UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) April 17, 2019

 

 

MATEON THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   000-21990   13-3679168

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

701 Gateway Boulevard, Suite 210

South San Francisco, CA 94080

(Address of Principal Executive Offices and Zip Code)

Registrant’s telephone number, including area code

(650) 635-7000

Not applicable.

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 

 


Item 1.01

Entry into a Material Definitive Agreement.

Merger Agreement and Merger

On April 17, 2019, Mateon Therapeutics, Inc. (the “ Company ”) entered into an Agreement and Plan of Merger (the “ Merger Agreement ”) with Oncotelic, Inc., a Delaware corporation (“ Oncotelic ”), a clinical-stage biopharmaceutical company focused on the treatment of cancer using TGF- b RNA, and Oncotelic Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of the Company (the “ Merger Sub ”). Upon the terms of and subject to the satisfaction of the conditions described in the Merger Agreement, the Merger Sub will be merged with and into Oncotelic (the “ Merger ”), with Oncotelic surviving the Merger as a wholly-owned subsidiary of the Company. The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

Effect on Capital Stock and Merger Consideration

At the effective time of the Merger (the “ Effective Time ”), each share of Oncotelic common stock outstanding immediately prior to the Effective Time (excluding shares held by the Company, Merger Sub or Oncotelic and any shares of Oncotelic held by stockholders exercising dissenters’ appraisal rights) will be converted solely into the right to receive (i) 3.97335267 shares of common stock of the Company, par value $0.01 per share (the “ Common Stock ”), and (ii) 0.01877292 shares of newly designated Series A Convertible Preferred Stock of the Company (the “ Series A Preferred Stock ”).

As a result of the Merger, the former Oncotelic security holders immediately before the Merger will own approximately 85% of the issued and outstanding Common Stock (including any shares of Common Stock that may be issuable upon conversion of the Series A Preferred Stock), and the stockholders of the Company immediately before the Merger will own approximately 15% of the issued and outstanding Common Stock (including any shares of Common Stock issuable upon conversion of the Series A Preferred Stock).

Contingent upon completion of the Merger and pursuant to the terms of a Contingent Value Rights Agreement to be entered into by and between the Company, Oncotelic, American Stock Transfer and Trust Company, LLC (“ AST ”) and a stockholder representative (the “ CVR Agreement ”), holders of record of Company Common Stock immediately prior to the Effective Time will receive, as a dividend, a Contingent Value Right (“ CVR ”), which will provide these holders, collectively, the right to receive 75% of the net proceeds to the Company (after the initial $500,000 of such net proceeds, which will be retained by Oncotelic) resulting from the full or partial sale, license, transfer or other disposition of the intellectual property rights and related assets of the Company’s product candidates OXi4503 and CA4P, in their current form and for their currently contemplated uses, that occurs pursuant to a definitive agreement executed prior to the fourth anniversary of the Effective Time.    AST will act as the Rights Agent, and the CVRs will be non-transferable except for certain estate planning and other similar permitted transfers described in the CVR Agreement. The CVRs will not have any voting or dividend rights, and interest will not accrue on any amounts payable on the CVRs. The CVRs will not entitle their holders to any equity interest in the Company.

The securities to be issued in the Merger will be issued in reliance upon exemptions from registration requirements pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended, the rules promulgated thereunder and pursuant to applicable state securities laws and regulations.

Recapitalization

Pursuant to the terms of the Merger Agreement and contingent upon completion of the Merger, the Company will (following the Effective Time) prepare and include in an information statement a proposal to amend and restate the Company’s current Amended and Restated Certificate of Incorporation, as amended to date, to, among other things, (i) effect a reverse stock split of the Common Stock, and (ii) increase the authorized number of shares of Common Stock in an amount sufficient to permit the conversion of all outstanding Series A Preferred Stock (the “ Recapitalization ”).

 

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Series A Preferred Stock

Contingent upon and immediately prior to the Merger, the Company will file a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock in the form set forth as an exhibit to the Merger Agreement (the “ Certificate of Designation ”) with the Secretary of State of the State of Delaware, establishing and designating 5,000,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock will be convertible into 1,000 shares of Common Stock and will be eligible to receive dividends and vote on matters presented to the holders of Common Stock on an as converted basis. Holders of Series A Preferred Stock have the right to convert to Common Stock at any time at their election, subject to the availability of sufficient Common Stock at the time of conversion. The outstanding Series A Preferred Stock will automatically convert to Common Stock on the effectiveness of the Recapitalization.

Registration Rights

Pursuant to the Merger Agreement, the Company agreed to use commercially reasonable efforts to file, following the later of the effectiveness of the Recapitalization or the availability of the requisite proforma and audited financial statements of Oncotelic, with the Securities and Exchange Commission a registration statement to register for resale the shares of Common Stock issued in connection with the Merger, including the shares of Common Stock issuable upon conversion of the Series A Preferred Stock.

Changes to Board of Directors and Officers

In accordance with the terms of the Merger Agreement, each of the current directors or the Company, other than William D. Schwieterman, will resign at the Effective Time. Following the Effective Time, Vuong Trieu, Ph.D., Oncotelic’s Chief Executive Officer and Chairman, will be appointed to the Company’s Board of Directors and will be appointed Chairman of the Board. Additionally, following the Effective Time, the Company’s Board of Directors will initially consist of four directors and will be comprised of (i) three members designated by Oncotelic and (ii) one member designated by the Company, namely Dr. Schwieterman.

Also in accordance with the terms of the Merger Agreement, at the Effective Time, Vuong Trieu, Ph.D. will become the Company’s Chief Executive Officer, and William D. Schwieterman, M.D. will resign from his position as the Company’s Chief Executive Officer. It is expected that Fatih Uckun, M.D., Ph.D., will be appointed to serve as the Company’s Chief Medical Officer and that Matthew M. Loar, the Company’s current Chief Financial Officer, will remain the Company’s Chief Financial Officer and Corporate Secretary.

Schwieterman Separation Agreement

As authorized by the Compensation Committee of the Company Board, on April 17, 2019, Dr. Schwieterman and the Company entered into a Separation and Release Agreement (the “ Schwieterman Agreement ”), providing, among other things, that Dr. Schwieterman will receive, in lieu of any other severance payments otherwise due and payable to Dr. Schwieterman, which currently aggregate $410,000 upon a change in control of the Company, (i) a payment of $205,000 in cash, upon the closing of a financing in which at least $10 million in gross proceeds is received by the Company subsequent to the closing of the Merger (a “ Post-Closing Financing ”), and (ii) an additional payment of $205,000 in cash, upon the closing of a Post-Closing Financing in which at least an additional $10 million in gross proceeds is received by the Company.

Representations and Warranties, Conditions to Closing and Termination Provisions

The Merger Agreement contains customary closing conditions and customary representations, warranties and covenants made by the Company and Oncotelic, including covenants relating to obtaining the requisite approvals of the stockholders of Oncotelic, prohibitions on either party continuing to negotiate with any other parties for alternative acquisition proposals, and the Company’s and Oncotelic’s conduct of their respective businesses between the date of signing of the Merger Agreement and the closing of the transactions contemplated by the Merger Agreement (the “ Closing ”). The Merger Agreement also includes termination provisions for both the Company and Oncotelic, including the right to terminate by mutual consent and the right of either party to terminate the Merger Agreement if the Closing has not occurred on or prior to May 10, 2019.

 

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Bridge Financing

On April 17, 2019, the Company entered into securities purchase agreements in connection with the issuance of up to $1.2 million in principal amount of debentures (the “ Bridge Financing ”).

Two of the securities purchase agreements, aggregating up to $800,000 in principal amount of debentures, are with Peak One Opportunity Fund, L.P. and TFK Investments, LLC (collectively, “ PeakOne ”) pursuant to which the Company agreed to issue to PeakOne convertible debentures due three years from the dates of issuance (the “ Debentures ”). The other securities purchase agreements, aggregating up to $400,000 in principal amount of debentures, are with Vuong Trieu, Ph.D. and another investor (the “ Bridge Investors ”) pursuant to which the Company agreed to issue to the Bridge Investors Debentures on substantially the same terms issued to PeakOne, although without share reservation requirements, commitment fees or right to certain liquidated damages.

Funding under the Bridge Financing is conditioned upon the closing of the Merger. The issuance of the Debentures to PeakOne and the Bridge Investors will take place in two tranches: (i) the first tranche, in the aggregate principal amount of up to $600,000 for an aggregate purchase price of $540,000, will close following the Closing under the Merger Agreement, subject to the satisfaction of certain closing conditions, and (ii) the second tranche, in an aggregate principal amount of up to $600,000 for an aggregate purchase price of $540,000, would take place at the option of the Company at any time after 30 days following the Closing. The first tranche of the Debentures will mature on the third anniversary of their issuance, and may be redeemed by the Company prior to the maturity date as described below. All unpaid principal due and payable on the maturity date shall be paid in the form of Common Stock.

So long as no event of default shall have occurred and be continuing under the Debentures, the Company may at its option call for redemption all or part of the Debentures prior to the Maturity Date, upon not more than two (2) calendar days written notice, for an amount equal to:

 

  (i)

if the redemption date is ninety (90) calendar days or less from the date of issuance of the Debentures, 110% of the sum of the principal amount so redeemed plus accrued interest, if any;

 

  (ii)

if the redemption date is greater than or equal to ninety-one (91) calendar days from the date of issuance of the Debentures and less than or equal to one hundred twenty (120) calendar days from the date of issuance of the Debentures, 120% of the sum of the principal amount so redeemed plus accrued interest, if any;

 

  (iii)

if the redemption date is greater than or equal to one hundred twenty one (121) calendar days from the date of issuance of the Debentures and less than or equal to one hundred eighty (180) calendar days from the date of issuance of the Debentures, one hundred thirty percent (130%) of the sum of the principal amount so redeemed plus accrued interest, if any; and

 

  (iv)

if either (1) the Debentures are in default but PeakOne or the Bridge Investors, as applicable, consent to the redemption notwithstanding such default or (2) the redemption date is greater than or equal to one hundred eighty one (181) calendar days from the date of issuance of the Debentures, one hundred forty percent (140%) of the sum of the principal amount so redeemed plus accrued interest, if any.

PeakOne and the Bridge Investors are entitled to, at any time or from time to time, convert the sum of all or any portion of the outstanding principal amount of the Debentures plus any interest that has accrued on the portion of the principal amount into shares of Common Stock at a conversion price equal to $0.10, provided, however, that if the Debentures are not redeemed in their entirety by the Company on or before the 180th calendar day after the issuance date, then the conversion price shall equal the lesser of (a) $0.10 or (b) 65% of the lowest traded price (as reported by Bloomberg LP) of the Common Stock for the fifteen trading days immediately preceding the date of conversion of the Debentures (provided, further, that if the Company is not DWAC eligible at the time of conversion, the Company Common Stock

 

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is traded on the OTC Pink at the time of conversion, or the conversion price is less than $0.01 per share, then 65% shall automatically adjust to 55% of the lowest traded price (as reported by Bloomberg LP) of the Company Common Stock for the 15 trading days immediately preceding the date of conversion of the Debentures), subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events.

The Debentures issued to PeakOne are subject to a “conversion blocker” such that PeakOne and its affiliates cannot convert Debentures to the extent that the conversion would result in PeakOne and its affiliates holding more than 4.99% of the outstanding Common Stock (which PeakOne can increase to 9.99% upon at least 61 days prior written notice to the Company). The Debentures issued to the Bridge Investors do not include a conversion blocker.

The Company has agreed to issue 350,000 shares of Common Stock to Peak One Investments, LLC, the general partner of Peak One, and 350,000 shares of Common Stock to TFK Investments, LLC, as a commitment fee on the closing date. No commitment fee is payable to the Bridge Investors. The securities to be issued in the Bridge Financing will be issued in reliance upon exemptions from registration requirements pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended, the rules promulgated thereunder and pursuant to applicable state securities laws and regulations.

Following the Closing of the Merger, the Company plans to seek additional equity financing to (a) repay the Debentures and (b) provide working capital to fund the Company’s combined operations with Oncotelic. There are no arrangements for any such financing in place at this time.

References to Agreements

The descriptions of the Merger Agreement, the CVR Agreement (which is included as an exhibit to the Merger Agreement), Certificate of Designation (which is included as an exhibit to the Merger Agreement), the Debentures, the Schwieterman Agreement, and the Securities Purchase Agreement do not purport to be complete and are qualified in their entirety by reference to the Merger Agreement, form of CVR Agreement, form of Certificate of Designation, the forms of Debenture, the Schwieterman Agreement, and the Securities Purchase Agreements, which are attached as Exhibits 2.1, 4.1, 4.2, 10.1, 10.2 and 10.3 to this Current Report on Form 8-K, respectively, and each of which is incorporated herein by reference.

The agreements have been included to provide investors and stockholders with information regarding their respective terms. Those agreements are not intended to provide any other factual information about the Company or Oncotelic. The representations, warranties and covenants contained in those agreements were made only for purposes of those agreements and as of specific dates, were solely for the benefit of the parties to those agreements, may be subject to limitations agreed upon by the contracting parties, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under any of the agreements and should not rely on the representations, warranties or covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the agreements, which subsequent information may or may not be fully reflected in our public disclosures.

 

Item 3.02

Unregistered Sales of Equity Securities.

To the extent required by Item 3.02 of Form 8-K, the disclosure in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.

 

Item 5.02

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.

To the extent required by Item 5.02 of Form 8-K, the disclosure in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.

 

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Item 8.01 Other Events.

On April 18, 2019, the Company issued a joint press release announcing the execution of the Merger Agreement and the Securities Purchase Agreements for the Bridge Financing, a copy of which is attached as Exhibit 99.1 to this Current Report on Form 8-K.

Forward-Looking Statements

This document contains “forward-looking statements” that involve substantial risks and uncertainties for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this communication regarding strategy, future operations, future financial position, prospects, plans and objectives of management are forward-looking statements. In addition, when or if used in this communication, the words “will,” “may,” “would,” “approximate,” “expect,” “intend,” and similar expressions and their variants, as they relate to the Company, Oncotelic or the management of either company, before or after the Merger, may identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements relating to the timing and completion of the Merger and the Bridge Financing; expectations regarding the capitalization, resources and ownership structure of the post-Merger combined company; the adequacy of the post-Merger combined company’s capital to support its future operations and its ability to successfully initiate and complete clinical trials; the nature, strategy and focus of the post-Merger combined company; and the executive and board structure of the post-Merger combined company. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation, the risk that the conditions to the closing of Merger and/or the Bridge Financing are not satisfied, uncertainties as to the timing of the consummation of the Merger and/or the Bridge Financing, and the ability of each of Oncotelic and Mateon to consummate the Merger and/or the Bridge Financing. This review of important factors that could cause actual events to differ from expectations should not be construed as exhaustive and should be read in conjunction with statements that are included herein and elsewhere, including the risk factors included in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. The Company can give no assurance that the conditions to the transaction will be satisfied. Except as required by applicable law, the Company undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

 

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit No.   

Description

2.1    Agreement and Plan of Merger, dated as of April 17, 2019, by and among the Company, Oncotelic and Oncotelic Acquisition Corporation.*
4.1    Form of Debenture, issued by the Company to PeakOne.
4.2    Form of Debenture, issued by the Company to the Bridge Investors.
10.1    Separation and Release Agreement, dated April 17, 2019, by and between the Company and William D. Schwieterman, M.D.±
10.2    Form of Securities Purchase Agreement, dated as of April 17, 2019, by and among the Company and PeakOne.
10.3    Form of Securities Purchase Agreement, dated as of April 17, 2019, by and among the Company and the Bridge Investors.
99.1    Press Release, dated April 18, 2019.

 

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*    The schedules and exhibits of the Merger Agreement have been omitted pursuant to Item 601 of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.
±    Executive Compensation Plan or Arrangement.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  Mateon Therapeutics, Inc.
Date: April 18, 2019   /s/ Matthew M. Loar
  By: Matthew M. Loar
  Chief Financial Officer

 

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Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this “ Agreement ”) is made and entered into as of April 17, 2019, by and among Mateon Therapeutics, Inc., a Delaware corporation (the “ Parent ”), Oncotelic Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (the “ Merger Sub ”), and Oncotelic, Inc., a Delaware corporation (the “ Company ”) with respect to the following facts:

A. Upon the terms and subject to the conditions set forth in this Agreement and in accordance with the Delaware General Corporation Law (the “ DGCL ”), the Parent, the Merger Sub and the Company intend to enter into a merger transaction pursuant to which the Company will merge into Merger Sub with the Company surviving the merger as a wholly owned subsidiary of Parent (the “ Merger ”).

B. The Board of Directors of the Parent and of the Merger Sub has: (i) determined that the Merger and the other transactions contemplated by this Agreement are in the best interests of each of the Parent, the Merger Sub and their respective stockholders; (ii) approved this Agreement, the Merger and the other transactions contemplated hereby; and (iii) solely with respect to the Board of Directors of the Parent, determined that the Parent, as the sole stockholder of the Merger Sub, approves this Agreement, the Merger and the other transactions contemplated by this Agreement.

C. The Board of Directors of the Company has: (i) determined that the Merger and the other transactions contemplated by this Agreement are fair to and in the best interests of the Company and its shareholders; (ii) approved this Agreement, the Merger and the other transactions contemplated hereby; and (iii) recommended that the shareholders of the Company adopt and approve this Agreement, the Merger and the other transactions contemplated in this Agreement.

D. A majority of the holders of the issued and outstanding capital stock of the Company is expected to approve this Agreement, the Merger and the other transactions contemplated by this Agreement (the “ Company Stockholder Approval ”) within one (1) calendar day of the date hereof.

Certain capitalized terms that are used in this Agreement are defined in Section  8.1. Schedule I provides an index to certain capitalized terms that are defined in other provisions of this Agreement.

NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants, promises and representations set forth herein, and intending to be legally bound, the parties hereto agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger . At the Effective Time, the Merger Sub shall be merged with and into the Company in the Merger, the separate corporate existence of the Merger Sub shall cease and the Company shall continue as the surviving corporation in the Merger. The Company, as the surviving corporation in the Merger, is hereinafter sometimes referred to as the “ Surviving Corporation .” At the Effective Time, the Merger shall have the effects provided in this Agreement and the applicable provisions of the DGCL.

1.2 Closing; Effective Time . The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at 10:00 a.m., local time, on April 22, 2019 at the offices of Sheppard Mullin Richter & Hampton LLP, 12275 El Camino Real Suite 200, San Diego, California 92130, or at another time or place, or on another date not later than May 2, 2019, as the parties may

 

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mutually agree. The date on which the Closing takes place is referred to in this Agreement as the “ Closing Date .” On the Closing Date, a certificate of merger satisfying the applicable requirements of the DGCL in a form mutually acceptable to the parties hereto (the “ Certificate of Merger ”) shall be duly executed by the Company and filed with the Delaware Secretary of State. The Merger shall become effective at the time specified in the Certificate of Merger, or if no such time is specified, at the time of the filing of the Certificate of Merger with the Delaware Secretary of State of the State of Delaware (the “ Effective Time ”). For all purposes, all of the document deliveries and other actions to occur at the Closing will be conclusively presumed to have occurred at the same time, immediately before the Effective Time.

1.3 Certificate of Incorporation; Bylaws . At the Effective Time, the Certificate of Incorporation of the Company shall be the certificate of incorporation of the Surviving Corporation, and the bylaws of the Company shall be the bylaws set forth on Exhibit A.

1.4 Directors and Officers .

(a) At the Effective Time, the Board of Directors of the Surviving Corporation shall consist of Vuong Trieu, William D. Schwieterman, Anthony Maida, and Steven King; and

(b) At the Effective Time, the Officers of the Surviving Corporation shall consist of the following:

(i) Vuong Trieu: Chief Executive Officer and President

(ii) Matthew M. Loar: Chief Financial Officer

(iii) Fatih Uckun: Chief Medical Officer

(iv) Matthew M. Loar: Secretary

1.5 Closing Deliverables .

(a) Closing Deliverables by the Company . The Company shall deliver to (or cause to be delivered to) the Parent at the Closing on the Closing Date (or on the date indicated below) the following agreements and documents, all reasonably satisfactory in form and substance to the Parent and its legal counsel:

(i) certificates representing all issued and outstanding shares of the Company Common Stock;

(ii) all corporate minute and stock books, stock ledgers and corporate seals of the Company;

(iii) written resignations of all officers and members of the Board of Directors of the Company who will not be officers or directors of the Surviving Corporation pursuant to this Agreement;

(iv) applicable FIRPTA documentation, consisting of (A) a notice to the IRS, in accordance with the requirements of Section 1.897-2(h)(2) of the Treasury Regulations dated as of the Closing Date and executed by Company, together with written authorization for the Parent to deliver such notice form to the IRS on behalf of Company after the Closing, and (B) a FIRPTA Notification Letter dated as of the Closing Date and executed by an officer of the Company;

 

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(v) a certificate of an officer of the Company to be delivered two (2) business days prior to the Closing Date certifying that attached thereto is a true, complete and accurate listing of each holder of record of outstanding shares of the Company Common Stock immediately prior to the Effective Time whose shares are to be converted pursuant to this Agreement, including the number of shares of the Parent Preferred Stock and Parent Common Stock such holder is entitled to receive pursuant to this Agreement, and any other information reasonably requested by the Parent (the “ Company Stock Record ”);

(vi) a certificate of an officer of the Company dated the Closing Date, certifying that attached thereto is (A) a true, correct and complete certified copy of the Certificate of Incorporation of the Company, (B) a true, correct and complete copy of the bylaws of the Company, (C) a true, correct and complete copy of any resolutions adopted by the Board of Directors and the resolutions adopted by the stockholders of the Company approving the execution and delivery of the is Agreement and the Merger, (D) a recent good standing certificate of the Company issued by the Delaware Secretary of State, and (E) a recent certificate of qualification from the Secretary of State of California;

(vii) a certificate of an officer of the Company in accordance with Section 6.3(a) hereof;

(viii) such other documents and instruments as may be reasonably required to effectuate the transactions contemplated by this Agreement.

