Form of Exchange Agreement for First 2016 Private Placement

WHEREAS, the Investor currently holds [●] shares of the Company’s Common Stock, par value $0.025 per share (the “Common Shares”), that were issued pursuant to that certain Subscription Agreement between the Company and the Subscriber dated as of [●] in the amount of [●] (the “Subscription Agreement”); and

WHEREAS, subject to the terms and conditions set forth in this Agreement the Company desires to issue [●] shares of the Company’s Series C Preferred Stock, par value $0.001 per share, having such designations, rights and preferences as described in Exhibit A attached hereto (the “Preferred Shares”) and the Investor desires to accept the Preferred Shares in exchange for the cancellation and return to treasury of the Common Shares (the “Exchange”), it being expressly acknowledged and agreed that the Exchange shall be on a dollar-for-dollar basis, such that the aggregate number of Preferred Shares subject to the Exchange shall equal the aggregate number of Common Shares subject to the Exchange (x) multiplied by 1.12 and (y) divided by 100.

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 the Investor hereby agree as follows:

 

1.1           Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings set forth in this Section 1.1:

“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 promulgated under the Securities Act;

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

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

“Closing” means the consummation of the Exchange pursuant to Section 2.1 hereof;

“Closing Date” means the Trading Day on which this Agreement has been executed and delivered by the applicable parties hereto, and all conditions precedent to (i) the Investor’s obligation to proceed with the Closing and (ii) the Company’s obligations to deliver the Shares, in each case, have been satisfied or waived;

 

“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 Common Stock may hereafter be reclassified or changed;

 “Exchange” shall have the meaning assigned to that term in the Recitals to this Agreement.

“Interest Amount” shall have the meaning assigned to that term in the Recitals to this Agreement.

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

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

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

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

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

“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 AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the NYSE Euronext, the OTC Bulletin Board or OTC Markets (or any successors to any of the foregoing).

 

3.1           Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to the Investor:

3.2           Representations, Warranties and Covenants of Investor. Investor hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a) Organization and Standing of Investor. If Investor is an entity, Investor is duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation. If the Investor is a natural person, Investor has the legal capacity and power to enter into this Agreement.

(b) Authorization and Power. Such Investor has the requisite power and authority to enter into and perform this Agreement. The execution, delivery and performance of this Agreement by such Investor, and the consummation by such Investor of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, and no further consent or authorization of Investor or its board of directors, manager(s), trustee, stockholders, partners, members or beneficiaries, as applicable, is required. This Agreement has been duly authorized, executed and delivered by such Investor and constitutes, or shall constitute, when executed and delivered, a valid and binding obligation of such Investor, enforceable against Investor in accordance with the terms thereof.

 (c)           No Conflicts. The execution, delivery and performance of this Agreement by Investor and the consummation by the Investor of the transactions contemplated herein do not and will not (i) conflict with or violate any provision of the Investor’s charter or other organizational documents or (ii) 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 Investor is subject (including federal and state securities laws and regulations), or by which any property or asset of the Investor is bound or affected.

(d)           Filings, Consents and Approvals. The Investor is not required to obtain any approval, consent, waiver, authorization or order of, give any notice to, or make any filing, qualification or registration with, any court or other federal, state, local, foreign or other governmental authority or other Person in connection with the execution, delivery and performance by the Investor of this Agreement or the Common Shares.

(e)           General Solicitation. The Investor is not exchanging the Common Shares for the Preferred Shares as a result of any advertisement, article, notice or other communication regarding the Preferred Shares 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)           Receipt of Information. The Investor believes it has received all the information it considers necessary or appropriate for deciding whether to exchange the Common Shares for the Preferred Shares. Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Preferred Shares and the business, properties and financial condition of the Company and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to it or to which it had access. The Investor represents and warrants that it has reviewed the form of Securities Purchase Agreement for the offering of up to $4,000,000 of the Preferred Shares, including the Certificate of Designations, Preferences and Rights of the Preferred Shares attached thereto, which is attached hereto as Exhibit B, and is included as an exhibit to the Company’s Current Report on Form 8-K filed with the Commission on July 25, 2016.

 

4.1           Fees and Expenses. Each party hereto shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of the Preferred Shares to the Investor.

4.2           Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, which the parties hereto acknowledge have been merged into such documents, exhibits and schedules.

4.3           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 prior to 5:30 p.m. (New York City time) on a Trading Day, and confirmation of transmission shall have been received, (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, and confirmation of transmission shall have been received, (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 if delivered by hand or by registered or certified mail, return receipt requested. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

4.4           Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed by the Company and the Investor. 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 hereto to exercise any right hereunder in any manner impair the exercise of any such right.

4.5           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.

4.6           Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto 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 the Investor (other than by merger). The Investor may assign any or all of its rights under this Agreement to any Person to whom the Investor assigns or transfers any of the Preferred Shares, provided that such transferee agrees in writing to be bound, with respect to the Preferred Shares, by the provisions of this Agreement that apply to the Investor.”

4.7           Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement 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 hereto agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereto 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 this Agreement), 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 hereto 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 hereto shall commence an action or proceeding to enforce any provisions of this Agreement, then, the prevailing party in such action 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.

4.8           Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Common Shares.

4.9           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 hereto and delivered to the other party, it being understood that both 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.

4.10           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.

4.11           Replacement of Shares. If, subsequent to the date hereof, any certificate or instrument evidencing any of the Preferred Shares or Common Shares 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 certificates.

4.12           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.

4.13           Construction. The parties hereto agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise this Agreement 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 this Agreement or any amendments hereto. In addition, each and every reference to share prices and shares of Common Stock in this Agreement shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions that occur after the date of this Agreement.

 

 

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

 

 

 

 

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