DOCUMENT SECURITY SYSTEMS, INC.
SUBSCRIPTION
AGREEMENT
NONE OF THE SECURITIES OFFERED PURSUANT
TO THIS SUBSCRIPTION AGREEMENT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR THE
SECURITIES LAWS OF ANY U.S. STATE OR ANY FOREIGN JURISDICTION AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. SUCH UNITS, THE SHARES OF COMMON STOCK THAT COMPRISE A PART OF THE UNITS, THE
WARRANTS THAT COMPRISE A PART OF THE UNITS AND THE SHARES ISSUABLE UPON EXERCISE OF SUCH WARRANTS MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED TO ANY PERSON AT ANY TIME IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING
SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT
NECESSSARY.
INVESTMENT IN THE
COMPANY IS HIGHLY SPECULATIVE AND INVOLVES SUBSTANTIAL RISK, INCLUDING, BUT NOT LIMITED TO THE RISKS SET FORTH IN THE SECTION ENTITLED
“RISK FACTORS” IN THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010 FILED
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION (“SEC”) ON MARCH 31, 2011, AS AMENDED ON FORM 10-K/A AND FILED WITH
THE SEC ON NOVEMBER 14, 2011. YOU SHOULD READ THE COMPANY’S QUARTERLY AND ANNUAL REPORTS, ALONG WITH ITS CURRENT REPORTS
ON FORM 8-K FILED WITH THE SEC (collectively, “SEC FILINGS”) CAREFULLY BEFORE INVESTING IN THE UNITS.
This Subscription Agreement (the “Subscription
Agreement”) is entered into this ___ day of February, 2012, by and between DOCUMENT SECURITY SYSTEMS, INC., a New York
corporation (the “Company”), and ______________________ (the “Subscriber”). As used herein,
the Company and Subscriber may each individually be referred to herein as a “Party”, and collectively as the
“Parties.”
1.
Subscription.
Subscriber subscribes
for and offers to purchase, and the Company agrees to issue and sell, an equity interest in the Company (the “Units”)
as described herein, for a purchase price equal to the amount set forth on the signature page below (the “Investment
Amount”). This offering (the “Offering”) is subject to the terms and conditions set forth herein.
2. Investment
Amount.
(a) Deliveries
upon Signing. Subscriber shall execute and deliver to the Company:
(i) this Subscription
Agreement, the Investor Questionnaire substantially in the form of Exhibit A hereto (the “Investor Questionnaire”),
and the Warrant (as hereunder defined) substantially in the form of Exhibit B hereof shall, together, constitute the “Subscription
Documents” of this Offering.
(b) Payment of
Investment Amount. Concurrent with the execution and delivery to the Company of the Subscription Documents, Subscriber shall
transmit a wire transfer or bank check to the Company in an amount equal to such Subscriber’s Investment Amount. For purposes
of this Agreement, “Payment” shall mean Subscriber’s implementation of such wire transfer or receipt by
the Company of the check. Subscriber funds will be maintained separate and apart from funds of the Company until delivery of a
Closing Notice (as defined herein). The Parties hereby agree that Subscriber shall not be deemed to have purchased the Units until
the Company shall have provided a Closing Notice.
(c) Closing. The
Company, at the Company’s sole discretion, may elect to accept the subscription of the Subscriber. The Company’s acceptance
of the subscription shall be effective upon the Company’s transmitting a notice to the Subscriber according to the notice
information for the Subscriber set forth herein informing the Subscriber of such acceptance (“Closing Notice”).
The Company shall use commercially reasonable efforts to transmit a Closing Notice within ten (10) business days after receiving
the executed Subscription Documents and Payment.
3. The Offering.
This Offering is being
made to “accredited investors” (as such term is defined in Regulation D promulgated by the SEC under the Securities
Act of 1933, as amended (the “Act”)). The Offering consists of a maximum of 30 Units (the “Units”)
of Company securities, at an aggregate price of $100,000 per Unit. Each Unit shall consist of (i) 32,258 shares of common stock,
par value $0.02 per share of the Company (the “Common Stock”), and (ii) a Common Stock purchase warrant in substantially
the form attached hereto as Exhibit B, to purchase up to 16,129 shares of Common Stock at an exercise price of $3.10 per
share (the “Warrant”). The Warrants will be exercisable for a period of five (5) years from the Closing Date
of the Offering.
Subscriber understands
that this Subscription Agreement is not binding upon the Company unless and until such time as (i) payment of the Investment Amount
is received and accepted by the Company; and (ii) the Company accepts Subscriber’s subscription in writing by transmitting
the Closing Notice to the Subscriber (the “Closing Date”).
Subscriber acknowledges
that the Company reserves the right, in its sole discretion, to accept or reject any Subscription Agreement.
Subscriber understands
that the Units are being offered and issued by the Company in a transaction exempt from the registration requirements of the Securities
Act.
Subscriber acknowledges
that Subscriber has received, read, understands and is familiar with this Subscription Agreement and the contents of the Company’s
SEC Filings, and that the Subscription Documents shall comprise the “Offering Material” for this Offering. Subscriber
further acknowledges that Subscriber has not relied upon any information concerning the Offering, written or oral, other than that
contained in the Subscription Documents. Subscriber further understands that any other information or literature, regardless of
whether distributed prior to, simultaneously with, or subsequent to, the date of this Subscription Agreement shall not be relied
upon by Subscriber in determining whether to make an investment in the Units and Subscriber expressly acknowledges, agrees and
affirms that Subscriber has not relied upon any such information or literature in making Subscriber’s determination to make
an investment in the Units and that Subscriber understands that, except as otherwise provided herein, the Company is under no obligation
to (and that Subscriber does not expect it to) update, revise, amend or add to any of the information heretofore furnished to Subscriber.
