SECURITIES PURCHASE AGREEMENT

 

ARTICLE III.

Representations and Warranties of Investor

 

Investor hereby represents and warrants to, and agrees with, the Company that the following are true and correct as of the date hereof and as of each Advance Date:

Section 3.1. Organization and Authorization. The Investor is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite power and authority to purchase and hold the securities issuable hereunder. The decision to invest and the execution and delivery of this Agreement by such Investor, the performance by such Investor of its obligations hereunder and the consummation by such Investor of the transactions contemplated hereby have been duly authorized and require no other proceedings on the part of the Investor. The undersigned has the right, power and authority to execute and deliver this Agreement and all other instruments (including, without limitations, the Registration Rights Agreement), on behalf of the Investor. This Agreement has been duly executed and delivered by the Investor and, assuming the execution and delivery hereof and acceptance thereof by the Company, will constitute the legal, valid and binding obligations of the Investor, enforceable against the Investor in accordance with its terms.

Section 3.2. Evaluation of Risks. The Investor has such knowledge and experience in financial, tax and business matters as to be capable of evaluating the merits and risks of, and bearing the economic risks entailed by, an investment in the Company and of protecting its interests in connection with this transaction. It recognizes that its investment in the Company involves a high degree of risk.

Section 3.3. No Legal Advice from the Company. The Investor acknowledges that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors. The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.

Section 3.4. Investment Purpose. The securities are being purchased by the Investor for its own account, and for investment purposes. The Investor agrees not to assign or in any way transfer the Investor's rights to the securities or any interest therein and acknowledges that the Company will not recognize any purported assignment or transfer except in accordance with applicable Federal and state securities laws. No other person has or will have a direct or indirect beneficial interest in the securities. The Investor agrees not to sell, hypothecate or otherwise transfer the Investor's securities unless the resale of the securities is registered under Federal and applicable state securities laws or unless, in the opinion of counsel satisfactory to the Company, an exemption from such laws is available.

Section 3.5. Accredited Investor. The Investor is and shall be on each Advance Date, an "Accredited Investor" as that term is defined in Rule 50l(a)(3) of Regulation D of the Securities Act. The Company may seek any written reasonable assurances from the Investor of the Investor's status as an "accredited investor'' on or prior to any Advance Date.

Section 3.6. Information. The Investor and its advisors (and its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information it deemed Material to making an informed investment decision, the Investor and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management. Neither such inquiries nor any other due diligence investigations conducted by such Investor or its advisors, if any, or its representatives shall modify, amend or affect the Investor's right to rely on the Company's representations and warranties contained in this Agreement. The Investor understands that its investment involves a high degree of risk. The Investor has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to this transaction.

 

Section 3.7. Receipt of Documents. The Investor and its counsel have received and read in their entirety: (i) this Agreement and the Exhibits annexed hereto; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations , warranties and covenants; (iii) the Company's most recent periodic filings filed with the SEC; and (iv) answers to all questions the Investor submitted to the Company regarding an investment in the Company; and the Investor has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus.

Section 3.8. Registration Rights Agreement. The Investor has entered into the Registration Rights Agreement dated the date hereof.

Section 3.9. NIA

Section  3.l0.  Not an Affiliate.  The  Investor  is  not  an officer, director  or a person  that directly, or indirectly through one or more  intern1ediaries,  controls or  is  controlled  by, or is under  common  control with  the Company or any "Affiliate" of the Company (as that term is defined in Rule 405 of the Securities  Act).

 

Section 3.1 1.  Trading Activities.  The  Investor's  trading  activities  with  respect  to  the Company’s Common Stock shall be in compliance with all applicable federal and state securities laws, rules and regulations and the rules and regulations of the Principal Market on which the Company’s Common Stock is listed or traded. Neither the Investor nor its affiliates has an open short position in the Common Stock of the Company, the  Investor agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging  transactions with respect to the Common Stock..

 

Section  3.12 Reliance  on  Exemptions.   The  Investor   understands  that  the  Common  Stock is  being offered and sold lo it 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 such Investor' compliance with,  the  representations ,  warranties, agreements,  acknowledgements and  understandings   of such Investor set forth here in order to determine the availability of such exemptions and the eligibility of such Investor to acquire the Common Stock.

 

Section 3.13     Broker. The Investor is not a broker or dealer.

 

Section 3.13 No Governmental Review. The Investor 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 of the Common Stock issuable pursuant to this Agreement or the fairness or suitability of the investment in the Common Stock nor have such authorities passed upon or endorsed the merits of the offering of the Common Stock.

