Stock and $7,661,784 due in connection with outstanding promissory notes will be exchange for Series C Preferred Stock. The table
below details the original note amount and approximate amount due to each Investor.
Investor | |
Original Amount Due on Notes (number of notes issued to Investor) | |
Approximate Balance Due to Investor | |
Redwood Management, LLC | |
$5,740,089 (5 notes) | |
$ | 4,489,794 | |
Redwood Fund II, LLC | |
$600,000 (4 notes) | |
$ | 660,000 | |
Redwood Fund III, LLC | |
$235,000 (3 notes) | |
$ | 254,000 | |
Dominion Capital, LLC | |
$3,339,490 (8 notes) | |
$ | 3,182,990 | |
Total | |
| |
$ | 8,586,784 | |
Item 3.02. Unregistered Sales of Equity
Securities
Item 1.01 is hereby incorporated by reference.
The applicable information set forth in
Item 1.01 of this Current Report on Form 8-K is incorporated by reference in this Item 3.02.
Item 8.01 Others Events.
On June 4, 2014, the Company issued a press
release regarding the Note and the Financing described above under Item 1.01 of this Current Report on Form 8-K. A copy of the
press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 9.01 |
Financial Statements and Exhibits. |
4.2 |
Certificate of Designation for the Series C 12% Convertible Preferred Stock |
10.1 |
Securities Purchase Agreement, dated June 3, 2014 |
10.2 |
Exchange Agreements |
|
|
99.1 |
Press Release |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
ECO BUILDING PRODUCTS, INC |
|
|
|
|
|
Date: June 4, 2014 |
By: |
/s/ Steve Conboy |
|
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Steve Conboy |
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Chief Executive Officer |
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CERTIFICATE
OF DESIGNATION
OF
THE PREFERENCES, RIGHTS AND LIMITATIONS
OF
THE
SERIES
C 12% CONVERTIBLE PREFERRED STOCK
OF
ECO
BUILDING PRODUCTS, INC.
The
undersigned, the Chief Executive Officer of Eco Building Products, Inc., a Colorado corporation (the “Company”),
in accordance with the provisions of the Colorado Business Corporation Act, does hereby certify that, pursuant to the authority
conferred upon the Board of Directors by the Articles of Incorporation of the Company, the following resolution creating a series
of preferred stock, designated as Series C 12% Convertible Preferred Stock, was duly adopted on June 3, 2014 as follows:
RESOLVED,
that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Articles
of Incorporation of the Company (the “Articles of Incorporation”), there hereby is created out of the shares
of the Company’s preferred stock, par value $0.001 per share, of the Company authorized in Section 12 of the Articles of
Incorporation, a series of Preferred Stock of the Company, to be named “Series C 12% Convertible Preferred Stock,”
consisting of (3,235,294,118) shares, which series shall have the following designations, powers, preferences and relative and
other special rights and the following qualifications, limitations and restrictions:
Section
1. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.
“Alternate
Consideration” shall have the meaning set forth in Section 7(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 7(b).
“Beneficial
Ownership Limitation” shall have the meaning set forth in Section 6(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 6(c)(iv).
“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),
other than a legal entity majority owned by, or a group wholly consisting of, officers and directors of the corporation and their
Affiliates, of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 66% of the voting securities of the Company (other than by means of conversion or exercise of Preferred
Stock and the Securities issued together with the Preferred Stock), (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 50% of the aggregate voting power of the acquiring
entity immediately after the transaction, (d) a replacement at one time or within a one 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 Original
Issue Date), 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.
“Closing”
means a closing of the purchase and sale of the Securities pursuant to Section 2.1 of the Purchase Agreement.
“Closing
Date” means a Trading Day on which all of the Transaction Documents have been executed and delivered by the Company
and each of the purchasers purchasing shares of Preferred Stock at the relevant Closing, and all conditions precedent to (i) the
purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the shares of
Preferred Stock, in each case, have been satisfied or waived.
“Commission”
means the United States Securities and Exchange Commission.
“Common
Stock” means the Company’s common stock, par value $0.001 per share, and stock of any other class of securities
into which such securities may hereafter be reclassified or changed.
“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
“Conversion
Amount” means the sum of the Stated Value at issue.
“Conversion
Date” shall have the meaning set forth in Section 6(a).
“Conversion
Price” shall have the meaning set forth in Section 6(b).
“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in
accordance with the terms hereof.
“Dilutive
Issuance” shall have the meaning set forth in Section 7(b).
“Dilutive
Issuance Notice” shall have the meaning set forth in Section 7(b).
“Dividend
Conversion Rate” means the lower of (a) 60% of the lowest VWAP for the 25 consecutive Trading Days ending on the Trading
Day that is immediately prior to the applicable Dividend Payment Date or (b) the lowest conversion price of previous conversions.
“Dividend
Notice Period” shall have the meaning set forth in Section 3(a).
“Dividend
Payment Date” shall have the meaning set forth in Section 3(a).
“Dividend
Share Amount” shall have the meaning set forth in Section 3(a).
“DTC”
means the Depository Trust Company.
“DTC/FAST
Program” means the DTC’s Fast Automated Securities Transfer Program.
“DWAC”
means Deposit Withdrawal at Custodian as defined by the DTC.
“DWAC
Eligible” means that (a) the Common Stock is eligible at DTC for full services pursuant to DTC’s Operational Arrangements,
including without limitation transfer through DTC’s DWAC system, (b) the Company has been approved (without revocation)
by the DTC’s underwriting department, (c) the Transfer Agent is approved as an agent in the DTC/FAST Program, (d) the Conversion
Shares are otherwise eligible for delivery via DWAC, and (e) the Transfer Agent does not have a policy prohibiting or limiting
delivery of the Conversion Shares via DWAC.
“Equity
Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions scheduled
to occur or occurring by virtue of one or more Notices of Conversion of the applicable Holder on or prior to the dates so requested
or required, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the applicable Holder in
respect of the Preferred Stock, (c) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable
in lieu of cash payments of dividends) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current
public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect,
addressed and acceptable to the Transfer Agent and the affected Holders, (d) the Common Stock is trading on a Trading Market and
all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and
the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (e) there is a sufficient number of authorized, but unissued and otherwise unreserved, shares of Common Stock
for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Triggering
Event and no existing event which, with the passage of time or the giving of notice, would constitute a Triggering Event, (g)
the issuance of the shares in question to the applicable Holder would not violate the limitations set forth in Section 6(d) herein,
(h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that
has not been consummated, (i) the applicable Holder is not in possession of any information provided by the Company that constitutes,
or may constitute, material non-public information, (j) for each Trading Day in a period of 20 consecutive Trading Days prior
to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds $100,000
per Trading Day, and (i) the Company’s Common Stock must be DTC and DWAC eligible.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees , officers or directors of the Company
pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company
or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise
or exchange of or conversion of any securities issued pursuant to the Purchase Agreement and/or other securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of the Purchase Agreement, provided
that such securities have not been amended since the date of the Purchase Agreement to increase the number of such securities
or to decrease the exercise price, exchange price or conversion price of any such securities, and (c) securities issued pursuant
to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that
any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries,
an operating company or an asset in a business synergistic with the business of the Company and shall provide to the Company additional
benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
“Forced
Conversion Date” shall have the meaning set forth in Section 8(a).
“Forced
Conversion Notice” shall have the meaning set forth in Section 8(a).
“Forced
Conversion Notice Date” shall have the meaning set forth in Section 8(a).
“Fundamental
Transaction” shall have the meaning set forth in Section 7(e).
“GAAP”
means United States generally accepted accounting principles.
“Holder”
shall have the meaning given such term in Section 2.
“Indebtedness”
means (a) any liabilities for borrowed money or amounts owed in excess of $250,000 (other than trade accounts payable incurred
in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness
of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of
business, and (c) the present value of any lease payments in excess of $250,000 due under leases required to be capitalized in
accordance with GAAP.
“Junior
Securities” means the Common Stock and all other Common Stock Equivalents of the Company.
“Liens”
means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Liquidation”
shall have the meaning set forth in Section 5.
“Make-Whole
Payment” shall have the meaning set forth in Section 3(a).
“New
York Courts” shall have the meaning set forth in Section 12(d).
“Notice
of Conversion” shall have the meaning set forth in Section 6(a).
“Optional
Redemption” shall have the meaning set forth in Section 8(b).
“Optional
Redemption Date” shall have the meaning set forth in Section 8(b).
“Optional
Redemption Notice” shall have the meaning set forth in Section 8(b).
“Optional
Redemption Notice Date” shall have the meaning set forth in Section 8(b).
“Optional
Redemption Amount” means the sum of (a) 115% of the aggregate Stated Value then outstanding, (b) accrued but unpaid
dividends and (c) all liquidated damages and other amounts due in respect of the Preferred Stock.
“Original
Issue Date” means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers
of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such
Preferred Stock.
“Permitted
Indebtedness” means (a) the Indebtedness existing on the Original Issue Date (or committed to and final terms agreed
to on the Original Issue Date) and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (b) lease obligations
and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets
and lease obligations with respect to newly acquired or leased assets and (c) any factor, inventory finance or asset-backed lending
arrangements up to $10,000,000 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) thereunder, 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.
“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Preferred
Stock” shall have the meaning set forth in Section 2.
“Purchase
Agreement” means the Securities Purchase Agreement, dated as of February 26, 2014, among the Company and the original
Holders, as amended, modified or supplemented from time to time in accordance with its terms.
“Required
Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable
in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon conversion in full of all Preferred
Stock (including Underlying Shares issuable as payment of dividends on the Preferred Stock).
“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
“Securities”
means the Preferred Stock and the Conversion Shares.
“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 6(c).
“Stated
Value” shall have the meaning set forth in Section 2, as the same may be increased pursuant to Section 3.
“Subscription
Amount” shall mean, as to each Holder, the aggregate amount to be paid for the Preferred Stock purchased pursuant to
the Purchase Agreement as specified below such Holder’s name on the signature page of the Purchase Agreement and next to
the heading “Subscription Amount,” in United States dollars and in immediately available funds.
“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a) of the Purchase Agreement and shall, where applicable, also
include any direct or indirect subsidiary of the Company formed or acquired after the date of the Purchase Agreement.
“Successor
Entity” shall have the meaning set forth in Section 7(e).
“Trading
Day” means a day on which the principal Trading Market is open for trading; provided, that in the event that the Common
Stock is not listed or quoted for trading on a Trading Market on the date in question, then Trading Day shall mean a Business
Day.
“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange, the OTC Bulletin Board, the OTC QB Marketplace or the OTC QX Marketplace (or any successors to any of
the foregoing).
“Transaction
Documents” means this Certificate of Designation, the Purchase Agreement, all exhibits and schedules thereto and hereto
and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement.
“Transfer
Agent” means a transfer agent for the Company’s Common Stock and the Securities, and any successor transfer agent
of the Company. If the Company does not have a transfer agent for its Common Stock on the date in question since its shares of
Common Stock are not listed for trading on a stock exchange or automated quotation service, then Transfer Agent shall mean the
Company.
“Triggering
Event” shall have the meaning set forth in Section 10(a).
“Triggering
Redemption Amount” means, for each share of Preferred Stock 120% of the Stated Value and all accrued but unpaid dividends
hereon in addition to the payment of (a) all liquidated damages and other costs, expenses or amounts due in respect of the Preferred
Stock and (b) the Make-Whole Amount.
“Triggering
Redemption Payment Date” shall have the meaning set forth in Section 10(b).
“Underlying
Shares” means the shares of Common Stock issued and issuable upon conversion of the Preferred Stock and issued and issuable
in lieu of the cash payment of dividends on the Preferred Stock in accordance with the terms of this Certificate of Designation.
“Variable
Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b) of the Purchase Agreement.
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based
on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is not then listed
or quoted for trading on a Trading Market and if prices for the Common Stock are then reported on the OTC Pink Marketplace maintained
by OTC Markets Group Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent
closing price per share of the Common Stock so reported, or (c) 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.
Section
2. Designation, Amount and Par Value. The series of preferred stock
shall be designated as the Company’s Series C 12% Convertible Preferred Stock (the “Preferred Stock”)
and the number of shares so designated shall be up to 3,235,294,118 (which shall not be subject to increase without the written
consent of all of the holders of the Preferred Stock (each, a “Holder” and collectively, the “Holders”)).
Each share of Preferred Stock shall have a par value of $0.001 per share and a stated value equal to $100, subject to increase
set forth in Section 3 below (the “Stated Value”).
Section
3. Dividends.
a) Dividends
in Cash or in Kind; Make-Whole Payment. Holders shall be entitled to receive, and the Company shall pay, cumulative dividends
at the rate per share (as a percentage of the Stated Value per share) from the initial Closing Date and for so long as Preferred
Stock is outstanding, of 12% per annum (subject to increase pursuant to Section 10(b)), payable on request by the Holder or on
conversion of all remaining Preferred Stock (each such date, a “Dividend Payment Date”) (if any Dividend Payment
Date is not a Trading Day, the applicable payment shall be due on the next succeeding Trading Day) in cash, or at the Company’s
option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section
3(a), or a combination thereof (the amount to be paid in shares of Common Stock, the “Dividend Share Amount”);
provided, however, upon the conversion of Preferred Stock prior to May 30, 2015, the Company shall also pay
to the Holders of the Preferred Stock so converted cash, or at the Company’s option, in duly authorized, validly issued,
fully paid and non-assessable shares of Common Stock as set forth in this Section 3(a), or a combination thereof, with respect
to the Preferred Stock so converted in an amount equal to $18 per $100 of Stated Value of the Preferred Stock, less the amount
of all prior quarterly dividends paid on such converted Preferred Stock before the relevant Conversion Date (the “Make-Whole
Payment”). The form of dividend payments and Make-Whole Payments to each Holder shall be determined in the following
order of priority: (i) if funds are legally available for the payment of dividends and the Equity Conditions have not been met
during the 5 consecutive Trading Days immediately prior to the applicable Dividend Payment Date or Conversion Date (the “Dividend
Notice Period”), in cash only, (ii) if funds are legally available for the payment of dividends and the Equity Conditions
have been met during the Dividend Notice Period, at the sole election of the Company, in any combination of cash or shares of
Common Stock which shall be valued solely for such purpose at 60% of the average of the VWAPs for the 25 consecutive Trading Days
ending on the Trading Day that is immediately prior to the applicable Dividend Payment Date or Conversion Date, (iii) if funds
are not legally available for the payment of dividends and the Equity Conditions have been met during the Dividend Notice Period,
in shares of Common Stock which shall be valued solely for such purpose at 60% of the average of the VWAPs for the 25 consecutive
Trading Days ending on the Trading Day that is immediately prior to the applicable Dividend Payment Date or Conversion Date, and
(iv) if funds are not legally available for the payment of dividends and the Equity Conditions have not been met during the Dividend
Notice Period, then, at the election of such Holder, such dividends shall accrue to the next applicable Dividend Payment or Date
Conversion Date or shall be accreted to, and increase, the outstanding Stated Value. The Holders shall have the same rights and
remedies with respect to the delivery of any such shares as if such shares were being issued pursuant to Section 6. In the event
the Company notifies the Holders that it will pay dividends in whole or in part in shares of Common Stock based on its good faith
and reasonable belief that the Company it will be in compliance with the Equity Conditions during the Dividend Notice Period,
and the Company determines on or before the first day of the Dividend Notice Period that it will not be in compliance with the
Equity Conditions, it shall so notify the Holders and each Holder may elect to receive Common Stock or cash.
b) Company’s
Ability to Pay Dividends in Cash or Kind. The Company shall promptly notify the Holders at any time the Company shall become
able or unable, as the case may be, to legally pay cash dividends. If at any time the Company has the right to pay dividends in
cash or shares of Common Stock, the Company must provide the Holders with at least 5 Trading Days’ notice of its election
to pay a regularly scheduled dividend in shares of Common Stock (the Company may indicate in such notice that the election contained
in such notice shall continue for later periods until revised by a subsequent notice). The aggregate number of shares of Common
Stock otherwise issuable to a Holder on a Dividend Payment Date shall be reduced by the number of shares of Common Stock previously
issued to such Holder in connection with such Dividend Payment Date.
c) Dividend
Calculations. Dividends on the Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve 30
calendar day periods, and shall accrue daily commencing on the Original Issue Date, and shall be deemed to accrue from such date
whether or not earned or declared and whether or not there are profits, surplus or other funds of the Company legally available
for the payment of dividends. Payment of dividends in shares of Common Stock shall otherwise occur pursuant to Section 6(c)(i)
herein and, solely for purposes of the payment of dividends in shares, the Dividend Payment Date shall be deemed the Conversion
Date. Dividends shall cease to accrue with respect to any Preferred Stock converted, provided that, the Company actually delivers
the Conversion Shares within the time period required by Section 6(c)(i) herein. Except as otherwise provided herein, if at any
time the Company pays dividends partially in cash and partially in shares, then such payment shall be distributed ratably among
the Holders based upon the number of shares of Preferred Stock held by each Holder on such Dividend Payment Date.
d) Late
Fees. Any dividends, whether paid in cash or shares of Common Stock, that are not paid within five Trading Days following
a Dividend Payment Date shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 18% per
annum or the lesser rate permitted by applicable law which shall accrue daily from the Dividend Payment Date through and including
the date of actual payment in full.
e) Other
Securities. So long as at least 15% of the originally issued shares of Preferred Stock shall remain outstanding, neither the
Company nor any Subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities except
as expressly permitted by Section 10(b). So long as any Preferred Stock shall remain outstanding, neither the Company nor any
Subsidiary thereof shall directly or indirectly pay or declare any dividend or make any distribution upon (other than a dividend
or distribution described in Section 6 or dividends due and paid in the ordinary course on preferred stock of the Company at such
times when the Company is in compliance with its payment and other obligations hereunder), nor shall any distribution be made
in respect of, any Junior Securities as long as any dividends due on the Preferred Stock remain unpaid, nor shall any monies be
set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities or shares
pari passu with the Preferred Stock.
Section
4. Voting Rights. Except as otherwise provided herein or as otherwise
required by law, the Preferred Stock shall have no voting rights. In any event, and notwithstanding the foregoing limitation,
as long as any shares of Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the Holders of
at least 67% in Stated Value of the then outstanding shares of the Preferred Stock (a) alter or change adversely the powers, preferences
or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of
stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or
otherwise pari passu with, the Preferred Stock, (c) amend its Articles of Incorporation or other charter documents
in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Preferred Stock,
or (e) enter into any agreement with respect to any of the foregoing.