4. Representations
and Warranties of Subscriber.
(a) In order to
induce the Company to accept Subscriber’s subscription, Subscriber further represents and warrants to the Company, its “Affiliates”
(as defined in the Act), Company counsel, and their respective agents and representatives as follows:
| 1. | SUBSCRIBER HAS READ THE SUBSCRIPTION DOCUMENTS AND
HAS EXAMINED THE RISK FACTORS SET FORTH IN THE COMPANY’S SEC FILINGS, AND UNDERSTANDS THE SPECULATIVE NATURE OF AND SUBSTANTIAL
RISK INVOLVED IN THE INVESTMENT IN THE COMPANY. |
| 2. | If Subscriber has chosen to do so, Subscriber has been
represented by such legal and tax counsel and other professionals, each of whom has been personally selected by Subscriber, as
Subscriber has found necessary to consult concerning the purchase of the Units, and such representation has included an examination
of all applicable documents and SEC Filings and an analysis of all tax, financial, and securities law aspects thereof deemed to
be necessary. Subscriber, together with Subscriber’s counsel, Subscriber’s advisors, and such other persons, if any,
with whom Subscriber has found it necessary or advisable to consult, have sufficient knowledge and experience in business and
financial matters to evaluate the information set forth in the Subscription Documents and the risks of the investment and to make
an informed investment decision with respect thereto. Further, Subscriber has been given the opportunity for a reasonable time
period prior to the date hereof to ask questions of, and receive answers from, the Company or its representatives concerning the
terms and conditions of the Offering and other matters pertaining to this investment and has been given the opportunity for a
reasonable time period prior to the date hereof to verify the accuracy of the Company’s information. |
| Subscription Agreement | - 2 - | |
| 3. | With respect to the United States federal, state and
foreign tax aspects of Subscriber’s investment, Subscriber is relying solely upon the advice of Subscriber’s own tax
advisors, and/or upon Subscriber’s own knowledge with respect thereto. |
| 4. | Subscriber has not relied, and will not rely upon, any
information with respect to this Offering other than the information contained in the Subscription Documents. |
| 5. | Subscriber understands that no person has been authorized
to make representations or to give any information or literature with respect to this Offering that is inconsistent with the information
that is set forth in the Subscription Documents. |
| 6. | Subscriber understands that, other than as provided in
the Subscription Documents, no covenants, representations, or warranties have been authorized by or will be binding upon the Company,
with regard to this Subscription Agreement, the performance of the Company or any expectation of investment returns, including
any representations, warranties or agreements contained or made in any written document or oral communication received from or
had with the Company, its Affiliates, Company counsel or any of their respective representatives or agents. Subscriber has not
relied upon any information or representation that may be or has been made or given except as permitted under this paragraph 4(a). |
| 7. | Subscriber understands that the Offering has not yet
been registered under the Act, or pursuant to the provisions of the securities or other laws of any other applicable jurisdictions,
but is being made in reliance upon the provisions of Section 4(2) of the Act, Regulation D and the other rules and regulations
promulgated under the Act, and/or upon such other exemption from the registration requirements of the Act as may be available
with respect to any or all of the investments in securities to be made hereunder. Subscriber is fully aware that the Units subscribed
for by Subscriber are to be sold to Subscriber in reliance upon such safe harbor based upon Subscriber’s representations,
warranties, and agreements as set forth herein and in the Investor Questionnaire. Subscriber is fully aware of the restrictions
on sale, transferability and assignment of the Units (including the shares of Common Stock and the Warrants that comprise the
Units, and the shares of Common Stock issuable upon exercise of such Warrants), and that Subscriber must bear the economic risk
of Subscriber’s investment herein for an indefinite period of time because the Offering has not been registered under the
Act and, therefore, the securities cannot be offered or sold unless such offer is subsequently registered under the Act or an
exemption from such registration is available to Subscriber. The Subscriber represents, warrants and agrees that Subscriber
will not sell or otherwise transfer the Units (including the shares of Common Stock and the Warrant that comprise the Units, and
the shares of Common Stock issuable upon exercise of such Warrant) without registration under the Act or an exemption therefrom.