 

 

ARTICLE V.

 

Indemnification

 

(a)           In consideration of the Investor's execution and delivery of this Agreement, and  in addition to  all of the Company's other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Investor, and all of its officers, directors, partners, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Investor Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Investor Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by the Investor Indemnitees or any of them as a result of, or arising out of, or relating to (a) any material misrepresentation or breach of any representation or warranty made by the Company in this Agreement or the Registration Rights Agreement or any other certificate, instrument  or document contemplated hereby or thereby, (b) any material breach of any covenant, agreement or obligation of the Company contained in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (c) any cause of action, suit or claim brought or made against such Investor Indemnitee not arising out of any action or inaction of an Investor Indemnitee, and  arising  out  of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Investor Indemnitees, or (d) any failure (whether purposeful or not) on the part of the transfer agent to effectuate the transfer of shares or any of the transactions contemplated hereunder. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

(b)             In consideration of the Company's execution and delivery of this Agreement , and in addition to all of the Investor's other obligations under this Agreement , the Investor shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, shareholders, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Company Indemnitees") from and against any and all Indemnified Liabilities incurred  by the  Company Indemnitees or any of them as a result of, or arising out of, or relating to (a) any  material  misrepresentation  or breach of any representation or warranty made by the Investor in this Agreement ,  the Registration Rights Agreement , or any instrument or document contemplated hereby or thereby executed by the Investor,  (b) any material breach of any covenant, agreement or obligation of the Investor(s) contained in this Agreement , the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Investor, or (c) any cause of action, suit or claim brought or made  against  such  Company Indemnitee based on misrepresentations or due to a breach by the Investor and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Company Indemnitees. To the extent that the foregoing undertaking by the Investor may be unenforceable for any reason, the Investor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

(c)             The obligations of the parties to indemnify or make contribution under this Section 5.1 shall survive termination.

 

ARTICLE VI.

 

Covenants of the Company

 

Section 6.1. Reserved.

Section 6.2. Listing of Common Stock.   The   Company   shall   maintain    the   Common    Stock's authorization for quotation on the Over-the-Counter Bulletin Board or OT Markets "OTCQB", during the Commitment Period.

Section 6.3.   Exchange Act Registration.  During  the term of the Commitment  Period, the Company will  cause  its Common  Stock to continue to be registered  under Section  12(g) of the Exchange   Act, will file in  a timely manner all reports and other documents required of it as a reporting company under the Exchange Act and will not take any action or file any document (whether or not permitted by Exchange Act or the rules thereunder)    to Terminate or suspend such registration or to tem1inate or suspend its reporting and filing obligations under said Exchange Act.

 

Section  6.4.  Transfer   Agent   Instructions.  Upon  effectiveness  of  the  Registration   Statement  the Company  shall  deliver  instructions  to  its transfer agent  to  issue  shares of Common  Stock to  the Investor  free  of restrictive legends on or before each Advance Date.

Section 6.5.   Corporate Existence. During the Commitment Period, the Company will take   all steps necessary to preserve and continue the corporate existence of the Company.

Section  6.6.   Notice of Certain Events Affecting Registration; Suspension of Right to Make an Advance. The Company will  immediately  notify the Investor upon its becoming aware of the  occurrence of any of the following events in respect of a registration statement or related prospectus relating to an offering of Registrable Securities:  (i)  receipt   of  any  request   for  additional   information  by  the  SEC  or  any    other  Federal or state governmental authority during the period of effectiveness of the Registration Statement for  amendments or supplements to the registration statement or related prospectus; (ii) the issuance by the SEC or any other Federal or state governmental authority of any stop order suspending the effectiveness of the Registration  Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction  or the initiation  or  threatening  of  any  proceeding  for  such  purpose;  (iv)  the  happening  of any  event that makes any statement made in the Registration Statement or related prospectus of any document  incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the  making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration  Statement, it will not contain  any untrue  statement  of a  material  fact or omit  to  state any material  fact required to be stated  therein  or necessary to  make the statements therein  not  misleading,  and that in the case of the related prospectus, it will not contain any untrue statement  of a  material  fact or omit  to  state any material  fact required to be stated therein or necessary to make the statements therein,  in  the  light  of  the circumstances  under which they were  made,  not misleading;  and (v)  the  Company's reasonable  determination  that a post-effective  amendment  to  the  Registration Statement   would   be  appropriate;  and  the  Company will   promptly make available to the Investor any such supplement or amendment to  the  related  prospectus. The Company shall not deliver to the Investor any Advance Notice during the continuation of any of the foregoing events. The Investor understands  and  acknowledges  that receipt of any of the infom1ation requested herein may, at the time provided to the Investor, constitute material , non-public inside information, and the Investor agrees to conduct itself accordingly based on applicable law,