Section
5. Liquidation. Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive
out of the assets, whether capital or surplus, of the Company an amount equal to the Stated Value, plus any accrued and unpaid
dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for
each share of Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities and if
the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders
shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares
if all amounts payable thereon were paid in full. A Fundamental Transaction or Change of Control Transaction shall not be deemed
a Liquidation. The Company shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date
stated therein, to each Holder.
Section
6. Conversion.
a) Conversions
at Option of Holder. Each share of Preferred Stock shall be convertible, at any time and from time to time from and after
the Original Issue Date at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations
set forth in Section 6(d)) determined by dividing the Stated Value of such share of Preferred Stock by the Conversion Price. Holders
shall effect conversions by providing the Company with the form of conversion notice attached hereto as Annex A (a “Notice
of Conversion”). Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the
number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent
to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the
applicable Holder delivers by facsimile such Notice of Conversion to the Company (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
to the Company is deemed delivered hereunder. The calculations and entries set forth in the Notice of Conversion shall control
in the absence of manifest or mathematical error. To effect conversions of shares of Preferred Stock, a Holder shall not be required
to surrender the certificate(s) representing the shares of Preferred Stock to the Company unless all of the shares of Preferred
Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of
Preferred Stock promptly following the Conversion Date at issue. Shares of Preferred Stock converted into Common Stock or redeemed
in accordance with the terms hereof shall be canceled and shall not be reissued.
b) Conversion
Price. The conversion price for the Preferred Stock shall equal 60% of the lowest VWAP during
the 30 Trading Day-period immediately prior to the applicable Conversion Date, subject to adjustment
herein (the “Conversion Price”); provided, however, that each and every Holder of Preferred Stock shall have
the ability on up to twenty (20) distinct occasions to calculate the Conversion Price using the following formula: 60%
of the lowest VWAP during the 60 Trading Day-period immediately prior to the applicable Conversion Date, subject
to adjustment herein.
| c) | Mechanics
of Conversion |
i. 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 converting Holder (A) a certificate or certificates
representing the Conversion Shares which, on or after the six-month anniversary of the Original Issue 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 the Preferred Stock (including, if the Company has given continuous
notice pursuant to Section 3(c) for payment of dividends in shares of Common Stock at least 20 Trading Days prior to the date
on which the Notice of Conversion is delivered to the Company, shares of Common Stock representing the payment of accrued dividends
otherwise determined pursuant to Section 3(a) but assuming that the Dividend Notice Period is the 20 Trading Days period immediately
prior to the date on which the Notice of Conversion is delivered to the Company and excluding for such issuance the condition
that the Company deliver the Dividend Share Amount as to such dividend payment prior to the commencement of the Dividend Notice
Period), and (B) a bank check in the amount of accrued and unpaid dividends (if the Company has elected or is required to pay
accrued dividends in cash) and (C) a bank check in the amount of the Make-Whole Amount. All certificate or certificates required
to be delivered by the Company under this Section 6(c) shall be delivered electronically through the Depository Trust Company
or another established clearing corporation performing similar functions. If the Conversion Date is prior to the six month anniversary
of the Original Issue Date, then the Conversion Shares shall bear a restrictive legend in the following form, as appropriate:
“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
ii. 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 Preferred Stock certificate 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.
iii. Obligation
Absolute; Partial Liquidated Damages. Except as otherwise set forth in this Section 6(c)(iii), the Company’s obligation
to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute
and unconditional, irrespective of any action or inaction by a 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 such Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to such 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 that the Company
may have against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Preferred Stock,
the Company may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such 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 the Preferred Stock of such Holder shall have been sought and obtained,
and the Company posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of Preferred Stock
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 such Holder to the extent it obtains judgment. In the absence of such injunction,
the Company shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Company fails to
deliver to a Holder such certificate or certificates pursuant to Section 6(c)(i) on the Share Delivery Date, the Company shall
pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Stated Value of Preferred Stock being
converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day after such damages
begin to accrue) for each Trading Day after the 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 a Triggering Event pursuant
to Section 10 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and such
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 a Holder from seeking
to enforce damages pursuant to any other Section hereof or under applicable law.
iv. 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 a Holder the applicable certificate or certificates by the Share Delivery Date
pursuant to Section 6(c)(i), and if after such Share Delivery Date such 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 such Holder of the Conversion Shares which such 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 such Holder (in
addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such 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 such 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 such Holder, either reissue (if surrendered) the shares of Preferred Stock equal to the number of shares
of Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such 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 6(c)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted conversion of shares of Preferred Stock 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 such Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to such 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 the shares of Preferred Stock as required pursuant to the terms hereof.
v. 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 at least 200% of the Required Minimum for the sole purpose of issuance upon conversion
of the Preferred Stock and payment of dividends on the Preferred Stock, each as herein provided, free from preemptive rights or
any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Preferred Stock), 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 7) upon the conversion of the then outstanding
shares of Preferred Stock and payment of dividends hereunder. 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.
vi. Fractional
Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Preferred
Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company
shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion
Price.
vii. Transfer
Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Preferred Stock shall
be made without charge to any Holder 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 Holders
of such shares of Preferred Stock 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.
d) Beneficial
Ownership Limitation. The Company shall not affect any conversion of the Preferred Stock, and a Holder shall not have the
right to convert any portion of the Preferred Stock, to the extent that, after giving effect to the conversion set forth on the
applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group
together with such Holder or any of such 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 such Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred
Stock 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 Stated Value of Preferred Stock beneficially owned by such 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,
the Preferred Stock or the Warrants) beneficially owned by such Holder or any of its Affiliates. Except as set forth in
the preceding sentence, for purposes of this Section 6(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 6(d) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned
by such Holder together with any Affiliates) and of how many shares of Preferred Stock are convertible shall be in the sole discretion
of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether
the shares of Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates)
and how many shares of the Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure
compliance with this restriction, each 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 6(d), in determining the number of outstanding shares of Common Stock, a 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 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 such
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 the Preferred Stock,
by such 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 Preferred Stock held by the applicable
Holder. A Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership
Limitation provisions of this Section 6(d) applicable to its Preferred Stock 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 Preferred Stock held by the Holder and the provisions of this Section 6(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 and shall only apply to such Holder and no other Holder. The provisions of this paragraph shall be construed and implemented
in a manner otherwise than in strict conformity with the terms of this Section 6(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 Preferred Stock.
Section
7. Certain Adjustments.
a) Stock
Dividends and Stock Splits. If the Company, at any time while this Preferred Stock 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 other 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 a dividend on, this Preferred Stock), (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
7(a) 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 Preferred Stock 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 7(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 Holders in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 7(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 7(b), upon the occurrence
of any Dilutive Issuance, the Holders are 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 a Holder accurately refers to the Base Conversion Price
in the Notice of Conversion.
c) Subsequent
Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Company grants, issues
or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder of 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 such Holder’s Preferred
Stock (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. If the Company, at any time while this Preferred Stock is outstanding, distributes to all holders of Common
Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants
to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 7(c)), then in each
such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record
date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall
be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date
less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants
so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors of the Company
in good faith. In either case the adjustments shall be described in a statement delivered to the Holders describing the portion
of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned
above.
e) Fundamental
Transaction. If, at any time while this Preferred Stock 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 Preferred Stock, 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 6(d) on the conversion of this Preferred Stock), 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 Preferred
Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the
conversion of this Preferred Stock). 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 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 Preferred Stock
following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company
or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions
and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right
to convert such preferred stock into Alternate Consideration. 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 Certificate of Designation and the other Transaction Documents (as defined in the Purchase Agreement)
in accordance with the provisions of this Section 7(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 Preferred Stock, deliver to the Holder in exchange for this Preferred Stock a security of the Successor
Entity evidenced by a written instrument substantially similar in form and substance to this Preferred Stock 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 Preferred Stock (without regard to any limitations on the conversion
of this Preferred Stock) 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 Preferred Stock 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 Certificate of Designation 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 Certificate of Designation and the other Transaction Documents
with the same effect as if such Successor Entity had been named as the Company herein.
f) Calculations.
All calculations under this Section 7 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 7, 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 Holders.
i. Adjustment
to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, 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 Preferred Stock, and shall cause to be delivered to each Holder at
its last address as it shall appear upon the stock books of the Company, 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 file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled
to convert the Conversion Amount of this Preferred Stock (or any part hereof) during the 20-day period commencing on the date
of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section
8. Forced Conversion and Optional Redemption.
a) Forced
Conversion. Notwithstanding anything herein to the contrary, if after the six month anniversary of the Original Issue Date
the VWAP for any consecutive 15 Trading Days exceeds 200% of the then effective Conversion Price, the Company may, in
its sole discretion, deliver a written notice to all Holders (a “Forced Conversion Notice” and the date
such notice is delivered to all Holders, the “Forced Conversion Notice Date”) to cause each Holder to
convert all or part of such Holder’s Preferred Stock (as specified in such Forced Conversion Notice)
plus all accrued but unpaid dividends thereon and all liquidated damages and other amounts due in respect of the Preferred
Stock pursuant to Section 6 (but remaining in accordance with Section 6(d)), it being agreed that the “Conversion
Date” for purposes of Section 6 shall be deemed to occur on the third Trading Day following the Forced
Conversion Notice Date (such third Trading Day, the “Forced Conversion Date”). The Company
may not deliver a Forced Conversion Notice, and any Forced Conversion Notice delivered by the Corporation
shall not be effective, unless all of the Equity Conditions have been met on such Forced Conversion Notice Date. Any Forced
Conversion Notices shall be applied ratably to all of the Holders based on each Holder’s initial purchases of Preferred
Stock hereunder, provided that any voluntary conversions by a Holder shall be applied against such Holder’s pro rata allocation,
thereby decreasing the aggregate amount forcibly converted hereunder if less than all shares of the Preferred Stock are
forcibly converted. For purposes of clarification, a Forced Conversion shall be subject to all of the provisions of
Section 6, including, without limitation, the provisions requiring payment of liquidated damages and limitations on conversions.
b) Optional
Redemption at Election of Company. Notwithstanding anything herein to the contrary, subject to the provisions of this Section
8, if prior to the five month anniversary of Original Issue Date the VWAP for any 15 consecutive Trading
Day period exceeds 200% of the then effective Conversion Price, the Company may, in its sole discretion, deliver a notice
to the Holders (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the
“Optional Redemption Notice Date”) of its irrevocable election to redeem all of the then outstanding Preferred
Stock, for cash in an amount equal to the Optional Redemption Amount on the 20th Trading Day following the Optional
Redemption Notice Date (such date, the “Optional Redemption Date” and such redemption, the “Optional
Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may
only effect an Optional Redemption if each of the Equity Conditions shall have been met on each Trading
Day occurring during the 20 Trading Day period commencing on the Optional Redemption Notice Date through the Optional
Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made.
If any of the Equity Conditions shall cease to be satisfied at any time during the 20 Trading Day period commencing
on the Optional Redemption Notice Date, the Optional Redemption Notice shall be null and void, ab initio,
unless the Holder gives written consent otherwise. The Company covenants and agrees that it will honor all Notices of Conversion
tendered from the time of delivery of the Optional Redemption Notice through the date the Optional Redemption Amount is
paid in full.
c) Redemption
Procedure. The payment of cash pursuant to an Optional Redemption shall be made on the Optional Redemption Date.
If any portion of the cash payment for an Optional Redemption has not been paid by the Company on the Optional
Redemption Date, interest shall accrue thereon until such amount is paid in full at a rate equal to the lesser of 18% per annum
or the maximum rate permitted by applicable law.
Section
9. Negative Covenants. As long as at least 15% of the originally
issued shares of Preferred Stock are outstanding, unless the holders of at least 67% in Stated Value of the then outstanding shares
of Preferred Stock 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. Notwithstanding the foregoing, this Section 9(a) shall not
apply to indebtedness incurred pursuant to Section 4.12(a) of the Purchase Agreement;
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) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock, Common
Stock Equivalents or Junior Securities, other than as to the Conversion Shares as permitted or required under the Transaction
Documents;
d) pay
cash dividends or distributions on Junior Securities of the Company;
e) 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
f) enter
into any agreement with respect to any of the foregoing.
In
addition, as long as any shares of Preferred Stock are outstanding, unless the holders of at least 67% in Stated Value of the
then outstanding shares of Preferred Stock shall have otherwise given prior written consent, the Company shall not, directly or
indirectly, amend its charter documents, including, without limitation, its Articles of Incorporation and bylaws, in any manner
that materially and adversely affects any rights of the Holder except to the extent required to effect a reverse stock split permitted
by the Purchase Agreement.
Section
10. Redemption Upon Triggering Events.
a) “Triggering
Event” 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 interest, liquidated damages and other amounts owing to a Holder on any Preferred Stock, as and when
the same shall become due and payable (whether on a Conversion Date or otherwise) which default, solely in the case of an interest
payment or other default is not cured within 5 Trading Days;
ii. the
Company shall fail to observe or perform any other covenant or agreement contained in the Preferred Stock (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 (ix) 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) 10 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 Preferred Stock, 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 $50,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;
vii. 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 or the transfer of shares of Common Stock through the Depository
Trust Company System is no longer available or “chilled”;
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 shall fail for any reason to deliver certificates via DWAC to a Holder prior to the third Trading Day after a Conversion
Date pursuant to Section 6(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 Preferred Stock in accordance with the terms hereof;
x. the
Company fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act such that it is not
in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable);
xi. if
the Borrower or any Significant Subsidiary shall: (i) apply for or consent to the appointment of a receiver, trustee, custodian
or liquidator of it or any of its properties, (ii) admit in writing its inability to pay its debts as they mature, (iii) make
a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent or be the subject of an order for
relief under Title 11 of the United States Code or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law or statute of any other jurisdiction or foreign country, or (v) file a voluntary petition in bankruptcy, or
a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of
a petition filed against it in any proceeding under any such law, or (vi) take or permit to be taken any action in furtherance
of or for the purpose of effecting any of the foregoing;
xii. if
any order, judgment or decree shall be entered, without the application, approval or consent of the Borrower or any Significant
Subsidiary, by any court of competent jurisdiction, approving a petition seeking liquidation or reorganization of the Borrower
or any Subsidiary, or appointing a receiver, trustee, custodian or liquidator of the Borrower or any Subsidiary, or of all or
any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of
sixty (60) days;
xiii. the
occurrence of any levy upon or seizure or attachment of, or any uninsured loss of or damage to, any property of the Borrower or
any Subsidiary having an aggregate fair value or repair cost (as the case may be) in excess of $100,000 individually or in the
aggregate, and any such levy, seizure or attachment shall not be set aside, bonded or discharged within thirty (30) days after
the date thereof;
xiv. the
Company shall fail to maintain sufficient reserved shares pursuant to Section 4.11 of the Purchase Agreement;
xv. 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 $50,000, and such judgment, writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 45 calendar days; or
xvi. the
Company fails to increase its authorized shares of common stock or effectuate a reverse stock split, pursuant to Section 4.18
of the Purchase Agreement, within 60 days of the signing of the Purchase Agreement.
b) Upon
the occurrence of a Triggering Event, each Holder shall (in addition to all other rights it may have hereunder or under applicable
law) have the right, exercisable at the sole option of such Holder, to require the Company with respect to each share of Preferred
Stock to redeem each share of Preferred Stock then held by such Holder for a redemption price, in cash, equal to the Triggering
Redemption Amount. After the occurrence of a Triggering Event, the dividend rate on all of the outstanding Preferred Stock held
by such Holder shall be increased to 18% per annum thereafter. The Triggering Redemption Amount, in cash or in shares, shall be
due and payable or issuable, as the case may be, within five Trading Days of the date on which the notice for the payment therefor
is provided by a Holder (the “Triggering Redemption Payment Date”). If the Company fails to pay in full the
Triggering Redemption Amount hereunder on the date such amount is due in accordance with this Section (whether in cash or shares
of Common Stock), the Company will pay interest thereon at a rate equal to the lesser of 18% per annum or the maximum rate permitted
by applicable law, accruing daily from such date until the Triggering Redemption Amount, plus all such interest thereon, is paid
in full. For purposes of this Section, a share of Preferred Stock is outstanding until such date as the applicable Holder shall
have received Conversion Shares upon a conversion (or attempted conversion) thereof that meets the requirements hereof or has
been paid the Triggering Redemption Amount in cash.
Section
11. Security. As collateral security for the full, prompt, complete
and final payment and performance of all the Company’s obligations under this Certificate of Designation, the Company hereby
grants to the holders of the Series C 12% Convertible Preferred Stock a lien on and security interest in, all of Company’s
right, title and interest in, to and under all of the Company’s property and assets, whether now owned or hereafter acquired,
unless otherwise provided in an amendment to this Certificate of Designation.
Section
12. Miscellaneous.
a) Notices.
Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation,
any Notice of Conversion, shall be in writing and delivered as set forth in the Purchase Agreement, or such other facsimile number
or address as the Company may specify for such purposes by notice to the Holders delivered in accordance with this Section 12.
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 such 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 in this Section 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 in this Section 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 Certificate of Designation shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay liquidated damages, accrued dividends and accrued interest,
as applicable, on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.
c) Lost
or Mutilated Preferred Stock Certificate. If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate,
or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock
so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate,
and of the ownership hereof reasonably satisfactory to the Company.
d) Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation
shall be governed by and construed and enforced in accordance with the internal laws of the State of Colorado, 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 Certificate of Designation 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 Certificate of Designation or the transactions contemplated hereby. If any party shall commence an
action or proceeding to enforce any provisions of this Certificate of Designation, 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 a Holder of a breach of any provision of this Certificate of Designation 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 Certificate
of Designation or a waiver by any other Holders. The failure of the Company or a Holder to insist upon strict adherence to any
term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any
other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation
on any other occasion. Any waiver by the Company or a Holder must be in writing.
f) Severability.
If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation
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.
g) Remedies,
Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Preferred Stock
shall be cumulative and in addition to all other remedies available under this Preferred Stock and any of the other Transaction
Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein
shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with
the terms of this Preferred Stock. The Company covenants to the Holder that there shall be no characterization concerning
this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion
and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such
breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened
breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall
provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s
compliance with the terms and conditions of this Preferred Stock.
h) Next
Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment
obligation shall be made on the next succeeding Business Day.
i) Headings.
The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall
not be deemed to limit or affect any of the provisions hereof.
j) Status
of Converted or Redeemed Preferred Stock. Shares of Preferred Stock may only be issued pursuant to the Purchase Agreement.
If any shares of Preferred Stock shall be converted, redeemed or reacquired by the Company, such shares shall resume the status
of authorized but unissued shares of preferred stock and shall no longer be designated as Series C 12% Convertible Preferred Stock.