The Subscriber is aware that the Common Stock and Warrant comprising the Units are “restricted securities” as such
term is defined in Rule 144 promulgated under the Act (“Rule 144”), and they may not be sold pursuant to Rule 144
unless all of the conditions of Rule 144 are met. |
| Subscription Agreement | - 3 - | |
| 8. | Subscriber is an “accredited investor” (as
defined in Rule 501 of Regulation D promulgated under the Act) as indicated on the Investor Questionnaire attached hereto. |
| 9. | Subscriber has no present intention to sell, distribute,
pledge, assign, or otherwise transfer the Units (including the shares of Common Stock and the Warrant that comprise the Units,
and the shares of Common Stock issuable upon exercise of such Warrant), which Subscriber acquires pursuant to this Offering. Subscriber
is making the investment hereunder solely for Subscriber’s own account and not for the account of others and for investment
purposes only and not with a view to or for the transfer, assignment, resale or distribution thereof, in whole or in part. Subscriber
has no present plans to enter into any such contract, undertaking, agreement, or arrangement. |
| 10. | Subscriber agrees that Subscriber will not cancel, terminate
or revoke this Subscription Agreement, which has been executed by Subscriber, and that this Subscription Agreement shall survive
any sale, assignment or other transfer of control over, or of all or substantially all of Subscriber’s assets or business
and Subscriber’s bankruptcy, except as otherwise provided pursuant to the laws of any applicable jurisdiction. |
| 11. | Subscriber has substantial investment experience and
is familiar with investments of the type contemplated by this Subscription Agreement. Subscriber is aware that purchase of the
Units is a speculative investment involving a high degree of risk and there is no guarantee that Subscriber will realize any gain
from Subscriber’s investment or realize any tax benefits therefrom and Subscriber is further aware that Subscriber may lose
all or a substantial part of Subscriber’s investment. Subscriber understands that there are substantial restrictions on
the transferability of, and there is no existing public market for, the Units (including the shares of Common Stock and the Warrants
and the shares of Common Stock issuable upon exercise of such Warrants that are included in the Units) and it may not be possible
to liquidate an investment in the Units (including the shares of Common Stock and the Warrant that comprise the Units, and the
shares of Common Stock issuable upon exercise of such Warrant). Subscriber affirms that Subscriber acknowledges that this investment
is highly speculative, involves a high degree of risk and, accordingly, Subscriber can afford to lose its entire investment. |
| 12. | The address set forth herein is Subscriber’s true
and correct address and Subscriber has no present intention of becoming a resident of any other country, state, or jurisdiction
prior to, or after, Subscriber’s purchase of the Units. |
| 13. | Subscriber understands the meaning and legal consequences
of the foregoing representations and warranties, which are true and correct as of the date hereof and will be true and correct
as of the Closing Date. Each such representation and warranty shall survive the Subscriber’s purchase of the Units subscribed
for herein. |
| 14. | Subscriber acknowledges and agrees that it shall not
be a defense to a suit for damages for any misrepresentation or breach of covenant or warranty made by Subscriber that the Company,
its Affiliates, the Company’s counsel and their respective agents or representatives knew or had reason to know that any
such covenant, representation or warranty in this Subscription Agreement or furnished or to be furnished to the Company by Subscriber
contained untrue statements. The foregoing shall survive any investigation of Subscriber’s representations and warranties
in this Subscription Agreement made by the Company, its Affiliates, the Company’s counsel and their respective agents or
representatives. |
| 15. | No representation or warranty that Subscriber has made
in this Subscription Agreement, the Investor Questionnaire or in any writing furnished or to be furnished pursuant to this Subscription
Agreement, contains or shall contain any untrue statement of fact, or omits or shall omit to state any fact which is required
to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. |
| Subscription Agreement | - 4 - | |
| 16. | Subscriber has full right, power, and authority to execute
and deliver this Subscription Agreement and to perform Subscriber’s obligations hereunder and all necessary consents have
been obtained. This Subscription Agreement has been duly authorized, executed and delivered by or on behalf of Subscriber and
is a valid, binding and enforceable obligation of Subscriber, enforceable against Subscriber in accordance with its terms subject
to bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting creditors’
rights generally and to general equity principles. |
| 17. | The execution and delivery of this Subscription Agreement
by Subscriber will not result in any violation of, or be in conflict with, or result in the default of, any term of any material
agreement or instrument to which Subscriber is a party or by which Subscriber is bound, or of any law or governmental order, rule
or regulation which is applicable to Subscriber. |
| 18. | All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by Subscriber directly with the Company without the intervention of any person or entity
in such manner as to give rise to any claim by any person or entity against Subscriber or the Company for a finder’s fee,
brokerage commission or similar payment. To the extent Subscriber becomes aware of an additional claim to such fees, commission
or payments, other than to a placement agent retained by the Company, Subscriber shall promptly provide the Company with notice
of such claim. To the extent any person or entity claims to be entitled to a finder’s fee, brokerage commission, or similar
payment in connection with the transactions contemplated hereby, Subscriber shall be liable for all such fees and expenses related
thereto to the extent any such claims relate to acts or omissions of Subscriber or to this transaction. In the event a payment
is payable by the Company to any broker, finder, agent or other person, other than to a placement agent retained by the Company,
in connection with Subscriber’s investment in the Company, such payment shall be deducted from the amount paid by Subscriber
in connection with this Agreement. |
| 19. | Subscriber is unaware of, is in no way relying on, and
did not become aware of the offering of the Units through or as a result of, any form of general solicitation or general advertising. |
5. Annex A.
The Company and
Subscriber each hereby agree to the covenants, agreements and, as applicable, make the representations and warranties, in each
case, as set forth on Annex A attached hereto.
6. [INTENTIONALLY
OMITTED]
7. Confidential Information.
For purposes of this Agreement,
the term “Confidential Information” will mean and refer to any information, technical data or know-how, patentable
and un-patentable, including, but not limited to, software, machinery, research, product plans, product services, customer lists,
marketing materials, developments, inventions, process designs, finances, or other trade secrets of the Company or similar items
relating to the Company’s business and litigation activities, or that of any supplier, customer or prospective customer of
the Company, The restrictions in this Section shall not apply to information, which (i) prior to or after the time of disclosure
becomes part of the public knowledge or literature, not as a result of any inaction or action of Subscriber; (ii) must be delivered
in response to a valid order by a court or governmental body, (iii) became or becomes generally available to the recipient on a
non-confidential basis from a source other than the Company; or (iv) is approved by the Company, in writing, for release. Subscriber
covenants and agrees not to use any Confidential Information for Subscriber’s own use or benefit (directly or indirectly),
or for the benefit of any party other than the Company. Subscriber may not disclose Confidential Information to third parties except
its professional advisers solely in connection with this investment in the Company and who are made aware of the confidential nature
of the Confidential Information. Subscriber agrees that it will take all reasonable measures to protect the secrecy of and avoid
disclosure or use of Confidential Information of the Company in order to prevent the Confidential Information from falling into
the public domain or the possession of persons other than those persons authorized hereunder to have such information, which measures
shall include the highest degree of care that Subscriber uses to protect Subscriber’s own confidential information of a similar
nature. Subscriber agrees to immediately notify the Company in writing of any misuse or misappropriation of the Confidential Information,
which may come to Subscriber’s attention. All proceeds from a misuse or disclosure of the Company’s Confidential Information
will be recoverable from Subscriber responsible for such misuse or disclosure, which Subscriber shall be liable to the Company
to the fullest extent of the law.
| Subscription Agreement | - 5 - | |
8. General
Provisions.