 

Section 6.7. Restriction on Sale of Capital Stock. Following the effectiveness of the Registration Statement, the Company shall not, without the prior written consent of the Investor, (i) issue or sell any Common Stock or Preferred Stock without consideration or for a consideration per share Jess than the Bid Price of the Common Stock determined immediately prior to its issuance, or (ii) issue or sell any Preferred Stock warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share Jess than the Bid Price of the Common Stock detem1ined inm1ediately prior to its issuance. Notwithstanding the foregoing this section shall not apply in respect of an Exempt Issuance or an underwritten public offering of Common Stock. For purposes of this Agreement "Exempt Issuance'' means the issuance of (a) shares of Common Stock or options to employees, officers, directors or consultants 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, exchange or conversion price of such securities, (c) any financing that the Company has in place prior to the date of this Agreement, (d) a private placement(s) of the Company's stock in an amount up to $2,000,000 and (e) securities issued pursuant to acquisitions or strategic transaction s approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, a company in a business synergistic with the business of the Company and in which the Company receives 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. In no event may the Investor unreasonably withhold approval of additional financing to the Company from third parties except as such financing is an equity line of credit financing. In the event the Company elects to obtain additional financing during the term of this Agreement, the Company shall immediately provide the Investor written notice of such intent (the "Financing Notice"). The Financing Notice shall contain all of the terms, and parties related to the financing. In the event that the Company provides the Investor the Financing Notice then the Investor shall have five business days to respond to such Financing Notice. Should five business days pass without the Investor providing a response to the Company, then the Investor shall be deemed to have approved and consented toof the additional financing contained in the notice provided by the Company.

 

Section 6.8.   Consolidation:  Merger.  During the Commitment  Period, the Company shall not, at any time  after the date  hereof, effect any  merger  or consolidation  of the  Company  with  or into, or a  transfer  of all or substantially all the assets of the Company to another entity (a "Consolidation  Event") unless the resulting successor or acquiring entity (if not the Company) assumes by written  instrument the obligation to deliver to the Investor such shares of stock and/or securities as the Investor is entitled to receive pursuant to this Agreement.

Section 6.9. Issuance of the Company's Common   Stock. The sale of the shares of   Common Stock under this Agreement shall be made in accordance with the provisions and requirements of Regulation   D and any applicable state securities law.

Section 6.10.  Review of Public Disclosures. All SEC filings (including, without limitation. all  filings required under the Exchange Act, which include Forms 10-Q and 10-QSB, 10-K and 10K-SB, 8-K, etc.) and other public disclosures made by the Company, including, without limitation, all press releases, investor relations materials, and scripts of analysts meetings and calls, shall be reviewed and approved for release by the Company's attorneys and, if containing financial information, the Company's independent certified public  accountants.

Section 6.11. Market Activities.  The Company will not, directly or indirectly, (i) take any action designed to cause or result in, or that constitutes or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Common Stock or (ii) sell, bid for or purchase the Common Stock, or pay anyone any compensation for soliciting purchases of the Common Stock

ARTICLE VII.

Conditions Precedent

 

Section 7. I.   Conditions Precedent to the Obligations of the Company. The obligation hereunder of the Company to issue and sell the shares of Common Stock to the Investor incident to each Closing is subject to the satisfaction, or waiver by the Company, at or before each such Closing, of each of the conditions set forth below.

(a)    Accuracy of the Investor's Representations and Warranties. The representations and warranties of the Investor shall be true and correct in all material respects.

(b)    Performance by the Investor.  The Investor  shall have  performed,  satisfied and complied   in  all respects with all covenants, agreements  and  conditions  required  by  this Agreement  and  the Registration  Rights Agreement to be perfom1ed, satisfied or complied with by the Investor at or prior to such Closing.

Section 7.2.  Conditions Precedent to the Right of the Company to Deliver an Advance Notice.  The right of the Company to deliver an Advance Notice is subject to the fulfillment by the Company, on such  Advance Notice (a "Condition Satisfaction Date"), of each of the following conditions:

(a) Registration of the Common Stock with the SEC. The Company shall have filed with the SEC a Registration Statement with respect to the resale of the Registrable Securities in accordance with the terms of the Registration Rights Agreement. As set forth in the Registration Rights Agreement, the Registration Statement shall have previously become effective and shall remain effective on each Condition Satisfaction Date and (i) the Company shall be listed on an exchange or its Common Stock shall be traded over the counter on the OTCBB or OTC Markets ''OTCQB"; (ii) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC's concerns have been addressed and the Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (iii) no other suspension of the use or withdrawal of the effectiveness of the Registration Statement or related prospectus shall exist. The Registration Statement must have been declared effective by the SEC prior to the first Advance Notice Date.