***
IN
WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate and does affirm the foregoing as true this 3rd
day of June, 2014.
|
ECO BUILDING PRODUCTS, INC. |
|
|
|
|
By: |
|
|
Name: Steve Conboy |
|
Title: Chief Executive Officer |
ANNEX A
NOTICE OF CONVERSION
(To
be Executed by the Registered Holder in order to Convert Shares of
Preferred Stock)
The undersigned
hereby elects to convert the number of shares of Series C 12% Convertible Preferred Stock indicated below into shares of common
stock, par value $0.001 per share (the “Common Stock”), of Eco Building Products, Inc., a Colorado corporation
(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 may be required by the Company in accordance with
the Purchase Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.
Conversion
calculations:
Date
to Effect Conversion: _____________________________________________
|
Number
of shares of Preferred Stock owned prior to Conversion: _______________
|
Number
of shares of Preferred Stock to be Converted: ________________________
|
Stated
Value of shares of Preferred Stock to be Converted: ____________________
|
Number
of shares of Common Stock to be Issued: ___________________________
|
Applicable
Conversion Price:____________________________________________
|
Number
of shares of Preferred Stock subsequent to Conversion: ________________
|
Address
for Delivery: ______________________
or
DWAC
Instructions:
Broker
no: _________
Account
no: ___________ |
|
[HOLDER] |
|
|
|
By:___________________________________ |
|
Name: |
|
Title: |
SECURITIES PURCHASE AGREEMENT
This Securities Purchase
Agreement (this “Agreement”) is dated as of June 3, 2014, between Eco Building Products Inc., a Colorado corporation
(the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors
and assigns, a “Purchaser” and collectively, the “Purchasers”).
WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended
(the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder, the Company desires to issue and
sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the
Company as more fully described in this Agreement.
NOW, THEREFORE, IN
CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions.
In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Preferred Stock (as defined herein), and (b) the following terms have the meanings set
forth in this Section 1.1:
“Acquiring
Person” shall have the meaning ascribed to such term in Section 4.7.
“Action”
shall have the meaning ascribed to such term in Section 3.1(j).
“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Board
of Directors” means the board of directors of the Company.
“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to
close.
“Closing
Dates” means the Trading Day(s) on which all of the Transaction Documents have been executed and delivered by the applicable
parties thereto in connection with a Closing, and all conditions precedent to (i) the Purchasers’ obligations to pay the
Subscription Amount as to such Closing and (ii) the Company’s obligations to deliver the Securities as to such Closing, in
each case, have been satisfied or waived.
“Closing”
means the closing of the purchase and sale of the Securities pursuant to Section 2.1.
“Closing
Statement” means the Closing Statement in the form on Annex A attached hereto.
“Commission”
means the United States Securities and Exchange Commission.
“Common
Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which
such securities may hereafter be reclassified or changed.
“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“Company
Counsel” means Szaferman, Lakind, Blumstein & Blader, P.C., with offices located at 101 Grovers Mill Road, Second
Floor, Lawrenceville, New Jersey 08648.
“Conversion
Price” shall have the meaning ascribed to such term in the Preferred Stock.
“Conversion
Shares” shall have the meaning ascribed to such term in the Preferred Stock.
“Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1.
“Evaluation
Date” shall have the meaning ascribed to such term in Section 3.1(r).
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors
or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise
or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible
into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or
conversion price of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders
of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic
with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but
shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities.
“FCPA”
means the Foreign Corrupt Practices Act of 1977, as amended.
“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).
“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(aa).
“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).
“Legend
Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Material
Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).
“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate” shall have the meaning ascribed to such term in Section 5.17.
“Preferred
Stock” means the Series C 12% Convertible Preferred Stock, issued by the Company to the Purchasers hereunder, which form
of Certificate of Designation is attached hereto as Exhibit A.
“Participation
Maximum” shall have the meaning ascribed to such term in Section 4.12(a).
“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Pre-Notice”
shall have the meaning ascribed to such term in Section 4.12(b).
“Pro
Rata Portion” shall have the meaning ascribed to such term in Section 4.12(e).
“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
“Public
Information Failure” shall have the meaning ascribed to such term in Section 4.3(b).
“Public
Information Failure Payments” shall have the meaning ascribed to such term in Section 4.3(b).
“Purchaser
Party” shall have the meaning ascribed to such term in Section 4.10.
“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
“Required
Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable
in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon conversion in full of all Preferred
Stock (including Underlying Shares issuable as payment of dividends on the Preferred Stock), ignoring any conversion or exercise
limits set forth therein.
“Robinson
Brog” means Robinson Brog Leinwand Greene Genovese & Gluck P.C., with offices located at 875 Third Avenue, New York,
New York 10022.
“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
“Rule
424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.
“SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(h).
“Securities”
means the Preferred Stock and the Underlying Shares.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Short
Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall
not be deemed to include the location and/or reservation of borrowable shares of Common Stock).
“Subscription
Amount” means, as to each Purchaser, the aggregate amount to be paid for Preferred Stock purchased hereunder as specified
below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,”
in United States dollars and in immediately available funds.
“Subsequent
Financing” shall have the meaning ascribed to such term in Section 4.12(a).
“Subsequent
Financing Notice” shall have the meaning ascribed to such term in Section 4.12(b).
“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct
or indirect subsidiary of the Company formed or acquired after the date hereof.
“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 or the OTC Bulletin Board (or any successors to any of the foregoing).
“Transaction
Documents” means this Agreement, the Series C 12% Convertible Preferred Stock Certificate of Designation, all exhibits
and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated
hereunder.
“Transfer
Agent” means Fidelity Transfer Company, the current transfer agent of the Company, with a mailing address of 8915 S.
700 E., Suite 102, Sandy, Utah 84070 and a facsimile number of (801) 233-0589, and any successor transfer agent of the Company.
“Transfer
Agent Instruction Letter” means the letter from the Company to the Transfer Agent which instructs the Transfer Agent
to issue Underlying Shares pursuant to the Transaction Documents, in the form of Exhibit B attached hereto.
“Underlying
Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Preferred Stock and
issued and issuable in lieu of the cash payment of dividends on the Preferred Stock in accordance with the terms of the Preferred
Stock.
“Variable
Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if 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 Purchasers 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.
ARTICLE II.
PURCHASE AND SALE
2.1 Purchases.
The Purchasers will purchase Preferred Stock at one or more closings (each, a “Closing”) as set forth below.
(a) Substantially
concurrent with the execution and delivery of this Agreement by the parties hereto, upon the terms and subject to the conditions
set forth herein, the Company agrees to sell (i) $325,000 of Preferred Stock to Dominion Capital, LLC (“Dominion”)
and (ii) $75,000 of Preferred Stock to Redwood Management, LLC, or an affiliate thereof (“Redwood”). On the
three week anniversary of this Agreement, upon the terms and subject to the conditions set forth herein, the Company agrees to
sell (i) $325,000 of Preferred Stock to Dominion and (ii) $75,000 of Preferred Stock to Redwood. At each such Closing, each Purchaser
shall deliver to the Company, via wire transfer, immediately available funds equal to such Purchaser’s Subscription Amount
as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective
shares of Preferred Stock, and the Company and each Purchaser shall deliver the other items set forth in Section 2.3 deliverable
at the Closing.
(b) At
least once per month, upon the terms and subject to the conditions set forth herein, the Company agrees to sell to each of Dominion
and Redwood, on an equal basis, an amount of Preferred Stock equal to the amount of accounts payable of the Company held by Dominion
and Redwood on such date, up to a maximum of $1,200,000 in the aggregate during the term of this Agreement. At each such Closing,
each Purchaser shall deliver to the Company evidence of amounts payable by the Company to certain third parties for cancellation
in an amount equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser,
and the Company shall deliver to each Purchaser its respective shares of Preferred Stock, and the Company and each Purchaser shall
deliver the other items set forth in Section 2.3 deliverable at the Closing. The amount of Preferred Stock sold to each Purchaser
pursuant to this Section 2.1(b) shall be recorded on Schedule 2.1(b) hereto, which Schedule shall be amended from time to
time to reflect such purchases.
(c) Substantially
concurrent with the execution and delivery of this Agreement by the parties hereto, and on each of the next three monthly anniversaries
of the date of this Agreement (or the next subsequent Business Day if such anniversary is not a Business Day) (each, a “Subsequent
Closing”), upon the terms and subject to the conditions set forth herein, the Company agrees to sell (i) $175,000 of
Preferred Stock to Dominion and (ii) $175,000 of Preferred Stock to Redwood. At each such Closing, each Purchaser shall deliver
to the Company, via wire transfer, immediately available funds equal to such Purchaser’s Subscription Amount as set forth
on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective shares
of Preferred Stock, and the Company and each Purchaser shall deliver the other items set forth in Section 2.3 deliverable at the
Closing. The Purchasers shall not be obligated to purchase the Preferred Stock at a Subsequent Closing if the Company is not then
in compliance with the budget in the form of Exhibit C attached hereto.
2.2 Closings.
Upon satisfaction of the covenants and conditions set forth in Sections 2.3 and 2.4 for each Closing, such Closing shall occur
at the offices of Robinson Brog or such other location as the parties shall mutually agree.
2.3 Deliveries.
(a) On
or prior to each Closing Date (as noted below), the Company shall deliver or cause to be delivered to each Purchaser the following:
(i) on
the initial Closing Date, this Agreement duly executed by the Company;
(ii) on
each Closing Date, a legal opinion of Company Counsel, substantially in the form of Exhibit D attached hereto;
(iii) on
each Closing Date, the Transfer Agent Instruction Letter duly executed by the Company and the Transfer Agent; and
(iv) on
each Closing Date, shares of Preferred Stock, registered in the name of such Purchaser.
(b) On
or prior to each Closing Date (as noted below), each Purchaser shall deliver or cause to be delivered to the Company, as applicable,
the following:
(i) on
the initial Closing Date, this Agreement duly executed by such Purchaser; and
(ii) on
each Closing Date, such Purchaser’s Subscription Amount as set forth in Section 2.1 above.
2.4 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with each Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein
(unless as of a specific date therein in which case they shall be accurate as of such date);
(ii) all
obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been
performed; and
(iii) the
delivery by each Purchaser of the items set forth in Section 2.3(b) of this Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with each Closing are subject to the following conditions being
met:
(i) the
accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);
(ii) all
obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;
and
(iii) the
delivery by the Company of the items set forth in Section 2.3(a) of this Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations
and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed
a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding
section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:
(a) Subsidiaries.
All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly
or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references
to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
(b) Organization
and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power
and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company
nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects
or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect
on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document
(any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c) Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated
by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith
or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.
(d) No
Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to
which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any
of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing
a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which
any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court
or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii)
and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice
to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i)
the filings required pursuant to Section 4.6 of this Agreement, (ii) the notice and/or application(s) to each applicable Trading
Market for the issuance and sale of the Securities and the listing of the Conversion Shares for trading thereon in the time and
manner required thereby and (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable
state securities laws (collectively, the “Required Approvals”).
(f) Issuance
of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with
the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed
by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its
duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to 200% of
the Required Minimum on the date hereof.
(g) Capitalization.
The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the
number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. Except
as disclosed on Schedule 3.1(g), the Company has not issued any capital stock since its most recently filed periodic report under
the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the
issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the
conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under
the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents as a result of the purchase and sale of the Securities, there are
no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe
for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale
of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or
reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.
No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale
of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s
capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s
stockholders.
(h) SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required
to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and
none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required
by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
(i) Material
Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there
has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company
has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock
and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company
stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information.
Except for the issuance of the Securities contemplated by this Agreement ), no event, liability, fact, circumstance, occurrence
or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries
or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed
by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly
disclosed at least 1 Trading Day prior to the date that this representation is made.
(j) Litigation.
There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities
or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim
of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been,
and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company
or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities
Act.
(k) Labor
Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of
the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’
employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or
any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure
or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant
in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of
its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(l) Compliance.
Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any
court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation
of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material Adverse Effect.
(m) Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation
or modification of any Material Permit.
(n) Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them
and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries,
in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens
for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP
and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by
the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance.
(o) Intellectual
Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights
and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective businesses
and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).
None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual
Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2)
years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited
financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual
Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have
a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is
no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except
where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(p) Insurance.
The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including,
but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither the
Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without
a significant increase in cost.
(q) Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company or
any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party
to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or
personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case
in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.
(r) Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements of
the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The
Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers
have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of
the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).
The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange
Act) that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting
of the Company and its Subsidiaries.
(s) Certain
Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiaries to any broker,
financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by the Transaction Documents.
(t) Private
Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.
(u) Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject
to registration under the Investment Company Act of 1940, as amended.
(v) Registration
Rights. Other than each of the Purchasers, no Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company or any Subsidiaries.
(w) Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating
such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance requirements.
(x) Application
of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and
the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation
as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.
(y) Disclosure.
Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel
with any information that it believes constitutes or might constitute material, non-public information. The Company understands
and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company.
All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their
respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and
correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated
by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other
than those specifically set forth in Section 3.2 hereof.
(z) No
Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2,
neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering
of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require
the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any
Trading Market on which any of the securities of the Company are listed or designated.
(aa) Solvency.
Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds
the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry
on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability
thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate
all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).
The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(aa)
sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which
the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x)
any liabilities for borrowed money or amounts owed in excess of $250,000 (other than trade accounts payable incurred in the ordinary
course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether
or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties
by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business;
and (z) the present value of any lease payments in excess of $250,000 due under leases required to be capitalized in accordance
with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
(bb) Tax
Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in
a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local
income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due
on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of
all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or
of any Subsidiary know of no basis for any such claim.
(cc) No
General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers
and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.
(dd) Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent
or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person
acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision
of FCPA.
(ee) Accountants.
The Company’s independent registered public accounting firm is Sadler Gibb & Associates, LLC. To the knowledge and belief
of the Company, such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall
express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal
year ended June 30, 2014.
(ff) Seniority.
Except as disclosed in the SEC Reports, as of the Closing Date, no Indebtedness or other claim against the Company is senior to
the Preferred Stock in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other
than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and
capital lease obligations (which is senior only as to the property covered thereby).
(gg) No
Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and
the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability
to perform any of its obligations under any of the Transaction Documents.
(hh) Acknowledgment
Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated
thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given
by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to
each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based
solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
(ii) Acknowledgment
Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers
has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities
for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without
limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and
counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently
have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with
or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands
and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable
with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted. The
Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.
(jj) Regulation
M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of,
any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement
agent in connection with the placement of the Securities.
(kk) Stock
Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance
with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market value
of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted
under the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there is no and has
been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock
options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their
financial results or prospects.
(ll) Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
(mm) U.S.
Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the
meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s
request.
(nn) Bank
Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act
of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the
“Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly
or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or
more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(oo) Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with
applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970,
as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money
Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body
or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge
of the Company or any Subsidiary, threatened.
3.2 Representations
and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as
of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):
(a) Organization;
Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability
company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and
performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary
corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction
Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with
the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.
(b) Own
Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered
under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account
and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act
or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities
Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to
distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities
law (this representation and warranty not limiting such Purchaser’s right to sell the Securities in compliance with applicable
federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser
Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on
which it converts any Preferred Stock it will be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act.
(d) Experience
of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(e) General
Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented
at any seminar or any other general solicitation or general advertisement.
(f) Certain
Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly
or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases
or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser
first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material
terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing,
in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions
of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered
by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding
the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any
actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect
Short Sales or similar transactions in the future.
The Company acknowledges and agrees that
the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s
representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction
Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of
the transaction contemplated hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company
an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights and obligations of a Purchaser under this Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following
form:
[NEITHER] THIS SECURITY [NOR
THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER
OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES
ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company
acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees
or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.
(c) Certificates
evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while
a registration statement covering the resale of the Underlying Shares is effective under the Securities Act, (ii) following any
sale of such Underlying Shares pursuant to Rule 144, (iii) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall
cause its counsel to issue a legal opinion to the Transfer Agent promptly after any of the events described in (i)-(iii) in the
preceding sentence if required by the Transfer Agent to effect the removal of the legend hereunder (with a copy to the applicable
Purchaser and its broker). If all or any portion of the Preferred Stock is converted at a time when there is an effective registration
statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 or if such legend
is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that
following such time as such legend is no longer required under this Section 4.1(c), it will, no later than three (3) Trading Days
following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as
applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or
cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on
transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted
by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System as directed by such Purchaser.
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities
are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading
Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after
the Legend Removal Date until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s
right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required
by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or injunctive relief.
4.2 Acknowledgment
of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares
of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations
under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction
Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless
of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect
that such issuance may have on the ownership of the other stockholders of the Company.
4.3 Furnishing
of Information; Public Information.
(a) Until
the earliest of the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock
under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even
if the Company is not then subject to the reporting requirements of the Exchange Act.
(b) At
any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of
the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without
restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information
requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s other
available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason
of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate
Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th)
day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information
Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the
Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b)
are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments
shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments
are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information
Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a
timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for
partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public
Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
4.4 Integration.
The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined
in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require
the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior
to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
4.5 Conversion
Procedures. The form of Notice of Conversion included in the Preferred Stock sets forth the totality of the procedures
required of the Purchasers in order to convert the Preferred Stock. Without limiting the preceding sentences, no ink-original Notice
of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of
Conversion form be required in order to convert the Preferred Stock. Except as provided in Section 4.1(c), no additional legal
opinion, other information or instructions shall be required of the Purchasers to convert their Preferred Stock. The Company shall
honor conversions of the Preferred Stock and shall deliver Underlying Shares in accordance with the terms, conditions and time
periods set forth in the Transaction Documents.
4.6 Securities
Laws Disclosure; Publicity. The Company shall (a) by 9:30 a.m. (New York City time) on the second Trading Day immediately following
the Closing, issue a press release disclosing the material terms of the transactions contemplated hereby and (b) file a Current
Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the Commission within the time required by the
Exchange Act. From and after the issuance of such press release, the Company represents to the Purchasers that it shall have publicly
disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or
any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction
Documents. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make
any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without
the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be
withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market, without the prior written consent of such Purchaser, except to the extent such disclosure is required by law
or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted
under this clause (b).
4.7 Shareholder
Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any
Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including
any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities
under the Transaction Documents or under any other agreement between the Company and the Purchasers.
4.8 Non-Public
Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto
such Purchaser shall have entered into a written agreement with the Company regarding the confidentiality and use of such information.
The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in
securities of the Company.
4.9 Use
of Proceeds. The Company shall use the net proceeds hereunder for general corporate purposes, and shall not use such proceeds:
(a) for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course
of the Company’s business and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c)
for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC.