(a) Headings.
The headings contained in this Subscription Agreement are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Subscription Agreement.
(b) Enforceability.
If any provision, which is contained in this Subscription Agreement, for any reason, should be held to be invalid or unenforceable
in any respect under the laws of any State of the United States or any other jurisdiction, such invalidity or unenforceability
shall not affect any other provision of this Subscription Agreement. Instead, this Subscription Agreement shall be construed as
if such invalid or unenforceable provisions had not been contained herein.
(c) Notices.
Any notice or other communication required or permitted hereunder must be in writing and sent by either (i) registered or certified
mail, postage prepaid, return receipt requested, (ii) overnight delivery with confirmation of delivery, or (iii) confirmed facsimile
transmission, in each case addressed as follows:
| To the Company: |
Document Security Systems, Inc. |
| |
Attn: Chief Executive Officer |
| |
28 East Main Street |
| |
Suite 1525 |
| |
Rochester, NY 14614 |
| |
Facsimile No: (585) 325-2977 |
| |
|
| To Subscriber: |
at the address set forth on the signature page, |
or in each case to such other address and
facsimile number as shall have last been furnished by like notice. If mailing by registered or certified mail is impossible due
to an absence of postal service, and if the other methods of sending notice set forth in this Section 8 are not otherwise available,
notice shall be in writing and personally delivered to the aforesaid addresses. Each notice or communication shall be deemed to
have been given as of the date so mailed or delivered, as the case may be; provided, however, that any notice sent by facsimile
shall be deemed to have been given as of the date sent by facsimile.
(d) Governing
Law; Disputes. This Subscription Agreement shall in all respects be construed, governed, applied and enforced with the laws
of the State of New York without giving effect to the principles of conflicts of laws. The Parties hereby consent to and irrevocably
submit to personal jurisdiction over each of them by the applicable State or Federal Courts of The City of New York, Borough of
Manhattan, in any action or proceeding, irrevocably waive trial by jury and personal service of any and all process and other documents
and specifically consent that in any such action or proceeding, any service of process may be effectuated upon any of them by certified
mail, return receipt requested, in accordance with Section 8(c).
(e) Further Assurances.
The Parties agree to execute any and all such other and further instruments and documents, and to take any and all such further
actions, which are reasonably required to effectuate this Subscription Agreement and the intents and purposes hereof.
(f) Binding Agreement.
This Subscription Agreement shall be binding upon and inure to the benefit of the Parties hereto and their heirs, executors, administrators,
personal representatives, successors and assigns.
(g) Waiver.
Except as otherwise expressly provided herein, no waiver of any covenant, condition, or provision of this Subscription Agreement
shall be deemed to have been made unless expressly set forth in writing and signed by the Party against whom such waiver is charged;
and, (i) the failure of any Party to insist in any one or more cases upon the performance of any of the provisions, covenants,
or conditions of this Subscription Agreement or to exercise any option herein contained, shall not be construed as a waiver or
relinquishment for the future of any such provisions, covenants, or conditions; (ii) the acceptance of performance of anything
required by this Subscription Agreement to be performed with knowledge of the breach or failure of a covenant, condition, or provision
hereof shall not be deemed a waiver of such breach or failure; and, (iii) no waiver by any Party of one breach by another Party
shall be construed as a waiver with respect to any other or subsequent breach.
| Subscription Agreement | - 6 - | |
(h) Counterparts.
This Subscription Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Signatures obtained via facsimile or other means of electronic transmission,
including e-mail PDF, shall be deemed legally binding.
(i) Entire Agreement.
The Parties have not made any representations, warranties, or covenants with respect to the subject matter hereof, orally or in
writing, which are not expressly set forth herein, and this Subscription Agreement, together with any instruments or other agreements
executed simultaneously herewith, constitutes the entire agreement between them with respect to the subject matter hereof. All
understandings and agreements heretofore had between the Parties with respect to the subject matter hereof are merged in this Subscription
Agreement, which alone fully and completely express their agreement. This Subscription Agreement may not be changed, modified,
extended, terminated, or discharged orally, but only by an agreement in writing, which is signed by all of the Parties to this
Subscription Agreement.
(j) Subscription
Irrevocable. Except as set forth herein, this subscription is irrevocable, is subject to all of the terms and provisions contained
in this Subscription Agreement, and will survive the death, dissolution, or disability of the Subscriber.
(k) Assignability.
This Agreement is not transferable or assignable by the Subscriber.
9. Certification.
Under penalties of perjury
Subscriber certifies as follows:
If it has been provided,
the number shown below, as Subscriber’s taxpayer’s identification number, is Subscriber’s correct taxpayer identification
number. Subscriber is not subject to backup withholding either because Subscriber has not been notified by the Internal Revenue
Service that Subscriber is subject to backup withholding as a result of a failure to report all interest or dividends, or the Internal
Revenue Service has notified Subscriber that it is no longer subject to backup withholding.
| Subscription Agreement | - 7 - | |
IN WITNESS WHEREOF, the Parties
have executed this Subscription Agreement effective as of the date first written above.