(b) Closing Deliverables by the Parent . The Parent shall deliver to (or cause to be delivered to) the Company at the Closing on the Closing Date the following agreements and documents, all reasonably satisfactory in form and substance to the Company and its legal counsel:

(i) upon and subject to surrender of certificates representing the issued and outstanding shares of the Company Common Stock at the Effective Time, irrevocable instructions to the Parent’s transfer agent instructing it to issue certificates (or book entry receipts) representing the shares of the Parent Common Stock issuable on exchange of the Company Common Stock pursuant to the terms of this Agreement, duly registered in the names of the Company’s stockholders as reflected on the Company Stock Records;

(ii) upon and subject to surrender of certificates representing the issued and outstanding shares of the Company Common Stock at the Effective Time, certificates representing the shares of the Parent Preferred Stock issuable on exchange of the Company Common Stock pursuant to the terms of this Agreement, duly registered in the names of the Company’s stockholders as reflected on the Company Stock Records;

(iii) written resignations of all officers and members of the Board of Directors of the Parent who will not be officers or directors of the Parent from and after the Effective Time;

(iv) a certificate of an officer of the Parent, dated the Closing Date, certifying that attached thereto is (A) a true, correct and complete certified copy of the Certificate of Incorporation of the Parent, (B) a true, correct and complete copy of the by-laws of the Parent, and (C) a true, correct and complete copy of any resolutions adopted by the Board of Directors of the Parent relating to this Agreement or the transactions contemplated hereby;

 

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(v) a certificate of an officer of the Merger Sub, dated the Closing Date, certifying that attached thereto is (A) a true, correct and complete certified copy of the Certificate of Incorporation of the Merger Sub, (B) a true, correct and complete copy of the by-laws of the Merger Sub, and (C) a true, correct and complete copy of any resolutions adopted by the Board of Directors or the stockholders of the Merger Sub relating to this Agreement or the transactions contemplated hereby;

(vi) a certificate of an officer of the Parent in accordance with Section 6.2(a) hereof;

(vii) such other documents and instruments as may be reasonably required to effectuate the transactions contemplated by this Agreement.

1.6 Tax Consequences . The parties intend that the Merger constitute a reorganization within the meaning of Section 368 of the Code. The parties hereto adopt this Agreement as a “plan of reorganization” within the meaning of Sections l.368-2(g) and l.368- 3(a) of the United States Income Tax Regulations. Prior to the Effective Time, each of the Company and the Parent shall use their respective commercially reasonable efforts to cause the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, and shall not take any action reasonably likely to cause the Merger not so to qualify. The Parent shall not take, or cause or permit its Affiliates to take, any action after the Effective Time that would cause the Merger not to qualify as a reorganization within the meaning of Section 368(a) of the Code. Following the Merger, the Surviving Corporation shall continue the Company’s historic business or will use a significant portion of the Company’s historic business assets in a business within the meaning of Section 1.368-l(d) of the United States Income Tax Regulations.

ARTICLE II

EFFECT ON CAPITAL STOCK

2.1 Effect on Capital Stock . Subject to the terms and conditions set forth in this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of the parties hereto or the holders of any of the following securities, the following shall occur:

(a) Outstanding Company Common Stock . Each share of the Company’s common stock, par value $0.0001 per share (the “ Company Common Stock ”), issued and outstanding immediately prior to the Effective Time, other than shares to be cancelled pursuant to Section 2.1(b), shall be converted solely into the right to receive: (i) 3.97335267 shares of the Parent’s common stock, par value $0.01 per share (the “ Parent Common Stock ”) and (ii) 0.01877292 shares of the Parent’s Series A Convertible Preferred Stock, par value $0.01 per share (“ Parent Preferred Stock ”). The Parent Preferred Stock shall have the rights, privileges and preferences set forth in the Certificate of Designation attached hereto as Exhibit B .

(b) Treasury Stock . Any share of the Company Common Stock that is owned by the Company shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and no Parent Common Stock, Parent Preferred Stock, or other consideration shall be delivered or deliverable in exchange therefor.

(c) Derivative Securities . All Derivative Securities of the Company shall be exercised or converted prior to the Effective Time and shall be converted into the right to acquire shares of Parent Common Stock or Parent Preferred Stock as set forth in Section 2.1(a) above. Any Derivative Securities of the Company outstanding as of the Effective Time shall be canceled and of no further force or effect.

 

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(d) Fractional Shares . No fraction of a share of Parent Common Stock shall be issued by virtue of the Merger, but in lieu thereof, each holder of the Company Common Stock who would otherwise be entitled to a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock that otherwise would be received by such holder) shall be automatically converted into the right to receive one full additional share of Parent Common Stock. Parent Preferred Stock may be issued in fractional shares.

(e) Conversion of Merger Sub Common Stock . At the Effective Time, each share of common stock, par value $0.001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time, shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall, as of the Effective Time, evidence ownership of such shares of common stock of the Surviving Corporation.

(f) For purposes of this Agreement, “ Dissenting Shares ” mean any shares of Company Capital Stock outstanding immediately prior to the Effective Time and held by a person who has not voted such shares in favor of the adoption of this Agreement and the Merger, has properly demanded appraisal for such shares in accordance with Delaware Law or California Law and has not effectively withdrawn or forfeited such demand for appraisal. Notwithstanding anything to the contrary contained herein, Dissenting Shares will not be converted into a right to receive the Parent Common Stock or Parent Preferred Stock unless such holder fails to perfect or withdraws or otherwise loses its rights to appraisal or it is determined that such holder does not have appraisal rights in accordance with Delaware Law. If after the Effective Time, such holder fails to perfect or withdraws or loses its right to appraisal, or if it is determined that such holder does not have appraisal rights, such shares will be treated as if they had been converted as of the Effective Time into the right to receive Parent Common Stock or Parent Preferred Stock set forth in this Section 2.1 hereof. The Company will give the Parent prompt notice of any demands received by the Company for appraisal of shares of Company Capital Stock, withdrawals of such demands, and any other instruments that relate to such demands received by the Company. The Parent and the Company shall jointly participate in all negotiations and proceedings with respect to such demands except as limited by applicable legal requirements. Neither the Parent nor the Company will, except with prior written consent of the other, make any payment with respect to, or settle or offer to settle, any such demands, unless and to the extent required to do so under applicable legal requirements.

2.2 Exchange Procedure .

(a) Exchange of Certificates . The Company shall deliver to the Parent at the Closing certificates (or duly executed affidavits of lost certificates) representing all of the issued and outstanding shares of the Company Common Stock. Promptly following the Effective Time, Parent shall (i) deliver to its transfer agent irrevocable instructions to deliver to the holders of the Company Common Stock certificates (or book entry receipts) representing the number of duly authorized whole shares of Parent Common Stock issuable pursuant to Section  2.1 to each holder of record of the Company Common Stock immediately prior to the Effective Time as evidenced by the Company Stock Record, and (ii) deliver to the holders of the Company Common Stock certificates representing the number of duly authorized shares of Parent Preferred Stock issuable pursuant to Section  2.1 to each holder of record of the Company Common Stock immediately prior to the Effective Time as evidenced by the Company Stock Record.

(b) No Further Ownership Rights in the Company Common Stock . At the Effective Time, (a)  all shares of the Company Common Stock outstanding immediately prior to the Effective Time shall be treated in accordance with Section  2.1 , and all holders of certificates representing shares of the Company Common Stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as shareholders of the Company, and (b) the

 

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stock transfer books of the Company shall be closed and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of the Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, shares of the Company Common Stock are presented to Parent for any reason, they shall be cancelled and exchanged as provided in this Section  2.2 .

(c) Withholding Rights . The Parent and the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of the Company Common Stock, such amounts as the Parent or the Surviving Corporation, as applicable, is required to deduct and withhold pursuant to the applicable rules under the Code, or any provision of state, local or foreign Tax Law. To the extent that amounts are so withheld as so contemplated, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the Parent and the Merger Sub, subject to such exceptions as are specifically disclosed in the Disclosure Schedule supplied by the Company to the Parent, dated as of the date hereof (the “ Company Disclosure Schedule ”), as set forth below in this Article III .

3.1 Organization and Qualification . The Company is a corporation duly organized, validly existing and in good standing under the jurisdiction of its incorporation and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. The Company is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not, either individually or in the aggregate, have or reasonably be expected to have a Company Material Adverse Effect.

3.2 Subsidiaries . The Company has no Subsidiaries, and does not own a debt, equity or other similar interest in any other Person. The Company has not agreed, nor is it obligated to make, and nor is it bound by, any written, oral or other agreement, contract, sub-contract, lease, binding understanding, instrument, note, option, warranty, purchase order, license, sub-license, insurance policy, benefit plan, commitment, or undertaking of any nature, under which it may become obligated to make, any future investment in or capital contribution to any other Person. The Company does not own any equity or similar interest in or any interest convertible, exchangeable or exercisable for any equity or similar interest in, any other Person.

3.3 Authority . The Company has, subject only to the Company Stockholder Approval, all necessary corporate power and authority to execute and deliver this Agreement and all other Transaction Documents to which it is a party (the “ Company Transaction Documents ”) and to perform its obligations hereunder and thereunder, to consummate the transactions contemplated hereby and thereby. The Company Stockholder Approval is the only vote of the holders of any class or series of capital stock of the Company necessary to adopt this Agreement and approve the Merger and all other transactions contemplated by the Transaction Documents. The execution and delivery of this Agreement and the Company Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby have been, subject only to the Company Stockholder Approval, duly and validly authorized by all necessary

 

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corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement and the Company Transaction Documents or to consummate the transactions so contemplated other than the Company Stockholder Approval. This Agreement and the Company Transaction Documents have been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other parties thereto, constitute the legal and binding obligation of the Company, enforceable against the Company in accordance with their respective terms, subject to: (a) the effect of bankruptcy, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditor’s rights generally; (b) general equitable principles (whether considered in a proceeding in equity or at law); and (c) the Company Stockholder Approval.

3.4 No Conflict . The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby do not and will not (with or without notice or lapse of time, or both): (a) contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of the Company; (b) contravene, conflict with or result in a violation or breach of any provision of any applicable Law or Order; (c) require any consent or approval under, violate, conflict with, result in any breach of or any loss of any benefit under, or constitute a change of control or default under, or result in termination or give to others any right of termination, vesting, amendment, acceleration or cancellation of any contract to which the Company is a party, or by which any of its properties or assets may be bound or affected or any Governmental Entity affecting, or relating in any way to, the property, assets or business of the Company; or (d) result in the creation or imposition of any Lien on any asset of the Company.

3.5 No Required Filings or Consents . The execution and delivery of this Agreement and the Company Transaction Documents by the Company does not, and the performance of this Agreement and the Company Transaction Documents by the Company will not, require any consent, approval, authorization or permit of, or registration, filing with or notification to, any court, administrative agency, commission, governmental or regulatory authority, domestic or foreign (each, a “ Governmental Entity ”) or any Person, except for: (a) the filing and recordation of the Certificate of Merger pursuant to the DGCL, and (b) the applicable requirements, if any, of the Securities Act of 1933, as amended (the “ Securities Act ”), the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and U.S. state securities laws (“ Blue Sky Laws ”).

3.6 Capital Stock of the Company . The authorized capital stock of the Company consists of the following:

(a) The authorized capital stock of the Company consists of 10,000,000 shares of Company Common Stock, of which 9,554,557 shares are issued and outstanding. The Company holds no stock in treasury.

(b) The Company does not have an equity incentive plan. The Company has reserved 764,189 shares of Company Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to employment agreements or other contracts. The Company has furnished to the Parent complete and accurate copies of the forms of such agreements or contracts.

(c) All of the shares of the Company Common Stock outstanding are, and all shares that have been and may be issued pursuant to the employment agreements or other contracts will be, when issued in accordance with the terms thereof, duly authorized and validly issued, fully paid and non-assessable and free of preemptive rights.

 

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(d) Except as set forth in Sections 3.6(a) and (b) above, there are on the date hereof no outstanding shares of capital stock of, or other equity or voting interest in, the Company, and no outstanding Derivative Securities of the Company convertible into or exchangeable for shares of capital stock or voting securities or ownership interests in the Company and no obligations of the Company to grant, extend or enter into any subscription, warrant, right, convertible or exchangeable security or other similar agreement or commitment relating to any capital stock, voting securities or other ownership interests in the Company.

(e) There are no registration rights, and there is no voting trust, proxy, rights plan, antitakeover plan or other agreement or understanding to which the Company is a party or by which it is bound, with respect to any equity security of any class of the Company. There is no Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of the Company Common Stock. The Company is not under any obligation, nor is it bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of the Company Common Stock or other securities. Except as set forth in the Bylaws of the Company, none of the outstanding shares of capital stock of the Company are entitled or subject to any preemptive right, right of repurchase or forfeiture, right of participation, right of maintenance or any similar right, and none of the outstanding shares of capital stock of the Company are subject to any right of first refusal in favor of the Company.

3.7 Financial Statements .

(a) The Company has previously delivered to the Parent true and complete copies of its unaudited balance sheets and statements of income, retained earnings and cash flows as of and for its fiscal years ended December 31, 2017 and 2018 (the “ Company Financial Statements ”). The Company Financial Statements present fairly in all material respects the financial condition of the Company as at the end of the covered periods and the results of its operations and its cash flows for the covered periods. Except as and to the extent disclosed in the most recent Company Financial Statements, the Company has no Liabilities of any kind, whether direct or indirect, fixed or contingent or otherwise, other than (x) executory obligations under the Company agreements that are not required to be set forth in the Company Financial Statements in accordance with GAAP and (y) Liabilities incurred in the ordinary course of business since the most recent balance sheet date in the Company Financial Statements.

(b) The Company is not a party to, nor has any commitment to become a party to, any joint venture, off balance sheet partnership or any similar Contract, where the result, purpose or intended effect of such Contract is to avoid disclosure of any material transaction involving, or material Liabilities of, the Company in the Company’s financial statements.

(c) The Company does not have outstanding any “extensions of credit” (within the meaning of Section 402 of the Sarbanes-Oxley Act of 2002 (including the rules and regulations promulgated thereunder, the “ Sarbanes-Oxley Act ”) to any of its directors or executive officers (as defined in Rule 3b-7 under the Exchange Act). The Company has not guaranteed nor is it responsible or liable for any Indebtedness, liability or other obligation of any Person. The Company has not effected any securitization transactions or “off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K).

3.8 Absence of Certain Changes . Since the date of the most recent balance sheet in the Company Financial Statements and through the date of this Agreement, (a) there has not been a Company Material Adverse Effect, and (b) the Company has conducted its business only in the ordinary course of business consistent with past practice, except for actions taken in respect of this Agreement.

 

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3.9 Taxes .

(a) The Company has timely filed all federal, state, local and foreign Tax returns, estimates, information statements and reports relating to any and all Taxes of the Company or their respective operations (the “ Tax Returns ”) required to be filed by Law by the Company as of the date hereof. All such Tax Returns are true, correct and complete, and the Company has timely paid all Taxes attributable to the Company that were due and payable by it as shown on such Tax Returns, except with respect to matters contested in good faith.

(b) As of the date of this Agreement, there is no written claim or assessment pending or, to the Knowledge of the Company, threatened against the Company for any alleged deficiency in Taxes, and there is no audit or investigation with respect to any liability of the Company for Taxes. The Company has not waived any statute of limitations with respect to material Taxes or agreed to any extension of time with respect to a material Tax assessment or deficiency.

(c) The Company has withheld from its employees (and timely paid to the appropriate Governmental Entity) proper and accurate amounts for all periods through the date hereof in compliance with all Tax withholding provisions of applicable federal, state, local and foreign Laws (including, without limitation, income, social security, and employment Tax withholding for all types of compensation).

(d) For purposes of this Agreement, “ Tax ” or, collectively, “ Taxes ” shall mean any and all U.S. federal, state, local and non-U.S. taxes, assessments and other governmental charges, duties (including stamp duty), impositions and Liabilities, including capital gains tax, taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, escheat, excise and property taxes as well as public imposts, fees and social security charges (including health, unemployment, workers’ compensation and pension insurance), together with all interest, penalties, and additions imposed by a Governmental Entity with respect to such amounts.

3.10 Absence of Litigation . There is no Action pending or, to the Knowledge of the Company, threatened against or affecting the Company, including in respect of the transactions contemplated hereby that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. The Company is not subject to any outstanding Order (i) that prohibits the Company from conducting its business as now conducted or proposed to be conducted or (ii) that would, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.

3.11 Labor Matters .

(a) Section  3.11(a) of the Company Disclosure Schedule sets forth a detailed description of all compensation, including salary, bonus, severance obligations and deferred compensation paid or payable for each officer, employee, consultant and independent contractor of the Company as of a date not more than five days prior to the date of this Agreement.

(b) The Company has complied in all material respects with all applicable Laws related to employment, including those related to wages, hours, worker classification and collective bargaining. There is no claim or grievance pending or, to the Knowledge of the Company, threatened against the Company relating to terms and conditions of employment or unfair labor practices, including charges of unfair labor practices or harassment complaints.

 

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(c) To the Company’s Knowledge, no employee intends to terminate employment with the Company or is otherwise likely to become unavailable to continue as an employee. The Company does not have a present intention to terminate the employment of any employee. The employment of each employee of the Company is terminable at the will of the Company. Except as required by Law, upon termination of the employment of any such employees, no severance or other payments will become due. The Company has no policy, practice, plan or program of paying severance pay or any form of severance compensation in connection with the termination of employment services.

(d) Neither the execution or delivery of this Agreement, nor the consummation of the transactions contemplated herein will result in any material payment or benefit becoming due or payable, or required to be provided, to any director, employee, consultant or independent contractor of the Company, or cause or create any right to the forgiveness of indebtedness owed by any employee to the Company or materially increase the amount of, or accelerate the time of payment of, any benefit or compensation payable under any Employee Plan or other employment arrangement, or result in the payment of any amount that would not be deductible by reason of Section 280G of the Code.

(e) The Company is not a party to, bound by or subject to, or currently negotiating in connection with entering into, any collective bargaining agreement or understanding with a labor union or organization. None of the employees of the Company is represented by any union with respect to his or her employment by the Company. To the Knowledge of the Company there is no activity or proceeding by a labor union or representative thereof to organize any employees of the Company, nor have there been any strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees.

3.12 Employee Benefit Plan s . The Company does not sponsor or maintain any material employee benefit plans (the “ Employee Plans ”) as defined in Section 3 of the Employee Retirement Security Act of 1974 (93 P.L. 406), as amended (“ ERISA ”). Except as required by Law, the Company does not have any plan or commitment to establish any new material Employee Plan.

3.13 Properties .

(a) The Company has good and marketable title to, or in the case of leased property and leased tangible assets, valid leasehold interests in, all of the real property and tangible assets used in the conduct of its business and all such property and assets, other than real property and assets in which the Company has leasehold interests, are free and clear of all Liens, except for Permitted Liens.

(b) The Company does not own any real property, nor has the Company ever owned any real property. Section 3.13 of the Disclosure Schedule sets forth a complete and correct list of all real property leased by the Company (each, a “ Leased Real Property ”), including the terms of each lease. With respect to each Leased Real Property, the Company has not subleased, licensed or otherwise granted anyone a right to use or occupy such Leased Real Property or any portion thereof. The Company enjoys peaceful and undisturbed possession of each Leased Real Property. Each Leased Real Property is in good condition and has been maintained in good repair in a manner consistent with standards generally followed with respect to similar properties, and satisfactorily serves the purposes for which it is used in the business of the Company and its Subsidiaries.

 

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3.14 Intellectual Property .

(a) The Company owns, has a valid license or otherwise has the right to use all Intellectual Property Rights used in its business as currently conducted.

(b) The Intellectual Property Rights used by the Company do not infringe, misappropriate or otherwise violate the Intellectual Property Rights of any third party. The Company has not received any written charge, complaint, claim, demand or notice alleging any such infringement, misappropriation or other violation (including any claim that the Company must license or refrain from using any Intellectual Property Rights of any third party).

(c) To the Company’s Knowledge no third party has infringed upon, misappropriated or otherwise violated any Intellectual Property Rights of the Company. The Company uses commercially reasonable efforts to protect and maintain its Intellectual Property Rights.

(d) Section  3.14 of the Company Disclosure Schedule lists any Contracts under which the Company has granted any third party rights that are exclusive, or exclusive of all other third parties, to use, sublicense, resell or distribute any Company Intellectual Property Rights. The Company is not a party to any Contracts, forbearances to sue, consents, judgments, orders or similar obligations, in each case, that restrict the rights of the Company to use or enforce any Company Intellectual Property Rights.

(e) Following the Effective Time, the Surviving Corporation will be permitted to exercise all of the rights of the Company under such Contracts to the same extent the Company would have been able to had the transactions contemplated hereby not occurred and without the payment of additional amounts or consideration other than ongoing fees, royalties or payments which the Company would otherwise be required to pay. The consummation of the Merger and the transactions contemplated hereby will not: (i) result in the loss or impairment of the Company’s ownership of or right to use the Company Intellectual Property Rights; or (ii) cause the Surviving Corporation or any of its Affiliates (x) to be bound by any non-compete or other restriction on the operation of any business or (y) to grant any rights or licenses to any Intellectual Property Rights of the Surviving Corporation or any of its Affiliates to a third party (including a covenant not to sue).

3.15 Material Contracts . Section  3.15 of the Company Disclosure Schedule sets forth a list of all the Company Material Contracts. All of the Company Material Contracts are in full force and effect and constitute the valid, legal and binding obligation of the Company and, to the Knowledge of the Company, constitute the valid, legal and binding obligation of the other parties thereof, enforceable against each such Person in accordance with its terms, subject to: (i) the effect of bankruptcy, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditor’s rights generally; and (ii) general equitable principles (whether considered in a proceeding in equity or at law). The Company has not violated or breached, or committed any default under, any Company Material Contract, and, to the Knowledge of the Company, no other Person has violated or breached, or committed any default under, any Company Material Contract. The Company has not received or given any notice or claim of breach or violation of, or default under, any Company Material Contract. Company has not received or given any notice of an intention to terminate, not renew or challenge the validity or enforceability of any Company Material Contract. No event has occurred, and no circumstance or condition exists that, with or without notice or lapse of time or both, would, or would reasonably be expected to, (a) result in a material violation or breach of any of the provisions of any Company Material Contract; (b) give any Person the right to declare a default or exercise any remedy under any Company Material Contract (c) give any Person

 

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the right to accelerate the maturity or performance of any Company Material Contract; or (d) give any Person the right to cancel, terminate or materially modify any Company Material Contract. Each Company Material Contract will continue to be legal, valid, binding, enforceable, and in full force and effect on substantially identical terms immediately following the consummation of the transactions contemplated hereby, and the consummation of the Merger and the transactions contemplated hereby shall not (either alone or upon the occurrence of additional acts or events) result in any payment or payments becoming due from the Company to any Person or give any Person the right to terminate or alter the provisions of such Company Material Contract.