 

 

(b)    Authority. The Company shall have obtained all permits and qualifications required by any applicable state in accordance with the Registration Rights Agreement for the offer and sale of the shares of Common Stock, or shall have the availability of exemptions there from. The sale and issuance of the shares of Common Stock shall be legally permitted by all laws and regulations to which the Company is subject.

(c)   Fundamental Changes. There shall not exist any fundamental changes to the information   set forth in  the  Registration   Statement  which   would   require   the  Company  to  file  a  post-effective  amendment  to the Registration Statement.

(d)  Performance by the Company. The Company shall have performed, satisfied and complied   in all material respects with all covenants, agreements and  conditions  required  by this Agreement  and  the  Registration Rights  Agreement  to  be  perforn1ed, satisfied  or complied  with  by  the  Company  at or  prior  to  each Condition Satisfaction Date.

(e) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits or directly and adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement.

 

(f)  No Suspension of Trading in or Delisting of Common Stock. The trading of the Common Stock is not suspended by the SEC or the Principal Market (if the Common Stock is traded on a Principal Market). The issuance of shares of Common Stock with respect to the applicable Closing, if any, shall not violate the shareholder approval requirements of the Principal Market (if the Common Stock is traded on a Principal Market).  The Company shall not have received any notice threatening the continued listing of the Common Stock on the Principal Market (if the Common Stock is traded on a Principal Market).

 

(g) Maximum Advance Amount. The amount of an Advance requested by the Company shall not exceed the Maximum Advance Amount. In addition, in no event shall the number of shares issuable to the Investor pursuant to an Advance cause the aggregate number of shares of Common Stock beneficially owned by the Investor and its affiliates to exceed nine and 9/10 percent (9.9%) of the then outstanding Common Stock of the  Company. For the purposes of this section beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act.

 

(h)   No Knowledge. The Company has no knowledge of any event which would be more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective.

 

(i)           Executed Advance Notice. The Investor shall have received the Advance Notice executed by an ot1icer of the Company and the representations contained in such Advance Notice shall be true and correct as of each Condition Satisfaction Date.

 

ARTICLE VIII.

 

Due Diligence Review; Non-Disclosure  of Non-Public  Information

 

Section 8.1.  Non-Disclosure of Non-Public Information.

 

(a)             Except as may be required by the Investor herein, the Company covenants and agrees that it shall refrain from disclosing, and shall cause its officers, directors, employees and agents to refrain from disclosing, any material non-public infom1ation to the Investor without also disseminating such information to the public, unless prior to disclosure of such information the Company identifies such information as being material non-public information and provides the Investor with the opportunity to accept or refuse to accept such material non-public information for review.

 

ARTICLE IX.

 

Choice of Law/Jurisdiction

 

Section 9.I. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of California without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in the State of California, and expressly consent to the jurisdiction and venue of the courts sitting in California and the United States District Court of California for the adjudication of any civil action asserted pursuant to this paragraph.

ARTICLE X.

 

Assignment; Termination

Section  10.1.   Assignment.  Neither  this  Agreement  nor  any rights  of the Company  hereunder  may  be assigned  to any  other Person.

Section 10.2.   Termination.

(a)    The obligations of the Investor to make Advances under Article II hereof shall terminate thirty six (36) months after the Effective Date or forty eight (48) months after the Effective Date if thirty six (36) months after the Effective Date the Company filed either an amendment to the then effective registration statement or a new registration statement was declared effective. The Company's obligations under this Agreement shall terminate on the date that the Investor is no longer obligated to make Advances.

(b)   The obligation of the Investor to make an Advance to the Company pursuant to this Agreement shall terminate pem1anently (including with respect to an Advance Date that has not yet occurred) in the event that (i) there shall occur any stop order or suspension of the effectiveness of the Registration Statement for an  aggregate of ninety (80) Trading Days, other than due to the acts of the Investor, during the Commitment Period, or (ii) the Company shall at any time fail materially to comply with the requirements of Article VI and such failure  is  not cured within thirty (30) days after receipt of written notice from the Investor, provided, however,  that  this termination provision shall not apply to any period commencing upon the filing of a post-effective  amendment to such Registration Statement and ending upon the date on which such post-effective amendment is declared effective by the SEC.