Investment Amount:
Print Name of Subscriber:
Signature of Subscriber (or authorized agent
of Subscriber):
| Date: |
|
| |
|
| Address: |
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| |
|
| |
|
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| Facsimile No: |
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Accepted and Agreed to:
DOCUMENT SECURITY SYSTEMS, INC.
| By: |
|
| |
Name: Patrick White |
| |
Title: Chief Executive Officer |
| Subscription Agreement | - 8 - | |
EXHIBIT A
INVESTOR QUESTIONNAIRE
| Subscription Agreement | - 9 - | |
EXHIBIT B
WARRANT
| Subscription Agreement | - 10 - | |
ANNEX A
Reference is made to (a)
those certain subscription agreements, pursuant to which this Annex A is attached (collectively, the “Agreements”),
by and between DOCUMENT SECURITY SYSTEMS, INC., a New York corporation (the “Company”) and certain investors
(collectively, the “Buyers”), pursuant to which the Company has agreed to sell, and each such Buyer has agreed
to purchase certain shares of common stock, $0.02 par value, of the Company (the “Common Stock”), which is collectively
to be referred to herein as the “Common Shares” and (ii) certain warrants to acquire Common Stock (the “Warrants”)
(as exercised, collectively, the “Warrant Shares”) and (b) that certain registration rights agreement (the “Registration
Rights Agreement”), pursuant to which the Company has agreed to provide to the Buyers certain registration rights with
respect to the Common Shares, the Warrants and the Warrant Shares (collectively the “Securities”) Capitalized
terms not defined herein shall have the meaning as set forth in the Agreements.
1.
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents
and warrants to each of the Buyers that, as of the date hereof and as of the Closing Date:
(a) Organization
and Qualification. Each of the Company and each of its Subsidiaries (as defined below) are entities duly organized and
validly existing and in good standing under the laws of the jurisdiction in which they are formed, and have the requisite
power and authorization to own their properties and to carry on their business as now being conducted and as presently
proposed to be conducted. Each of the Company and each of its Subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good
standing would not have a Material Adverse Effect (as defined below). As used in the Agreements, “Material Adverse
Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations
(including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary, individually
or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents or (iii) the
authority or ability of the Company or any of its Subsidiaries to perform any of their respective obligations under any of
the Transaction Documents (as defined below). “Subsidiaries” means any Person (as defined below) in which
the Company, directly or indirectly, (I) owns at least fifty percent (50% of the outstanding capital stock or holds at least
fifty percent (50%) of the equity or similar interest of such Person or (II) controls or operates all or any part of
the business, operations or administration of such Person, and each of the foregoing, is individually referred to herein as a
“Subsidiary.” “Person” means an individual, a limited liability company, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department
or agency thereof.
(b) Authorization; Enforcement;
Validity. The Company has the requisite power and authority to enter into and perform its obligations under the Agreements
and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof. Each Subsidiary
has the requisite power and authority to enter into and perform its obligations under the Transaction Documents to which it is
a party. The execution and delivery of the Agreements and the other Transaction Documents by the Company and its Subsidiaries,
and the consummation by the Company and its Subsidiaries (as applicable) of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Common Shares and the issuance of the Warrants and the reservation for issuance and issuance
of the Warrant Shares issuable upon exercise of the Warrants) have been duly authorized by the Company’s board of directors
and each of its Subsidiaries’ board of directors or other governing body, as applicable, and (other than the filing with
the Securities and Exchange Commission (the “SEC”) of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement, a Form D with the SEC, any other filings as may be required by any state
securities agencies, and the approval of the Principal Market) no further filing, consent or authorization is required by the Company,
its Subsidiaries, their respective boards of directors or their stockholders or other governing body. The Agreements has been,
and the other Transaction Documents will be prior to the Closing, duly executed and delivered by the Company or its agent, and
each constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its
respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law.
Prior to the Closing, the Transaction Documents to which each Subsidiary is a party will be duly executed and delivered by each
such Subsidiary, and shall constitute the legal, valid and binding obligations of each such Subsidiary, enforceable against each
such Subsidiary in accordance with their respective terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution
may be limited by federal or state securities law. “Transaction Documents” means, collectively, the Agreements,
the Warrants, the Registration Rights Agreement and each of the other agreements and instruments entered into or delivered by any
of the parties hereto in connection with the transactions contemplated hereby and thereby, as may be amended from time to time.
(c) Issuance of
Securities. The Common Shares, when issued, will be validly issued, fully paid and nonassessable and free from all preemptive
or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock. The Warrants are duly authorized and upon issuance in accordance with the
terms of the Transaction Documents shall be validly issued, fully paid and non-assessable and free from all preemptive or similar
rights, taxes, liens, charges and other encumbrances with respect to the issue thereof. As of the closing of the transactions
contemplated by the Agreements (the “Closing”, and such date, the “Closing Date”), the Company
shall have reserved from its duly authorized capital stock not less than 100% of the maximum number of Warrant Shares issuable
upon exercise of the Warrants as of such date (without taking into account any possible adjustments pursuant to the anti-dilution
rights attendant thereto or any limitations on the exercise of the Warrants set forth therein). Upon exercise in accordance with
the Warrants, the Warrant Shares, when issued, will be validly issued, fully paid and nonassessable and free from all preemptive
or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock. Subject to the accuracy of the representations and warranties of the Buyers
in the Agreements, the offer and issuance by the Company of the Securities is exempt from registration under the Securities Act
of 1933, as amended (the “1933 Act”).