3.16 Insurance . The Company maintains policies of insurance, including property, fire, workers’ compensation, products liability, directors’ and officers’ liability and other casualty and liability insurance, that is in form and amount as customary for the Company’s types of business and as may be additionally required under the terms of any contract or agreement. Each insurance policy and bond is in full force and effect, all premiums due and payable thereon have been paid, and the Company is in full compliance with the terms of such policies and bonds. There is no claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed. There is no threatened termination of, or pending material premium increase with respect to, any such policies or bonds.

3.17 Permits . Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect:

(a) The Company and to its Knowledge its employees and agents hold, all Permits from the U.S. Food and Drug Administration (the “ FDA ”) and any other Governmental Entity that is concerned with the quality, identity, strength, purity, safety, efficacy or manufacturing of any of the products or services produced, marketed, licensed, sold, distributed or performed by or on behalf of the Company and all products or services currently under development by the Company (the “ Company Products ”) necessary for the lawful operating of the businesses of the Company as currently conducted, including all authorizations required under the Federal Food, Drug and Cosmetic Act of 1938, as amended (the “ FDCA ”), and the Public Health Service Act of 1944, as amended (“ PHSA ”), and the regulations of the FDA promulgated thereunder. Notwithstanding the foregoing, it is acknowledged that no Company Product is a marketed product or has received marketing approval and, therefore, that further Permits will be required before any Company Product may be marketed.

(b) All such Company Permits are valid, and in full force and effect.

(c) Since January 1, 2016, there has not occurred any violation of, default (with or without notice or lapse of time or both) under, or event giving to others any right of termination, amendment or cancellation of, with or without notice or lapse of time or both, any Company Permit.

(d) The Company is in compliance with the terms of all Company Permits.

(e) No event has occurred that, to the Knowledge of the Company, would reasonably be expected to result in the revocation, cancellation, non-renewal or adverse modification of any Company Permit.

 

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3.18 Compliance with Laws .

(a) The Company is not in conflict with, or in default or violation of any Law or Order applicable to the Company, or by which any of its properties is bound or affected, except for any conflicts, defaults or violations of such Laws or Orders that (individually or in the aggregate) would not have or reasonably be expected to have a Company Material Adverse Effect, and the Company is and has been in compliance in all material respects with all applicable Laws and Orders of the FDA and any other Governmental Entity with respect to the labeling, storing, testing, development, manufacture, packaging, distribution and promotion of the Company Products and the conduct of its business. None of the Company nor, to the Knowledge of the Company, any director, officer, employee, agent or Representative of the Company, has committed any act, made any statement or failed to make any statement that would reasonably be expected to provide a basis for the FDA to invoke its policy with respect to “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities,” as set forth in 56 Fed. Reg. 46191 (Sept. 10, 1991) and any amendments thereto, or a similar policy enforced by any other Governmental Entity. None of the Company nor, to the Knowledge of the Company, any director, officer, employee, agent or Representative of the Company, has engaged in any activity that would result in a material violation under applicable U.S. federal or state criminal or civil health care Laws (including without limitation the U.S. federal Anti-Kickback Statute, Stark Law, False Claims Act, Health Insurance Portability and Accountability Act (“ HIPAA ”), and any comparable state Laws), or the regulations promulgated pursuant to such Laws.

(b) There is no civil, criminal, administrative or other proceeding, notice or demand pending, received or, to the Knowledge of the Company, threatened against the Company that relates to an alleged violation of HIPAA or any Law. None of the Company nor, to the Knowledge of the Company, any director, officer, employee, agent or Representative of the Company, has (i) been convicted of any crime or engaged in any conduct for which debarment is mandated by 21 U.S.C. sec. 335a(a) or any similar Law or authorized by 21 U.S.C. sec. 335a(b) or any similar Law, (ii) ever been excluded, suspended, sanctioned or otherwise declared ineligible to participate in any federal health care program under 42 CFR § 1001.601, or any similar Law, nor to the Knowledge of the Company is any such exclusion, suspension or other sanction threatened; or (iii) has ever been convicted of a criminal offense related to the provision of health care items or services. There are no orders or similar actions to which the Company or, to the Knowledge of the Company, any director, officer, employee, agent or Representative of the Company, are bound or which relate to Company Products, or alleged violation of any Law.

3.19 Regulatory .

(a) To the Knowledge of the Company, all required pre-clinical toxicology studies conducted by or on behalf of the Company and Company-sponsored clinical trials (or clinical trials sponsored by the Company) conducted or being conducted with respect thereto, have been and are being conducted in compliance in all material respects with applicable licenses and Laws, including, without limitation, the applicable requirements of the FDA’s current Good Manufacturing Practice, Good Laboratory Practice and Good Clinical Practice. The results of any such studies, tests and trials, and all other material information related to such studies, tests and trials, have been made available to the Parent. To the Knowledge of the Company, each clinical trial conducted by or on behalf of the Company with respect to Company Products has been and is being conducted in accordance with its clinical trial protocol, and in compliance in all material respects with all applicable Laws, including Good Clinical Practice, informed consent and all other applicable requirements contained in 21 CFR Parts 312, 50, 54, 56 and 11. The Company has filed all required notices (and made available to the Parent copies thereof) of adverse drug experiences, injuries or deaths arising from clinical trials conducted by or on behalf of the Company with respect to such Company Products.

 

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(b) All applications, submissions, information and data utilized by the Company as the basis for, or submitted by or on behalf of the Company in connection with any and all requests for a Company Permit relating to the Company, when submitted to the FDA or any other Governmental Entity, were true, correct and complete in all material respects as of the date of submission, and any updates, changes, corrections or modification to such applications, submissions, information and data required under applicable Laws have been submitted to the FDA or any other Governmental Entity.

(c) None of the Company nor, to the Knowledge of the Company, any of the Representatives, licensors, licensees, assignors or assignees of the Company has received any notice that the FDA or any other Governmental Entity has initiated, or threatened to initiate, any action to suspend or place restrictions on any clinical trial, suspend or terminate any Investigational New Drug Application or comparable Clinical Trial Application sponsored by the Company or otherwise restrict the pre-clinical research related to or clinical study of any Company Product or any drug product being developed by any licensee or assignee of Intellectual Property Rights of the Company based on such intellectual property, or to recall, suspend or otherwise restrict the development or manufacture of any Company Product. The Company is not in receipt of any written notice of, or is subject to, any adverse inspection, finding of deficiency, finding of non-compliance, investigation, civil or criminal proceeding, hearing, suit, demand, claim, complaint, inquiry, proceeding, or other compliance or enforcement action relating to any Company Products. To the Knowledge of the Company, there is no act, omission, event or circumstance that would reasonably be expected to give rise to any such action.

(d) The Company is and has been for the past six (6) years, in compliance with the requirements of: (i) all applicable privacy and security Laws governing health information; and (ii) all contractual obligations concerning the collection, use, storage and disclosure of health information. To the Knowledge of the Company there has been no unauthorized use, access, modification or disclosure of health information, including any breach of “Unsecured Protected Health Information,” as those terms are defined by HIPAA, by the Company, or any of its clinical trial sites. The Company is not now, and has never been, subject to HIPAA and is not a party to any business associate agreement, as defined by HIPAA.

(e) The Company has made available to the Parent true, correct and complete copies of any and all material applications, approvals, licenses, written notices of inspectional observations, establishment inspection reports and any other documents received from the FDA or any other Governmental Entity, including documents that indicate or suggest lack of compliance with the regulatory requirements of the FDA or any other Governmental Entity. The Company has made available to the Parent for review all material correspondence to or from the FDA or any other Governmental Entity, minutes of meetings, written reports of phone conversations, visits or other contact with the FDA or any other Governmental Entity, notices of inspectional observations, establishment inspection reports, and all other documents concerning communications to or from the FDA or any other Governmental Entity, or prepared by the FDA or any other Governmental Entity or which bear in any way on the Company’s compliance with regulatory requirements of the FDA or any other Governmental Entity, or on the likelihood or timing of approval of any Company Products.

3.20 Related Party Transactions . Except as disclosed in Section 3.20 of the Company Disclosure Schedule: (a) none of the customers, suppliers, distributors or sales representatives of the Company are Affiliates of the Company or of any of its officers, directors or shareholders; (b) none of the properties or assets of the Company are owned or used by or leased to any Affiliates of the Company or of any of its officers, directors or shareholders; (c) no Affiliate of the Company or of any of its officers, directors or shareholders is a party to any Company agreement; and (d) no Affiliate of the Company or of any of its officers, directors or shareholders provides any legal, accounting or other services to the Company. Except disclosed in Section 3.20 of the Company Disclosure

 

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Schedule, no event has occurred during the past three years that would have been required to be reported by the Company as a Certain Relationship or Related Transaction pursuant to Item 404 of Regulation S-K if the Company had been required to report such information in periodic reports pursuant to the Exchange Act.

3.21 Brokers . Except as set forth in the Company Disclosure Schedule, the Company has not incurred, or will not incur, directly or indirectly, any Liability for brokerage or finder’s fees or agent’s commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby.

3.22 Full Disclosure . Neither this Agreement (including the Company Disclosure Schedule) nor any Transaction Document: (i) contains any representation or warranty by the Company or information regarding the Company that is false or misleading with respect to any material fact; or (ii) omits to state any material fact necessary in order to make the representations and warranties regarding the Company contained herein and therein, in light of the circumstances under which such representations and warranties were or will be made or provided, not false or misleading.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PARENT

The Parent hereby represents and warrants to the Company, subject to (a) such exceptions as are specifically disclosed in the Disclosure Schedule supplied by the Parent to the Company, dated as of the date hereof (the “ Parent Disclosure Schedule ”) as set forth below in this Article IV and (b) any exception or disclosure set forth in any of the Parent SEC Reports.

4.1 Organization and Qualification . The Parent and the Merger Sub each is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted, and to perform its obligations under all Contracts by which it is bound. The Parent is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not, either individually or in the aggregate, have or reasonably be expected to have a Parent Material Adverse Effect. As of the date of this Agreement, except for incidental Liabilities incurred in connection with its organization and except for the transactions contemplated by this Agreement, the Merger Sub has not engaged in any other business activities or incurred any other Liabilities, or entered into any agreements or arrangements with any Person.

4.2 Subsidiaries . Except for the Merger Sub, the Parent has no Subsidiaries, and does not own a debt, equity or other similar interest in any other Person. The Parent has not agreed, nor is it obligated to make, and nor is it bound by, any written, oral or other agreement, contract, sub-contract, lease, binding understanding, instrument, note, option, warranty, purchase order, license, sub-license, insurance policy, benefit plan, commitment, or undertaking of any nature, under which it may become obligated to make, any future investment in or capital contribution to any other Person. The Parent does not own any equity or similar interest in or any interest convertible, exchangeable or exercisable for any equity or similar interest in, any other Person.

4.3 Authority . Each of the Parent and the Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement and all other Transaction Documents to which it is a party (the “ Parent Transaction Documents ”), to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution

 

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and delivery of this Agreement and the Parent Transaction Documents by the Parent and the Merger Sub, and the consummation by the Parent and the Merger Sub of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of the Parent and the Merger Sub, and no other corporate proceedings on the part of the Parent or the Merger Sub are necessary to authorize this Agreement and the Parent Transaction Documents or to consummate the transactions so contemplated. This Agreement and the Parent Transaction Documents have been duly and validly executed and delivered by the Parent and the Merger Sub and, assuming the due authorization, execution and delivery by the other parties thereto constitute the legal and binding obligation of the Parent and the Merger Sub, enforceable against the Parent and the Merger Sub in accordance with their respective terms, subject to: (a) the effect of bankruptcy, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditor’s rights generally; and (b) general equitable principles (whether considered in a proceeding in equity or at law).

4.4 No Conflict . The execution, delivery and performance by the Parent and the Merger Sub of this Agreement and the consummation by the Parent and the Merger Sub of the transactions contemplated hereby do not and will not (with or without notice or lapse of time, or both): (a) contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of the Parent or the Merger Sub; (b) contravene, conflict with or result in a violation or breach of any provision of any applicable Law or Order; (c) require any consent or approval under, violate, conflict with, result in any breach of or any loss of any benefit under, or constitute a change of control or default under, or result in termination or give to others any right of termination, vesting, amendment, acceleration or cancellation of any contract to which the Parent or the Merger Sub is a party, or by which any of their properties or assets may be bound or affected or any Governmental Entity affecting, or relating in any way to, the property, assets or business of the Parent or the Merger Sub; or (d) result in the creation or imposition of any Lien on any asset of the Parent or the Merger Sub.

4.5 No Required Filings or Consents . The execution and delivery of this Agreement and the Parent Transaction Documents by the Parent and the Merger Sub does not, and the performance of this Agreement and the Parent Transaction Documents by the Parent and the Merger Sub will not, require any consent, approval, authorization or permit of, or registration, filing with or notification to, any Governmental Entity or any Person, except for: (a) the filing and recordation of the Certificate of Merger pursuant to the DGCL, and (b) the applicable requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws and the OTC Market. Section  4.5 of the Parent Disclosure Schedule sets forth a list of all material Contracts that require a consent to be obtained or a notice to be given in connection with the execution and delivery of this Agreement or the consummation of the Merger and the other transactions contemplated hereby.

4.6 Capital Stock of the Parent . The authorized capital stock of the Parent consists of the following:

(a) The authorized capital stock of the Parent consists of (i) 150,000,000 shares of Parent Common Stock of which 41,419,934 shares are issued and outstanding, and (ii) 15,000,000 shares of preferred stock, none of which are outstanding. The Parent holds no stock in treasury.

(b) The Parent has reserved an aggregate of 9,250,000 shares of Parent Common Stock for issuance to officers, directors, employees and consultants of the Parent pursuant to the Mateon Therapeutics, Inc. 2005 Stock Plan (the “2005 Plan”), the Mateon Therapeutics, Inc. 2015 Equity Incentive Plan (the “2015 Plan”), and the Mateon Therapeutics, Inc. 2017 Equity Incentive Plan (the “2017 Plan” and together with the 2005 Plan and the 2015 Plan,

 

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the “ Parent Stock Plans ”). The Parent Stock Plans have each been duly adopted by the Parent’s Board of Directors; only the 2005 Plan and the 2015 Plan have been approved by the Parent’s stockholders. Of such reserved shares of Parent Common Stock, no shares have been issued pursuant to restricted stock purchase agreements, options to purchase 6,785,617 shares of Parent Common Stock have been granted and are currently outstanding, and 2,464,383 shares of Parent Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to the Parent Stock Plans. Complete and accurate copies of the Parent Stock Plans and forms of agreements thereunder are available on the SEC’s EDGAR database as part of the Parent SEC Reports. All options issued pursuant to the Parent Stock Plans (including any options issued in replacement of previously issued options) were issued at exercise prices that were not less than the fair market value of the Parent Common Stock on the date of grant, and otherwise in compliance with Rule 409A of the Code.

(c) The Parent has reserved 22,216,209 shares of Parent Common Stock for issuance pursuant to outstanding warrants. Complete and accurate copies of the forms of warrants are available on the SEC’s EDGAR database as part of the Parent SEC Reports.

(d) All of the shares of Parent Common Stock outstanding are, and all shares that have been and may be issued pursuant to the Stock Plan or outstanding warrants will be, when issued in accordance with the terms thereof, duly authorized and validly issued, fully paid and non-assessable and free of preemptive rights. All stock options, restricted stock units, or other stock rights granted under the employee plans were properly approved by the Parent Board of Directors or an authorized committee thereof and granted in accordance with applicable Law and the terms of the employee stock plan pursuant to which they were issued.

(e) Except as set forth in Section 4.6(a), (b) and (c) above, there are on the date hereof no outstanding shares of capital stock of, or other equity or voting interest in, the Parent, and no outstanding Derivative Securities of the Parent convertible into or exchangeable for shares of capital stock or voting securities or ownership interests in the Parent and no obligations of the Parent to grant, extend or enter into any subscription, warrant, right, convertible or exchangeable security or other similar agreement or commitment relating to any capital stock, voting securities or other ownership interests in the Parent.

(f) There are no registration rights, and there is no voting trust, proxy, rights plan, antitakeover plan or other agreement or understanding to which the Parent is a party or by which it is bound, with respect to any equity security of any class of the Parent. There is no Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of Parent Common Stock or Parent Preferred Stock. The Parent is not under any obligation, nor is it bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Parent Common Stock or other Parent securities.

(g) All of the shares of Parent Common Stock and Parent Preferred Stock that will be issued in connection with the Merger will be, when issued in accordance with the terms of this Agreement, duly authorized and validly issued, fully paid and non-assessable and free of preemptive rights. All Parent Common Stock issuable upon conversion of the Parent Preferred Stock, when issued in accordance with the terms of the conversion of the Parent Preferred Stock, will be duly authorized and validly issued, fully paid and non-assessable and free of preemptive rights.

 

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4.7 SEC Reports . The Parent has filed all forms, reports and documents required to be filed by it with the SEC (all such required forms, reports and documents are referred to herein as the “ Parent SEC Reports ”). As of their respective dates, the Parent SEC Reports: (i) were prepared in accordance in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Reports; and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact require to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The certifications and statements required by (x) Rule 13a-14 under the Exchange Act and (y) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) relating to the Parent SEC Reports are accurate and complete and comply as to form and content with all applicable legal requirements.

4.8 Financial Statements .

(a) The audited consolidated financial statements of Parent as of and for the years ended December 31, 2017 and December 31, 2018 including the notes, if any, thereto included in the Parent SEC Reports (the “ Parent Financial Statements ”): (i) complied as to form in all material respects with the published rules and regulations of Regulation S-X promulgated by the SEC; (ii) were prepared in accordance with GAAP, applied on a consistent basis during the periods involved (except as may be indicated therein in the notes thereto); (iii) fairly present (subject, in the case of the unaudited interim financial statements, to normal year-end audit adjustments (which are not expected to be, individually or in the aggregate, materially adverse to Parent) and the absence of complete footnotes) in all material respects the financial position of Parent as at the respective dates thereof and the results of its operations and cash flows for the respective periods then ended; and (iv) were compiled from, and are consistent with, the books and records of Parent, which books and records are accurate and complete in all material respects. Except as and to the extent disclosed on the most recent balance sheet in the Parent Financial Statements, the Parent has no Liabilities of any kind, whether direct or indirect, fixed or contingent or otherwise, other than (x) executory obligations under the Parent agreements that are not required to be set forth in the Parent Financial Statements in accordance with GAAP and (y) Liabilities incurred in the ordinary course of business since the most recent balance sheet date in the Parent Financial Statements.

(b) The Parent has not guaranteed nor is it responsible or liable for any Indebtedness, liability or other obligation of any Person.

(c) The Parent is not a party to, nor has any commitment to become a party to, any joint venture, off balance sheet partnership or any similar Contract where the result, purpose or intended effect of such Contract is to avoid disclosure of any material transaction involving, or material Liabilities of, the Parent in Parent Financial Statements.

4.9 No Undisclosed Liabilities . Since the date of the most recent balance sheet in the Parent Financial Statements and through the date of this Agreement, (a) there has not been a Parent Material Adverse Effect, and (b) the Parent has conducted its business only in the ordinary course of business consistent with past practice, except for actions taken in respect of this Agreement.

4.10 Taxes .

(a) The Parent has timely filed all Tax Returns required to be filed by Law by the Parent as of the date hereof. All such Tax Returns are true, correct and complete, and the Parent has timely paid all Taxes attributable to the Parent that were due and payable by it as shown on such Tax Returns, except with respect to matters contested in good faith.

 

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(b) As of the date of this Agreement, there is no written claim or assessment pending or, to the Knowledge of the Parent, threatened against the Parent for any alleged deficiency in Taxes, and there is no audit or investigation with respect to any liability of the Parent for Taxes. The Parent has not waived any statute of limitations with respect to material Taxes or agreed to any extension of time with respect to a material Tax assessment or deficiency.

(c) The Parent has withheld from its employees (and timely paid to the appropriate Governmental Entity) proper and accurate amounts for all periods through the date hereof in compliance with all Tax withholding provisions of applicable federal, state, local and foreign Laws (including, without limitation, income, social security, and employment Tax withholding for all types of compensation).

4.11 Absence of Litigation . There is no Action pending or, to the Knowledge of the Parent, threatened against or affecting the Parent, including in respect of the transactions contemplated hereby that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. The Parent is not subject to any outstanding Order (i) that prohibits the Parent from conducting its business as now conducted or proposed to be conducted or (ii) that would, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.

4.12 Labor Matters .

(a) Section  4.12(a) of the Disclosure Schedule sets forth a detailed description of all compensation, including salary, bonus, severance obligations and deferred compensation paid or payable for each officer, employee, consultant and independent contractor of the Parent as of a date not more than five days prior to the date of this Agreement.

(b) The Parent has complied in all material respects with all applicable Laws related to employment, including those related to wages, hours, worker classification and collective bargaining. There is no claim or grievance pending or, to the Knowledge of the Parent, threatened against the Parent relating to terms and conditions of employment or unfair labor practices, including charges of unfair labor practices or harassment complaints.

(c) To the Parent’s Knowledge, no employee intends to terminate employment with the Parent or is otherwise likely to become unavailable to continue as an employee except as contemplated by this Agreement. The Parent does not have a present intention to terminate the employment of any employee. The employment of each employee of the Parent is terminable at the will of the Parent. Except as required by Law, upon termination of the employment of any such employees, no severance or other payments will become due. The Parent does not have a policy, practice, plan or program of paying severance pay or any form of severance compensation in connection with the termination of employment services.