4.10 Indemnification
of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a
Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within
the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the
Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not
an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless
such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such
Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence,
willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may
be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall
have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time
to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material
conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not
be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s
prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a
loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties,
covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification
required by this Section 4.10 shall be made by periodic payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any
cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject
to pursuant to law.
4.11 Reservation
and Listing of Securities.
(a) The
Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.
(b) If,
on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than 150% of the Required
Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate
or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least 150% of the Required
Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.
(c) The
Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading
Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing
or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing or
quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on
such date on such Trading Market or another Trading Market.
4.12 Participation
in Future Financing.
(a) From
the date hereof until the date that is the 6-month anniversary of the Closing, upon any issuance by the Company or any of its Subsidiaries
of Common Stock, Common Stock Equivalents or debt for cash consideration, Indebtedness or a combination of units hereof (a “Subsequent
Financing”), each Purchaser shall have the right to participate in the Subsequent Financing in an amount up to 100% of
such Purchaser’s Subscription Amount (the “Participation Maximum”) on the same terms, conditions and price
provided for in the Subsequent Financing.
(b) At
least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written
notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser
if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).
Upon the request of a Purchaser within two (2) Trading Days after the Pre-Notice, and only upon a request by such Purchaser, for
a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or
with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto
as an attachment.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company no later than two (2)
Trading Days after delivery of such Subsequent Financing Notice that such Purchaser is willing to participate in the Subsequent
Financing, the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds
ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice.
(d) If
notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining
portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.
(e) If
the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount
of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the
Participation Maximum. “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities
purchased by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts of Securities
purchased by all Purchasers participating under this Section 4.12.
(f) The
Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days after
the date of the initial Subsequent Financing Notice.
(g) The
Company and each Purchaser agree that if any Purchaser elects to participate in the Subsequent Financing, the transaction documents
related to the Subsequent Financing shall not include any term or provision whereby such Purchaser shall be required to agree
to any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or
termination of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written
consent of such Purchaser.
(h) Notwithstanding
anything to the contrary in this Section 4.12 and unless otherwise agreed to by such Purchaser, the Company shall either confirm
in writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly
disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Purchaser
will not be in possession of any material, non-public information, by the tenth (10th) Business Day following delivery of the
Subsequent Financing Notice. If by such tenth (10th) Business Day, no public disclosure regarding a transaction with respect to
the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received by such
Purchaser, such transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession
of any material, non-public information with respect to the Company or any of its Subsidiaries.
(i) Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance.
(j) Notwithstanding
anything to the contrary contained in this Agreement or any future agreement that the Company may enter into with the Purchasers
from time to time, for as long as the Purchasers own the Preferred Stock, the Company shall not issue or sell, and the Investors
shall not purchase or acquire, any shares of Preferred Stock, Common Stock, or securities convertible into Common Stock under
this Agreement (or any other agreement) which, when aggregated with all other shares of Common Stock then beneficially owned
by the Purchaser and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3
promulgated thereunder), would result in the beneficial ownership by the Purchaser and its affiliates (either individually
or acting as a group within the meaning of Section 13(d)(3) of the Exchange Act) of more than 9.99% of the then issued and
outstanding shares of Common Stock (the “Beneficial Ownership Limitation”). Upon the written or oral request
of any Purchaser, the Company shall promptly (but not later than one (1) Business Day) confirm orally or in writing to such
Purchaser the number of shares of Common Stock then outstanding. The Purchasers and the Company shall each cooperate in good faith
in the determinations required hereby and the application hereof. The Purchasers’ written certification to the Company of
the applicability of the Beneficial Ownership Limitation, and the resulting effect thereof hereunder at any time, shall be conclusive
with respect to the applicability thereof and such result absent manifest error.
4.13 Subsequent
Equity Sales.
(a) From
the date hereof until thirty (30) days after the Closing Date, neither the Company nor any Subsidiary shall issue, enter into any
agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents.
(b) From
the date hereof until such time as all of the Preferred Stock has been converted or redeemed, the Company shall be prohibited from
effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common
Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction unless 67% of the holders of the Preferred
Stock then outstanding shall waive this Section 4.13(b). “Variable Rate Transaction” means a transaction in
which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for,
or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange
rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that
is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence
of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock
or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities
at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect damages.
(c) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall
be an Exempt Issuance.
4.14 Equal
Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid
to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration
is also offered to all of the parties to this Agreement. Further, the Company shall not make any payment of dividends on the Preferred
Stock in amounts which are disproportionate to the respective outstanding shares of Preferred Stock at any applicable time. For
clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately
by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as
the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.
4.15 Certain
Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither
it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will (i) execute any Short Sales, of any of
the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the
transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in
Section 4.6 and (ii) execute any Short Sales of the Common Stock from the date hereof until the earlier of (x) 5 month anniversary
of the date hereof and (y) the date that the Preferred Stock are no longer outstanding (provided that this provision shall not
prohibit any sales made where a corresponding Notice of Conversion is tendered to the Company and the shares received upon such
conversion are used to close out such sale) (a “Prohibited Short Sale”). Each Purchaser, severally and
not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company pursuant to the initial press release as described in Section 4.6, such Purchaser will maintain the confidentiality
of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules.
Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly
acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in
effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in Section 4.6, (ii) except for a Prohibited Short
Sale, no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance
with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly
announced pursuant to the initial press release as described in Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality
to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.6. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only
apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement.
4.16 Form
D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation
D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers
at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide
evidence of such actions promptly upon request of any Purchaser.
4.17 Capital
Changes. Notwithstanding Section 4.18 below, until the 12-month anniversary of the Closing, the Company shall not undertake
a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding
a majority of the outstanding shares of the Preferred Stock.
ARTICLE V.
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing
has not been consummated on or before February 28, 2014; provided, however, that such termination will not affect
the right of any party to sue for any breach by any other party (or parties).
5.2 Fees
and Expenses. At the Closing, the Company has agreed to reimburse Dominion and Redwood $25,000 in the aggregate for legal fees
at the Closing. Accordingly, in lieu of the foregoing payments, the amount that Dominion and Redwood are to pay for the Securities
at the Closings shall be reduced by $25,000. The Company shall deliver to each Purchaser, prior to the Closing, a completed and
executed copy of the Closing Statement, attached hereto as Annex A. Except as expressly set forth in the Transaction Documents
to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing
of any instruction letter delivered by the Company and any conversion notice delivered by a Purchaser), stamp taxes and other taxes
and duties levied in connection with the delivery of any Securities to the Purchasers.
5.3 Entire
Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of
the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and
shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing,
if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
5.5 Amendments;
Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed,
in the case of an amendment, by the Company and the Purchasers holding at least 67% in interest of the Securities then outstanding
or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future
or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay
or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
5.6 Headings.
The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of
each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to
whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”
5.8 No
Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise
set forth in Section 4.10.
5.9 Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall
be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding
is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence
an action, suit or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the
Company under Section 4.10, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for
its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution
of such action or proceeding.
5.10 Survival.
The representations and warranties contained herein shall survive the Closings and the delivery of the Securities.
5.11 Execution.
This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being
understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission
or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.
5.12 Severability.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission
and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of)
any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser
may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand
or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the
case of a rescission of a conversion of the Preferred Stock, the applicable Purchaser shall be required to return any shares of
Common Stock subject to any such rescinded conversion notice concurrently with the return to such Purchaser of the aggregate conversion
price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to
such Purchaser’s Preferred Stock (including, issuance of a replacement share certificate evidencing such restored right).
5.14 Replacement
of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or
in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory
to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.15 Remedies.
In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of
the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that
monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
5.16 Payment
Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document
or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from,
disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
5.17 Usury.
To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and
will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any
time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction
Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments
in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated
with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents
is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract
rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof
forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such
excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company,
the manner of handling such excess to be at such Purchaser’s election.
5.18 Independent
Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several
and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance
or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers
are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser
to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate
legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each
Purchaser and its respective counsel have chosen to communicate with the Company through Robinson Brog. Robinson Brog does not
represent any of the Purchasers and only represents Dominion. The Company has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the
Purchasers.
5.19 Liquidated
Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction
Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages
or other amounts are due and payable shall have been canceled.
5.20 Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking
of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken
or such right may be exercised on the next succeeding Business Day.
5.21 Construction.
The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and
every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.
5.22 WAIVER
OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES
EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY
AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(Signature Pages Follow)
IN WITNESS WHEREOF,
the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories
as of the date first indicated above.
ECO BUILDING PRODUCTS, INC. |
Address for Notice: |
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909 West Vista Way |
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Vista, California 92083 |
By:__________________________________________ |
Fax: |
Name: Steve Conboy |
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Title: Chief Executive Officer |
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With a copy to (which shall not constitute notice): |
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Szaferman, Lakind, Blumstein & Blader, P.C. |
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101 Grovers Mill Road, Second Floor |
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Lawrenceville, New Jersey 08648 |
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Attn: Gregg Jaclin |
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Fax: (609) 275-4511 |
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF,
the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as
of the date first indicated above.
Name of Purchaser: ________________________________________________________
Signature of Authorized Signatory of
Purchaser: __________________________________
Name of Authorized Signatory: ____________________________________________________
Title of Authorized Signatory: _____________________________________________________
Email Address of Authorized Signatory:
_____________________________________________
Facsimile Number of Authorized Signatory: __________________________________________
Address for Notice to Purchaser:
Address for Delivery of Securities to Purchaser (if not same
as address for notice):
Closing Subscription Amount: _____________
Series C Preferred Shares: _________________
EIN Number: _______________________
[SIGNATURE PAGES CONTINUE]
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase
Agreement, dated as of the date hereto, the purchasers shall purchase Preferred Stock from Eco Building Products, Inc. (the “Company”).
All funds will be wired into an account maintained by the Company. All funds will be disbursed in accordance with this Closing
Statement.
Disbursement
Date: June ___, 2014
I. PURCHASE PRICE
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Gross Proceeds to be Received |
$ |
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II. DISBURSEMENTS
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$ |
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$ |
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$ |
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$ |
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$ |
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Total Amount Disbursed: |
$ |
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WIRE INSTRUCTIONS:
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To: _____________________________________ |
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Duly executed this ___ day of June, 2014: |
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Eco Building Products, Inc. |
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|
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By: ___________________ |
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Name: |
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Title: |
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Exhibit A
Exhibit B
Exhibit C
Exhibit D
Schedule 2.1(b)
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT
(the “Agreement”) is dated this 3rd day of June, 2014, by and among Eco Building Products, Inc., a Colorado corporation
(the “Company”), and Dominion Capital LLC (the “Holder”).
WHEREAS, the Holder
beneficially owns and holds certain Promissory Notes issued by the Company as set forth on Exhibit A hereto (the “Promissory
Notes”); and
WHEREAS, the Holder
desires to exchange the Promissory Notes for preferred stock of the Company as set forth and memorialized on Exhibit B hereto
(the “Exchange Securities”), and the Company desires to issue the Exchange Securities in exchange for the Promissory
Notes, all on the terms and conditions set forth in this Agreement; and
WHEREAS, the reliance
upon the representations made by the Holder and the Company in this Agreement, the transactions contemplated by this Agreement
are such that the offer and exchange of securities by the Company under this Agreement will be exempt from registration under applicable
United States securities laws as a result of this exchange offer being undertaken pursuant to Section 3(a)(9) of the Securities
Act of 1933, as amended (the “Securities Act”).
NOW, THEREFORE, in
consideration of the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Company and the Holder hereby agree as follows:
Section 1. Exchange.
Subject to and upon the terms and conditions set forth in this Agreement, the Holder agrees to surrender to the Company the Promissory
Notes and, in exchange therefore, the Company shall issue to the Holder the Exchange Securities (the “Exchange”).
1.1 Closing.
On the Closing Date (as defined below), the Company will issue and deliver (or cause to be issued and delivered) the Exchange Securities
to the Holder, or in the name of a custodian or nominee of the Holder, or as otherwise requested by the Holder in writing, and
the Holder will surrender to the Company the Promissory Notes. The closing of the Exchange shall occur on May 30, 2014, or as soon
thereafter as the parties may mutually agree in writing (the “Closing Date”), subject to the provisions of Section
4 and Section 5 herein.
1.2 Section
3(a)(9). Assuming the accuracy of the representations and warranties of each of the Company and the Holder set forth in Sections
2 and 3 of this Agreement, the parties acknowledge and agree that the purpose of such representations and warranties is, among
other things, to ensure that the Exchange qualifies as an exchange of securities under Section 3(a)(9) of the Securities Act.
Section 2. Representations
and Warranties of the Company. The Company represents and warrants to the Holder that:
2.1 Organization
and Qualification. The Company and each of the subsidiaries of the Company (the “Subsidiaries”) is an entity duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation
or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company, nor any Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries
is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure
to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material
adverse effect on the legality, validity or enforceability of this Agreement or any documents executed in connection herewith (the
“Transaction Documents”), (ii) a material adverse effect on the results of operations, assets, business, prospects
or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect
on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document
(any of (i), (ii) or (iii), a “Material Adverse Effect”) and no proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
2.2 Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated
by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith
or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.
2.3 Issuance
of Exchange Securities. The issuance of the Exchange Securities is duly authorized and, upon issuance in accordance with the
terms hereof, the Exchange Securities shall be validly issued, fully paid and non-assessable shares of the common stock of the
Company. Assuming the truth and accuracy of each of the representations and warranties of the Holder contained in Section 3 of
this Agreement, the issuance by the Company of the Exchange Securities is exempt from registration under the Securities Act.
2.4 No
Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to
which it is a party, the issuance of the Exchange Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default) under, result in the creation of any options, contracts,
agreements, liens, security interests, or other encumbrances (“Liens”) upon any of the properties or assets of the
Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property
or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.
2.5 Acknowledgment
Regarding the Exchange. The Company acknowledges and agrees that the Holder is acting solely in the capacity of an arm’s
length third party with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges the
Holder is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement
and the transactions contemplated hereby, and any advice given by the Holder or any of their representatives or agents in connection
with this Agreement is merely incidental to the Exchange.
2.6 No
Commission; No Other Consideration. The Company has not paid or given, and has not agreed to pay or give, directly or indirectly,
any commission or other remuneration for soliciting the Exchange. The Exchange Securities are being issued exclusively for the
exchange of the Promissory Notes and no other consideration has or will be paid for the Exchange Securities.
2.7 3(a)(9)
Representation. The Company has not, nor has any person acting on its behalf, directly or indirectly made any offers or sales
of any security or solicited any offers to buy any security under circumstances that would cause the Exchange and the issuance
of the Exchange Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the
Securities Act which would prevent the Company from delivering the Exchange Securities to the Holder pursuant to Section 3(a)(9)
of the Securities Act, nor will the Company take any action or steps that would cause the Exchange, issuance and delivery of the
Exchange Securities to be integrated with other offerings to the effect that the delivery of the Exchange Securities to the Holder
would be seen not to be exempt pursuant to Section 3(a)(9) of the Securities Act.
2.8 No
Third-party Advisors. Other than legal counsel, the Company has not engaged any third parties to assist in the solicitation
with respect to the Exchange.
2.9 SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
of the Exchange Act, for the two years preceding the date hereof (or such shorter period as the Company was required by law or
regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto
as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject,
in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
2.10 Subsidiaries. All
of the direct and indirect subsidiaries of the Company are set forth in the SEC Reports. The Company owns, directly
or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other
references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
2.11 Filings,
Consents and Approvals. Other than as set forth on Schedule 3.1(e), the Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than: (i) the notice and/or application(s) to each applicable Trading Market for the issuance
and the listing of the Exchange Securities for trading thereon in the time and manner required thereby, and (ii) the filing of
Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the
“Required Approvals”).
2.12 Capitalization. The
capitalization of the Company is as set forth in the SEC Reports. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. There
are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe
for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance of the Exchange
Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers)
and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued,
fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No
further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance of the Exchange
Securities. There are no stockholder agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
2.13 Shell
Company Status. The Company is not currently, and within the past three years has not been, an issuer identified in Rule 144(i)(1)
under the Securities Act.
2.14 DTC
Eligibility. The Company, through the Transfer Agent, currently participates in the DTC Fast Automated Securities Transfer
(FAST) Program and the Common Stock can be transferred electronically to third parties via the DTC Fast Automated Securities Transfer
(FAST) Program.
2.15 Material
Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has
been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property
to its stockholder or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v)
the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except
for the issuance of the Exchange Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence
or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries
or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by
the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly
disclosed at least 1 Trading Day prior to the date that this representation is made.
2.16 Litigation. There
is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Exchange
Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary
duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the Company. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
2.17 Labor
Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees
of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s
or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the
Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term
of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any
other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where
the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
2.18 Compliance. Neither
the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether
or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator
or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental
authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.
2.19 Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
2.20 Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned
by them and good and marketable title in all personal property owned by them that is material to the business of the Company and
the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries
and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance
with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which
the Company and the Subsidiaries are in compliance.
2.21 Intellectual
Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective
businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that
any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be
abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received,
since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise
has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not
have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The
Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
2.22 Insurance. The
Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but
not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither
the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without
a significant increase in cost.
2.23 Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the
Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently
a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or
personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case
in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.
2.24 Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions
are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets
is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying
officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the
end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “ Evaluation
Date ”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting
(as such term is defined in the Exchange Act) that have materially affected, or is reasonably likely to materially affect, the
internal control over financial reporting of the Company and its Subsidiaries.
2.25 Certain
Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiaries to any broker,
financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents.
2.26 Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Exchange Securities,
will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940,
as amended. The Company shall conduct its business in a manner so that it will not become an “investment company”
subject to registration under the Investment Company Act of 1940, as amended.
2.27 Registration
Rights. Other than as disclosed in the SEC Reports, no Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company or any Subsidiaries.
2.28 Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating
such registration. Except as set forth in the SEC Reports, the Company has not, in the 12 months preceding the date
hereof, received notice from The OTCBB any other exchange or quotation service on which the Company’s securities are traded
(the “Trading Market”) on which the Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such Trading Market. Except as set forth in the SEC Reports,
the Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all
such listing and maintenance requirements.
2.29 Application
of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order
to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter
documents) or the laws of its state of incorporation that is or could become applicable to the Purchaser as a result of the Purchaser
and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation
as a result of the Company’s issuance of the Exchange Securities pursuant to the Exchange.