(d) No Conflicts. The
execution, delivery and performance of the Transaction Documents by the Company and its Subsidiaries (as applicable) and the consummation
by the Company and its Subsidiaries (as applicable) of the transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Common Shares, the Warrants and Warrant Shares and the reservation for issuance of the Warrant Shares) will
not (i) result in a violation of the Certificate of Incorporation of the Company (the “Certificate of Incorporation”)
or other organizational documents of the Company or any of its Subsidiaries, the rights attendant to any capital stock of the Company
or any of its Subsidiaries, or Bylaws of the Company (the “Bylaws”) or any of its Subsidiaries, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including foreign, federal and state securities laws and regulations and the rules and regulations of the NYSE Amex (the
“Principal Market”) and including all applicable federal laws, rules and regulations) applicable to the Company
or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected except,
in the case of clause (ii) or (iii) above, to the extent such violations that could not reasonably be expected to have a Material
Adverse Effect.
(e) Consents. Neither
the Company nor any Subsidiary is required to obtain any consent from, authorization or order of, or make any filing or registration
with (other than the filing with the SEC of one or more Registration Statements in accordance with the requirements of the Registration
Rights Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies or the Principal
Market), any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute,
deliver or perform any of its respective obligations under or contemplated by the Transaction Documents, in each case, in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company or any Subsidiary
is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the Closing Date, and neither
the Company nor any of its Subsidiaries are aware of any facts or circumstances which might prevent the Company or any Subsidiary
from obtaining or effecting any of the registration, application or filings contemplated by the Transaction Documents. The Company
is not in violation of the requirements of the Principal Market and has no knowledge of any facts or circumstances which could
reasonably lead to delisting or suspension of the Common Stock in the foreseeable future.
(f) No General Solicitation;
Placement Agent’s Fees. Neither the Company, nor any of its Subsidiaries or affiliates, nor any Person acting on its
or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in
connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any placement agent’s
fees, financial advisory fees, or brokers’ commissions (other than for Persons engaged by any Buyer or its investment advisor)
relating to or arising out of the transactions contemplated hereby. Other than Palladium Capital Advisors LLC (the “Placement
Agent”), neither the Company nor any of its Subsidiaries has engaged any placement agent or other agent in connection
with the sale of the Securities.
(g) No Integrated Offering.
None of the Company, its Subsidiaries or any of their 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 require registration
of the issuance of any of the Securities under the 1933 Act, whether through integration with prior offerings or otherwise, or
cause this offering of the Securities to require approval of stockholders of the Company under any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated. None of the Company, its Subsidiaries, their affiliates nor any
Person acting on their behalf will take any action or steps that would require registration of the issuance of any of the Securities
under the 1933 Act or cause the offering of any of the Securities to be integrated with other offerings.
(h) SEC Documents; Financial
Statements. During the two (2) years prior to the date hereof, the Company has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter
referred to as the “SEC Documents”). As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, 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. As of their respective dates, the financial statements
of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto as in effect as of the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material,
either individually or in the aggregate). No other information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in
order to make the statements therein not misleading, in the light of the circumstance under which they are or were made.
(i) No Undisclosed Events,
Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is
reasonably expected to exist or occur with respect to the Company, any of its Subsidiaries or their respective business, properties,
liabilities, prospects, operations (including results thereof) or condition (financial or otherwise), that (i) could have a Material
Adverse Effect or (ii) would reasonably be expected to have a material adverse effect on any Buyer’s investment hereunder.
(j) Foreign Corrupt Practices.
Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any director, officer, agent, employee or
other Person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of,
the Company or any of its Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
(k) Sarbanes-Oxley Act.
Except as set forth in the SEC Documents, the Company and each Subsidiary is in compliance with all applicable requirements of
the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all applicable rules and regulations promulgated by
the SEC thereunder that are effective as of the date hereof.
(l) Transactions With Affiliates.
Other than as disclosed in the SEC Documents, none of the officers, directors or employees of the Company or any of its Subsidiaries
is presently a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services as
employees, officers or 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, or otherwise requiring payments to or from any such officer,
director or employee or, to the knowledge of the Company or any of its Subsidiaries, any corporation, partnership, trust or other
Person in which any such officer, director, or employee has a substantial interest or is an employee, officer, director, trustee
or partner.
(m) Equity Capitalization.
Except as disclosed in the SEC Documents or issued by the Company pursuant to stock option plans approved by the board of directors
of the Company: (i) none of the Company’s or any Subsidiary’s capital stock is subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the Company or any Subsidiary; (ii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional
capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital
stock of the Company or any of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by
which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations
in any amounts filed in connection with the Company or any of its Subsidiaries; (v) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except
pursuant to the Registration Rights Agreement); (vi) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered
by the issuance of the Securities; (viii) neither the Company nor any Subsidiary has any stock appreciation rights or “phantom
stock” plans or agreements or any similar plan or agreement; and (ix) neither the Company nor any of its Subsidiaries have
any liabilities or obligations required to be disclosed in the SEC Documents which are not so disclosed in the SEC Documents, other
than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses and which, individually
or in the aggregate, do not or could not have a Material Adverse Effect.
(n) Internal Accounting
and Disclosure Controls. Except as set forth in the SEC Documents, the Company and each of its Subsidiaries maintains internal
control over financial reporting (as such term is defined in Rule 13a-15(f) under the 1934 Act) that is effective to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, including 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 generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets
or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv)
the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals
and appropriate action is taken with respect to any difference. Except as set forth in the SEC Documents, the Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the 1934 Act) that are effective in ensuring
that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation,
controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files
or submits under the 1934 Act is accumulated and communicated to the Company’s management, including its principal executive
officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required
disclosure.
(o) Off Balance Sheet Arrangements.
There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated
or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed
or that otherwise could be reasonably likely to have a Material Adverse Effect.
(p) Investment Company Status.