(d) Except as set forth in Section 4.12(d) of the Parent Disclosure Schedule, neither the execution or delivery of this Agreement, nor the consummation of the transactions contemplated herein will result in any material payment or benefit becoming due or payable, or required to be provided, to any director, employee, consultant or independent contractor of the Parent, or cause or create any right to the forgiveness of indebtedness owed by any employee to the Parent or materially increase the amount of, or accelerate the time of payment of, any benefit or compensation payable under any Employee Plan or other employment arrangement, or result in the payment of any amount that would not be deductible by reason of Section 280G of the Code.

 

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(e) The Parent is not a party to, bound by or subject to, or currently negotiating in connection with entering into, any collective bargaining agreement or understanding with a labor union or organization. None of the employees of the Parent is represented by any union with respect to his or her employment by the Parent. To the Knowledge of the Parent there is no activity or proceeding by a labor union or representative thereof to organize any employees of the Parent, nor have there been any strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees.

4.13 Employee Benefit Plans .

(a) Section  4.13(a) of the Parent Disclosure Schedule sets forth a complete and accurate list of the Parent’s Employee Plans. Except as required by Law or the terms of an Employee Plan, the Parent does not have any plan or commitment to establish any new material Employee Plan or amend in any material respect an existing Employee Plan.

(b) Each Employee Plan has been administered and operated in compliance with its terms and with any applicable Law in all material respects, including the applicable provisions of ERISA and the Code, and, to the Knowledge of the Parent, there is no existing circumstance that is reasonably expected to cause any failure of such compliance. Each Employee Plan that is intended to be “qualified” under Section 401 of the Code (I.R.C. § 401) is the subject of an unrevoked favorable determination letter from the IRS and there is no existing circumstance and nothing has occurred since the date thereof that would reasonably be expected to adversely affect the qualified status of any such Employee Plan. All contributions, premiums and other payments required to be made with respect to any Employee Plan have been timely made, accrued or reserved for, except as would not be expected to result in a material liability.

(c) As applicable, with respect to each of the Employee Plans, the Parent has delivered or made available to the Company true and complete copies of (i) all plan documents (including all amendments thereto, and in the case of an unwritten Employee Plan, a written description thereof), (ii) all current trust documents, insurance contracts, custodial agreements and investment management agreements relating thereto and, in all cases, all amendments thereto; (iii) the current summary plan description and each summary of material modifications thereto; (iv) the three most recently filed annual reports (Form 5500 and all schedules thereto); (v) the most recent IRS determination or opinion letter and each currently pending application to the IRS for a determination letter; (vi) the three most recent summary annual reports, actuarial reports, financial statements and trustee reports; and (vii) all records, notices and filings concerning IRS or DOL audits or investigations and “prohibited transactions” within the meaning of Section 406 of ERISA or Section 4975 of the Code.

(d) There are no material lawsuits, actions, proceedings or claims pending or, to the Knowledge of the Parent, threatened on behalf of or against any Employee Plan, the assets of any trust under any Employee Plan, or the plan sponsor, plan administrator or any fiduciary or any Employee Plan, other than routine claims for benefits that have been or are being handled through an administrative claims procedure.

4.14 Properties .

(a) The Parent has good and marketable title to, or in the case of leased property and leased tangible assets, valid leasehold interests in, all of the real property and tangible assets used in the conduct of its business and all such property and assets, other than real property and assets in which the Parent has leasehold interests, are free and clear of all Liens, except for Permitted Liens.

 

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(b) The Parent does not own any real property, nor has the Parent ever owned any real property. Section 4.14 of the Parent Disclosure Schedule sets forth a complete and correct list of all of the Parent’s Leased Real Property, including the terms of each lease. With respect to each Leased Real Property, the Parent has not subleased, licensed or otherwise granted anyone a right to use or occupy such Leased Real Property or any portion thereof. The Parent enjoys peaceful and undisturbed possession of each Leased Real Property. Each Leased Real Property is in good condition and has been maintained in good repair in a manner consistent with standards generally followed with respect to similar properties, and satisfactorily serves the purposes for which it is used in the business of the Parent.

4.15 Intellectual Property .

(a) The Parent owns, has a valid license or otherwise has the right to use all Intellectual Property Rights used in its business as currently conducted.

(b) The Intellectual Property Rights used by the Parent do not infringe, misappropriate or otherwise violate the Intellectual Property Rights of any third party. The Parent has not received any written charge, complaint, claim, demand or notice alleging any such infringement, misappropriation or other violation (including any claim that the Parent must license or refrain from using any Intellectual Property Rights of any third party).

(c) To the Parent’s Knowledge no third party has infringed upon, misappropriated or otherwise violated any Intellectual Property Rights of the Parent. The Parent uses commercially reasonable efforts to protect and maintain its Intellectual Property Rights.

(d) Section  4.15 of the Parent Disclosure Schedule lists Contracts under which the Parent has granted any third party rights that are exclusive, or exclusive of all other third parties, to use, sublicense, resell or distribute any Parent Intellectual Property. The Parent is not a party to any Contracts, forbearances to sue, consents, judgments, orders or similar obligations, in each case, that restrict the rights of the Parent to use or enforce any Parent Intellectual Property Rights.

(e) Following the Effective Time, the Parent will be able to use the rights under such Contracts to the same extent the Parent would have been able to had the transactions contemplated hereby not occurred and without the payment of additional amounts or consideration other than ongoing fees, royalties or payments which the Parent would otherwise be required to pay. The consummation of the Merger and the transactions contemplated hereby will not: (i) result in the loss or impairment of any member of the Parent’s ownership of or right to use the Parent’s Intellectual Property Rights; or (ii) cause the Parent or the Surviving Corporation to be bound by any non-compete or other restriction on the operation of any business or (y) to grant any rights or licenses to any Intellectual Property Rights of the Parent to a third party (including a covenant not to sue).

4.16 Material Contracts . Section  4.16 of the Parent Disclosure Schedule sets forth a list of all Parent Material Contracts. All of the Parent Material Contracts are in full force and effect and constitute the valid, legal and binding obligation of the Parent and, to the Knowledge of the Parent, constitute the valid, legal and binding obligation of the other parties thereof, enforceable against each such Person in accordance with its terms, subject to: (a) the effect of bankruptcy, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditor’s rights generally; and (b) general equitable principles (whether considered in a proceeding in equity or at law). The Parent has not violated or breached, or committed any default under, any Parent Material Contracts, and, to the Knowledge of the Parent, no other Person has violated or breached, or committed any default under, any Parent Material Contracts. The Parent has not received or given any notice or claim of any breach or violation of, or default under, any Parent Material Contracts. The Parent has not received or given any notice of an intention to terminate, not renew or challenge the validity or enforceability of any Parent Material Contracts. No event has occurred, and no circumstance or condition exists that, with or without notice or lapse of

 

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time or both, would, or would reasonably be expected to, (i) result in a material violation or breach of any of the provisions of any Parent Material Contracts; (ii) give any Person the right to declare a default or exercise any remedy under any Parent Material Contracts; (iii) give any Person the right to accelerate the maturity or performance of any Parent Material Contracts; or (iv) give any Person the right to cancel, terminate or materially modify any Parent Material Contracts. Each Parent Material Contracts will continue to be legal, valid, binding, enforceable, and in full force and effect on substantially identical terms immediately following the consummation of the transactions contemplated hereby or by any Transaction Document.

4.17 Insurance . The Parent maintains policies of insurance, including property, fire, workers’ compensation, products liability, directors’ and officers’ liability and other casualty and liability insurance, that is in form and amount as customary for the Parent’s types of business and as may be additionally required under the terms of any contract or agreement. Each insurance policy and bond is in full force and effect, all premiums due and payable thereon have been paid, and the Parent is in full compliance with the terms of such policies and bonds. There is no claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed. There is no threatened termination of, or pending material premium increase with respect to, any such policies or bonds.

4.18 Permits . Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect:

(a) The Parent and to its Knowledge its employees and agents hold, all Permits from the FDA and any other Governmental Entity that is concerned with the quality, identity, strength, purity, safety, efficacy or manufacturing of any of the products or services produced, marketed, licensed, sold, distributed or performed by or on behalf of the Parent and all products or services currently under development by the Parent (the “ Parent Products ”) necessary for the lawful operating of the businesses of the Parent as currently conducted, including all authorizations required under the FDCA and the PHSA, and the regulations of the FDA promulgated thereunder. Notwithstanding the foregoing, it is acknowledged that no Parent Product is a marketed product or has received marketing approval and, therefore, that further Permits will be required before any Parent Product may be marketed.

(b) All such Parent Permits are valid, and in full force and effect.

(c) Since January 1, 2016, there has not occurred any violation of, default (with or without notice or lapse of time or both) under, or event giving to others any right of termination, amendment or cancellation of, with or without notice or lapse of time or both, any Parent Permit.

(d) The Parent is in compliance with the terms of all Parent Permits.

(e) No event has occurred that, to the Knowledge of the Parent, would reasonably be expected to result in the revocation, cancellation, non-renewal or adverse modification of any Parent Permit.

4.19 Compliance with Laws.

(a) The Parent is not in conflict with, or in default or violation of any Law or Order applicable to the Parent, or by which any of its properties is bound or affected, except for any conflicts, defaults or violations of such Laws or Orders that (individually or in the aggregate) would not have or reasonably be expected to have a Parent Material Adverse Effect, and the Parent is

 

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and has been in compliance in all material respects with all applicable Laws and Orders of the FDA and any other Governmental Entity with respect to the labeling, storing, testing, development, manufacture, packaging, distribution and promotion of the Parent Products and the conduct of its business. None of the Parent nor, to the Knowledge of the Parent, any director, officer, employee, agent or Representative of the Parent, has committed any act, made any statement or failed to make any statement that would reasonably be expected to provide a basis for the FDA to invoke its policy with respect to “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities,” as set forth in 56 Fed. Reg. 46191 (Sept. 10, 1991) and any amendments thereto, or a similar policy enforced by any other Governmental Entity. None of the Parent nor, to the Knowledge of the Parent, any director, officer, employee, agent or Representative of the Parent, has engaged in any activity that would result in a material violation under applicable U.S. federal or state criminal or civil health care Laws (including without limitation the U.S. federal Anti-Kickback Statute, Stark Law, False Claims Act, HIPAA, and any comparable state Laws), or the regulations promulgated pursuant to such Laws.

(b) There is no civil, criminal, administrative or other proceeding, notice or demand pending, received or, to the Knowledge of the Parent, threatened against the Parent or that relates to an alleged violation of HIPAA or any Law. None of the Parent nor, to the Knowledge of the Parent, any director, officer, employee, agent or Representative the Parent, has (i) been convicted of any crime or engaged in any conduct for which debarment is mandated by 21 U.S.C. sec. 335a(a) or any similar Law or authorized by 21 U.S.C. sec. 335a(b) or any similar Law., (ii) ever been excluded, suspended, sanctioned or otherwise declared ineligible to participate in any federal health care program under 42 CFR § 1001.601, or any similar Law, nor to the Knowledge of the Parent is any such exclusion, suspension or other sanction threatened; or (iii) has ever been convicted of a criminal offense related to the provision of health care items or services. There are no orders or similar actions to which the Parent or, to the Knowledge of the Parent, any director, officer, employee, agent or Representative the Parent, are bound or which relate to Parent Products, or alleged violation of any Law.

4.20 Regulatory .

(a) To the Knowledge of the Parent, all required pre-clinical toxicology studies conducted by or on behalf of the Parent and Parent-sponsored clinical trials (or clinical trials sponsored by the Parent) conducted or being conducted with respect thereto, have been and are being conducted in compliance in all material respects with applicable licenses and Laws, including, without limitation, the applicable requirements of the FDA’s current Good Manufacturing Practice, Good Laboratory Practice and Good Clinical Practice. The results of any such studies, tests and trials, and all other material information related to such studies, tests and trials, have been made available to the Company. To the Knowledge of the Parent, each clinical trial conducted by or on behalf of the Parent with respect to Parent Products has been and is being conducted in accordance with its clinical trial protocol, and in compliance in all material respects with all applicable Laws, including Good Clinical Practice, informed consent and all other applicable requirements contained in 21 CFR Parts 312, 50, 54, 56 and 11. The Parent has filed all required notices (and made available to the Company copies thereof) of adverse drug experiences, injuries or deaths arising from clinical trials conducted by or on behalf of the Parent with respect to such Parent Products.

(b) All applications, submissions, information and data utilized by the Parent as the basis for, or submitted by or on behalf of the Parent in connection with any and all requests for a Parent Permit relating to the Parent, when submitted to the FDA or any other Governmental Entity, were true, correct and complete in all material respects as of the date of submission, and any updates, changes, corrections or modification to such applications, submissions, information and data required under applicable Laws have been submitted to the FDA or any other Governmental Entity.

 

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(c) None of the Parent nor, to the Knowledge of the Parent, any of the Representatives, licensors, licensees, assignors or assignees of the Parent has received any notice that the FDA or any other Governmental Entity has initiated, or threatened to initiate, any action to suspend or place restrictions on any clinical trial, suspend or terminate any Investigational New Drug Application or comparable Clinical Trial Application sponsored by the Parent or otherwise restrict the pre-clinical research related to or clinical study of any Parent Product or any drug product being developed by any licensee or assignee of Intellectual Property Rights of the Parent based on such Intellectual Property Rights, or to recall, suspend or otherwise restrict the development or manufacture of any Parent Product. The Parent is not in receipt of any written notice of, or is subject to, any adverse inspection, finding of deficiency, finding of non-compliance, investigation, civil or criminal proceeding, hearing, suit, demand, claim, complaint, inquiry, proceeding, or other compliance or enforcement action relating to any Parent Products. To the Knowledge of the Parent, there is no act, omission, event or circumstance that would reasonably be expected to give rise to any such action.

(d) The Parent is and has been for the past six (6) years, in compliance with the requirements of: (i) all applicable privacy and security Laws governing health information; and (ii) all contractual obligations concerning the collection, use, storage and disclosure of health information. To the Knowledge of the Parent there has been no unauthorized use, access, modification or disclosure of health information, including any breach of “Unsecured Protected Health Information,” as those terms are defined by HIPAA, by the Parent, or any of its clinical trial sites. The Parent is not now, and has never been, subject to HIPAA and is not a party to any business associate agreement, as defined by HIPAA.

(e) The Parent has made available to the Company true, correct and complete copies of any and all material applications, approvals, licenses, written notices of inspectional observations, establishment inspection reports and any other documents received from the FDA or any other Governmental Entity, including documents that indicate or suggest lack of compliance with the regulatory requirements of the FDA or any other Governmental Entity. The Parent has made available to the Company for review all material correspondence to or from the FDA or any other Governmental Entity, minutes of meetings, written reports of phone conversations, visits or other contact with the FDA or any other Governmental Entity, notices of inspectional observations, establishment inspection reports, and all other documents concerning communications to or from the FDA or any other Governmental Entity, or prepared by the FDA or any other Governmental Entity or which bear in any way on the Company’s compliance with regulatory requirements of the FDA or any other Governmental Entity, or on the likelihood or timing of approval of any Parent Products.

4.21 Related Party Transactions . (a) None of the customers, suppliers, distributors or sales representatives of the Parent are Affiliates of the Parent or of any of its officers, directors or shareholders; (b) none of the properties or assets of the Parent are owned or used by or leased to any Affiliates of the Parent or of any of their officers, directors or shareholders; (c) no Affiliate of the Parent or of any of their officers, directors or shareholders is a party to any Parent Contract; and (d) no Affiliate of the Parent or of any of its officers, directors or shareholders provides any legal, accounting or other services to the Parent.

4.22 Brokers . The Parent has not incurred, or will not incur, directly or indirectly, any Liability for brokerage or finder’s fees or agent’s commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby.

 

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4.23 Full Disclosure . Neither the Parent SEC Reports, this Agreement (including the Parent Disclosure Schedule), nor any Transaction Document: (i) contains any representation or warranty by the Parent or the Merger Sub or information regarding the Parent that is false or misleading with respect to any material fact; or (ii) omits to state any material fact necessary in order to make the representations and warranties regarding the Parent contained herein and therein, in light of the circumstances under which such representations and warranties were or will be made or provided, not false or misleading.

ARTICLE V

ADDITIONAL COVENANTS

5.1 Further Assurances . Each of the parties hereto shall, at their own cost and expense, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions of this Agreement and each other agreement, document and instrument contemplated by this Agreement, and to give effect to the Merger and the other transactions contemplated hereby and thereby.

5.2 Satisfaction of Conditions Precedent . The Company and the Parent shall each use commercially reasonable efforts to satisfy or cause to be satisfied all the conditions precedent set forth in Sections 6.1 and 6.2, and the Company and the Parent shall each use commercially reasonable efforts to cause the Merger and the other transactions contemplated by this Agreement to be consummated in accordance with the terms of this Agreement.

5.3 Advice of Changes . Each of the Company and the Parent shall promptly advise the others in writing of (a) any event occurring after the date of this Agreement that would render any representation or warranty of such party contained in Article III or Article IV to be untrue or inaccurate such that the condition set forth in Article VI would not be satisfied; (b) any material breach of any covenant or obligation of the Company pursuant to this Agreement such that the condition set forth in Article VI would not be satisfied; (c) any Material Adverse Effect; or (d) any change, event, circumstance, condition or effect that would reasonably be expected to result in a Material Adverse Effect or cause any of the conditions set forth in Article VI not to be satisfied.

5.4 Access to Information . Each of the Company and the Parent shall afford the other party and their Representatives access during regular business hours to all of their respective files, books, records, Contracts, personnel, properties, assets and offices, and shall, furnish promptly to the other party: (a) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal or state securities laws and (b) all other information concerning its business, properties and personnel as the other party may reasonably request. All such information shall be held subject to the terms of the NDA. Notwithstanding the foregoing, either party may restrict access to (i) documents that are attorney-client privileged or confidential, or (ii) documents that relate to the Company Board’s or the Parent Board’s consideration of this Agreement or alternatives thereto. No investigation pursuant to this Section 5.4 or information provided, made available or delivered to the Company or the Parent pursuant to this Agreement shall affect any of the representations, warranties, covenants, rights or remedies, or the conditions to the obligations of, the parties hereunder.

5.5 Maintenance of Business .

(a) Each of the Company and the Parent shall carry on its business in the ordinary course consistent with past practice, use its reasonable best efforts to preserve intact its business organization, its assets, rights and properties in good repair and condition, keep available the services of its current officers, employees and consultants and preserve its goodwill and business relationships with customers, suppliers, employees and others with whom such party has business dealings.

 

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(b) Without limiting the generality of Section 5.5(a), neither the Parent or the Company shall, without the prior written consent (not to be unreasonably withheld, conditioned or delayed) of the other party: (i) incur any Indebtedness for borrowed money or guarantee any such Indebtedness of another Person, (ii) allow the creation of any Lien (other than a Permitted Lien) on any of its assets or properties; (iii) grant any current or former director, officer, employee or independent contractor any increase in compensation, bonus or other benefits; (iv) issue any shares of its capital stock of any class or series or any securities convertible into, exchangeable for or exercisable for any such shares, or any rights, warrants or options to acquire, any such shares or other equity interests, other than as provided for by this Agreement; (v) merge, consolidate or reorganize with, acquire (directly or indirectly) or enter into any other business combination with any Person (other than as provided for by this Agreement); (vi) adopt or enter into a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization; (vii) amend or otherwise change its articles of incorporation or bylaws (or similar organizational documents); (viii) renew or enter into any non-compete, exclusivity, non-solicitation or similar agreement that would restrict or limit, in any material respect, the operations of the Parent; and (ix) take any action (or omit to take any action) if such action (or omission) could reasonably be expected to result in any of the conditions to the Merger set forth in Article VI not being satisfied.

5.6 Exclusivity . Neither party shall, and neither party shall permit or authorize any of its Subsidiaries or any Representatives, directly or indirectly, to solicit, enter into, engage, continue or participate in any negotiations with any Person relating to an Acquisition Proposal during the term of this Agreement. During the term of this Agreement, each party shall promptly inform the other party of the receipt of any unsolicited Acquisition Proposal, including, with such notice, the identity of the Person or group of Persons making such proposal, a copy of any written proposal, and the material terms and conditions of any proposals or offers.

5.7 Financing Efforts . From the date of this Agreement through the Closing Date or the termination of this Agreement, the Company and the Parent shall, and shall cause their respective Representatives to, use commercially reasonable efforts to cooperate in securing a debt or equity financing to support the working capital requirements of the combined enterprise. Such cooperation shall include providing reasonable assistance in the preparation of customary disclosure documents, business plans, financial models, and due diligence responses reasonably required in connection with a financing. The Company hereby consents to the use of its names, logos and trademarks solely in connection with the financing. The Company shall not be required, under the provisions of this Section 5.7 or otherwise in connection with the financing to: (x) pay any commitment or other similar fee prior to the Closing Date that is not advanced or substantially simultaneously reimbursed by the Parent, or (y) incur any out of pocket cost or expense unless such expense is reimbursed by the Parent on the earlier of the Closing Date or termination of this Agreement in accordance with Article VII. Nothing contained in this Section 5.7 shall require the Company to be an issuer or other obligor with respect to the financing or to authorize or approve any financing prior to the Closing. All material, non-public information regarding the Company provided to the Parent or its Representatives pursuant to this Section 5.7 shall be kept confidential in accordance except for disclosure to potential lenders and investors as required in connection with the financing subject to customary confidentiality protections.

5.8 Contingent Value Rights . Immediately following the Effective Time, the Parent shall cause each holder of outstanding shares of Parent Common Stock immediately prior to the Effective Time to receive contingent value rights in accordance with the terms of the Contingent Value Rights Agreement attached hereto as Exhibit C .

 

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5.9 Parent Directors and Officers .

(a) The Parent’s Board of Directors shall adopt resolutions that will provide that following the Effective Time of the Merger and any applicable waiting period imposed by Rule 14(f)-1 promulgated under the Exchange Act, (i) the Parent’s Board of Directors will be comprised of four members, (ii) William D. Schwieterman shall remain on the Board of Directors and each other director of the Parent shall resign, (iii) Vuong Trieu, Anthony Maida, and Steve King shall be appointed to the Parent Board of Directors, and (iv) Vuong Trieu shall be appointed Chairman. The Parent shall secure the resignations of any director that is to step down, effective as of the Effective Time. The Parent shall issue the required notice to its stockholders under Rule 14(f)-1, promptly following the Effective Time.