2.30 Disclosure.
Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf has provided either Holder or its agents or counsel with any
information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms
that the Holder will rely on the foregoing representation in effecting transactions in securities of the Company. All
of the disclosure furnished by or on behalf of the Company to the Holder regarding the Company and its Subsidiaries, their respective
businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct
and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated
by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees
that the Holder makes no nor has made any representations or warranties with respect to the transactions contemplated hereby other
than those specifically set forth in Section 3 hereof.
2.31 No
Integrated Offering. Assuming the accuracy of the Holder’s representations and warranties set forth in Section 3, neither
the Company, nor any of its Affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, under circumstances that would cause the Exchange to be integrated
with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities
under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities
of the Company are listed or designated.
2.32 Solvency.
The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing
and amounts of cash to be payable on or in respect of its debt). Except as set forth in the SEC Reports, the Company
has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under
the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The SEC Reports set forth as of
the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or
any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities
for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business),
(y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same,
are, or should be, reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present
value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Except as
set forth in the SEC Reports, neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
2.33 Tax
Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local
income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due
on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of
all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or
of any Subsidiary know of no basis for any such claim.
2.34 Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent
or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person
acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect
any provision of FCPA.
2.35 No
Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and
the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability
to perform any of its obligations under any of the Transaction Documents.
2.36 Regulation
M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate
the issuance or resale of any of the Exchange Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the Exchange Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another
to purchase any other securities of the Company.
2.37 Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
2.38 Bank
Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding
Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System
(the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent
or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
2.39 Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance
with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970,
as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money
Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge
of the Company or any Subsidiary, threatened.
Section 3. Representations
and Warranties of the Holder. The Holder represents and warrants to the Company that:
3.1 Ownership
of the Promissory Notes. The Holder is the legal and beneficial owner of the Promissory Notes. The Holder paid for the Promissory
Notes, and has continuously held the Promissory Notes since its issuance or purchase. The Holder, individually or through an affiliate,
owns the Promissory Notes outright and free and clear of any options, contracts, agreements, liens, security interests, or other
encumbrances.
3.2 No
Public Sale or Distribution. The Holder is acquiring the Exchange Securities in the ordinary course of business for its own
account and not with a view toward, or for resale in connection with, the public sale or distribution thereof; provided, however,
that by making the representations herein, the Holder does not agree to hold any of the Exchange Securities for any minimum or
other specific term and reserves the right to dispose of the Exchange Securities at any time in accordance with an exemption from
the registration requirements of the Securities Act and applicable state securities laws. The Holder does not presently have any
agreement or understanding, directly or indirectly, with any person to distribute, or transfer any interest or grant participation
rights in, the Promissory Notes or the Exchange Securities.
3.3 Accredited
Investor and Affiliate Status. The Holder is an “accredited investor” as that term is defined in Rule 501 of Regulation
D under the Securities Act. The Holder is not, and has not been, for a period of at least three months prior to the date of this
Agreement (a) an officer or director of the Company, (b) an “affiliate” of the Company (as defined in Rule 144) (an
“Affiliate”) or (c) a “beneficial owner” of more than 10% of the common stock (as defined for purposes
of Rule 13d-3 of the Exchange Act).
3.4 Reliance
on Exemptions. The Holder understands that the Exchange is being made in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy
of, and the Holder’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of
the Holder set forth herein in order to determine the availability of such exemptions and the eligibility of the Holder to complete
the Exchange and to acquire the Exchange Securities.
3.5 Information.
The Holder has been furnished with all materials relating to the business, finances and operations of the Company and materials
relating to the Exchange which have been requested by the Holder. The Holder has been afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence investigations conducted by the Holder or its representatives
shall modify, amend or affect the Holder’s right to rely on the Company’s representations and warranties contained
herein. The Holder acknowledges that all of the documents filed by the Company with the SEC under Sections 13(a), 14(a) or 15(d)
of the Exchange Act that have been posted on the SEC’s EDGAR site are available to the Holder, and the Holder has not relied
on any statement of the Company not contained in such documents in connection with the Holder’s decision to enter into this
Agreement and the Exchange.
3.6 Risk.
The Holder understands that its investment in the Exchange Securities involves a high degree of risk. The Holder is able to bear
the risk of an investment in the Exchange Securities including, without limitation, the risk of total loss of its investment. The
Holder has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision
with respect to the Exchange. There is no assurance that the Exchange Securities or any securities into which the Exchange Securities
may convert will continue to be quoted, traded or listed for trading or quotation on the OTCBB or on any other organized market
or quotation system.
3.7 No
Governmental Review. The Holder understands that no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement in connection with the Exchange or the fairness or suitability of
the investment in the Exchange Securities nor have such authorities passed upon or endorsed the merits of the Exchange Notes.
3.8 Organization;
Authorization. The Holder is duly organized, validly existing and in good standing under the laws of its state of formation
and has the requisite organizational power and authority to enter into and perform its obligations under this Agreement.
3.9 Validity;
Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Holder and shall
constitute the legal, valid and binding obligations of the Holder enforceable against the Holder in accordance with its terms.
The execution, delivery and performance of this Agreement by the Holder and the consummation by the Holder of the transactions
contemplated hereby (including, without limitation, the irrevocable surrender of the Promissory Notes) will not result in a violation
of the organizational documents of the Holder.
3.10 Prior
Investment Experience. The Holder acknowledges that it has prior investment experience, including investment in securities
of the type being exchange, including the Promissory Notes or the Exchange Securities, and has read all of the documents furnished
or made available by the Company to it and is able to evaluate the merits and risks of such an investment on its behalf, and that
it recognizes the highly speculative nature of this investment.
3.11 Tax
Consequences. The Holder acknowledges that the Company has made no representation regarding the potential or actual tax consequences
for the Holder which will result from entering into the Agreement and from consummation of the Exchange. The Holder acknowledges
that it bears complete responsibility for obtaining adequate tax advice regarding the Agreement and the Exchange.
3.12 No
Registration, Review or Approval. The Holder acknowledges, understands and agrees that the Exchange Securities are being exchanged
hereunder pursuant to an exchange offer exemption under Section 3(a)(9) of the Securities Act.
Section 4. Conditions
Precedent to Obligations of the Company. The obligation of the Company to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of each of the following conditions, provided that these conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole discretion by providing the Holder with prior written notice
thereof:
4.1 the Holder
shall have delivered to the Company the Promissory Notes;
4.2 no order
of any court, arbitrator, or governmental or regulatory authority shall be in effect which purports to enjoin or restrain any of
the transactions contemplated by this Agreement; and
4.3 the accuracy
in all material respects when made and on the applicable Closing Date of the representations and warranties of the Holder contained
herein (unless as of a specific date therein).
Section 5. Conditions
Precedent to Obligations of the Holder. The obligation of the Holder to consummate the transactions contemplated by this Agreement
is subject to the satisfaction of each of the following conditions, provided that these conditions are for the Holder’s sole
benefit and may be waived by the applicable Holder at any time in its sole discretion by providing the Company with prior written
notice thereof:
5.1 no order
of any court, arbitrator, or governmental or regulatory authority shall be in effect which purports to enjoin or restrain any of
the transactions contemplated by this Agreement;
5.2 the Holder
shall have received an opinion of counsel to the Company satisfactory to such Holder in its sole discretion. Such opinion of counsel
shall provide that the Exchange Securities may be issued free of restrictive legend pursuant to 3(a)(9) under the Securities Exchange
Act of 1933, as amended;
5.3 the accuracy
in all material respects when made and on the applicable Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);
5.4 all obligations,
covenants and agreements of the Company required to be performed at or prior to the applicable Closing Date shall have been performed;
and
5.5 from
the date hereof to the relevant Closing Date, trading in the Company’s common stock shall not have been suspended by the
SEC or any trading market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg
L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are
reported by such service, or on any trading market, nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national
or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of the Holder makes it impracticable or inadvisable to purchase the Exchange Securities at
the closing.
Section 6. Governing
Law; Jurisdiction; Waiver of Jury Trial. This Agreement shall be construed under the laws of the state of New York, without
regard to principles of conflicts of law or choice of law that would permit or require the application of the laws of another jurisdiction.
The Company and the Holder each hereby agrees that all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall be litigated only in the Supreme Court of the State of New York or the United States District Court for
the Southern District of New York located in New York County, New York. The Company and the Holder each consents to the exclusive
jurisdiction and venue of the foregoing courts and consents that any process or notice of motion or other application to either
of said courts or a judge thereof may be served inside or outside the State of New York or the Southern District of New York by
generally recognized overnight courier or certified or registered mail, return receipt requested, directed to such party at its
or his address set forth below (and service so made shall be deemed “personal service”) or by personal service or in
such other manner as may be permissible under the rules of said courts. THE COMPANY AND THE HOLDER EACH HEREBY WAIVES ANY RIGHT
TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION PURSUANT TO THIS AGREEMENT.
Section 7. Counterparts.
This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if
the signature were an original, not a facsimile signature.
Section 8. Headings.
The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 9. Severability.
If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability
of any provision of this Agreement in any other jurisdiction.
Section 10. Entire
Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Holder, the Company,
their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor either Holder makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing
signed by the Company and the Holder. No provision hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought.
Section 11. Notices.
Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must
be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon receipt, when sent
by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending
party); or (c) one calendar day (excluding Saturdays, Sundays, and national banking holidays) after deposit with an overnight courier
service, in each case properly addressed to the party to receive the same.
The addresses and facsimile numbers for
such communications shall be:
If to the Company:
Eco Building Products, Inc.
909 West Vista Way
Vista, California 92083
Attn: Steve
Conboy, CEO
If to the Holder:
Dominion Capital LLC
341 West 38th Street, Suite 800
New York, NY 10018
Attn: Mikhail Gurevich, Managing
Partner
or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has specified by written notice given to each other
party five (5) days prior to the effectiveness of such change.
Section 12. Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Exchange Securities. Each Holder may assign some or all of their rights hereunder without
the consent of the Company, in which event such assignee shall be deemed to be the Holder hereunder with respect to such assigned
rights.
Section 13. No Third
Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
Section 14. Survival
of Representations. The representations and warranties of the Company and the Holder contained in Sections 2 and 3, respectively,
will survive the closing of the transactions contemplated by this Agreement.
Section 15. Further
Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request
in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have executed
this Exchange Agreement as of the date first written above.
Eco Building Products, Inc. |
|
|
|
By: |
|
|
Name: |
|
Title: |
|
Exhibit
A
Name | |
Principal | | |
Date | |
Interest | | |
Outstanding | |
Restricted Note | |
| | | |
| |
| | | |
| | |
| |
$ | 200,000.00 | | |
10/28/2013 | |
$ | 24,000.00 | | |
$ | 224,000.00 | |
| |
$ | 200,000.00 | | |
11/8/2013 | |
$ | 24,000.00 | | |
$ | 224,000.00 | |
| |
| | | |
| |
| | | |
| | |
Gemini Notes | |
| | | |
| |
| | | |
| | |
| |
$ | 428,935.00 | | |
2/13/2014 | |
$ | 12,271.46 | | |
$ | 382,206.46 | |
| |
$ | 428,935.00 | | |
3/5/2014 | |
$ | 12,868.05 | | |
$ | 441,803.05 | |
| |
$ | 428,935.00 | | |
4/4/2014 | |
$ | 8,578.70 | | |
$ | 437,531.70 | |
| |
| | | |
| |
| | | |
| | |
Tonaquint Note | |
| | | |
| |
| | | |
| | |
| |
$ | 250,750.00 | | |
2/14/2014 | |
$ | 8,784.34 | | |
$ | 162,034.34 | |
| |
| | | |
| |
| | | |
| | |
Preferreds | |
| | | |
| |
| | | |
| | |
| |
$ | 675,000.00 | | |
2/27/2014 | |
$ | 21,600.00 | | |
$ | 696,600.00 | |
| |
$ | 250,000.00 | | |
4/18/2014 | |
$ | 3,833.33 | | |
$ | 253,833.33 | |
| |
| | | |
| |
| Total | | |
$ | 2,821,990.88 | |
EXHIBIT B
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT
(the “Agreement”) is dated this 3rd day of June, 2014, by and among Eco Building Products, Inc., a Colorado corporation
(the “Company”), and Redwood Fund II, LLC (the “Holder”).
WHEREAS, the Holder
beneficially owns and holds certain Promissory Notes issued by the Company as set forth on Exhibit A hereto (the “Promissory
Notes”); and
WHEREAS, the Holder
desires to exchange the Promissory Notes for preferred stock of the Company as set forth and memorialized on Exhibit B hereto
(the “Exchange Securities”), and the Company desires to issue the Exchange Securities in exchange for the Promissory
Notes, all on the terms and conditions set forth in this Agreement; and
WHEREAS, the reliance
upon the representations made by the Holder and the Company in this Agreement, the transactions contemplated by this Agreement
are such that the offer and exchange of securities by the Company under this Agreement will be exempt from registration under applicable
United States securities laws as a result of this exchange offer being undertaken pursuant to Section 3(a)(9) of the Securities
Act of 1933, as amended (the “Securities Act”).
NOW, THEREFORE, in
consideration of the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Company and the Holder hereby agree as follows:
Section 1. Exchange.
Subject to and upon the terms and conditions set forth in this Agreement, the Holder agrees to surrender to the Company the Promissory
Notes and, in exchange therefore, the Company shall issue to the Holder the Exchange Securities (the “Exchange”).
1.1 Closing.
On the Closing Date (as defined below), the Company will issue and deliver (or cause to be issued and delivered) the Exchange Securities
to the Holder, or in the name of a custodian or nominee of the Holder, or as otherwise requested by the Holder in writing, and
the Holder will surrender to the Company the Promissory Notes. The closing of the Exchange shall occur on May 30, 2014, or as soon
thereafter as the parties may mutually agree in writing (the “Closing Date”), subject to the provisions of Section
4 and Section 5 herein.
1.2 Section
3(a)(9). Assuming the accuracy of the representations and warranties of each of the Company and the Holder set forth in Sections
2 and 3 of this Agreement, the parties acknowledge and agree that the purpose of such representations and warranties is, among
other things, to ensure that the Exchange qualifies as an exchange of securities under Section 3(a)(9) of the Securities Act.
Section 2. Representations
and Warranties of the Company. The Company represents and warrants to the Holder that:
2.1 Organization
and Qualification. The Company and each of the subsidiaries of the Company (the “Subsidiaries”) is an entity duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation
or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company, nor any Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries
is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure
to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material
adverse effect on the legality, validity or enforceability of this Agreement or any documents executed in connection herewith (the
“Transaction Documents”), (ii) a material adverse effect on the results of operations, assets, business, prospects
or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect
on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document
(any of (i), (ii) or (iii), a “Material Adverse Effect”) and no proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
2.2 Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated
by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith
or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.
2.3 Issuance
of Exchange Securities. The issuance of the Exchange Securities is duly authorized and, upon issuance in accordance with the
terms hereof, the Exchange Securities shall be validly issued, fully paid and non-assessable shares of the common stock of the
Company. Assuming the truth and accuracy of each of the representations and warranties of the Holder contained in Section 3 of
this Agreement, the issuance by the Company of the Exchange Securities is exempt from registration under the Securities Act.
2.4 No
Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to
which it is a party, the issuance of the Exchange Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default) under, result in the creation of any options, contracts,
agreements, liens, security interests, or other encumbrances (“Liens”) upon any of the properties or assets of the
Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property
or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.
2.5 Acknowledgment
Regarding the Exchange. The Company acknowledges and agrees that the Holder is acting solely in the capacity of an arm’s
length third party with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges the
Holder is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement
and the transactions contemplated hereby, and any advice given by the Holder or any of their representatives or agents in connection
with this Agreement is merely incidental to the Exchange.
2.6 No
Commission; No Other Consideration. The Company has not paid or given, and has not agreed to pay or give, directly or indirectly,
any commission or other remuneration for soliciting the Exchange. The Exchange Securities are being issued exclusively for the
exchange of the Promissory Notes and no other consideration has or will be paid for the Exchange Securities.
2.7 3(a)(9)
Representation. The Company has not, nor has any person acting on its behalf, directly or indirectly made any offers or sales
of any security or solicited any offers to buy any security under circumstances that would cause the Exchange and the issuance
of the Exchange Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the
Securities Act which would prevent the Company from delivering the Exchange Securities to the Holder pursuant to Section 3(a)(9)
of the Securities Act, nor will the Company take any action or steps that would cause the Exchange, issuance and delivery of the
Exchange Securities to be integrated with other offerings to the effect that the delivery of the Exchange Securities to the Holder
would be seen not to be exempt pursuant to Section 3(a)(9) of the Securities Act.
2.8 No
Third-party Advisors. Other than legal counsel, the Company has not engaged any third parties to assist in the solicitation
with respect to the Exchange.
2.9 SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
of the Exchange Act, for the two years preceding the date hereof (or such shorter period as the Company was required by law or
regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto
as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject,
in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
2.10 Subsidiaries. All
of the direct and indirect subsidiaries of the Company are set forth in the SEC Reports. The Company owns, directly
or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other
references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
2.11 Filings,
Consents and Approvals. Other than as set forth on Schedule 3.1(e), the Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than: (i) the notice and/or application(s) to each applicable Trading Market for the issuance
and the listing of the Exchange Securities for trading thereon in the time and manner required thereby, and (ii) the filing of
Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the
“Required Approvals”).
2.12 Capitalization. The
capitalization of the Company is as set forth in the SEC Reports. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. There
are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe
for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance of the Exchange
Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers)
and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued,
fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No
further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance of the Exchange
Securities. There are no stockholder agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
2.13 Shell
Company Status. The Company is not currently, and within the past three years has not been, an issuer identified in Rule 144(i)(1)
under the Securities Act.
2.14 DTC
Eligibility. The Company, through the Transfer Agent, currently participates in the DTC Fast Automated Securities Transfer
(FAST) Program and the Common Stock can be transferred electronically to third parties via the DTC Fast Automated Securities Transfer
(FAST) Program.
2.15 Material
Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has
been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property
to its stockholder or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v)
the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except
for the issuance of the Exchange Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence
or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries
or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by
the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly
disclosed at least 1 Trading Day prior to the date that this representation is made.
2.16 Litigation. There
is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Exchange
Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary
duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the Company. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
2.17 Labor
Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees
of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s
or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the
Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term
of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any
other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where
the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
2.18 Compliance. Neither
the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether
or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator
or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental
authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.
2.19 Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
2.20 Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned
by them and good and marketable title in all personal property owned by them that is material to the business of the Company and
the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries
and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance
with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which
the Company and the Subsidiaries are in compliance.
2.21 Intellectual
Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective
businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that
any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be
abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received,
since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise
has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not
have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The
Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
2.22 Insurance. The
Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but
not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither
the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without
a significant increase in cost.
2.23 Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the
Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently
a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or
personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case
in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.