The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” an affiliate
of an “investment company,” a company controlled by an “investment company” or an “affiliated person”
of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are
defined in the Investment Company Act of 1940, as amended.
(q) Manipulation of Price.
Neither the Company nor any of its Subsidiaries has, and, to the knowledge of the Company, no Person acting on their behalf has,
directly or indirectly, (i) taken any action designed to cause or to result in the stabilization or manipulation of the price of
any security of the Company or any of its Subsidiaries 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 (other than the Placement Agent), or
(iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company
or any of its Subsidiaries.
(r) U.S. Real Property Holding
Corporation. Neither the Company nor any of its Subsidiaries is, or has ever been, and so long as any of the Securities are
held by any of the Buyers, shall become, 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 and each Subsidiary shall so certify upon any Buyer’s request.
(s) Bank Holding Company
Act. Neither the Company nor any of its Subsidiaries 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 (25%) or more of the total equity of a bank or any equity 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.
(t) Public Utility Holding
Act. None of the Company nor any of its Subsidiaries is a “holding company,” or an “affiliate” of a
“holding company,” as such terms are defined in the Public Utility Holding Act of 2005.
(u) Federal Power Act.
None of the Company nor any of its Subsidiaries is subject to regulation as a “public utility” under the Federal Power
Act, as amended.
(v) No Additional Agreements.
The Company does not have any agreement or understanding with any Buyer with respect to the transactions contemplated by the Transaction
Documents other than as specified in the Transaction Documents.
(w) Disclosure. The
Company confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning
the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by the Agreements and the other
Transaction Documents. The Company understands and confirms that each of the Buyers will rely on the foregoing representations
in effecting transactions in securities of the Company. To the Company’s knowledge, all disclosure provided to the Buyers
regarding the Company and its Subsidiaries, their businesses and the transactions contemplated hereby, including the schedules
to the Agreements, furnished by or on behalf of the Company or any of its Subsidiaries 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 the light of the circumstances under which they were made, not misleading. To the Company’s knowledge, no event or circumstance
has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties,
liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable
law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not
been so publicly disclosed. The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties
with respect to the transactions contemplated hereby other than those specifically set forth in Section 4 of the Agreement of such
Buyer.
2.
ADDITIONAL COVENANTS.
(a) Pledge of
Securities. Notwithstanding anything to the contrary contained in Section 5 of the Agreements or herein, the Company
acknowledges and agrees that the Securities may be pledged by a Buyer in connection with a bona fide margin agreement or
other bona fide loan or financing arrangement that is secured by the Securities. The pledge of Securities shall not be deemed
to be a transfer, sale or assignment of the Securities hereunder except as may otherwise be required under applicable
securities laws, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to the Agreements or any other Transaction Document. The
Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Buyer.
(b) Disclosure of
Transactions and Other Material Information. On or before 9:30 a.m., New York time, on
the first (1st) Business Day following the date of the Agreements, the Company shall file a Current Report
on Form 8-K describing all the material terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching all the material Transaction Documents (including, without limitation, the Agreements
(and all schedules to the Agreements), the form of the Warrants and the form of the Registration Rights Agreement) (including
all attachments, the “8-K Filing”). From and after the issuance of the 8-K Filing, the Company shall have
disclosed all material, non-public information (if any) delivered to any of the Buyers 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 shall not, and the Company shall cause each of its Subsidiaries and
each of its and their respective officers, directors, employees and agents not to, provide any Buyer with any material,
non-public information regarding the Company or any of its Subsidiaries from and after the issuance of the Press Release
without the express prior written consent of such Buyer. Subject to the foregoing, neither the Company, its Subsidiaries nor
any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated
hereby; provided, however, the Company shall be entitled, without the prior approval of any Buyer, to make any press release
or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall receive an advanced draft of any such press release or other public disclosure prior to its release).
Without the prior written consent of the applicable Buyer, the Company shall not (and shall cause each of its Subsidiaries
and affiliates to not) disclose the name of such Buyer in any filing, announcement, release or otherwise, except as otherwise
required by any law, rule or regulation applicable to the Company after consultation with the Buyer.
(c) [Intentionally
Omitted].
(d) Reservation of
Shares. So long as any Warrants remain outstanding, the Company shall take reasonable best efforts to at all times have
authorized, and reserved for the purpose of issuance, no less than 100% of the maximum number of shares of Common Stock
issuable upon exercise of all the Warrants as of the date hereof (without regard to any limitations on the exercise of the
Warrants set forth therein), less the number of Warrant Shares represented by any such Warrants that have been exercised.
(e) Passive Foreign
Investment Company. The Company shall conduct its business in such a manner as will ensure that the Company will not be deemed
to constitute a passive foreign investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986,
as amended.
3.
REGISTER; LEGEND REMOVAL
(a) Register.
The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may
designate by notice to each holder of Securities), a register for the Warrants in which the Company shall record the name and
address of the Person in whose name the Warrants have been issued (including the name and address of each transferee, to the
extent it is appropriately notified of transfers) and the number of Warrant Shares issuable upon exercise of the Warrants
held by such Person. The Company shall keep the register open and available at all times during normal business hours for
inspection of any Buyer or its legal representatives so long as Buyer continues to hold any Warrants.
(b) Legends.
Each Buyer understands that the Securities have been issued (or will be issued in the case of the Warrant Shares) pursuant to
an exemption from registration or qualification under the 1933 Act and applicable state securities laws, and except as set
forth below, the Securities shall bear any legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT 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 TO THE HOLDER (IF REQUESTED BY THE
COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
OR ELIGIBLE TO BE 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.