(b) The Parent’s Board of Directors shall adopt resolutions appointing the following persons to be the officers of the Parent effective as of the Effective Time:

(i) Vuong Trieu: Chief Executive Officer and President

(ii) Matthew M. Loar: Chief Financial Officer

(iii) Fatih Uckun: Chief Medical Officer

(iv) Matthew M. Loar: Secretary

Each such officer shall hold office, subject to the provisions of the Parent Certificate of Incorporation and Bylaws, until his successor shall have been elected and qualified.

(c) Immediately prior to the Effective Time, William D. Schwieterman shall resign from the office of Chief Executive Officer and will voluntarily terminate his employment with the Company.

5.10 Amendment of Parent Certificate of Incorporation . As promptly as practicable following the Closing Date, the Parent shall prepare (i) an amendment to its Certificate of Incorporation (the “ Charter Amendment ”) to effect reverse stock split of the outstanding Parent Common Stock and to increase the authorized Parent Common Stock to accommodate the conversion of all outstanding Preferred Stock into Common Stock (the “ Recapitalization ”), and (ii) a proxy statement or information statement submitting the Recapitalization to a vote or written consent of the Parent’s stockholders (the “ Proxy Statement ”). In connection with the Charter Amendment and the Recapitalization, all outstanding shares of Parent Preferred Stock shall be mandatorily converted into Parent Common Stock in accordance with their terms. The Parent, acting through the Parent Board, shall include a recommendation in the Proxy Statement that the Parent stockholders approve the Charter Amendment and the Recapitalization. The Parent shall promptly file the Proxy Statement with the SEC and use commercially reasonable efforts to have the Proxy Statement cleared by the SEC as promptly as practicable after the filing thereof. Thereafter, the Parent shall promptly cause the Proxy Statement in definitive form to be mailed to the Parent stockholders and, in accordance with applicable law and the Parent’s bylaws, duly convene a meeting of the Parent’s stockholders or procure the written consent of the Parent stockholders, for the purpose of approving the Charter Amendment and the Recapitalization.

 

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5.11 Company Financial Statements . The Company shall use commercially reasonable efforts to deliver to the Parent the Company’s financial statements for the years ended December 31, 2018 and 2017, together with an audit report of an independent accounting firm qualified by the Public Accounting Oversight Board, as soon as reasonably practicable following the date hereof, but in no event later than seventy-five (75) days following the date hereof. The Company financial statements shall be prepared in accordance with GAAP and Regulation S-X under the Securities Act. Promptly following receipt of the Company’s audited financial statements, the Company will use commercially reasonable efforts to file the pro-forma financial statements required to be filed by the Parent pursuant to Regulation S-X under the Securities Act as a result of the consummation of the Merger.

5.12 Registration Rights . Following the later of: (a) the Recapitalization and (b) the filing of the pro forma financial statements pursuant to Section 5.11 above, at the request of Vuong Trieu, the Parent will use commercially reasonable efforts to file with the SEC a registration statement to register the resale of the shares of Parent Common Stock (including those shares issuable upon conversion of Parent Preferred Stock) issued to the holders of record of Company Common Stock pursuant to Section  2.1(a) of this Agreement on such form as Parent is eligible to use for such registration, and shall use commercially reasonable efforts to cause such registration statement to be declared effective by the SEC within sixty (60) days of the filing thereof. The Parent shall use commercially reasonable efforts to keep such registration statement effective at all times and available for use until the earlier of the time at which: (i) none of the holders of record of Company Common Stock immediately prior to the Merger own any shares of Parent Common Stock; or (ii) all of the shares of Parent Common Stock issued to the holders of record of Company Common Stock immediately prior to the Merger pursuant to Section  2.1(a) are eligible for resale under Rule 144 without restrictions as to volume limitations.

5.13 Public Announcements . Neither party shall issue any public release or other public announcement concerning the transactions contemplated by this Agreement without the prior written consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed), except as such release or announcement may be required by applicable Law or the rules or regulations of the SEC or a Governmental Entity to which the relevant party is subject, wherever situated, in which case the party required to make the release or announcement shall consult with the other party about, and allow the other party reasonable time to comment on, such release or announcement in advance of such issuance.

ARTICLE VI

CONDITIONS TO CLOSING OF MERGER

6.1 Conditions to Each Party’s Obligation to Effect the Merger . The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction on or prior to the Effective Time of the following conditions:

(a) No Injunctions or Restraints; Illegality . No temporary restraining order, preliminary or permanent injunction or other Order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger shall be in effect, nor shall there be any statute, rule, regulation, law or order enacted, entered, promulgated enforced or deemed applicable to the Merger which prohibits or makes the consummation of the Merger illegal.

(b) Litigation . There shall not be pending any Action by any Governmental Entity, or by any other Person (i) having a reasonable likelihood of success, and that (ii) if successful would result in a Material Adverse Effect.

6.2 Additional Conditions to Obligations of the Parent and the Merger Sub . The obligations of the Parent and the Merger Sub to effect the Merger are subject to the satisfaction of each of the following conditions at or prior to the Effective Time, any of which may be waived in writing exclusively by the Parent and the Merger Sub:

 

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(a) Representations and Warranties . Each of (i) the representations and warranties of the Company set forth in the first sentence of Section 3.1 (Organization and Qualification), Sections 3.2 (Subsidiaries), Section 3.3 (Authority), Section 3.4 (No Conflict), Section 3.5 (No Required Filings or Consents) and Section 3.6 (Capital Stock of the Company), shall be true and correct in each case as of the Agreement Date and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date); provided, however, in the case of Section 3.6, subject to any changes that are de minimis in amount or significance; and (ii) the remaining representations and warranties of the Company set forth in this Agreement that are qualified by materiality or “Material Adverse Effect” shall be true and correct (as so qualified) and each of the remaining representations and warranties of the Company set forth in this Agreement that are not so qualified shall be true and correct in all material respects, in each case as of the Agreement Date and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date); and the Parent shall have received a certificate signed on behalf of the Company by an authorized representative of the Company to such effect.

(b) Performance of Obligations of the Company . The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Effective Time; and the Parent shall have received a certificate signed on behalf of the Company by an authorized representative of the Company to such effect.

(c) Absence of Material Adverse Effect . There shall not have occurred any event, change, circumstance, occurrence, effect or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on the Parent.

6.3 Additional Conditions to Obligations of the Company . The obligation of the Company to effect the Merger is subject to the satisfaction of each of the following conditions at or prior to the Effective Time, any of which may be waived, in writing, exclusively by the Company:

(a) Representations and Warranties . Each of (i) the representations and warranties of the Parent and the Merger Sub set forth in the first sentence of Section 4.1 (Organization and Qualification), Sections 4.2 (Subsidiaries), Section 4.3 (Authority), Section 4.4 (No Conflict), Section 4.5 (No Required Filings or Consents) and Section 4.6 (Capital Stock of the Parent), shall be true and correct in each case as of the Agreement Date and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date); provided, however, in the case of Section 4.6, subject to any changes that are de minimis in amount or significance; and (ii) the remaining representations and warranties of the Parent and the Merger Sub set forth in this Agreement that are qualified by materiality or “Material Adverse Effect” shall be true and correct (as so qualified) and each of the remaining representations and warranties of the Parent and the Merger Sub set forth in this Agreement that are not so qualified shall be true and correct in all material respects, in each case as of the Agreement Date and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date); and the Parent shall have received a certificate signed on behalf of the Parent by an authorized officer of the Parent to such effect.

 

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(b) Performance of Obligations of Parent and Merger Sub . The Parent and the Merger Sub shall have performed all obligations required to be performed by them under this Agreement at or prior to the Effective Time except for such obligations which individually or in the aggregate do not constitute a Parent Material Adverse Effect; and the Company shall have received a certificate signed on behalf of the Parent by an authorized officer of the Parent to such effect.

(c) Absence of Material Adverse Effect . There shall not have occurred any event, change, circumstance, occurrence, effect or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on the Parent.

(d) No Material Dissenter’s Rights . The Company shall have received properly perfected demands for appraisal rights pursuant to Section 262 of the DGCL from the holders of no more than 10% of the outstanding Company Common Stock.

6.4 Frustration of Closing Conditions . None of the Parent, the Merger Sub or the Company may rely on the failure of any condition set forth in this Article VI to be satisfied if such failure was caused by such party’s breach of this Agreement.

ARTICLE VII

TERMINATION OF AGREEMENT

7.1 Termination by Mutual Consent . This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, by mutual written consent of the Company and the Parent.

7.2 Termination by Either Parent or the Company . This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by action taken or authorized by the Parent or the Company if:

(a) the Closing shall not have been consummated by 5:00 p.m. Eastern time on May 10, 2019 (the “ End Date ”); provided, however, that the right to terminate this Agreement under this Section 7.2(a) shall not be available to any party whose breach of any covenant or obligation under this Agreement has been the proximate cause of, or resulted in, the failure of the Closing to occur prior to the End Date;

(b) if (i) any court of competent jurisdiction or other Governmental Entity shall have issued an Order, or taken any other action restraining, enjoining or otherwise prohibiting any of the transactions contemplated by this Agreement and such Order or other action shall have become final and non-appealable, or (ii) if there shall be any applicable Law that makes the consummation of the Merger illegal or otherwise prohibited.

(c) if (i) there has been a breach of any representation, warranty, covenant or agreement made by the other party in this Agreement, or (ii) any such representations or warranty shall have become untrue or incorrect, such that as a result of such breach or untruth the conditions set forth in Section 6.2(a) or Section 6.3(a) as applicable would not be satisfied, if occurring or continuing at the Effective Time, and such breach or failure to be true and correct is not cured by the earlier of (1) the End Date and (2) thirty (30) calendar days following receipt of written notice from the other party of such breach or failure.

 

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(d) If the Company has satisfied (or the Parent has waived) each of the conditions to the Parent’s and the Merger Sub’s obligations to consummate the transactions contemplated by this Agreement pursuant to Sections 6.1 and 6.2 hereof, and the Company has indicated in writing to the Parent that the Company is ready, willing and able to consummate the transactions contemplated by this Agreement on the date required by Section 1.2 and the Parent and the Merger Sub fail to consummate the transactions contemplated by this Agreement within two (2) Business Days following the date on which the Closing should have occurred pursuant to Section 1.2.

7.3 Notice of Termination; Effect of Termination and Abandonment . The party hereto desiring to terminate this Agreement pursuant to this Article VII shall give written notice of such termination to the other parties hereto specifying the provision or provisions of this Article VII pursuant to which such termination is purportedly effected and including reasonable detail of the circumstances giving rise to such termination. If this Agreement is terminated pursuant to this Article VII, this Agreement shall become void and of no effect, without any liability on the part of any party hereto or any of their respective representatives; provided that, no such termination shall relieve any party from any liability or damages resulting from a willful and material breach of any of its representations, warranties, covenants or agreements set forth in this Agreement or fraud, in which case the non-breaching party shall be entitled to all rights and remedies available at law or in equity. Notwithstanding the forgoing, in no event shall any party hereto be liable for punitive damages.

ARTICLE VIII

DEFINED TERMS

8.1 Definitions . For purposes of this Agreement, the following terms will have the following meanings when used herein with initial capital letters:

Acquisition Proposal ” means any negotiation, solicitation, agreement or arrangement, with respect to the Parent or the Company that involves (i) the acquisition of more than 20% of the entity’s voting equity by a third party, (ii) a merger or consolidation with a third party, other than under this Agreement, or (iii) the sale, license transfer of all or substantially of their assets to a third party.

Action ” means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Entity.

Affiliate ” as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person; for purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by Contract or otherwise.

Business Day ” means a day other than a Saturday, Sunday or any day on which banks located in the State of California are authorized or obligated to close.

Code ” means the Internal Revenue Code of 1986, as amended.

Contract ” means any contract, agreement, license, lease, guaranty, indenture, sales or purchase order or other legally binding commitment in the nature of a contract (whether or not written) to which a Person is a party.

Derivative Security ” means any option, warrant, equity security, equity-linked security, appreciation rights, phantom equity, or similar ownership interests, calls, rights (including preemptive rights), Contracts, commitments or agreements of any character to which the specified Person is a party or by which either is bound obligating such Person to issue, deliver or sell, or cause to be

 

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issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, or deliver cash or other consideration with respect to, any shares of capital stock or similar ownership interests or equity-linked securities of such Person or obligating such Person to grant, extend, accelerate the vesting of or enter into any such subscription, option, warrant, equity security, equity-linked security, appreciation rights, call, right, commitment or agreement.

Indebtedness ” means, without duplication to current liabilities, all: (i) obligations for borrowed money (including any unpaid principal, premium, accrued and unpaid interest, prepayment penalties, commitment and other fees, reimbursements, indemnities and all other amounts payable in connection therewith); (ii) liabilities evidenced by bonds, debentures, notes, or other similar instruments or debt securities; (iii) obligations, contingent or otherwise, in respect of any letters of credit or bankers’ acceptances (to the extent drawn), sureties, performance bonds, guaranties, endorsements and other similar obligations, whether secured or not, in respect of the obligations of other Persons; (iv) obligations (including accrued interest) without duplication under a lease agreement that would be capitalized pursuant to GAAP and (v) the deferred purchase price of property or services (excluding earn-out obligations which shall not be deemed Indebtedness under this Agreement). For purposes of calculating Indebtedness, all interest, prepayment penalties, premiums, fees and expenses (if any) and other amounts which would be payable if Indebtedness were paid in full at the Closing shall be treated as Indebtedness.

Intellectual Property Rights ” means all worldwide (a) inventions, whether or not patentable, (b) patents and patent applications, and any reissue, continuation, continuation-in-part, division, extension or reexamination thereof, (c) trademarks, trademark applications, service marks, service mark applications, trade dress, logos, (d) Internet domain names and trade names, whether or not registered, and all goodwill associated therewith, rights of publicity and other rights to use the names and likeness of individuals, (e) copyrights and related rights, whether or not registered, (f) computer software, data, databases, files, and documentation and other materials related thereto, (g) trade secrets and all confidential, proprietary, technical, technological, industrial, business processes and business information, (h) know how, (i) all rights in any of the foregoing provided by bilateral or international treaties or conventions, and (j) all rights to sue or recover and retain damages and costs and attorneys’ fees for past, present and future infringement or misappropriation of any of the foregoing.

IRS ” means the United States Internal Revenue Service.

Knowledge ” means, with respect to Company, the actual knowledge after reasonable inquiry of Vuong Trieu, and with respect to Parent, the actual knowledge after reasonable inquiry of William D. Schieterman and Matt Loar.

Law ” means any federal, state, local (statutory, common or otherwise), municipal, foreign or international, multinational or other law, statute, constitution, treaty, principle of common law, resolution, ordinance, code, edict, guideline, policy, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, applied, implemented or otherwise put into effect by or under the authority of any Governmental Entity.

Liabilities ” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including those arising under any Law, Action or Order and those arising under any contract, agreement, arrangement, commitment or undertaking.

 

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Liens ” means all liens, pledges, hypothecations, charges, mortgages, security interests, encumbrances, claims, infringements, interferences, options, right of first refusals, preemptive rights, community property interests or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset), other than Permitted Liens.

Losses ” shall mean any loss, damage, injury, liability, claim, demand, settlement, judgment, award, assessment, fine, penalty, Tax, fee (including reasonable attorneys’ fees), charge, cost (including costs of investigation) or expense of any nature, including any lost profits and any diminution in value of the business.

Material Contracts ” means with respect to the each of the Parent and the Company, each Contract to which the Parent or the Company is a party or subject to or by which its assets are bound which: (a) provides for obligations, payments, Liabilities, consideration, performance of services or the delivery of goods to or by such party of any amount or value reasonably expected to be in excess of $50,000 in any annual period; (b) contains covenants limiting the freedom of such party to engage in any line of business in any geographic area or to compete with any Person; (c) is an employment, retention or severance contract, or a consulting or non-compete agreement, applicable to any employee of or consultant to such party whose annual total compensation exceeds $120,000 or any director of such party; (d) relates to, or is evidence of, or is a guarantee of, or provides security for, indebtedness (whether incurred, assumed, guaranteed or secured by any asset of such party); (e) is a letter of credit, bond or similar arrangement running to the account of, or for the benefit of, such party in an amount in excess of $50,000; (f) is a joint venture or partnership contract or a limited liability company operating agreement; (g) is entered into with, or otherwise relates to, any Affiliate, officer or director or their family members of such party; (h) provides for the payment of cash or other compensation or benefits upon the Merger and the consummation of the transactions contemplated hereby; (i) relates to any loan to any directors, officers or Affiliates of such party; or (j) is otherwise material to the operations and business prospects of such party.

Material Adverse Effect ” means a change, event, effect, violation, inaccuracy, circumstance or other matter which, individually or in the aggregate with other changes, events, effects, violations, inaccuracies, circumstances or other matters, when considered on either a long-term basis or a short-term basis, has had or could reasonably be expected to have or give rise to a material adverse effect on: (i) the business, results of operations, condition (financial or otherwise), prospects, capitalization, liabilities, operations or financial performance or assets of the specified party; or (ii) the ability of the specified party to consummate the transactions contemplated hereby on a timely basis.

Order ” means any writ, decree, injunction, order, judgment, stipulation, determination, award or similar action.

Permit ” means any permits, licenses, variances, exemptions, consents, orders, authorizations and approvals from Governmental Entities.

“Permitted Liens ” means (a) statutory Liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith, (b) mechanics’, carriers’, workers’, repairers’ and similar statutory Liens arising or incurred in the ordinary course of business for amounts which are not delinquent or which are being contested by appropriate proceedings, (c) zoning, entitlement, building and other land use regulations imposed by Governmental Entities having jurisdiction over such Person’s owned or leased real property, which are not violated by the current use and operation of such real property, (d) covenants, conditions, restrictions, easements and other similar non-monetary

 

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matters of record affecting title to such Person’s owned or leased real property, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses, (e) any right of way or easement related to public roads and highways, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses, (f) Liens arising under workers’ compensation, unemployment insurance, social security, retirement and similar legislation, and (g) any other Liens that, in the aggregate, do not materially impair the value or the continued use and operation of the assets or properties to which they relate, including the rights to use a license under the applicable Contract.

Person ” means any individual, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization, entity or Governmental Entity.

Regulation S-K ” means Regulation S-K as promulgated under the Exchange Act.

Related Party ” of any specified Person means: (i) an executive officer or director (or any Person that exercises substantially similar right and authority) of such specified Person; (ii) any Person owning 5% or more of the voting shares of such specified Person (assuming the exercise or conversion of any Derivative Securities of such specified Person that represents, directly or indirectly, the right to acquire voting shares of such specified Person); (iii) any Person that can significantly influence the management or operating policies of such specified Person, including the ability that would prevent such specified Person from fully pursuing its own separate interests, through the ownership of securities, contract or both; or (iv) the immediate family members or Affiliates or associates of any Person described in the foregoing clauses of this paragraph.

Representatives ” of any entity means such entity’s directors, officers, employees, legal, investment banking and financial advisors, accountants and any other agents and representatives.

SEC ” means the U.S. Securities and Exchange Commission.

Subsidiary ” means, with respect to any Person, any corporation or other organization, whether incorporated or unincorporated, of which more than fifty percent (50%) of either the equity interests in, or the voting control of, such corporation or other organization is, directly or indirectly through subsidiaries or otherwise, beneficially owned by such Person.

Transaction Documents ” means each of the documents, agreements and instruments related to this Agreement and the Merger or the other transactions contemplated hereby, to which the specified Person is a party.

ARTICLE IX

GENERAL PROVISIONS

9.1 Notices . Each party shall deliver all notices, requests, consents, claims, demands, waivers and other communications under this Agreement (each, a “ Notice ”) in writing and addressed to the other party at its address set out below (or to any other address that the receiving party may designate from time to time in accordance with this section). Each party shall deliver all Notices by email, personal delivery, or nationally recognized overnight courier (each with confirmation of receipt). Notice shall be deemed effective upon receipt, provided that if Notice is send by email after 5:00 p.m. or on any day that is not a Business Day for the recipient, the Notice shall be deemed effective at 9:00 a.m. on the next Business Day. Notices shall be addressed:

 

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if to the Parent or Merger Sub, to:

Mateon Therapeutics, Inc.

701 Gateway Blvd., Suite 210

South San Francisco, CA 94080

Attention: Matthew M. Loar

Email:

With copies (which shall not constitute notice) to:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC

One Financial Center

Boston, MA 02111

Attn: Megan Gates, Esq.

Email:

if to the Company or the Company Representative, to:

Oncotelic Inc.

29397 Agoura Road, Suite 107

Agoura Hills, CA 91301

Attention: Vuong Trieu

Email:

With copies (which shall not constitute notice) to:

Sheppard Mullin Richter & Hampton LLP

12275 El Camino Real Suite 200

San Diego, California 92130

Attn: James A. Mercer III, Esq.

Email:

9.2 Entire Agreement . This Agreement, together with any other documents incorporated herein by reference and all related exhibits and schedules, constitutes the sole and entire agreement of the parties to this Agreement with respect to its subject matter, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. No party has relied on any other express or implied representation or warranty, either written or oral in connection with its entry into this Agreement, including any representation or warranty arising under statute or otherwise under law. In the event of any inconsistency between the statements in the body of this Agreement, and the related exhibits and schedules (other than an exception expressly set forth as such in the schedules), the statements in the body of this Agreement shall control.

9.3 Amendment . This Agreement may be amended, supplemented or modified by action taken by or on behalf of the respective Boards of Directors of the parties hereto at any time prior to the Effective Time, but only to the extent permitted by applicable Law or in accordance with the rules of any self-regulatory organization. No such amendment, supplement or modification shall be effective unless set forth in a written instrument duly executed by or on behalf of each party hereto. After the Effective Time, any such amendment, supplement or modification of this Agreement shall require the written consent of the Board of Directors of Parent and of the Company Representative.

 

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9.4 Waiver . No waiver under this Agreement is effective unless it is in writing and signed by the party waiving its right. Any waiver authorized on one occasion is effective only in that instance and only for the purpose stated, and does not operate as a waiver on any future occasion. No failure or delay in exercising any right, remedy, power or privilege or in enforcing any condition under this Agreement or any act, omission or course of dealing between the parties shall constitute a waiver or estoppel of any right, remedy, power, privilege or condition arising from this Agreement.