2.24 Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions
are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets
is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying
officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the
end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “ Evaluation
Date ”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting
(as such term is defined in the Exchange Act) that have materially affected, or is reasonably likely to materially affect, the
internal control over financial reporting of the Company and its Subsidiaries.
2.25 Certain
Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiaries to any broker,
financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents.
2.26 Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Exchange Securities,
will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940,
as amended. The Company shall conduct its business in a manner so that it will not become an “investment company”
subject to registration under the Investment Company Act of 1940, as amended.
2.27 Registration
Rights. Other than as disclosed in the SEC Reports, no Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company or any Subsidiaries.
2.28 Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating
such registration. Except as set forth in the SEC Reports, the Company has not, in the 12 months preceding the date
hereof, received notice from The OTCBB any other exchange or quotation service on which the Company’s securities are traded
(the “Trading Market”) on which the Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such Trading Market. Except as set forth in the SEC Reports,
the Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all
such listing and maintenance requirements.
2.29 Application
of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order
to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter
documents) or the laws of its state of incorporation that is or could become applicable to the Purchaser as a result of the Purchaser
and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation
as a result of the Company’s issuance of the Exchange Securities pursuant to the Exchange.
2.30 Disclosure.
Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf has provided either Holder or its agents or counsel with any
information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms
that the Holder will rely on the foregoing representation in effecting transactions in securities of the Company. All
of the disclosure furnished by or on behalf of the Company to the Holder regarding the Company and its Subsidiaries, their respective
businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct
and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated
by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees
that the Holder makes no nor has made any representations or warranties with respect to the transactions contemplated hereby other
than those specifically set forth in Section 3 hereof.
2.31 No
Integrated Offering. Assuming the accuracy of the Holder’s representations and warranties set forth in Section 3, neither
the Company, nor any of its Affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, under circumstances that would cause the Exchange to be integrated
with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities
under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities
of the Company are listed or designated.
2.32 Solvency.
The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing
and amounts of cash to be payable on or in respect of its debt). Except as set forth in the SEC Reports, the Company
has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under
the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The SEC Reports set forth as of
the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or
any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities
for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business),
(y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same,
are, or should be, reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present
value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Except as
set forth in the SEC Reports, neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
2.33 Tax
Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local
income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due
on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of
all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or
of any Subsidiary know of no basis for any such claim.
2.34 Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent
or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person
acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect
any provision of FCPA.
2.35 No
Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and
the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability
to perform any of its obligations under any of the Transaction Documents.
2.36 Regulation
M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate
the issuance or resale of any of the Exchange Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the Exchange Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another
to purchase any other securities of the Company.
2.37 Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
2.38 Bank
Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding
Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System
(the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent
or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
2.39 Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance
with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970,
as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money
Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge
of the Company or any Subsidiary, threatened.
Section 3. Representations
and Warranties of the Holder. The Holder represents and warrants to the Company that:
3.1 Ownership
of the Promissory Notes. The Holder is the legal and beneficial owner of the Promissory Notes. The Holder paid for the Promissory
Notes, and has continuously held the Promissory Notes since its issuance or purchase. The Holder, individually or through an affiliate,
owns the Promissory Notes outright and free and clear of any options, contracts, agreements, liens, security interests, or other
encumbrances.
3.2 No
Public Sale or Distribution. The Holder is acquiring the Exchange Securities in the ordinary course of business for its own
account and not with a view toward, or for resale in connection with, the public sale or distribution thereof; provided, however,
that by making the representations herein, the Holder does not agree to hold any of the Exchange Securities for any minimum or
other specific term and reserves the right to dispose of the Exchange Securities at any time in accordance with an exemption from
the registration requirements of the Securities Act and applicable state securities laws. The Holder does not presently have any
agreement or understanding, directly or indirectly, with any person to distribute, or transfer any interest or grant participation
rights in, the Promissory Notes or the Exchange Securities.
3.3 Accredited
Investor and Affiliate Status. The Holder is an “accredited investor” as that term is defined in Rule 501 of Regulation
D under the Securities Act. The Holder is not, and has not been, for a period of at least three months prior to the date of this
Agreement (a) an officer or director of the Company, (b) an “affiliate” of the Company (as defined in Rule 144) (an
“Affiliate”) or (c) a “beneficial owner” of more than 10% of the common stock (as defined for purposes
of Rule 13d-3 of the Exchange Act).
3.4 Reliance
on Exemptions. The Holder understands that the Exchange is being made in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy
of, and the Holder’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of
the Holder set forth herein in order to determine the availability of such exemptions and the eligibility of the Holder to complete
the Exchange and to acquire the Exchange Securities.
3.5 Information.
The Holder has been furnished with all materials relating to the business, finances and operations of the Company and materials
relating to the Exchange which have been requested by the Holder. The Holder has been afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence investigations conducted by the Holder or its representatives
shall modify, amend or affect the Holder’s right to rely on the Company’s representations and warranties contained
herein. The Holder acknowledges that all of the documents filed by the Company with the SEC under Sections 13(a), 14(a) or 15(d)
of the Exchange Act that have been posted on the SEC’s EDGAR site are available to the Holder, and the Holder has not relied
on any statement of the Company not contained in such documents in connection with the Holder’s decision to enter into this
Agreement and the Exchange.
3.6 Risk.
The Holder understands that its investment in the Exchange Securities involves a high degree of risk. The Holder is able to bear
the risk of an investment in the Exchange Securities including, without limitation, the risk of total loss of its investment. The
Holder has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision
with respect to the Exchange. There is no assurance that the Exchange Securities or any securities into which the Exchange Securities
may convert will continue to be quoted, traded or listed for trading or quotation on the OTCBB or on any other organized market
or quotation system.
3.7 No
Governmental Review. The Holder understands that no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement in connection with the Exchange or the fairness or suitability of
the investment in the Exchange Securities nor have such authorities passed upon or endorsed the merits of the Exchange Notes.
3.8 Organization;
Authorization. The Holder is duly organized, validly existing and in good standing under the laws of its state of formation
and has the requisite organizational power and authority to enter into and perform its obligations under this Agreement.
3.9 Validity;
Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Holder and shall
constitute the legal, valid and binding obligations of the Holder enforceable against the Holder in accordance with its terms.
The execution, delivery and performance of this Agreement by the Holder and the consummation by the Holder of the transactions
contemplated hereby (including, without limitation, the irrevocable surrender of the Promissory Notes) will not result in a violation
of the organizational documents of the Holder.
3.10 Prior
Investment Experience. The Holder acknowledges that it has prior investment experience, including investment in securities
of the type being exchange, including the Promissory Notes or the Exchange Securities, and has read all of the documents furnished
or made available by the Company to it and is able to evaluate the merits and risks of such an investment on its behalf, and that
it recognizes the highly speculative nature of this investment.
3.11 Tax
Consequences. The Holder acknowledges that the Company has made no representation regarding the potential or actual tax consequences
for the Holder which will result from entering into the Agreement and from consummation of the Exchange. The Holder acknowledges
that it bears complete responsibility for obtaining adequate tax advice regarding the Agreement and the Exchange.
3.12 No
Registration, Review or Approval. The Holder acknowledges, understands and agrees that the Exchange Securities are being exchanged
hereunder pursuant to an exchange offer exemption under Section 3(a)(9) of the Securities Act.
Section 4. Conditions
Precedent to Obligations of the Company. The obligation of the Company to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of each of the following conditions, provided that these conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole discretion by providing the Holder with prior written notice
thereof:
4.1 the Holder
shall have delivered to the Company the Promissory Notes;
4.2 no order
of any court, arbitrator, or governmental or regulatory authority shall be in effect which purports to enjoin or restrain any of
the transactions contemplated by this Agreement; and
4.3 the accuracy
in all material respects when made and on the applicable Closing Date of the representations and warranties of the Holder contained
herein (unless as of a specific date therein).
Section 5. Conditions
Precedent to Obligations of the Holder. The obligation of the Holder to consummate the transactions contemplated by this Agreement
is subject to the satisfaction of each of the following conditions, provided that these conditions are for the Holder’s sole
benefit and may be waived by the applicable Holder at any time in its sole discretion by providing the Company with prior written
notice thereof:
5.1 no order
of any court, arbitrator, or governmental or regulatory authority shall be in effect which purports to enjoin or restrain any of
the transactions contemplated by this Agreement;
5.2 the Holder
shall have received an opinion of counsel to the Company satisfactory to such Holder in its sole discretion. Such opinion of counsel
shall provide that the Exchange Securities may be issued free of restrictive legend pursuant to 3(a)(9) under the Securities Exchange
Act of 1933, as amended;
5.3 the accuracy
in all material respects when made and on the applicable Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);
5.4 all obligations,
covenants and agreements of the Company required to be performed at or prior to the applicable Closing Date shall have been performed;
and
5.5 from
the date hereof to the relevant Closing Date, trading in the Company’s common stock shall not have been suspended by the
SEC or any trading market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg
L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are
reported by such service, or on any trading market, nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national
or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of the Holder makes it impracticable or inadvisable to purchase the Exchange Securities at
the closing.
Section 6. Governing
Law; Jurisdiction; Waiver of Jury Trial. This Agreement shall be construed under the laws of the state of New York, without
regard to principles of conflicts of law or choice of law that would permit or require the application of the laws of another jurisdiction.
The Company and the Holder each hereby agrees that all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall be litigated only in the Supreme Court of the State of New York or the United States District Court for
the Southern District of New York located in New York County, New York. The Company and the Holder each consents to the exclusive
jurisdiction and venue of the foregoing courts and consents that any process or notice of motion or other application to either
of said courts or a judge thereof may be served inside or outside the State of New York or the Southern District of New York by
generally recognized overnight courier or certified or registered mail, return receipt requested, directed to such party at its
or his address set forth below (and service so made shall be deemed “personal service”) or by personal service or in
such other manner as may be permissible under the rules of said courts. THE COMPANY AND THE HOLDER EACH HEREBY WAIVES ANY RIGHT
TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION PURSUANT TO THIS AGREEMENT.
Section 7. Counterparts.
This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if
the signature were an original, not a facsimile signature.
Section 8. Headings.
The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 9. Severability.
If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability
of any provision of this Agreement in any other jurisdiction.
Section 10. Entire
Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Holder, the Company,
their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor either Holder makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing
signed by the Company and the Holder. No provision hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought.
Section 11. Notices.
Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must
be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon receipt, when sent
by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending
party); or (c) one calendar day (excluding Saturdays, Sundays, and national banking holidays) after deposit with an overnight courier
service, in each case properly addressed to the party to receive the same.
The addresses and facsimile numbers for
such communications shall be:
If to the Company:
Eco Building Products, Inc.
909 West Vista Way
Vista, California 92083
Attn: Steve Conboy,
CEO
If to the Holder:
Redwood Management, LLC
or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has specified by written notice given to each other
party five (5) days prior to the effectiveness of such change.
Section 12. Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Exchange Securities. Each Holder may assign some or all of their rights hereunder without
the consent of the Company, in which event such assignee shall be deemed to be the Holder hereunder with respect to such assigned
rights.
Section 13. No Third
Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
Section 14. Survival
of Representations. The representations and warranties of the Company and the Holder contained in Sections 2 and 3, respectively,
will survive the closing of the transactions contemplated by this Agreement.
Section 15. Further
Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request
in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have executed
this Exchange Agreement as of the date first written above.
Eco Building Products,
Inc.
REDWOOD
FUND II, LLC
Exhibit
A
Convertibles Held
by Redwood Fund II,LLC | |
| | |
Interest Accrued | | |
Principal | |
6/11/2013 | |
Purchased from ECO Building Products | |
| 12 | % | |
$ | 6,000.00 | | |
$ | 50,000.00 | |
6/28/2013 | |
Purchased from ECO Building Products | |
| 12 | % | |
$ | 3,000.00 | | |
$ | 25,000.00 | |
7/5/2013 | |
Purchase Debt Redwood- MRL assignment | |
| 12 | % | |
$ | 12,000.00 | | |
$ | 100,000.00 | |
7/16/2013 | |
Purchase Debt Redwood- MRL assignment | |
| 12 | % | |
$ | 15,000.00 | | |
$ | 125,000.00 | |
11/18/2013 | |
Purchase Debt Redwood- MRL assignment | |
| 12 | % | |
$ | 12,000.00 | | |
$ | 100,000.00 | |
11/22/2013 | |
Purchase Debt Redwood- MRL assignment | |
| 12 | % | |
$ | 12,000.00 | | |
$ | 100,000.00 | |
4/1/2014 | |
Purchased from ECO Building Products (Pd American Intl Forest Products) | |
| 10 | % | |
$ | 5,000.00 | | |
$ | 50,000.00 | |
5/14/2014 | |
Convertible Purchase | |
| 10 | % | |
$ | 5,000.00 | | |
$ | 50,000.00 | |
Total Convertible Debentures due Redwood Fund II, LLC | |
| | | |
$ | 60,000.00 | | |
$ | 600,000.00 | |
EXHIBIT B
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT
(the “Agreement”) is dated this 3rd day of June, 2014, by and among Eco Building Products, Inc., a Colorado corporation
(the “Company”), and Redwood Fund III, LLC (the “Holder”).
WHEREAS, the Holder
beneficially owns and holds certain Promissory Notes issued by the Company as set forth on Exhibit A hereto (the “Promissory
Notes”); and
WHEREAS, the Holder
desires to exchange the Promissory Notes for preferred stock of the Company as set forth and memorialized on Exhibit B hereto
(the “Exchange Securities”), and the Company desires to issue the Exchange Securities in exchange for the Promissory
Notes, all on the terms and conditions set forth in this Agreement; and
WHEREAS, the reliance
upon the representations made by the Holder and the Company in this Agreement, the transactions contemplated by this Agreement
are such that the offer and exchange of securities by the Company under this Agreement will be exempt from registration under applicable
United States securities laws as a result of this exchange offer being undertaken pursuant to Section 3(a)(9) of the Securities
Act of 1933, as amended (the “Securities Act”).
NOW, THEREFORE, in
consideration of the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Company and the Holder hereby agree as follows:
Section 1. Exchange.
Subject to and upon the terms and conditions set forth in this Agreement, the Holder agrees to surrender to the Company the Promissory
Notes and, in exchange therefore, the Company shall issue to the Holder the Exchange Securities (the “Exchange”).
1.1 Closing.
On the Closing Date (as defined below), the Company will issue and deliver (or cause to be issued and delivered) the Exchange Securities
to the Holder, or in the name of a custodian or nominee of the Holder, or as otherwise requested by the Holder in writing, and
the Holder will surrender to the Company the Promissory Notes. The closing of the Exchange shall occur on May 30, 2014, or as soon
thereafter as the parties may mutually agree in writing (the “Closing Date”), subject to the provisions of Section
4 and Section 5 herein.
1.2 Section
3(a)(9). Assuming the accuracy of the representations and warranties of each of the Company and the Holder set forth in Sections
2 and 3 of this Agreement, the parties acknowledge and agree that the purpose of such representations and warranties is, among
other things, to ensure that the Exchange qualifies as an exchange of securities under Section 3(a)(9) of the Securities Act.
Section 2. Representations
and Warranties of the Company. The Company represents and warrants to the Holder that:
2.1 Organization
and Qualification. The Company and each of the subsidiaries of the Company (the “Subsidiaries”) is an entity duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation
or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company, nor any Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries
is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure
to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material
adverse effect on the legality, validity or enforceability of this Agreement or any documents executed in connection herewith (the
“Transaction Documents”), (ii) a material adverse effect on the results of operations, assets, business, prospects
or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect
on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document
(any of (i), (ii) or (iii), a “Material Adverse Effect”) and no proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
2.2 Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated
by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith
or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.
2.3 Issuance
of Exchange Securities. The issuance of the Exchange Securities is duly authorized and, upon issuance in accordance with the
terms hereof, the Exchange Securities shall be validly issued, fully paid and non-assessable shares of the common stock of the
Company. Assuming the truth and accuracy of each of the representations and warranties of the Holder contained in Section 3 of
this Agreement, the issuance by the Company of the Exchange Securities is exempt from registration under the Securities Act.
2.4 No
Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to
which it is a party, the issuance of the Exchange Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default) under, result in the creation of any options, contracts,
agreements, liens, security interests, or other encumbrances (“Liens”) upon any of the properties or assets of the
Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property
or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.
2.5 Acknowledgment
Regarding the Exchange. The Company acknowledges and agrees that the Holder is acting solely in the capacity of an arm’s
length third party with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges the
Holder is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement
and the transactions contemplated hereby, and any advice given by the Holder or any of their representatives or agents in connection
with this Agreement is merely incidental to the Exchange.
2.6 No
Commission; No Other Consideration. The Company has not paid or given, and has not agreed to pay or give, directly or indirectly,
any commission or other remuneration for soliciting the Exchange. The Exchange Securities are being issued exclusively for the
exchange of the Promissory Notes and no other consideration has or will be paid for the Exchange Securities.
2.7 3(a)(9)
Representation. The Company has not, nor has any person acting on its behalf, directly or indirectly made any offers or sales
of any security or solicited any offers to buy any security under circumstances that would cause the Exchange and the issuance
of the Exchange Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the
Securities Act which would prevent the Company from delivering the Exchange Securities to the Holder pursuant to Section 3(a)(9)
of the Securities Act, nor will the Company take any action or steps that would cause the Exchange, issuance and delivery of the
Exchange Securities to be integrated with other offerings to the effect that the delivery of the Exchange Securities to the Holder
would be seen not to be exempt pursuant to Section 3(a)(9) of the Securities Act.
2.8 No
Third-party Advisors. Other than legal counsel, the Company has not engaged any third parties to assist in the solicitation
with respect to the Exchange.
2.9 SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
of the Exchange Act, for the two years preceding the date hereof (or such shorter period as the Company was required by law or
regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto
as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject,
in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
2.10 Subsidiaries. All
of the direct and indirect subsidiaries of the Company are set forth in the SEC Reports. The Company owns, directly
or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other
references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
2.11 Filings,
Consents and Approvals. Other than as set forth on Schedule 3.1(e), the Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than: (i) the notice and/or application(s) to each applicable Trading Market for the issuance
and the listing of the Exchange Securities for trading thereon in the time and manner required thereby, and (ii) the filing of
Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the
“Required Approvals”).
2.12 Capitalization. The
capitalization of the Company is as set forth in the SEC Reports. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. There
are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe
for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance of the Exchange
Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers)
and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued,
fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No
further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance of the Exchange
Securities. There are no stockholder agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
2.13 Shell
Company Status. The Company is not currently, and within the past three years has not been, an issuer identified in Rule 144(i)(1)
under the Securities Act.