(c) Removal of
Legends. Certificates evidencing Securities shall not be required to contain the legend set forth in Section 3(b) above
or any other legend (i) while a registration statement (including a Registration Statement) covering the resale of such
Securities is effective under the 1933 Act, (ii) following any sale of such Securities pursuant to Rule 144 (assuming the
transferor is not an affiliate of the Company), (iii) if such Securities are eligible to be sold, assigned or transferred
under Rule 144 (provided that a Buyer provides the Company with reasonable assurances that such Securities are eligible for
sale, assignment or transfer under Rule 144 which shall not include an opinion of counsel), (iv) in connection with a sale,
assignment or other transfer (other than under Rule 144), provided that such Buyer provides the Company with an opinion of
counsel to such Buyer, in a generally acceptable form, to the effect that such sale, assignment or transfer of the Securities
may be made without registration under the applicable requirements of the 1933 Act or (v) if such legend is not required
under applicable requirements of the 1933 Act (including, without limitation, controlling judicial interpretations and
pronouncements issued by the SEC). If a legend is not required pursuant to the foregoing, the Company shall no later than two
(2) Trading Days following the delivery by a Buyer to the Company or the transfer agent (with notice to the Company) of a
legended certificate representing such Securities (endorsed or with stock powers attached, signatures guaranteed, and
otherwise in form necessary to affect the reissuance and/or transfer, if applicable), together with any other deliveries from
such Buyer as may be required above in this Section 3(c), as directed by such Buyer, either: (A) provided that the
Company’s transfer agent is participating in the DTC Fast Automated Securities Transfer Program and such Securities are
Common Shares or Warrant Shares, credit the aggregate number of shares of Common Stock to which such Buyer shall be entitled
to such Buyer’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system or
(B) if the Company’s transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue
and deliver (via reputable overnight courier) to such Buyer, a certificate representing such Securities that is free from all
restrictive and other legends, registered in the name of such Buyer or its designee (the date by which such credit is so
required to be made to the balance account of such Buyer’s or such Buyer’s nominee with DTC or such certificate
is required to be delivered to such Buyer pursuant to the foregoing is referred to herein as the “Required Delivery
Date”).
(d) Buy-In. If
the Company fails to so properly deliver such unlegended certificates or so properly credit the balance account of such
Buyer’s or such Buyer’s nominee with DTC by the Required Delivery Date, and if on or after the Required Delivery
Date such Buyer purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by such Buyer of shares of Common Stock that such Buyer anticipated receiving from the Company without any restrictive
legend, then, in addition to all other remedies available to such Buyer, the Company shall, within three (3) Trading Days
after such Buyer’s request and in such Buyer’s sole discretion, either (i) pay cash to such Buyer in an amount
equal to such Buyer’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so
purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate
or credit such Buyer’s balance account shall terminate and such shares shall be cancelled, or (ii) promptly honor its
obligation to deliver to such Buyer a certificate or certificates or credit such Buyer’s DTC account representing such
number of shares of Common Stock that would have been issued if the Company timely complied with its obligations hereunder
and pay cash to such Buyer in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number
of shares of Common Shares or Warrant Shares (as the case may be) that the Company was required to deliver to such Buyer by
the Required Delivery Date times (B) the Closing Sale Price (as defined in the Warrants) of the Common Stock on the Trading
Day immediately preceding the Required Delivery Date.
4.
MISCELLANEOUS.
(a) Indemnification.
In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each holder of any Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’
agents or other representatives (including, without limitation, those retained in connection with the transactions
contemplated by the Agreements) (collectively, the “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 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 any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the Company or any Subsidiary in any of the Transaction
Documents, (b) any breach of any covenant, agreement or obligation of the Company or any Subsidiary contained in any of the
Transaction Documents or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the Company or any Subsidiary) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of any of the Transaction Documents, (ii) any
transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the
Securities, or (iii) the status of such Buyer or holder of the Securities as an investor in the Company pursuant to the
transactions contemplated by the Transaction Documents. 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. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 4(a) shall be the same as those set forth in
Section 4 of the Registration Rights Agreement.
(b) Independent
Nature of Buyers’ Obligations and Rights. The obligations of each Buyer under the Transaction Documents are several
and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of
the obligations of any other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as, and the
Company acknowledges that the Buyers do not so constitute, a partnership, an association, a joint venture or any other kind
of group or entity, or create a presumption that the Buyers are in any way acting in concert or as a group or entity with
respect to such obligations or the transactions contemplated by the Transaction Documents or any matters, and the Company
acknowledges that the Buyers are not acting in concert or as a group, and the Company shall not assert any such claim, with
respect to such obligations or the transactions contemplated by the Transaction Documents. The decision of each Buyer to
purchase Securities pursuant to the Transaction Documents has been made by such Buyer independently of any other Buyer. Each
Buyer acknowledges that no other Buyer has acted as agent for such Buyer in connection with such Buyer making its investment
hereunder and that no other Buyer will be acting as agent of such Buyer in connection with monitoring such Buyer’s
investment in the Securities or enforcing its rights under the Transaction Documents. The Company and each Buyer confirms
that each Buyer has independently participated with the Company and its Subsidiaries in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation, the rights arising out of the Agreements or out
of any other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in
any proceeding for such purpose. The use of a single agreement to effectuate the purchase and sale of the Securities
contemplated hereby was solely in the control of the Company, not the action or decision of any Buyer, and was done solely
for the convenience of the Company and its Subsidiaries and not because it was required or requested to do so by any Buyer.
It is expressly understood and agreed that each provision contained in the Agreements and in each other Transaction Document
is between the Company, each Subsidiary and a Buyer, solely, and not between the Company, its Subsidiaries and the Buyers
collectively and not between and among the Buyers.