9.5 No Assignment . Neither party may assign this Agreement or otherwise convey any rights or obligations under this Agreement without the prior written consent of the other party. The rights and duties of the parties hereto will bind and inure to the benefit of their respective permitted successors and permitted assigns, as the case may be. Any attempted assignment in violation of the provisions of this section will be null and void.

9.6 No Third Party Beneficiaries . This Agreement is for the sole benefit of the parties and their respective permitted successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

9.7 Interpretation . For purposes of this Agreement, (a) the words “include,” “includes” and “including” are deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (1) to sections, schedules and exhibits mean the sections of, and schedules and exhibits attached to, this Agreement; (2) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof; and (3) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The schedules and exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

9.8 Gover ning Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware and, as applicable, the laws of the United States, without giving effect to the principles of choice of law or conflicts of laws of Delaware or any other jurisdiction.

9.9 Venue . Any legal suit, action or proceeding arising out of this Agreement, or the transactions contemplated hereby shall be instituted in the Delaware Court of Chancery, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

9.10 WAIVER OF JURY TRIAL . EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE PARTIES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

9.11 Attorneys’ Fees. In the event that any party institutes any legal suit, action or proceeding against the other party arising out of this Agreement, the prevailing party in the suit, action or proceeding shall be entitled to receive in addition to all other damages to which it may be entitled, the costs incurred by such party in conducting the suit, action or proceeding, including reasonable attorneys’ fees and expenses and court costs.

 

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9.12 Expenses . Except as otherwise specifically set forth elsewhere in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such cost or expense.

9.13 Remedies .

(a) The rights and remedies under this Agreement are cumulative and are in addition to and not in substitution for any other rights and remedies available at law or in equity or otherwise.

(b) Each party hereto acknowledges that a breach or threatened breach by such party of any of its obligations under this Agreement would give rise to irreparable harm to the other party for which monetary damages would not be an adequate remedy and hereby agrees that in the event of a breach or a threatened breach by such party of any such obligations, the other party shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction, without any requirement to post bond.

9.14 Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. Delivery of a signed Agreement by reliable electronic means, including facsimile, email, or any electronic signature complying with the U.S. federal ESIGN Act of 2000 (including DocuSign) shall be an effective method of delivering the executed Agreement. This Agreement may be stored by electronic means and either an original or an electronically stored copy of this Agreement can be used for all purposes, including in any proceeding to enforce the rights and/or obligations of the parties to this Agreement.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives, as of the date first written above.

 

MATEON THERAPEUTICS, INC.
By:   /s/ William D. Schwieterman
Name: William D. Schwieterman
Title: Chief Executive Officer

ONCOTELIC ACQUISITION

CORPORATION

By:   /s/ Matthew M. Loar
Name: Matthew M. Loar
Title: President
ONCOTELIC, INC.
By:   /s/ Vuong Trieu
Name: Vuong Trieu
Title: Chief Executive Officer

(Signature Page to Agreement and Plan of Merger)

 

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Exhibit A

Bylaws

 

Exhibit A


Exhibit B

Certificate of Designation

 

Exhibit B


Exhibit C

Contingent Value Rights Agreement

 

Exhibit C


Schedule I—Index to Certain Defined Terms

 

Term

  

Section

Agreement

   Preamble

Blue Sky Laws

   3.5

Certificate of Merger

   1.2

Charter Amendment

   5.10

Closing Date

   1.2

Closing

   1.2

Company

   Preamble

Company Approvals

   3.17

Company Common Stock

   2.1(a)

Company Disclosure Schedule

   Article III

Company Financial Statements

   3.7(a)

Company Products

   3.17(a)

Company Stock Plan

   3.6(b)

Company Stock Record

   2.2(b)

Company Stockholder Approval

   Recitals

Company Transaction Documents

   3.3

DGCL

   Recitals

Dissenting Shares

   2.1(f)

Effective Time

   1.2

Employee Plans

   3.12

End Date

   7.2(a)

ERISA

   3.12

FDA

   3.17(a)

FDCA

   3.17(a)

GAAP

   3.7(a)

Governmental Entity

   3.5

HIPAA

   3.18(a)

Interim Financial Statements

   3.7(a)

Leased Real Property

   3.13(b)

Merger Sub

   Preamble

Merger

   Recitals

Notice

   9.1

Parent

   Preamble

Parent Common Stock

   2.1(a)

Parent Disclosure Schedule

   Article IV

Parent Financial Statements

   4.8(a)

Parent Preferred Stock

   2.1(a)

Parent Products

   4.18(a)

Parent SEC Reports

   4.7

Parent Stock Plans

   4.6(b)

Parent Transaction Documents

   4.3

PHSA

   3.17(a)

Proxy Statement

   5.10

Recapitalization

   5.10

Sarbanes-Oxley Act

   3.7(c)

Securities Act

   3.5

Surviving Corporation

   1.1

Term

  

Section

Tax

   3.9(d)

Tax Returns

   3.9(a)
 

 

Exhibit 4.1

SIGNING DEBENTURE

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION REQUIREMENTS THEREOF OR EXEMPTION THEREFROM.

MATEON THERAPEUTICS, INC.

CONVERTIBLE DEBENTURE DUE APRIL         , 2022

 

Issuance Date: April         , 2019       Principal Amount: $200,000.00

FOR VALUE RECEIVED, MATEON THERAPEUTICS, INC. , a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby promises to pay to PEAK ONE OPPORTUNITY FUND, L.P. , having its address at 333 South Hibiscus Drive, Miami Beach, FL 33139, or its assigns (the “Holder” and together with the other holders of Debentures issued pursuant to the Securities Purchase Agreement (as defined below), the “Holders”), the initial principal sum of Two Hundred Thousand and 00/100 Dollars ($200,000.00) (subject to adjustment as provided herein, the “Principal Amount”) on April         , 2022 (the “Maturity Date”). The Company has the option to redeem this Debenture prior to the Maturity Date pursuant to Section 2(b). All unpaid principal due and payable on the Maturity Date shall be paid in the form of Common Stock of the Company, par value $0.01 per share (“Common Stock”) pursuant to the terms of this Debenture. The Holder has the option to cause any outstanding principal and accrued interest, if any, on this Debenture to be converted into Common Stock at any time prior to the Redemption Date (as defined below) or the Maturity Date pursuant to Section 2(a).

This Debenture is one of the Debentures referred to in the Securities Purchase Agreement (the “Securities Purchase Agreement”) dated as of April         , 2019, between the Company and the Holder. Capitalized terms used but not defined herein shall have the meanings set forth in the Securities Purchase Agreement. This Debenture is also subject to the provisions of the Securities Purchase Agreement and further is subject to the following additional provisions:

1. This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only in compliance with the Securities Act and other applicable state and foreign securities laws. The Holder may transfer or assign this Debenture (or any part thereof) without the prior consent of the Company, and the Company shall cooperate with any such transfer. In the event of any proposed transfer of this Debenture, the Company may require, prior to issuance of a new Debenture in the name of such other Person, that it receive reasonable transfer documentation including legal opinions that the issuance of the Debenture in such other name does not and will not cause a violation of the Securities Act or any applicable state or foreign securities laws or is exempt from the registration requirements of the Securities Act. Prior to due presentment for transfer of this Debenture to which the Company has consented, the Company and any agent of the Company may treat the Person in whose name this

 


Debenture is duly registered on the Company’s books and records of outstanding debt securities and obligations (“Debenture Register”) as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

2. Conversion at Holder’s Option; Redemption at Company’s Option.

a. The Holder is entitled to, at any time or from time to time, convert the Conversion Amount (as defined below) into Conversion Shares, at a conversion price for each share of Common Stock (the “Conversion Price”) equal to $0.10 (the “Fixed Price”), provided, however, that if the Debenture is not redeemed in its entirety by the Company on or before the 180th calendar day after the Issuance Date, then the Conversion Price shall equal the lesser of (a) the Fixed Price or (b) Sixty Five percent (65%) of the lowest traded price (as reported by Bloomberg LP) of the Common Stock for the fifteen (15) Trading Days immediately preceding the date of the date of conversion of the Debenture (provided, further, that if the Company is not DWAC Operational at the time of conversion, the Common Stock is traded on the OTC Pink (“OTCP”) at the time of conversion, or the Conversion Price is less than $0.01 per share, then Sixty Five percent (65%) shall automatically adjust to Fifty Five percent (55%) of the lowest traded price (as reported by Bloomberg LP) of the Common Stock for the fifteen (15) Trading Days immediately preceding the date of conversion of the Debenture), subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events. The Company shall issue irrevocable instructions to its Transfer Agent regarding conversions such that the transfer agent shall be authorized and instructed to issue Conversion Shares upon its receipt of a Notice of Conversion without further approval or authorization from the Company. For purposes of this Debenture, the “Conversion Amount” shall mean the sum of (A) all or any portion of the outstanding Principal Amount of this Debenture, as designated by the Holder upon exercise of its right of conversion plus (B) any interest, pursuant to Section 10 or otherwise, that has accrued on the portion of the Principal Amount that has been designated for payment pursuant to (A).

Conversion shall be effectuated by delivering by facsimile, email or other delivery method to the Transfer Agent of the completed form of conversion notice attached hereto as Annex A (the “Notice of Conversion”), executed by the Holder of the Debenture evidencing such Holder’s intention to convert this Debenture or a specified portion hereof. No fractional shares of Common Stock or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The Holder may, at its election, deliver a Notice of Conversion to either the Company or the Transfer Agent. The date on which notice of conversion is given (the “Conversion Date”) shall be deemed to be the date on which the Company or the Transfer Agent, as the case may be, receives by fax, email or other means of delivery used by the Holder the Notice of Conversion (such receipt being evidenced by electronic confirmation of delivery by facsimile or email or confirmation of delivery by such other delivery method used by the Holder). Delivery of a Notice of Conversion to the Transfer Agent may be given by the Holder by facsimile, or by delivery to the Transfer Agent at the address set forth in the Transfer Agent Instruction Letter (or such other contact facsimile number, email or street address as may be designated by the Transfer Agent to the Holder). Delivery of a Notice of Conversion to the Company shall be given by the Holder pursuant to the notice provisions set forth in Section 10 of the Agreement. The Conversion Shares must be delivered to the Holder within two (2) business days from the date of delivery of the Notice of Conversion to the Transfer Agent or Company, as the case may be. Conversion shares shall be delivered by DWAC so long as the Company is then

 

2


DWAC Operational, unless the Holder expressly requests delivery in certificated form or the Conversion Shares are in the form of Restricted Stock and are required to bear a restrictive legend. Conversion Shares shall be deemed delivered (i) if delivered by DWAC, upon deposit into the Holder’s brokerage account, or (ii) if delivered in certificated form, upon the Holder’s actual receipt of the Conversion Shares in certificated form at the address specified by the Holder in the Notice of Conversion, as confirmed by written receipt.

If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion Amount for such conversion may be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been adjusted by the Holder to the par value price.

Except with respect to an Exempt Issuance (as defined in this Debenture), if, at any time while the Debenture is issued and outstanding, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock for a consideration per share less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance and at the option of the Holder, the Conversion Price will be reduced to the price per share of the Dilutive Issuance. “Exempt Issuance ” means the issuance of (a) shares of Common Stock or options to officers, employees, or directors of the Company issued pursuant to plans that have been approved by the board of directors of the Company, (b) securities in full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of the securities or assets of a corporation or other entity, or (c) securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital.

Notwithstanding the foregoing, unless the Holder delivers to the Company written notice at least sixty-one (61) days prior to the effective date of such notice that the provisions of this paragraph (the “Limitation on Ownership”) shall be adjusted to 9.99% with respect to the Holder, in no event shall a holder of Debentures have the right to convert Debentures into, nor shall the Company issue to such Holder, shares of Common Stock to the extent that such conversion would result in the Holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of Common Stock. For purposes hereof, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and Regulation 13D-G under the Exchange Act. Notwithstanding anything in this Debenture to the contrary, and in addition to the beneficial ownership limitations provided herein, the total number of shares of Common Stock that may be issued under this Debenture, shall be limited to 19.99% of the Company’s outstanding shares of Common Stock as of the date hereof (the “Exchange Cap”), unless shareholder approval is obtained by the Company to issue more than the Exchange Cap. The Exchange Cap shall be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction.

 

3


b. So long as no Event of Default (as defined in Section 10) shall have occurred and be continuing (whether such Event of Default has been declared by the Holder) (unless the Holder consents to such redemption notwithstanding such Event of Default, as described in clause (v), below), the Company may at its option call for redemption all or part of the Debentures, with the exception of any portion thereof which is the subject of a previously-delivered Notice of Conversion, prior to the Maturity Date, as follows:

(i) The Debentures called for redemption shall be redeemable by the Company, upon not more than two (2) calendar days written notice, for an amount (the “Redemption Price”) equal to: (i) if the Redemption Date (as defined below) is ninety (90) calendar days or less from the date of issuance of this Debenture, One Hundred Ten percent (110%) of the sum of the Principal Amount so redeemed plus accrued interest, if any; (ii) if the Redemption Date is greater than or equal to ninety-one (91) calendar days from the date of issuance of this Debenture and less than or equal to one hundred twenty (120) calendar days from the date of issuance of this Debenture, One Hundred Twenty percent (120%) of the sum of the Principal Amount so redeemed plus accrued interest, if any; (iii) if the Redemption Date is greater than or equal to one hundred twenty one (121) calendar days from the date of issuance of this Debenture and less than or equal to one hundred eighty (180) calendar days from the date of issuance of this Debenture, One Hundred Thirty percent (130%) of the sum of the Principal Amount so redeemed plus accrued interest, if any; and (iv) if either (1) the Debentures are in default but the Holder consents to the redemption notwithstanding such default or (2) the Redemption Date is greater than or equal to one hundred eighty one (181) calendar days from the date of issuance of this Debenture, One Hundred Forty percent (140%) of the sum of the Principal Amount so redeemed plus accrued interest, if any. The date upon which the Debentures are redeemed and paid shall be referred to as the “Redemption Date” (and, in the case of multiple redemptions of less than the entire outstanding Principal Amount, each such date shall be a Redemption Date with respect to the corresponding redemption).

(ii) If fewer than all outstanding Debentures are to be redeemed and are held by different investors, then all Debentures shall be partially redeemed on a pro rata basis.

(iii) [Reserved]

(iv) On the Redemption Date, the Company shall cause the Holders whose Debentures have been presented for redemption to be issued payment of the Redemption Price. In the case of a partial redemption, the Company shall also issue new Debentures to the Holders for the Principal Amount remaining outstanding after the Redemption Date promptly after the Holders’ presentation of the Debentures called for redemption.

(v) To effect a redemption the Company shall provide a written notice to the Holder(s) not more than two (2) days prior to the Redemption Date (the “Redemption Notice”), setting forth the following:

 

  1.

the Redemption Date;

 

  2.

the Redemption Price;

 

  3.

the aggregate Principal Amount of the Debentures being called for redemption;

 

4


  4.

a statement advising the Holders that the Debentures (or, in the case of a partial redemption, that portion of the Principal Amount being called for redemption) as of the Redemption Date will cease to be convertible into Common Stock as of the Redemption Date; and

 

  5.

in the case of a partial redemption, a statement advising the Holders that after the Redemption Date a substitute Debenture will be issued by the Company after deduction the portion thereof called for redemption, at no cost to the Holder, if the Holder so requests.

Notwithstanding the foregoing, in the event the Company issues a Redemption Notice but fails to fund the redemption on the Redemption Date, then such Redemption Notice shall be null and void, and (i) the Holder(s) shall be entitled to convert the Debentures previously the subject of the Redemption Notice, and (ii) the Company may not redeem such Debentures for at least thirty (30) days following the intended Redemption Date that was voided, and the Company shall be required to pay to the Holder(s) the Redemption Price simultaneously with the issuance of a Redemption Notice in connection with any subsequent redemption pursued by the Company.

3. [Intentionally omitted.]

4. No provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional to convert this Debenture into Common Stock, at the time, place, and rate herein prescribed. This Debenture is a direct obligation of the Company.

5. If the Company (a) merges or consolidates with another corporation or business entity and the Company is not the surviving entity or (b) sells or transfers all or substantially all of its assets to another Person and the holders of the Common Stock are entitled to receive stock, securities or property in respect of or in exchange for Common Stock, then as a condition of such merger, consolidation, sale or transfer, the Company and any such successor, purchaser or transferee will agree that this Debenture may thereafter be converted on the terms and subject to the conditions set forth above into the kind and amount of stock, securities or property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock into which this Debenture might have been converted immediately before such merger, consolidation, sale or transfer, subject to adjustments which shall be as nearly equivalent as may be practicable. In the event of any (i) proposed merger or consolidation where the Company is not the surviving entity or (ii) sale or transfer of all or substantially all of the assets of the Company (in either such case, a “Sale”), the Holder shall have the right to convert by delivering a Notice of Conversion to the Company within fifteen (15) days of receipt of notice of such Sale from the Company.

 

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6. If, at any time while any portion of this Debenture remains outstanding, the Company effectuates a stock split or reverse stock split of its Common Stock or issues a dividend on its Common Stock consisting of shares of Common Stock or otherwise recapitalizes its Common Stock, the Conversion Price shall be equitably adjusted to reflect such action. By way of illustration, and not in limitation, of the foregoing (i) if the Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such split, the Conversion Price shall be deemed to be one-half of what it had been calculated to be immediately prior to such split; (ii) if the Company effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such reverse split, the Conversion Price shall be deemed to be the amount of such Conversion Price calculated immediately prior to the record date multiplied by 10; and (iii) if the Company declares a stock dividend of one share of Common Stock for every 10 shares outstanding, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such dividend, the Conversion Price shall be deemed to be the amount of such Conversion Price calculated immediately prior to such record date multiplied by a fraction, of which the numerator is the number of shares for which a dividend share will be issued and the denominator is such number of shares plus the dividend share(s) issuable or issued thereon.

7. All payments contemplated hereby to be made “in cash” shall be made by wire transfer of immediately available funds in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments of cash and each delivery of shares of Common Stock issuable to the Holder as contemplated hereby shall be made to the Holder to an account designated by the Holder to the Company and if the Holder has not designated any such accounts at the address last appearing on the Debenture Register of the Company as designated in writing by the Holder from time to time; except that the Holder may designate, by notice to the Company, a different delivery address for any one or more specific payments or deliveries.

8. The Holder of the Debenture, by acceptance hereof, agrees that this Debenture is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Debenture or the Shares of Common Stock issuable upon conversion thereof except in compliance with the terms of the Securities Purchase Agreement and under circumstances which will not result in a violation of the Securities Act or any applicable state Blue Sky or foreign laws or similar laws relating to the sale of securities.

9. This Debenture shall be governed by and construed in accordance with the laws of the State of Nevada. Each of the parties consents to the exclusive jurisdiction and venue of the state and/or federal courts located in Miami-Dade County, Florida in connection with any dispute arising under this Agreement, and each waives any objection based on forum non conveniens. This provision is intended to be a “mandatory” forum selection clause and governed by and interpreted consistent with Florida law (Nevada law governing all other, substantive matters). Each of the parties hereby consents to the exclusive jurisdiction and venue of any state or federal court having its situs in Miami-Dade County, Florida, and each waives any objection based on forum non conveniens. To the extent determined by such court, the Company shall reimburse the Holder for any reasonable legal fees and disbursements incurred by the Holder in enforcement of or protection of any of its rights under this Debenture or the Securities Purchase Agreement.