2.14 DTC
Eligibility. The Company, through the Transfer Agent, currently participates in the DTC Fast Automated Securities Transfer
(FAST) Program and the Common Stock can be transferred electronically to third parties via the DTC Fast Automated Securities Transfer
(FAST) Program.
2.15 Material
Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has
been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property
to its stockholder or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v)
the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except
for the issuance of the Exchange Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence
or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries
or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by
the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly
disclosed at least 1 Trading Day prior to the date that this representation is made.
2.16 Litigation. There
is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Exchange
Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary
duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the Company. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
2.17 Labor
Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees
of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s
or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the
Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term
of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any
other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where
the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
2.18 Compliance. Neither
the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether
or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator
or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental
authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.
2.19 Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
2.20 Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned
by them and good and marketable title in all personal property owned by them that is material to the business of the Company and
the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries
and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance
with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which
the Company and the Subsidiaries are in compliance.
2.21 Intellectual
Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective
businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that
any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be
abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received,
since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise
has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not
have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The
Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
2.22 Insurance. The
Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but
not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither
the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without
a significant increase in cost.
2.23 Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the
Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently
a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or
personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case
in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.
2.24 Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions
are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets
is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying
officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the
end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “ Evaluation
Date ”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting
(as such term is defined in the Exchange Act) that have materially affected, or is reasonably likely to materially affect, the
internal control over financial reporting of the Company and its Subsidiaries.
2.25 Certain
Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiaries to any broker,
financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents.
2.26 Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Exchange Securities,
will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940,
as amended. The Company shall conduct its business in a manner so that it will not become an “investment company”
subject to registration under the Investment Company Act of 1940, as amended.
2.27 Registration
Rights. Other than as disclosed in the SEC Reports, no Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company or any Subsidiaries.
2.28 Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating
such registration. Except as set forth in the SEC Reports, the Company has not, in the 12 months preceding the date
hereof, received notice from The OTCBB any other exchange or quotation service on which the Company’s securities are traded
(the “Trading Market”) on which the Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such Trading Market. Except as set forth in the SEC Reports,
the Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all
such listing and maintenance requirements.
2.29 Application
of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order
to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter
documents) or the laws of its state of incorporation that is or could become applicable to the Purchaser as a result of the Purchaser
and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation
as a result of the Company’s issuance of the Exchange Securities pursuant to the Exchange.
2.30 Disclosure.
Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf has provided either Holder or its agents or counsel with any
information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms
that the Holder will rely on the foregoing representation in effecting transactions in securities of the Company. All
of the disclosure furnished by or on behalf of the Company to the Holder regarding the Company and its Subsidiaries, their respective
businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct
and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated
by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees
that the Holder makes no nor has made any representations or warranties with respect to the transactions contemplated hereby other
than those specifically set forth in Section 3 hereof.
2.31 No
Integrated Offering. Assuming the accuracy of the Holder’s representations and warranties set forth in Section 3, neither
the Company, nor any of its Affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, under circumstances that would cause the Exchange to be integrated
with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities
under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities
of the Company are listed or designated.
2.32 Solvency.
The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing
and amounts of cash to be payable on or in respect of its debt). Except as set forth in the SEC Reports, the Company
has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under
the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The SEC Reports set forth as of
the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or
any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities
for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business),
(y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same,
are, or should be, reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present
value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Except as
set forth in the SEC Reports, neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
2.33 Tax
Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local
income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due
on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of
all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or
of any Subsidiary know of no basis for any such claim.
2.34 Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent
or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person
acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect
any provision of FCPA.
2.35 No
Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and
the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability
to perform any of its obligations under any of the Transaction Documents.
2.36 Regulation
M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate
the issuance or resale of any of the Exchange Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the Exchange Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another
to purchase any other securities of the Company.
2.37 Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
2.38 Bank
Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding
Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System
(the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent
or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
2.39 Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance
with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970,
as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money
Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge
of the Company or any Subsidiary, threatened.
Section 3. Representations
and Warranties of the Holder. The Holder represents and warrants to the Company that:
3.1 Ownership
of the Promissory Notes. The Holder is the legal and beneficial owner of the Promissory Notes. The Holder paid for the Promissory
Notes, and has continuously held the Promissory Notes since its issuance or purchase. The Holder, individually or through an affiliate,
owns the Promissory Notes outright and free and clear of any options, contracts, agreements, liens, security interests, or other
encumbrances.
3.2 No
Public Sale or Distribution. The Holder is acquiring the Exchange Securities in the ordinary course of business for its own
account and not with a view toward, or for resale in connection with, the public sale or distribution thereof; provided, however,
that by making the representations herein, the Holder does not agree to hold any of the Exchange Securities for any minimum or
other specific term and reserves the right to dispose of the Exchange Securities at any time in accordance with an exemption from
the registration requirements of the Securities Act and applicable state securities laws. The Holder does not presently have any
agreement or understanding, directly or indirectly, with any person to distribute, or transfer any interest or grant participation
rights in, the Promissory Notes or the Exchange Securities.
3.3 Accredited
Investor and Affiliate Status. The Holder is an “accredited investor” as that term is defined in Rule 501 of Regulation
D under the Securities Act. The Holder is not, and has not been, for a period of at least three months prior to the date of this
Agreement (a) an officer or director of the Company, (b) an “affiliate” of the Company (as defined in Rule 144) (an
“Affiliate”) or (c) a “beneficial owner” of more than 10% of the common stock (as defined for purposes
of Rule 13d-3 of the Exchange Act).
3.4 Reliance
on Exemptions. The Holder understands that the Exchange is being made in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy
of, and the Holder’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of
the Holder set forth herein in order to determine the availability of such exemptions and the eligibility of the Holder to complete
the Exchange and to acquire the Exchange Securities.
3.5 Information.
The Holder has been furnished with all materials relating to the business, finances and operations of the Company and materials
relating to the Exchange which have been requested by the Holder. The Holder has been afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence investigations conducted by the Holder or its representatives
shall modify, amend or affect the Holder’s right to rely on the Company’s representations and warranties contained
herein. The Holder acknowledges that all of the documents filed by the Company with the SEC under Sections 13(a), 14(a) or 15(d)
of the Exchange Act that have been posted on the SEC’s EDGAR site are available to the Holder, and the Holder has not relied
on any statement of the Company not contained in such documents in connection with the Holder’s decision to enter into this
Agreement and the Exchange.
3.6 Risk.
The Holder understands that its investment in the Exchange Securities involves a high degree of risk. The Holder is able to bear
the risk of an investment in the Exchange Securities including, without limitation, the risk of total loss of its investment. The
Holder has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision
with respect to the Exchange. There is no assurance that the Exchange Securities or any securities into which the Exchange Securities
may convert will continue to be quoted, traded or listed for trading or quotation on the OTCBB or on any other organized market
or quotation system.
3.7 No
Governmental Review. The Holder understands that no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement in connection with the Exchange or the fairness or suitability of
the investment in the Exchange Securities nor have such authorities passed upon or endorsed the merits of the Exchange Notes.
3.8 Organization;
Authorization. The Holder is duly organized, validly existing and in good standing under the laws of its state of formation
and has the requisite organizational power and authority to enter into and perform its obligations under this Agreement.
3.9 Validity;
Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Holder and shall
constitute the legal, valid and binding obligations of the Holder enforceable against the Holder in accordance with its terms.
The execution, delivery and performance of this Agreement by the Holder and the consummation by the Holder of the transactions
contemplated hereby (including, without limitation, the irrevocable surrender of the Promissory Notes) will not result in a violation
of the organizational documents of the Holder.
3.10 Prior
Investment Experience. The Holder acknowledges that it has prior investment experience, including investment in securities
of the type being exchange, including the Promissory Notes or the Exchange Securities, and has read all of the documents furnished
or made available by the Company to it and is able to evaluate the merits and risks of such an investment on its behalf, and that
it recognizes the highly speculative nature of this investment.
3.11 Tax
Consequences. The Holder acknowledges that the Company has made no representation regarding the potential or actual tax consequences
for the Holder which will result from entering into the Agreement and from consummation of the Exchange. The Holder acknowledges
that it bears complete responsibility for obtaining adequate tax advice regarding the Agreement and the Exchange.
3.12 No
Registration, Review or Approval. The Holder acknowledges, understands and agrees that the Exchange Securities are being exchanged
hereunder pursuant to an exchange offer exemption under Section 3(a)(9) of the Securities Act.
Section 4. Conditions
Precedent to Obligations of the Company. The obligation of the Company to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of each of the following conditions, provided that these conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole discretion by providing the Holder with prior written notice
thereof:
4.1 the Holder
shall have delivered to the Company the Promissory Notes;
4.2 no order
of any court, arbitrator, or governmental or regulatory authority shall be in effect which purports to enjoin or restrain any of
the transactions contemplated by this Agreement; and
4.3 the accuracy
in all material respects when made and on the applicable Closing Date of the representations and warranties of the Holder contained
herein (unless as of a specific date therein).
Section 5. Conditions
Precedent to Obligations of the Holder. The obligation of the Holder to consummate the transactions contemplated by this Agreement
is subject to the satisfaction of each of the following conditions, provided that these conditions are for the Holder’s sole
benefit and may be waived by the applicable Holder at any time in its sole discretion by providing the Company with prior written
notice thereof:
5.1 no order
of any court, arbitrator, or governmental or regulatory authority shall be in effect which purports to enjoin or restrain any of
the transactions contemplated by this Agreement;
5.2 the Holder
shall have received an opinion of counsel to the Company satisfactory to such Holder in its sole discretion. Such opinion of counsel
shall provide that the Exchange Securities may be issued free of restrictive legend pursuant to 3(a)(9) under the Securities Exchange
Act of 1933, as amended;
5.3 the accuracy
in all material respects when made and on the applicable Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);
5.4 all obligations,
covenants and agreements of the Company required to be performed at or prior to the applicable Closing Date shall have been performed;
and
5.5 from
the date hereof to the relevant Closing Date, trading in the Company’s common stock shall not have been suspended by the
SEC or any trading market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg
L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are
reported by such service, or on any trading market, nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national
or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of the Holder makes it impracticable or inadvisable to purchase the Exchange Securities at
the closing.
Section 6. Governing
Law; Jurisdiction; Waiver of Jury Trial. This Agreement shall be construed under the laws of the state of New York, without
regard to principles of conflicts of law or choice of law that would permit or require the application of the laws of another jurisdiction.
The Company and the Holder each hereby agrees that all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall be litigated only in the Supreme Court of the State of New York or the United States District Court for
the Southern District of New York located in New York County, New York. The Company and the Holder each consents to the exclusive
jurisdiction and venue of the foregoing courts and consents that any process or notice of motion or other application to either
of said courts or a judge thereof may be served inside or outside the State of New York or the Southern District of New York by
generally recognized overnight courier or certified or registered mail, return receipt requested, directed to such party at its
or his address set forth below (and service so made shall be deemed “personal service”) or by personal service or in
such other manner as may be permissible under the rules of said courts. THE COMPANY AND THE HOLDER EACH HEREBY WAIVES ANY RIGHT
TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION PURSUANT TO THIS AGREEMENT.
Section 7. Counterparts.
This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if
the signature were an original, not a facsimile signature.
Section 8. Headings.
The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 9. Severability.
If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability
of any provision of this Agreement in any other jurisdiction.
Section 10. Entire
Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Holder, the Company,
their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor either Holder makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing
signed by the Company and the Holder. No provision hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought.
Section 11. Notices.
Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must
be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon receipt, when sent
by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending
party); or (c) one calendar day (excluding Saturdays, Sundays, and national banking holidays) after deposit with an overnight courier
service, in each case properly addressed to the party to receive the same.
The addresses and facsimile numbers for
such communications shall be:
If to the Company:
Eco Building Products, Inc.
909 West Vista Way
Vista, California 92083
Attn: Steve Conboy,
CEO
If to the Holder:
Redwood Management, LLC
or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has specified by written notice given to each other
party five (5) days prior to the effectiveness of such change.
Section 12. Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Exchange Securities. Each Holder may assign some or all of their rights hereunder without
the consent of the Company, in which event such assignee shall be deemed to be the Holder hereunder with respect to such assigned
rights.
Section 13. No Third
Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
Section 14. Survival
of Representations. The representations and warranties of the Company and the Holder contained in Sections 2 and 3, respectively,
will survive the closing of the transactions contemplated by this Agreement.
Section 15. Further
Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request
in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have executed
this Exchange Agreement as of the date first written above.
Eco Building Products,
Inc.
REDWOOD
FUND III, LLC
Exhibit
A
Convertibles
Held by Redwood Fund III,LTD | |
| | |
Interest
Accrued | | |
Principal | |
8/19/2013 | |
Purchase Debt Redwood- MRL assignment | |
| 12 | % | |
$ | 10,500.00 | | |
$ | 150,000.00 | |
4/3/2014 | |
Purchased from ECO Building Products | |
| 10 | % | |
$ | 5,000.00 | | |
$ | 50,000.00 | |
4/14/2014 | |
Purchased from ECO Building Products | |
| 10 | % | |
$ | 3,500.00 | | |
$ | 35,000.00 | |
Total Convertible Debentures due Redwood Fund II, LLC | |
| | | |
$ | 19,000.00 | | |
$ | 235,000.00 | |
EXHIBIT B
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT
(the “Agreement”) is dated this 3rd day of June, 2014, by and among Eco Building Products, Inc., a Colorado corporation
(the “Company”), and Redwood Management, LLC (the “Holder”).
WHEREAS, the Holder
beneficially owns and holds certain Promissory Notes issued by the Company as set forth on Exhibit A hereto (the “Promissory
Notes”); and
WHEREAS, the Holder
desires to exchange the Promissory Notes for preferred stock of the Company as set forth and memorialized on Exhibit B hereto
(the “Exchange Securities”), and the Company desires to issue the Exchange Securities in exchange for the Promissory
Notes, all on the terms and conditions set forth in this Agreement; and
WHEREAS, the reliance
upon the representations made by the Holder and the Company in this Agreement, the transactions contemplated by this Agreement
are such that the offer and exchange of securities by the Company under this Agreement will be exempt from registration under applicable
United States securities laws as a result of this exchange offer being undertaken pursuant to Section 3(a)(9) of the Securities
Act of 1933, as amended (the “Securities Act”).
NOW, THEREFORE, in
consideration of the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Company and the Holder hereby agree as follows:
Section 1. Exchange.
Subject to and upon the terms and conditions set forth in this Agreement, the Holder agrees to surrender to the Company the Promissory
Notes and, in exchange therefore, the Company shall issue to the Holder the Exchange Securities (the “Exchange”).
1.1 Closing.
On the Closing Date (as defined below), the Company will issue and deliver (or cause to be issued and delivered) the Exchange Securities
to the Holder, or in the name of a custodian or nominee of the Holder, or as otherwise requested by the Holder in writing, and
the Holder will surrender to the Company the Promissory Notes. The closing of the Exchange shall occur on May 30, 2014, or as soon
thereafter as the parties may mutually agree in writing (the “Closing Date”), subject to the provisions of Section
4 and Section 5 herein.
1.2 Section
3(a)(9). Assuming the accuracy of the representations and warranties of each of the Company and the Holder set forth in Sections
2 and 3 of this Agreement, the parties acknowledge and agree that the purpose of such representations and warranties is, among
other things, to ensure that the Exchange qualifies as an exchange of securities under Section 3(a)(9) of the Securities Act.
Section 2. Representations
and Warranties of the Company. The Company represents and warrants to the Holder that:
2.1 Organization
and Qualification. The Company and each of the subsidiaries of the Company (the “Subsidiaries”) is an entity duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation
or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company, nor any Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries
is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure
to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material
adverse effect on the legality, validity or enforceability of this Agreement or any documents executed in connection herewith (the
“Transaction Documents”), (ii) a material adverse effect on the results of operations, assets, business, prospects
or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect
on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document
(any of (i), (ii) or (iii), a “Material Adverse Effect”) and no proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
2.2 Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated
by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith
or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.
2.3 Issuance
of Exchange Securities. The issuance of the Exchange Securities is duly authorized and, upon issuance in accordance with the
terms hereof, the Exchange Securities shall be validly issued, fully paid and non-assessable shares of the common stock of the
Company. Assuming the truth and accuracy of each of the representations and warranties of the Holder contained in Section 3 of
this Agreement, the issuance by the Company of the Exchange Securities is exempt from registration under the Securities Act.
2.4 No
Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to
which it is a party, the issuance of the Exchange Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default) under, result in the creation of any options, contracts,
agreements, liens, security interests, or other encumbrances (“Liens”) upon any of the properties or assets of the
Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property
or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.
2.5 Acknowledgment
Regarding the Exchange. The Company acknowledges and agrees that the Holder is acting solely in the capacity of an arm’s
length third party with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges the
Holder is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement
and the transactions contemplated hereby, and any advice given by the Holder or any of their representatives or agents in connection
with this Agreement is merely incidental to the Exchange.
2.6 No
Commission; No Other Consideration. The Company has not paid or given, and has not agreed to pay or give, directly or indirectly,
any commission or other remuneration for soliciting the Exchange. The Exchange Securities are being issued exclusively for the
exchange of the Promissory Notes and no other consideration has or will be paid for the Exchange Securities.
2.7 3(a)(9)
Representation. The Company has not, nor has any person acting on its behalf, directly or indirectly made any offers or sales
of any security or solicited any offers to buy any security under circumstances that would cause the Exchange and the issuance
of the Exchange Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the
Securities Act which would prevent the Company from delivering the Exchange Securities to the Holder pursuant to Section 3(a)(9)
of the Securities Act, nor will the Company take any action or steps that would cause the Exchange, issuance and delivery of the
Exchange Securities to be integrated with other offerings to the effect that the delivery of the Exchange Securities to the Holder
would be seen not to be exempt pursuant to Section 3(a)(9) of the Securities Act.
2.8 No
Third-party Advisors. Other than legal counsel, the Company has not engaged any third parties to assist in the solicitation
with respect to the Exchange.
2.9 SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
of the Exchange Act, for the two years preceding the date hereof (or such shorter period as the Company was required by law or
regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto
as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject,
in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
2.10 Subsidiaries. All
of the direct and indirect subsidiaries of the Company are set forth in the SEC Reports. The Company owns, directly
or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other
references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
2.11 Filings,
Consents and Approvals. Other than as set forth on Schedule 3.1(e), the Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than: (i) the notice and/or application(s) to each applicable Trading Market for the issuance
and the listing of the Exchange Securities for trading thereon in the time and manner required thereby, and (ii) the filing of
Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the
“Required Approvals”).
2.12 Capitalization. The
capitalization of the Company is as set forth in the SEC Reports. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. There
are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe
for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance of the Exchange
Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers)
and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued,
fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No
further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance of the Exchange
Securities. There are no stockholder agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
2.13 Shell
Company Status. The Company is not currently, and within the past three years has not been, an issuer identified in Rule 144(i)(1)
under the Securities Act.
2.14 DTC
Eligibility. The Company, through the Transfer Agent, currently participates in the DTC Fast Automated Securities Transfer
(FAST) Program and the Common Stock can be transferred electronically to third parties via the DTC Fast Automated Securities Transfer
(FAST) Program.
2.15 Material
Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has
been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property
to its stockholder or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v)
the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except
for the issuance of the Exchange Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence
or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries
or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by
the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly
disclosed at least 1 Trading Day prior to the date that this representation is made.
2.16 Litigation. There
is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Exchange
Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary
duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the Company. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
2.17 Labor
Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees
of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s
or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the
Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term
of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any
other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where
the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
2.18 Compliance. Neither
the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether
or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator
or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental
authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.
2.19 Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
2.20 Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned
by them and good and marketable title in all personal property owned by them that is material to the business of the Company and
the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries
and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance
with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which
the Company and the Subsidiaries are in compliance.
2.21 Intellectual
Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective
businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that
any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be
abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received,
since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise
has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not
have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The
Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
2.22 Insurance. The
Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but
not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither
the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without
a significant increase in cost.
2.23 Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the
Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently
a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or
personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case
in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.
2.24 Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions
are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets
is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying
officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the
end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “ Evaluation
Date ”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting
(as such term is defined in the Exchange Act) that have materially affected, or is reasonably likely to materially affect, the
internal control over financial reporting of the Company and its Subsidiaries.
2.25 Certain
Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiaries to any broker,
financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents.
2.26 Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Exchange Securities,
will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940,
as amended. The Company shall conduct its business in a manner so that it will not become an “investment company”
subject to registration under the Investment Company Act of 1940, as amended.
2.27 Registration
Rights. Other than as disclosed in the SEC Reports, no Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company or any Subsidiaries.
2.28 Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating
such registration. Except as set forth in the SEC Reports, the Company has not, in the 12 months preceding the date
hereof, received notice from The OTCBB any other exchange or quotation service on which the Company’s securities are traded
(the “Trading Market”) on which the Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such Trading Market. Except as set forth in the SEC Reports,
the Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all
such listing and maintenance requirements.
2.29 Application
of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order
to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter
documents) or the laws of its state of incorporation that is or could become applicable to the Purchaser as a result of the Purchaser
and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation
as a result of the Company’s issuance of the Exchange Securities pursuant to the Exchange.
2.30 Disclosure.
Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf has provided either Holder or its agents or counsel with any
information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms
that the Holder will rely on the foregoing representation in effecting transactions in securities of the Company. All
of the disclosure furnished by or on behalf of the Company to the Holder regarding the Company and its Subsidiaries, their respective
businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct
and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated
by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees
that the Holder makes no nor has made any representations or warranties with respect to the transactions contemplated hereby other
than those specifically set forth in Section 3 hereof.
2.31 No
Integrated Offering. Assuming the accuracy of the Holder’s representations and warranties set forth in Section 3, neither
the Company, nor any of its Affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, under circumstances that would cause the Exchange to be integrated
with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities
under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities
of the Company are listed or designated.
2.32 Solvency.
The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing
and amounts of cash to be payable on or in respect of its debt). Except as set forth in the SEC Reports, the Company
has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under
the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The SEC Reports set forth as of
the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or
any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities
for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business),
(y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same,
are, or should be, reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present
value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Except as
set forth in the SEC Reports, neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
2.33 Tax
Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local
income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due
on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of
all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or
of any Subsidiary know of no basis for any such claim.
2.34 Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent
or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person
acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect
any provision of FCPA.
2.35 No
Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and
the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability
to perform any of its obligations under any of the Transaction Documents.
2.36 Regulation
M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate
the issuance or resale of any of the Exchange Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the Exchange Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another
to purchase any other securities of the Company.
2.37 Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
2.38 Bank
Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding
Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System
(the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent
or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
2.39 Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance
with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970,
as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money
Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge
of the Company or any Subsidiary, threatened.
Section 3. Representations
and Warranties of the Holder. The Holder represents and warrants to the Company that:
3.1 Ownership
of the Promissory Notes. The Holder is the legal and beneficial owner of the Promissory Notes. The Holder paid for the Promissory
Notes, and has continuously held the Promissory Notes since its issuance or purchase. The Holder, individually or through an affiliate,
owns the Promissory Notes outright and free and clear of any options, contracts, agreements, liens, security interests, or other
encumbrances.
3.2 No
Public Sale or Distribution. The Holder is acquiring the Exchange Securities in the ordinary course of business for its own
account and not with a view toward, or for resale in connection with, the public sale or distribution thereof; provided, however,
that by making the representations herein, the Holder does not agree to hold any of the Exchange Securities for any minimum or
other specific term and reserves the right to dispose of the Exchange Securities at any time in accordance with an exemption from
the registration requirements of the Securities Act and applicable state securities laws. The Holder does not presently have any
agreement or understanding, directly or indirectly, with any person to distribute, or transfer any interest or grant participation
rights in, the Promissory Notes or the Exchange Securities.
3.3 Accredited
Investor and Affiliate Status. The Holder is an “accredited investor” as that term is defined in Rule 501 of Regulation
D under the Securities Act. The Holder is not, and has not been, for a period of at least three months prior to the date of this
Agreement (a) an officer or director of the Company, (b) an “affiliate” of the Company (as defined in Rule 144) (an
“Affiliate”) or (c) a “beneficial owner” of more than 10% of the common stock (as defined for purposes
of Rule 13d-3 of the Exchange Act).
3.4 Reliance
on Exemptions. The Holder understands that the Exchange is being made in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy
of, and the Holder’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of
the Holder set forth herein in order to determine the availability of such exemptions and the eligibility of the Holder to complete
the Exchange and to acquire the Exchange Securities.
3.5 Information.
The Holder has been furnished with all materials relating to the business, finances and operations of the Company and materials
relating to the Exchange which have been requested by the Holder. The Holder has been afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence investigations conducted by the Holder or its representatives
shall modify, amend or affect the Holder’s right to rely on the Company’s representations and warranties contained
herein. The Holder acknowledges that all of the documents filed by the Company with the SEC under Sections 13(a), 14(a) or 15(d)
of the Exchange Act that have been posted on the SEC’s EDGAR site are available to the Holder, and the Holder has not relied
on any statement of the Company not contained in such documents in connection with the Holder’s decision to enter into this
Agreement and the Exchange.
3.6 Risk.
The Holder understands that its investment in the Exchange Securities involves a high degree of risk. The Holder is able to bear
the risk of an investment in the Exchange Securities including, without limitation, the risk of total loss of its investment. The
Holder has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision
with respect to the Exchange. There is no assurance that the Exchange Securities or any securities into which the Exchange Securities
may convert will continue to be quoted, traded or listed for trading or quotation on the OTCBB or on any other organized market
or quotation system.
3.7 No
Governmental Review. The Holder understands that no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement in connection with the Exchange or the fairness or suitability of
the investment in the Exchange Securities nor have such authorities passed upon or endorsed the merits of the Exchange Notes.
3.8 Organization;
Authorization. The Holder is duly organized, validly existing and in good standing under the laws of its state of formation
and has the requisite organizational power and authority to enter into and perform its obligations under this Agreement.
3.9 Validity;
Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Holder and shall
constitute the legal, valid and binding obligations of the Holder enforceable against the Holder in accordance with its terms.
The execution, delivery and performance of this Agreement by the Holder and the consummation by the Holder of the transactions
contemplated hereby (including, without limitation, the irrevocable surrender of the Promissory Notes) will not result in a violation
of the organizational documents of the Holder.
3.10 Prior
Investment Experience. The Holder acknowledges that it has prior investment experience, including investment in securities
of the type being exchange, including the Promissory Notes or the Exchange Securities, and has read all of the documents furnished
or made available by the Company to it and is able to evaluate the merits and risks of such an investment on its behalf, and that
it recognizes the highly speculative nature of this investment.
3.11 Tax
Consequences. The Holder acknowledges that the Company has made no representation regarding the potential or actual tax consequences
for the Holder which will result from entering into the Agreement and from consummation of the Exchange. The Holder acknowledges
that it bears complete responsibility for obtaining adequate tax advice regarding the Agreement and the Exchange.
3.12 No
Registration, Review or Approval. The Holder acknowledges, understands and agrees that the Exchange Securities are being exchanged
hereunder pursuant to an exchange offer exemption under Section 3(a)(9) of the Securities Act.
Section 4. Conditions
Precedent to Obligations of the Company. The obligation of the Company to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of each of the following conditions, provided that these conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole discretion by providing the Holder with prior written notice
thereof:
4.1 the Holder
shall have delivered to the Company the Promissory Notes;
4.2 no order
of any court, arbitrator, or governmental or regulatory authority shall be in effect which purports to enjoin or restrain any of
the transactions contemplated by this Agreement; and
4.3 the accuracy
in all material respects when made and on the applicable Closing Date of the representations and warranties of the Holder contained
herein (unless as of a specific date therein).
Section 5. Conditions
Precedent to Obligations of the Holder. The obligation of the Holder to consummate the transactions contemplated by this Agreement
is subject to the satisfaction of each of the following conditions, provided that these conditions are for the Holder’s sole
benefit and may be waived by the applicable Holder at any time in its sole discretion by providing the Company with prior written
notice thereof:
5.1 no order
of any court, arbitrator, or governmental or regulatory authority shall be in effect which purports to enjoin or restrain any of
the transactions contemplated by this Agreement;
5.2 the Holder
shall have received an opinion of counsel to the Company satisfactory to such Holder in its sole discretion. Such opinion of counsel
shall provide that the Exchange Securities may be issued free of restrictive legend pursuant to 3(a)(9) under the Securities Exchange
Act of 1933, as amended;
5.3 the accuracy
in all material respects when made and on the applicable Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);
5.4 all obligations,
covenants and agreements of the Company required to be performed at or prior to the applicable Closing Date shall have been performed;
and
5.5 from
the date hereof to the relevant Closing Date, trading in the Company’s common stock shall not have been suspended by the
SEC or any trading market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg
L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are
reported by such service, or on any trading market, nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national
or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of the Holder makes it impracticable or inadvisable to purchase the Exchange Securities at
the closing.
Section 6. Governing
Law; Jurisdiction; Waiver of Jury Trial. This Agreement shall be construed under the laws of the state of New York, without
regard to principles of conflicts of law or choice of law that would permit or require the application of the laws of another jurisdiction.
The Company and the Holder each hereby agrees that all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall be litigated only in the Supreme Court of the State of New York or the United States District Court for
the Southern District of New York located in New York County, New York. The Company and the Holder each consents to the exclusive
jurisdiction and venue of the foregoing courts and consents that any process or notice of motion or other application to either
of said courts or a judge thereof may be served inside or outside the State of New York or the Southern District of New York by
generally recognized overnight courier or certified or registered mail, return receipt requested, directed to such party at its
or his address set forth below (and service so made shall be deemed “personal service”) or by personal service or in
such other manner as may be permissible under the rules of said courts. THE COMPANY AND THE HOLDER EACH HEREBY WAIVES ANY RIGHT
TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION PURSUANT TO THIS AGREEMENT.
Section 7. Counterparts.
This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if
the signature were an original, not a facsimile signature.
Section 8. Headings.
The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 9. Severability.
If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability
of any provision of this Agreement in any other jurisdiction.
Section 10. Entire
Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Holder, the Company,
their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor either Holder makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing
signed by the Company and the Holder. No provision hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought.
Section 11. Notices.
Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must
be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon receipt, when sent
by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending
party); or (c) one calendar day (excluding Saturdays, Sundays, and national banking holidays) after deposit with an overnight courier
service, in each case properly addressed to the party to receive the same.
The addresses and facsimile numbers for
such communications shall be:
If to the Company:
Eco Building Products, Inc.
909 West Vista Way
Vista, California 92083
Attn: Steve
Conboy, CEO
If to the Holder:
Redwood Management, LLC
_____________
_____________
Attn:
or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has specified by written notice given to each other
party five (5) days prior to the effectiveness of such change.
Section 12. Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Exchange Securities. Each Holder may assign some or all of their rights hereunder without
the consent of the Company, in which event such assignee shall be deemed to be the Holder hereunder with respect to such assigned
rights.
Section 13. No Third
Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
Section 14. Survival
of Representations. The representations and warranties of the Company and the Holder contained in Sections 2 and 3, respectively,
will survive the closing of the transactions contemplated by this Agreement.
Section 15. Further
Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request
in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have executed
this Exchange Agreement as of the date first written above.
Eco Building Products, Inc. |
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By: |
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Name: |
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Title: |
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REDWOOD MANAGEMENT, LLC |
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By: |
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Name: |
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Title: |
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Exhibit
A
Convertibles Held by Redwood Management |
| | |
Interest Accrued | | |
Principal | |
1/28/2014 | |
Purchased from ECO Building Products | |
| 10 | % | |
$ | 5,000.00 | | |
$ | 50,000.00 | |
1/10/2014 | |
Purchased from ECO Building Products | |
| 10 | % | |
$ | 8,950.00 | | |
$ | 89,500.00 | |
2/7/2014 | |
Purchased from ECO Building Products | |
| 10 | % | |
$ | 5,262.50 | | |
$ | 52,625.00 | |
6/13/2013 | |
Purchased from ECO Building Products | |
| 12 | % | |
$ | 600.00 | | |
$ | 5,000.00 | |
| |
Total Convertible Notes | |
| | | |
$ | 19,812.50 | | |
$ | 197,125.00 | |
| |
MRL Note | |
| | | |
$ | 976,555.49 | | |
$ | 3,296,301.43 | |
Total due Redwood Management, LLC | |
| | | |
| | | |
$ | 4,489,794.42 | |
EXHIBIT B
ECO Building
Products Closes Up To $3.4M in Financing to Fill Pending Purchase
Orders and Support Capital Expansion
Funding Positions Company to Meet Growing
Demand from Major Customer
June 4, 2014 Vista, CA - Eco Building
Products, Inc. (OTCQB: ECOB), a manufacturer of treated wood products that are protected against fire, mold/mycotoxins, fungus,
rot-decay, wood ingesting insects and termites by our proprietary eco-friendly WoodSurfaceFilm™ and FireResistantCoating™
technology (collectively “Eco Red Shield™”), today announced it has entered into definitive agreements for up
to $3.4M in financing to support filling a backlog in purchase orders from Major Big Box Customer and to increase production
capacity at its manufacturing facilities stemming from a growing demand for Eco Red Shield treated lumber at its Major Customer
following a successful Second Pilot commercial launch program.
Under the terms of the agreements, the
Company will receive up to $1.4M in capital in equal installments of $350,000 over the next four months, to support the filling
of backlogged orders and meet increasing demand for Eco Red Shield, with the goal of reaching sales of $1.5M in the fourth month,
which will potentially put the Company in a cash flow positive position. Concurrently, the Company received equity financing of
$800,000 in two tranches to support the expansion in production capacity at its core manufacturing facilities from $750,000 in
production capacity per month to $2,000,000 per month, as well as retire approximately $300,000 in convertible debt financing previously
entered into on unfavorable terms. In addition, the Company will enter into an expandable revolving credit facility agreement for
$1.2M to support its supply chain that will allow the Company to confidently increase its marketing efforts and demonstrate long
term sustainability to its Major Big Box Customer.
“This funding represents a transformational
milestone for the Company from a revenue growth and sales trajectory standpoint,” said Steven Conboy, President & CEO
of Eco Building Products. “We now have the capital needed to meet a recent dramatic increase in demand for Eco Red Shield
from our Major Big Box Customer, who is now in a position to begin aggressively marketing our product to its massive customer base
as an optimized solution to meet key unmet needs in the $60B North American lumber industry. We have positioned ourselves extremely
well to meet an expected continued surge in demand for fire-resistant and mold-resistant lumber in the new construction industry,
especially in light of recent wildfires in San Diego County and mold-related housing condemnations following Hurricane Sandy in
New Jersey and Long Island. We believe Eco Red Shield has the potential to replace existing entrenched chemical products in the
wood treatment industry, with the potential to reach over $1B in sales.”
In February 2014, the Company expanded
its distribution channels in a Second Pilot program with its Major Customer to 104 stores from an original Initial Pilot program
of 10 stores in November 2013. The significant increase in orders for Eco Red Shield since that time has caused the Company to
consider strategic options to fuel an expected rapid growth in demand following the completion of the successful Second Pilot
roll-out.
According to Wood Markets, the
North American lumber industry is expected to grow to over $60B in 2015, up 40% from 2009. It is widely acknowledged that the
most significant unmet category in the lumber industry is for fire resistant and mold-resistant wood that will improve the safety
and longevity of new housing construction. Eco Red Shield provides a comprehensive, environmentally-friendly, risk-mitigating
solution that has the potential to replace the current standard in the $2.7B wood coating chemicals industry, while producing
safe and ecologically-friendly products for the millions served annually by the lumber industry.
About Eco Building Products, Inc.
Eco Building Products, Inc. is a manufacturer
of treated wood products that are protected against fire, mold/mycotoxins, fungus, rot-decay, wood ingesting insects and termites
by our proprietary eco-friendly chemistry utilizing ECOB WoodSurfaceFilmTM and FRC™ technology (Fire Retardant
Coating), (collectively “Eco Red Shield”). Eco Red Shield utilizing patent pending technology is the
ultimate in wood protection, preservation, and fire safety to building components constructed of wood; from joists, beams and paneling,
to floors and ceilings.
Safe Harbor Statement: This press release
may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").
In particular, when used in the preceding discussion, the words "believes," "expects," "intends,"
"plans," "anticipates," or "may," and similar conditional expressions are intended to identify forward-looking
statements within the meaning of the Act, and are subject to the safe harbor created by the Act. Any statements made in this news
release other than those of historical fact, about an action, event or development, are forward-looking statements. Forward looking
statements involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to
be materially different from any future performance that may be suggested in this release. ECOB takes no obligation to update or
correct forward-looking statements, and also takes no obligation to update or correct information prepared by third parties.
Company Contact
Eco Building Products, Inc.
Phone: 1 888 Red Shld (888.733.7453)
Email: info@ecob.net
Web Site: www.ecob.net
Investor Relations Contact
Arthur Douglas & Associates, Inc.
Arthur Batson
Phone: 407-478-1120