 

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10. The following shall constitute an “Event of Default”:

a. The Company fails in the payment of principal or interest (to the extent that interest is imposed under this Section 10) on this Debenture as required to be paid in cash hereunder, and payment shall not have been made for a period of five (5) business days following the payment due date (as to which no further cure period shall apply); or

b. Any of the representations or warranties made by the Company herein, in the Securities Purchase Agreement or in any certificate or financial or other written statements heretofore or hereafter furnished by the Company to the Holder in connection with the issuance of this Debenture, shall be false or misleading (including without limitation by way of the misstatement of a material fact or the omission of a material fact) in any material respect at the time made (as to which no cure period shall apply); or

c. The Company fails to remain listed on OTCP, OTCQB, or OTCQX, or a more senior stock exchange any time from the date hereof to the Maturity Date for a period in excess of five (5) Trading Days (as to which no further cure period shall apply); or

d. The Company (i) fails to timely file required SEC reports when due (including extensions), becomes, is deemed to be or asserts that it is a “shell company” at any time for purposes of the 1933 Act, and Rule 144 promulgated thereunder or otherwise takes any action, or refrains from taking any action, the result of which makes Rule 144 under the 1933 Act unavailable to the Holder for the sale of their Securities, (ii) fails to issue shares of Common Stock to the Holder or to cause its Transfer Agent to issue shares of Common Stock upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Debenture, (iii) fails to transfer or to cause its Transfer Agent to transfer any certificate for shares of Common Stock issued to the Holder upon conversion of this Debenture as and when required by this Debenture and such transfer is otherwise lawful, (iv) fails to remove any restrictive legend or to cause its Transfer Agent to transfer any certificate or any shares of Common Stock issued to the Holder upon conversion of this Debenture as and when required by the relevant Transaction Document(s) and such legend removal is otherwise lawful, or (v) the Company fails to perform or observe any of its obligations under the Section 5 of the Agreement or under the Transfer Agent Instruction Letter (no cure period shall apply in the case of clauses (i) through (v) above, inclusive); or

e. The Company fails to perform or observe, in any material respect (i) any other covenant, term, provision, condition, agreement or obligation set forth in the Debenture, (subject to a cure period of three (3) days other than in the case of a failure under Section 5 hereof, as to which no cure period shall apply), or (ii) any other covenant, term, provision, condition, agreement or obligation of the Company set forth in the Securities Purchase Agreement and such failure shall continue uncured for a period of either (1) three (3) days after the occurrence of the Company’s failure under Section 4(d), (e) (except as described in Section 10(c) hereof, as to which Section 10(c) hereof shall control), (f), (g) or (h) of the Securities Purchase Agreement (provided, however, that with respect to Section 4(g), the failure shall have occurred on or after the date which is sixty (60) calendar days after the Issuance Date, or (2) ten (10) days after the occurrence of the Company’s failure under any other provision of the Securities Purchase Agreement not otherwise specifically addressed in the Events of Default set forth in this Section 10; or

 

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f. The Company shall (1) admit in writing its inability to pay its debts generally as they mature; (2) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (3) apply for or consent to the appointment of a trustee, liquidator or receiver for the Company or for a substantial part of its property or business (as to which no cure period shall apply); or

g. A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment (as to which no cure period shall apply); or

h. Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within sixty (60) days thereafter (as to which no cure period shall apply); or

i. Any money judgment, writ or warrant of attachment, or similar process (including an arbitral determination), in excess of Fifty Thousand Dollars ($50,000) in the aggregate shall be entered or filed against the Company or any of its properties or other assets (as to which no cure period shall apply); or

j. The occurrence of a breach or an event of default under the terms of any indebtedness or financial instrument of the Company or any subsidiary (including but not limited to any Subsidiary) of the Company in an aggregate amount in excess of Fifty Thousand Dollars ($50,000) or more which is not waived by the creditors under such indebtedness (as to which no cure period shall apply); or

k. Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within sixty (60) days after such institution or the Company shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding (as to which no further cure period shall apply); or

l. The issuance of an order, ruling, finding or similar adverse determination the SEC, the Secretary of State of the State of Delaware or other applicable state of incorporation of the Company, the National Association of Securities Dealers, Inc. or any other securities regulatory body (whether in the United States, Canada or elsewhere) having proper jurisdiction that the Company and/or any of its past or present directors or officers have committed a material violation of applicable securities laws or regulations (as to which no cure period shall apply); or

m. The Company shall have its Common Stock suspended or delisted from a national securities exchange or an electronic quotation service such as the OTCP, OTCQB, or OTCQX for a period in excess of five (5) Trading Days (as to which no further cure period shall apply); or

n. Any of the following shall occur and be continuing: a breach or default by any party under (a) any agreement identified by the Company in its SEC filings as a material agreement or (b) any note or other form of indebtedness in favor of the Company representing indebtedness of at least Fifty Thousand Dollars ($50,000.00), irrespective of whether such breach or default was waived (as to which no cure period shall apply); or

 

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o. Notice of a Material Adverse Effect is provided by the Company or the determination in good faith by the Holder that a Material Adverse Effect has occurred (as to which no cure period shall apply); or

p. The Company attempts to modify, amend, withdraw, rescind, disavow or repudiate any part of the Irrevocable Instructions (as to which no cure period shall apply).

q. Any attempt by the Company or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Company or its officers, directors, and/or affiliates of, material non-public information concerning the Company, to the Holder or its successors and assigns, which is not immediately cured by Company’s filing of a Form 8-K pursuant to Regulation FD on that same date.

r. At any time while this Debenture is outstanding, the lowest traded price on the OTCP, OTCQB, or OTCQX, or other applicable principal trading market for the Common Stock, is equal to or less than $0.0001.

Then, or at any time thereafter, the Company shall immediately give written notice of the occurrence of such Event of Default to the Holders of all Debentures then outstanding, and in each and every such case, unless such Event of Default shall have been waived in writing by a majority in interest of the Holders of the Debentures (which waiver shall not be deemed to be a waiver of any subsequent default), then at the option of a majority in interest of the Holders and in the discretion of a majority in interest of the Holders, take any or all of the following actions: (i) pursue remedies against the Company in accordance with any of the Holder’s rights, (ii) increase the interest rate applicable to the Debentures to the lesser of eighteen percent (18%) per annum and the maximum interest rate allowable under applicable law, (iii) in the case of an Event of Default under Section 10(e)(ii)(1) based on the Company’s failure to be DWAC Operational, increase the Principal Amount to an amount equal to one hundred ten percent (110%) of the then-outstanding Principal Amount, (iv) in the case of an Event of Default under Section 10(d)(i), increase the Principal Amount to an amount equal to one hundred twenty percent (120%) of the then-outstanding Principal Amount and an additional ten percent (10%) discount shall be factored into the Conversion Price until this Debenture is no longer outstanding, (v) in the case of an Event of Default under Section 10(d)(i) through (v), increase the Principal Amount of the relevant Holder’s Debenture by One Thousand Dollars and 00/100 ($1,000.00) for each day the related failure continues, (vi) in the case of an Event of Default under Section 10(d)(ii) through (v) arising from an untimely delivery to the Holder of Conversion Shares or shares of Common Stock in de-legended form, if the lowest traded price of the Common Stock on the Trading Day immediately prior to the actual date of delivery of Conversion Shares or de-legended shares, as the case may be, is less than the lowest traded price on the Trading Day immediately prior to the date when Conversion Shares or de-legended shares were required to be delivered, increase the Principal Amount of the relevant Holder’s Debenture by an amount per share equal to such difference, and (vii) following the expiration of the applicable grace period (if any), at the option and discretion of the Holder, accelerate the full indebtedness under this Debenture, in an amount equal to one hundred forty percent (140%) of the outstanding Principal Amount and accrued and unpaid interest (the “Acceleration Amount”), whereupon the Acceleration Amount shall be immediately due and

 

9


payable, without presentment, demand, protest or notice of any kinds, all of which are hereby expressly waived, anything contained herein, in the Securities Purchase Agreement or in any other note or instruments to the contrary notwithstanding. In the case of an Event of Default under Section 10(d)(ii), the Holder may either (i) declare the Acceleration Amount to exclude the Conversion Amount that is the subject of the Event of Default, in which case the Acceleration Amount shall be based on the remaining Principal Amount and accrued interest (if any), in which case the Company shall continue to be obligated to issue the Conversion Shares, or (ii) declare the Acceleration Amount to include the Conversion Amount that is the subject of the Event of Default, in which case the Acceleration Amount shall be based on the full Principal Amount, including the Conversion Amount, and accrued interest (if any), whereupon the Notice of Conversion shall be deemed withdrawn. At its option, the Holder may elect to convert the Debenture pursuant to Section 2 notwithstanding the prior declaration of a default and acceleration, in the sole discretion of such Holder. A majority in interest of the Holders may immediately enforce any and all of the Holder’s rights and remedies provided herein or any other rights or remedies afforded by applicable law. Notwithstanding the foregoing, in the case of a default under Section 10(d)(ii) through (iv), the Holder of the Debenture sought to be converted, transferred or de-legended, as the case may be, acting singly, shall have the sole and absolute discretion to increase the applicable interest rate on the Debentures held by such Holder and/or to accelerate the Debenture(s) held by such Holder. The Company expressly acknowledges and agrees that the Holder’s exercise of any or all of the remedies provided herein or under applicable law, including without limitation the increase(s) in the Principal Amount and the Acceleration Amount as may be declared in the case of a default, is reasonable and appropriate due to the inability to define the financial hardship that the Company’s default would impose on the Holders. To the extent that the Holder’s exercise of any of its remedies in the case of an Event of Default shall be construed to exceed the maximum interest rate allowable under applicable law, then such remedies shall be reduced to equal the maximum interest rate allowable under applicable law

11. Nothing contained in this Debenture shall be construed as conferring upon the Holder the right to vote or to receive dividends or to consent or receive notice as a shareholder in respect of any meeting of shareholders or any rights whatsoever as a shareholder of the Company, unless and to the extent converted in accordance with the terms hereof.

12. So long as this Debenture is outstanding, upon any issuance by the Company or any of its subsidiaries of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Holder in this Debenture, then the Company shall notify the Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of the transaction documents with the Holder. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage.

13. This Debenture may be amended only by the written consent of the parties hereto. Notwithstanding the foregoing, the Principal Amount of this Debenture shall automatically be reduced by any and all Conversion Amounts (to the extent that the same relate to principal hereof). In the absence of manifest error, the outstanding Principal Amount of the Debenture on the Holder’s book and records shall be the correct amount.

 

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14. In the event of any inconsistency between the provisions of this Debenture and the provisions of any other Transaction Document, the provisions of this Debenture shall prevail. Without limiting the generality of the foregoing, in the event the Transfer Agent is not required to transfer any Common Stock, issue Conversion Shares or de-legended shares of Restricted Stock pursuant to the Transfer Agent Instruction Letter, this shall not operate as an excuse, extension or waiver of the Company’s obligation to issue and deliver Conversion Shares or de-legended Restricted Stock.

15. The Company specifically acknowledges and agrees that in the event of a breach or threatened breach by the Company of any provision hereof or of any other Transaction Document, the Holder will be irreparably damaged, and that damages at law would be an inadequate remedy if this Debenture or such other Transaction Document were not specifically enforced. Therefore, in the event of a breach or threatened breach by the Company, the Holder shall be entitled, in addition to all other rights and remedies, to an injunction restraining such breach, without being required to show any actual damage or to post any bond or other security, and/or to a decree for a specific performance of the provisions of this Debenture and the other Transaction Documents.

16. No waivers or consents in regard to any provision of this Debenture may be given other than by an instrument in writing signed by the Holder.

17. Each time, while this Debenture is outstanding, the Company enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or debentures, or of a replacement promissory note or debenture), or Section 3(a)(10) transaction, in which any 3rd party has the right to convert monies owed to that 3rd party (or receive shares pursuant to a settlement or otherwise) at a discount to market greater than the Conversion Price in effect at that time (prior to all other applicable adjustments in this Debenture), then the Conversion Price shall be automatically adjusted to such greater discount percentage (prior to all applicable adjustments in this Debenture) until this Debenture is no longer outstanding. Each time, while this Debenture is outstanding, the Company enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or debentures, or of a replacement promissory note or debenture), or Section 3(a)(10) transaction, in which any 3rd party has a look back period greater than the look back period in effect under this Debenture at that time, then the Holder’s look back period shall automatically be adjusted to such greater number of days until this Debenture is no longer outstanding. The Company shall give written notice to the Holder, with the adjusted Conversion Price and/or adjusted look back period (each adjustment that is applicable due to the triggering event), within one (1) business day of an event that requires any adjustment described in this section. So long as this Debenture is outstanding, the Company shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(l0) of the Securities Act (a “3(a)(l0) Transaction”). In the event that the Company does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(l0) Transaction while this Debenture is outstanding, a liquidated damages charge of 20% of the outstanding principal balance of this Debenture, but not less than Fifteen Thousand Dollars, will be assessed and will become immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Debenture.

18. Reserved

 

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19. Notwithstanding any provision in this Debenture or the related transaction documents to the contrary, the total liability for payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions, or other sums which may at any time be deemed to be interest, shall not exceed the limit imposed by the usury laws of the jurisdiction governing this Debenture or any other applicable law. In the event the total liability of payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions or other sums which may at any time be deemed to be interest, shall, for any reason whatsoever, result in an effective rate of interest, which for any month or other interest payment period exceeds the limit imposed by the usury laws of the jurisdiction governing this Debenture, all sums in excess of those lawfully collectible as interest for the period in question shall, without further agreement or notice by, between, or to any party hereto, be applied to the reduction of the outstanding principal balance due hereunder immediately upon receipt of such sums by the Holder hereof, with the same force and effect as though the Company had specifically designated such excess sums to be so applied to the reduction of the principal balance then outstanding, and the Holder hereof had agreed to accept such sums as a penalty-free payment of principal; provided, however, that the Holder may, at any time and from time to time, elect, by notice in writing to the Company, to waive, reduce, or limit the collection of any sums in excess of those lawfully collectible as interest, rather than accept such sums as a prepayment of the principal balance then outstanding. It is the intention of the parties that the Company does not intend or expect to pay, nor does the Holder intend or expect to charge or collect any interest under this Debenture greater than the highest non-usurious rate of interest which may be charged under applicable law.

[Signature Page Follows]

 

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IN WITNESS WHEREOF , the Company has caused this Debenture to be duly executed by an officer thereunto duly authorized as of the date of issuance set forth above.

 

MATEON THERAPEUTICS, INC.
By:                                                                    
Name: William Schwieterman
Title: Chief Executive Officer

[Signature Page to Convertible Debenture]

 

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ANNEX A

MATEON THERAPEUTICS, INC.

NOTICE OF CONVERSION

(To Be Executed by the Registered Holder in Order to Convert the Debenture)

The undersigned hereby irrevocably elects to convert $                     of the Principal Amount of the above Debenture into Shares of Common Stock of Mateon Therapeutics, Inc., a Delaware corporation (the “Company”), according to the conditions hereof, as of the date written below. After giving effect to the conversion requested hereby, the outstanding Principal Amount of such debenture is $                    , absent manifest error.

Pursuant to the Debenture, certificates representing Common Stock upon conversion must be delivered (including delivery by DWAC or DRS) to the undersigned within two (2) business days from the date of delivery of the Notice of Conversion to the Transfer Agent.

 

Conversion Date

 

Applicable Conversion Price

 

Signature

 

Print Name

 

Address

 

 

 

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Exhibit 4.2

SIGNING DEBENTURE

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION REQUIREMENTS THEREOF OR EXEMPTION THEREFROM.

MATEON THERAPEUTICS, INC.

CONVERTIBLE DEBENTURE DUE APRIL    , 2022

 

Issuance Date: April     , 2019

  

Principal Amount: $_____________

FOR VALUE RECEIVED, MATEON THERAPEUTICS, INC. , a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby promises to pay to [Buyer], having its address at [Address], or its assigns (the “Holder” and together with the other holders of Debentures issued pursuant to the Securities Purchase Agreement (as defined below), the “Holders”), the initial principal sum of [Amount] and 00/100 Dollars ($    ,        .00) (subject to adjustment as provided herein, the “Principal Amount”) on April     , 2022 (the “Maturity Date”). The Company has the option to redeem this Debenture prior to the Maturity Date pursuant to Section 2(b). All unpaid principal due and payable on the Maturity Date shall be paid in the form of Common Stock of the Company, par value $0.01 per share (“Common Stock”) pursuant to Section 3. The Holder has the option to cause any outstanding principal and accrued interest, if any, on this Debenture to be converted into Common Stock at any time prior to the Redemption Date (as defined below) or the Maturity Date pursuant to Section 2(a).

This Debenture is one of the Debentures referred to in the Securities Purchase Agreement (the “Securities Purchase Agreement”) dated as of April     , 2019, between the Company and the Holder. Capitalized terms used but not defined herein shall have the meanings set forth in the Securities Purchase Agreement. This Debenture is also subject to the provisions of the Securities Purchase Agreement and further is subject to the following additional provisions:

1.    This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only in compliance with the Securities Act and other applicable state and foreign securities laws. The Holder may transfer or assign this Debenture (or any part thereof) without the prior consent of the Company, and the Company shall cooperate with any such transfer. In the event of any proposed transfer of this Debenture, the Company may require, prior to issuance of a new Debenture in the name of such other Person, that it receive reasonable transfer documentation including legal opinions that the issuance of the Debenture in such other name does not and will not cause a violation of the Securities Act or any applicable state or foreign securities laws or is exempt from the registration requirements of the Securities Act. Prior to due presentment for transfer of this Debenture to which the Company has consented, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Company’s books and records of outstanding debt securities and obligations (“Debenture Register”) as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.


2.      Conversion at Holder’s Option; Redemption at Company’s Option.

a. The Holder is entitled to, at any time or from time to time, convert the Conversion Amount (as defined below) into Conversion Shares, at a conversion price for each share of Common Stock (the “Conversion Price”) equal to $0.10 (the “Fixed Price”), provided, however, that if the Debenture is not redeemed in its entirety by the Company on or before the 180th calendar day after the Issuance Date, then the Conversion Price shall equal the lesser of (a) the Fixed Price or (b) Sixty Five percent (65%) of the lowest traded price (as reported by Bloomberg LP) of the Common Stock for the fifteen (15) Trading Days immediately preceding the date of the date of conversion of the Debenture (provided, further, that if the Company is not DWAC Operational at the time of conversion, the Common Stock is traded on the OTC Pink (“OTCP”) at the time of conversion, or the Conversion Price is less than $0.01 per share, then Sixty Five percent (65%) shall automatically adjust to Fifty Five percent (55%) of the lowest traded price (as reported by Bloomberg LP) of the Common Stock for the fifteen (15) Trading Days immediately preceding the date of conversion of the Debenture), subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events. The Company shall issue irrevocable instructions to its Transfer Agent regarding conversions such that the transfer agent shall be authorized and instructed to issue Conversion Shares upon its receipt of a Notice of Conversion without further approval or authorization from the Company. For purposes of this Debenture, the “Conversion Amount” shall mean the sum of (A) all or any portion of the outstanding Principal Amount of this Debenture, as designated by the Holder upon exercise of its right of conversion plus (B) any interest, pursuant to Section 10 or otherwise, that has accrued on the portion of the Principal Amount that has been designated for payment pursuant to (A).

Conversion shall be effectuated by delivering by facsimile, email or other delivery method to the Transfer Agent of the completed form of conversion notice attached hereto as Annex A (the “Notice of Conversion”), executed by the Holder of the Debenture evidencing such Holder’s intention to convert this Debenture or a specified portion hereof. No fractional shares of Common Stock or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The Holder may, at its election, deliver a Notice of Conversion to either the Company or the Transfer Agent. The date on which notice of conversion is given (the “Conversion Date”) shall be deemed to be the date on which the Company or the Transfer Agent, as the case may be, receives by fax, email or other means of delivery used by the Holder the Notice of Conversion (such receipt being evidenced by electronic confirmation of delivery by facsimile or email or confirmation of delivery by such other delivery method used by the Holder). Delivery of a Notice of Conversion to the Transfer Agent may be given by the Holder by facsimile, or by delivery to the Transfer Agent at the address set forth in the Transfer Agent Instruction Letter (or such other contact facsimile number, email or street address as may be designated by the Transfer Agent to the Holder). Delivery of a Notice of Conversion to the Company shall be given by the Holder pursuant to the notice provisions set forth in Section 10 of the Agreement. The Conversion Shares must be delivered to the Holder within two (2) business days from the date of delivery of the Notice of Conversion to the Transfer Agent or Company, as the case may be. Conversion shares shall be delivered by DWAC so long as the Company is then DWAC Operational, unless the Holder expressly requests delivery in certificated form or the

 

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Conversion Shares are in the form of Restricted Stock and are required to bear a restrictive legend. Conversion Shares shall be deemed delivered (i) if delivered by DWAC, upon deposit into the Holder’s brokerage account, or (ii) if delivered in certificated form, upon the Holder’s actual receipt of the Conversion Shares in certificated form at the address specified by the Holder in the Notice of Conversion, as confirmed by written receipt.

If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion Amount for such conversion may be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been adjusted by the Holder to the par value price.

Except with respect to an Exempt Issuance (as defined in this Debenture), if, at any time while the Debenture is issued and outstanding, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock for a consideration per share less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance and at the option of the Holder, the Conversion Price will be reduced to the price per share of the Dilutive Issuance. “Exempt Issuance ” means the issuance of (a) shares of Common Stock or options to officers, employees, or directors of the Company issued pursuant to plans that have been approved by the board of directors of the Company, (b) securities in full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of the securities or assets of a corporation or other entity, or (c) securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital.

b. So long as no Event of Default (as defined in Section 10) shall have occurred and be continuing (whether such Event of Default has been declared by the Holder) (unless the Holder consents to such redemption notwithstanding such Event of Default, as described in clause (v), below), the Company may at its option call for redemption all or part of the Debentures, with the exception of any portion thereof which is the subject of a previously-delivered Notice of Conversion, prior to the Maturity Date, as follows:

(i) The Debentures called for redemption shall be redeemable by the Company, upon not more than two (2) calendar days written notice, for an amount (the “Redemption Price”) equal to: (i) if the Redemption Date (as defined below) is ninety (90) calendar days or less from the date of issuance of this Debenture, One Hundred Ten percent (110%) of the sum of the Principal Amount so redeemed plus accrued interest, if any; (ii) if the Redemption Date is greater than or equal to ninety-one (91) calendar days from the date of issuance of this Debenture and less than or equal to one hundred twenty (120) calendar days from the date of issuance of this Debenture, One Hundred Twenty percent (120%) of the sum of the Principal Amount so redeemed plus accrued interest, if any; (iii) if the Redemption Date is greater than or equal to one hundred twenty one (121) calendar days from the date of issuance of this Debenture and less than or equal to one hundred eighty (180) calendar days from the date of issuance of this Debenture, One Hundred Thirty percent (130%) of the sum of the Principal Amount so redeemed plus accrued

 

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interest, if any; and (iv) if either (1) the Debentures are in default but the Holder consents to the redemption notwithstanding such default or (2) the Redemption Date is greater than or equal to one hundred eighty one (181) calendar days from the date of issuance of this Debenture, One Hundred Forty percent (140%) of the sum of the Principal Amount so redeemed plus accrued interest, if any. The date upon which the Debentures are redeemed and paid shall be referred to as the “Redemption Date” (and, in the case of multiple redemptions of less than the entire outstanding Principal Amount, each such date shall be a Redemption Date with respect to the corresponding redemption).

(ii) If fewer than all outstanding Debentures are to be redeemed, including Debentures issued concurrently to Peak One Opportunity Fund, L.P. and are held by different investors, then all Debentures shall be partially redeemed on a pro rata basis.

(iii) [Reserved]

(iv) On the Redemption Date, the Company shall cause the Holders whose Debentures have been presented for redemption to be issued payment of the Redemption Price. In the case of a partial redemption, the Company shall also issue new Debentures to the Holders for the Principal Amount remaining outstanding after the Redemption Date promptly after the Holders’ presentation of the Debentures called for redemption.

(v) To effect a redemption the Company shall provide a written notice to the Holder(s) not more than two (2) days prior to the Redemption Date (the “Redemption Notice”), setting forth the following:

 

  1.

the Redemption Date;

 

  2.

the Redemption Price;

 

  3.

the aggregate Principal Amount of the Debentures being called for redemption;

 

  4.

a statement advising the Holders that the Debentures (or, in the case of a partial redemption, that portion of the Principal Amount being called for redemption) as of the Redemption Date will cease to be convertible into Common Stock as of the Redemption Date; and

 

  5.

in the case of a partial redemption, a statement advising the Holders that after the Redemption Date a substitute Debenture will be issued by the Company after deduction the portion thereof called for redemption, at no cost to the Holder, if the Holder so requests.

Notwithstanding the foregoing, in the event the Company issues a Redemption Notice but fails to fund the redemption on the Redemption Date, then such Redemption Notice shall be null and void, and (i) the Holder(s) shall be entitled to convert the Debentures previously the subject of the Redemption Notice, and (ii) the Company may not redeem such Debentures for at least thirty (30) days following the intended Redemption Date that was voided, and the Company shall be required to pay to the Holder(s) the Redemption Price simultaneously with the issuance of a Redemption Notice in connection with any subsequent redemption pursued by the Company.

 

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3.      Unless demand has otherwise been made by the Holder in writing for payment in cash as provided hereunder, and so long as no Event of Default shall exist (whether or not notice thereof has been delivered by the Holder to the Company), any Debentures not previously tendered to the Company for conversion as of the Maturity Date shall be deemed to have been surrendered for conversion, without further action of any kind by the Company or any of its agents, employees or representatives, as of the Maturity Date at the Conversion Price applicable on the Maturity Date (“Mandatory Conversion”).

4.      No provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional to convert this Debenture into Common Stock, at the time, place, and rate herein prescribed. This Debenture is a direct obligation of the Company.

5.      If the Company (a) merges or consolidates with another corporation or business entity and the Company is not the surviving entity or (b) sells or transfers all or substantially all of its assets to another Person and the holders of the Common Stock are entitled to receive stock, securities or property in respect of or in exchange for Common Stock, then as a condition of such merger, consolidation, sale or transfer, the Company and any such successor, purchaser or transferee will agree that this Debenture may thereafter be converted on the terms and subject to the conditions set forth above into the kind and amount of stock, securities or property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock into which this Debenture might have been converted immediately before such merger, consolidation, sale or transfer, subject to adjustments which shall be as nearly equivalent as may be practicable. In the event of any (i) proposed merger or consolidation where the Company is not the surviving entity or (ii) sale or transfer of all or substantially all of the assets of the Company (in either such case, a “Sale”), the Holder shall have the right to convert by delivering a Notice of Conversion to the Company within fifteen (15) days of receipt of notice of such Sale from the Company.

6.      If, at any time while any portion of this Debenture remains outstanding, the Company effectuates a stock split or reverse stock split of its Common Stock or issues a dividend on its Common Stock consisting of shares of Common Stock or otherwise recapitalizes its Common Stock, the Conversion Price shall be equitably adjusted to reflect such action. By way of illustration, and not in limitation, of the foregoing (i) if the Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such split, the Conversion Price shall be deemed to be one-half of what it had been calculated to be immediately prior to such split; (ii) if the Company effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such reverse split, the Conversion Price shall be deemed to be the amount of such Conversion Price calculated immediately prior to the record date multiplied by 10; and (iii) if the Company declares a stock dividend of one share of Common Stock for every 10 shares outstanding, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such dividend, the Conversion Price shall be deemed to be the amount of such Conversion Price calculated immediately prior to such record date multiplied by a fraction, of which the numerator is the number of shares for which a dividend share will be issued and the denominator is such number of shares plus the dividend share(s) issuable or issued thereon.

 

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7.      All payments contemplated hereby to be made “in cash” shall be made by wire transfer of immediately available funds in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments of cash and each delivery of shares of Common Stock issuable to the Holder as contemplated hereby shall be made to the Holder to an account designated by the Holder to the Company and if the Holder has not designated any such accounts at the address last appearing on the Debenture Register of the Company as designated in writing by the Holder from time to time; except that the Holder may designate, by notice to the Company, a different delivery address for any one or more specific payments or deliveries.

8.     The Holder of the Debenture, by acceptance hereof, agrees that this Debenture is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Debenture or the Shares of Common Stock issuable upon conversion thereof except in compliance with the terms of the Securities Purchase Agreement and under circumstances which will not result in a violation of the Securities Act or any applicable state Blue Sky or foreign laws or similar laws relating to the sale of securities.

9.     This Debenture shall be governed by and construed in accordance with the laws of the State of Nevada. Each of the parties consents to the exclusive jurisdiction and venue of the state and/or federal courts located in Miami-Dade County, Florida in connection with any dispute arising under this Agreement, and each waives any objection based on forum non conveniens. This provision is intended to be a “mandatory” forum selection clause and governed by and interpreted consistent with Florida law (Nevada law governing all other, substantive matters). Each of the parties hereby consents to the exclusive jurisdiction and venue of any state or federal court having its situs in Miami-Dade County, Florida, and each waives any objection based on forum non conveniens. To the extent determined by such court, the Company shall reimburse the Holder for any reasonable legal fees and disbursements incurred by the Holder in enforcement of or protection of any of its rights under this Debenture or the Securities Purchase Agreement.

10.    The following shall constitute an “Event of Default”:

a. The Company fails in the payment of principal or interest (to the extent that interest is imposed under this Section 10) on this Debenture as required to be paid in cash hereunder, and payment shall not have been made for a period of five (5) business days following the payment due date (as to which no further cure period shall apply); or

b. Any of the representations or warranties made by the Company herein, in the Securities Purchase Agreement or in any certificate or financial or other written statements heretofore or hereafter furnished by the Company to the Holder in connection with the issuance of this Debenture, shall be false or misleading (including without limitation by way of the misstatement of a material fact or the omission of a material fact) in any material respect at the time made (as to which no cure period shall apply); or

c. The Company fails to remain listed on OTCP, OTCQB, or OTCQX, or a more senior stock exchange any time from the date hereof to the Maturity Date for a period in excess of five (5) Trading Days (as to which no further cure period shall apply); or

 

6


d. The Company (i) fails to timely file required SEC reports when due (including extensions), becomes, is deemed to be or asserts that it is a “shell company” at any time for purposes of the 1933 Act, and Rule 144 promulgated thereunder or otherwise takes any action, or refrains from taking any action, the result of which makes Rule 144 under the 1933 Act unavailable to the Holder for the sale of their Securities, (ii) fails to issue shares of Common Stock to the Holder or to cause its Transfer Agent to issue shares of Common Stock upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Debenture, (iii) fails to transfer or to cause its Transfer Agent to transfer any certificate for shares of Common Stock issued to the Holder upon conversion of this Debenture as and when required by this Debenture and such transfer is otherwise lawful, (iv) fails to remove any restrictive legend or to cause its Transfer Agent to transfer any certificate or any shares of Common Stock issued to the Holder upon conversion of this Debenture as and when required by the relevant Transaction Document(s) and such legend removal is otherwise lawful, or (v) the Company fails to perform or observe any of its obligations under the Section 5 of the Agreement or under the Transfer Agent Instruction Letter (no cure period shall apply in the case of clauses (i) through (v) above, inclusive); or

e. The Company fails to perform or observe, in any material respect (i) any other covenant, term, provision, condition, agreement or obligation set forth in the Debenture, (subject to a cure period of three (3) days other than in the case of a failure under Section 5 hereof, as to which no cure period shall apply), or (ii) any other covenant, term, provision, condition, agreement or obligation of the Company set forth in the Securities Purchase Agreement and such failure shall continue uncured for a period of either (1) three (3) days after the occurrence of the Company’s failure under Section 4(d), (e) (except as described in Section 10(c) hereof, as to which Section 10(c) hereof shall control), (f), (g) or (h) of the Securities Purchase Agreement, or (2) ten (10) days after the occurrence of the Company’s failure under any other provision of the Securities Purchase Agreement not otherwise specifically addressed in the Events of Default set forth in this Section 10; or

f. The Company shall (1) admit in writing its inability to pay its debts generally as they mature; (2) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (3) apply for or consent to the appointment of a trustee, liquidator or receiver for the Company or for a substantial part of its property or business (as to which no cure period shall apply); or

g. A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment (as to which no cure period shall apply); or

h. Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within sixty (60) days thereafter (as to which no cure period shall apply); or

i. Any money judgment, writ or warrant of attachment, or similar process (including an arbitral determination), in excess of Fifty Thousand Dollars ($50,000) in the aggregate shall be entered or filed against the Company or any of its properties or other assets (as to which no cure period shall apply); or

 

7


j. The occurrence of a breach or an event of default under the terms of any indebtedness or financial instrument of the Company or any subsidiary (including but not limited to any Subsidiary) of the Company in an aggregate amount in excess of Fifty Thousand Dollars ($50,000) or more which is not waived by the creditors under such indebtedness (as to which no cure period shall apply); or

k. Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within sixty (60) days after such institution or the Company shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding (as to which no further cure period shall apply); or

l. The issuance of an order, ruling, finding or similar adverse determination the SEC, the Secretary of State of the State of Delaware or other applicable state of incorporation of the Company, the National Association of Securities Dealers, Inc. or any other securities regulatory body (whether in the United States, Canada or elsewhere) having proper jurisdiction that the Company and/or any of its past or present directors or officers have committed a material violation of applicable securities laws or regulations (as to which no cure period shall apply); or

m. The Company shall have its Common Stock suspended or delisted from a national securities exchange or an electronic quotation service such as the OTCP, OTCQB, or OTCQX for a period in excess of five (5) Trading Days (as to which no further cure period shall apply); or

n. Any of the following shall occur and be continuing: a breach or default by any party under (a) any agreement identified by the Company in its SEC filings as a material agreement or (b) any note or other form of indebtedness in favor of the Company representing indebtedness of at least Fifty Thousand Dollars ($50,000.00), irrespective of whether such breach or default was waived (as to which no cure period shall apply); or

o. Notice of a Material Adverse Effect is provided by the Company or the determination in good faith by the Holder that a Material Adverse Effect has occurred (as to which no cure period shall apply); or

p. [Intentionally Omitted].

q. [Intentionally Omitted].

r. At any time while this Debenture is outstanding, the lowest traded price on the OTCP, OTCQB, or OTCQX, or other applicable principal trading market for the Common Stock, is equal to or less than $0.0001.

 

8


Then, or at any time thereafter, the Company shall immediately give written notice of the occurrence of such Event of Default to the Holders of all Debentures then outstanding, and in each and every such case, unless such Event of Default shall have been waived in writing by a majority in interest of the Holders of the Debentures (which waiver shall not be deemed to be a waiver of any subsequent default), then at the option of a majority in interest of the Holders and in the discretion of a majority in interest of the Holders, take any or all of the following actions: (i) pursue remedies against the Company in accordance with any of the Holder’s rights, and (ii) increase the interest rate applicable to the Debentures to the lesser of eighteen percent (18%) per annum and the maximum interest rate allowable under applicable law. A majority in interest of the Holders may immediately enforce any and all of the Holder’s rights and remedies provided herein or any other rights or remedies afforded by applicable law. The Company expressly acknowledges and agrees that the Holder’s exercise of any or all of the remedies provided herein or under applicable law, including without limitation the increase(s) in the Principal Amount and as may be declared in the case of a default, is reasonable and appropriate due to the inability to define the financial hardship that the Company’s default would impose on the Holders. To the extent that the Holder’s exercise of any of its remedies in the case of an Event of Default shall be construed to exceed the maximum interest rate allowable under applicable law, then such remedies shall be reduced to equal the maximum interest rate allowable under applicable law.

11.   Nothing contained in this Debenture shall be construed as conferring upon the Holder the right to vote or to receive dividends or to consent or receive notice as a shareholder in respect of any meeting of shareholders or any rights whatsoever as a shareholder of the Company, unless and to the extent converted in accordance with the terms hereof.

12.   So long as this Debenture is outstanding, upon any issuance by the Company or any of its subsidiaries of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Holder in this Debenture, then the Company shall notify the Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of the transaction documents with the Holder. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage.

13.   This Debenture may be amended only by the written consent of the parties hereto. Notwithstanding the foregoing, the Principal Amount of this Debenture shall automatically be reduced by any and all Conversion Amounts (to the extent that the same relate to principal hereof). In the absence of manifest error, the outstanding Principal Amount of the Debenture on the Holder’s book and records shall be the correct amount.

14.   In the event of any inconsistency between the provisions of this Debenture and the provisions of any other Transaction Document, the provisions of this Debenture shall prevail. Without limiting the generality of the foregoing, in the event the Transfer Agent is not required to transfer any Common Stock, issue Conversion Shares or de-legended shares of Restricted Stock pursuant to the Transfer Agent Instruction Letter, this shall not operate as an excuse, extension or waiver of the Company’s obligation to issue and deliver Conversion Shares or de-legended Restricted Stock.

 

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15.   The Company specifically acknowledges and agrees that in the event of a breach or threatened breach by the Company of any provision hereof or of any other Transaction Document, the Holder will be irreparably damaged, and that damages at law would be an inadequate remedy if this Debenture or such other Transaction Document were not specifically enforced. Therefore, in the event of a breach or threatened breach by the Company, the Holder shall be entitled, in addition to all other rights and remedies, to an injunction restraining such breach, without being required to show any actual damage or to post any bond or other security, and/or to a decree for a specific performance of the provisions of this Debenture and the other Transaction Documents.

16.   No waivers or consents in regard to any provision of this Debenture may be given other than by an instrument in writing signed by the Holder.

17.   Each time, while this Debenture is outstanding, the Company enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or debentures, or of a replacement promissory note or debenture), or Section 3(a)(10) transaction, in which any 3rd party has the right to convert monies owed to that 3rd party (or receive shares pursuant to a settlement or otherwise) at a discount to market greater than the Conversion Price in effect at that time (prior to all other applicable adjustments in this Debenture), then the Conversion Price shall be automatically adjusted to such greater discount percentage (prior to all applicable adjustments in this Debenture) until this Debenture is no longer outstanding. Each time, while this Debenture is outstanding, the Company enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or debentures, or of a replacement promissory note or debenture), or Section 3(a)(10) transaction, in which any 3rd party has a look back period greater than the look back period in effect under this Debenture at that time, then the Holder’s look back period shall automatically be adjusted to such greater number of days until this Debenture is no longer outstanding. The Company shall give written notice to the Holder, with the adjusted Conversion Price and/or adjusted look back period (each adjustment that is applicable due to the triggering event), within one (1) business day of an event that requires any adjustment described in this section. So long as this Debenture is outstanding, the Company shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(l0) of the Securities Act (a “3(a)(l0) Transaction”).

18.   Reserved

19.   Notwithstanding any provision in this Debenture or the related transaction documents to the contrary, the total liability for payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions, or other sums which may at any time be deemed to be interest, shall not exceed the limit imposed by the usury laws of the jurisdiction governing this Debenture or any other applicable law. In the event the total liability of payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions or other sums which may at any time be deemed to be interest, shall, for any reason whatsoever, result in an effective rate of interest, which for any month or other interest payment period exceeds the limit imposed by the usury laws of the jurisdiction governing this Debenture, all sums in excess of those lawfully collectible as interest for the period in question shall, without further agreement or notice by, between, or to any party hereto, be applied to the reduction of the outstanding principal balance due hereunder immediately upon receipt of such sums by the Holder hereof, with the same force and effect as though the Company had specifically designated such excess sums to be so applied to the reduction of the principal balance then outstanding, and the Holder hereof had agreed to accept such sums as a penalty-free payment of

 

10


principal; provided, however, that the Holder may, at any time and from time to time, elect, by notice in writing to the Company, to waive, reduce, or limit the collection of any sums in excess of those lawfully collectible as interest, rather than accept such sums as a prepayment of the principal balance then outstanding. It is the intention of the parties that the Company does not intend or expect to pay, nor does the Holder intend or expect to charge or collect any interest under this Debenture greater than the highest non-usurious rate of interest which may be charged under applicable law.

[Signature Page Follows]

 

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IN WITNESS WHEREOF , the Company has caused this Debenture to be duly executed by an officer thereunto duly authorized as of the date of issuance set forth above.

 

MATEON THERAPEUTICS, INC.
By:    
Name:    William D. Schwieterman
Title:    Chief Executive Officer

[Signature Page to Convertible Debenture]

 

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ANNEX A

MATEON THERAPEUTICS, INC.

NOTICE OF CONVERSION

(To Be Executed by the Registered Holder in Order to Convert the Debenture)

The undersigned hereby irrevocably elects to convert $                     of the Principal Amount of the above Debenture into Shares of Common Stock of Mateon Therapeutics, Inc., a Delaware corporation (the “Company”), according to the conditions hereof, as of the date written below. After giving effect to the conversion requested hereby, the outstanding Principal Amount of such debenture is $                    , absent manifest error.

Pursuant to the Debenture, certificates representing Common Stock upon conversion must be delivered (including delivery by DWAC or DRS) to the undersigned within two (2) business days from the date of delivery of the Notice of Conversion to the Transfer Agent.

 

Conversion Date

 

Applicable Conversion Price

 

Signature

 

Print Name

 

Address

 

 

 

13

Exhibit 10.1

SEPARATION AGREEMENT AND RELEASE

THIS SEPARATION AGREEMENT AND RELEASE (“Agreement”) is made and entered into by and between Dr. William D. Schwieterman (“Employee”) and Mateon Therapeutics, Inc. (“Company”), and inures to the benefit of each of Company’s current, former and future, as applicable, subsidiaries, affiliates, related entities, successors, officers, directors, shareholders, agents, employees and assigns. The term “Parties” as used in this Agreement means Company and Employee collectively.

RECITALS

A. Employee is an at-will employee of Company, working pursuant to an employment agreement dated May 12, 2015, a July 31, 2015 amendment thereto and an October 2, 2017 amendment thereto;

B. On or about April 17, 2019, the Company intends to enter into an Agreement and Plan of Merger (the “Merger Agreement”) with Oncotelic, Inc. and Oncotelic Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of the Company (the “Merger Sub”). Upon the terms of and subject to the satisfaction of the conditions described in the Merger Agreement, the Merger Sub will be merged with and into Oncotelic (the “Merger”), with Oncotelic surviving the Merger as a wholly-owned subsidiary of the Company;

C. Employee will separate from Company effective at the closing of the Merger (the “Separation Date”); and

D. The Parties want to resolve any and all actual or potential disputes arising out of or relating to Employee’s employment with Company or the cessation of that employment.

Company and Employee hereby agree as follows:

1. Severance Benefit . In consideration of the covenants and releases in this Agreement, and in lieu of any other severance payments otherwise due and payable to Employee, Company will pay to Employee: (a) a payment of $205,000 in cash, upon the closing of a financing in which at least $10 million in gross proceeds is received by the Company subsequent to the closing of the Merger (a “Post-Closing Financing”), and (b) an additional payment of $205,000 in cash, upon the closing of a Post-Closing Financing in which at least an additional $10 million in gross proceeds is received by the Company. In addition, Company will reimburse Employee for twelve months, starting the month immediately after the Separation Date, for Employee’s monthly COBRA premiums, subject to applicable laws and requirements and Employee’s eligibility and compliance with COBRA and insurance requirements. If Employee obtains other health insurance coverage from another employee, company, or business entity within the twelve months after the Separation Date, Company will no longer be required to pay for or reimburse Employee for COBRA premiums. Employee will inform Company promptly after Employee learns he will be covered by other health insurance and when that coverage begins. The payments described in this paragraph are referred to as the “Severance Benefit”. Employee must comply with all of the terms of this Agreement, and his Confidentiality and Inventions Agreement with the Company (the “Confidentiality Agreement”), in order to receive, or continue to receive, the Severance Benefit.

2. Wages and Vacation Time Paid . Employee acknowledges that Company will pay Employee on the Separation Date all of Employee’s wages due and owing and paid for all accrued-but-unused paid time off. Additionally, Employee acknowledges that Company will reimburse him for all Company business expenses he has incurred up through the Separation Date. Employee’s receipt of these wages, accrued benefits, and reimbursements is not conditioned upon the execution of this Agreement.

 

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3. Release and Waiver by Employee . Employee, on behalf of himself and his heirs, executors, administrators, assigns and successors, fully and forever releases and discharges Company, and, as applicable, its current, former and future subsidiaries and related entities, successors, officers, directors, shareholders, agents, employees and assigns (collectively “Releasees”), from any and all claims, liabilities and causes of action, of every nature, kind and description, in law, equity or otherwise, which have arisen, occurred or existed at any time prior to his signing of this Agreement, including, without limitation, any and all claims, liabilities and causes of action arising out of or relating to Employee’s employment with Company or the cessation of that employment.

4. Waiver of Employment-Related Claims . Employee waives and releases, except the potential claims identified below, all rights, remedies, or claims he may have had or now has against Company or any of the Releasees regarding employment-related causes of action, that are applicable to Employee and Company and to which Company is subject, including without limitation, claims of wrongful discharge, breach of contract, retaliation, breach of the covenant of good faith and fair dealing, fraud, violation of public policy, claims that he is or was a “whistleblower,” defamation, discrimination, personal injury, physical injury, emotional distress, claims under Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act of 1990, the Federal Rehabilitation Act, the California Fair Employment and Housing Act, the California Family Rights Act, the Equal Pay Act of 1963, the provisions of the California Labor Code and any other federal, state or local laws and regulations relating to employment, conditions of employment (including wage and hour laws) and/or employment discrimination. Claims not covered by the Employee’s waiver and release are: (a) claims for unemployment insurance benefits, (b) claims under California’s Workers Compensation laws, (c) claims relating to the Company’s express obligations under this Agreement, (d) claims that cannot be waived or released as a matter of law (including, without limitation, administrative claims before the United States Equal Employment Opportunity Commission (“EEOC”), including Employee testifying, assisting or participating in an investigation or proceeding by the EEOC or any comparable state or local agency), and (e) claims under that certain Indemnification Agreement with the Company dated as of July 27, 2015. Employee’s waiver and release, however, are intended to be a complete bar to any recovery or personal benefit by or to Employee regarding any claim (except those which cannot be released under law), including those raised through a charge with the EEOC. Accordingly, nothing in this section will be deemed to limit Company’s right to seek immediate dismissal of the charge or complaint on the basis that Employee’s signing of this Agreement constitutes a full release of any individual rights under the federal discrimination laws, or to seek restitution to the extent permitted by law of the economic benefits provided to Employee under this Agreement in the event Employee successfully challenges the validity of this release and prevails in any claim under the federal discrimination laws.

5. Waiver of Unknown Claims . In executing this Agreement, Employee waives and relinquishes all rights and benefits granted to Employee under the provisions of Section 1542 of the California Civil Code or any similar statute or doctrine. Civil Code Section 1542 provides as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Employee acknowledges that he has read all of this Agreement, including the above Civil Code section, and that both the general release and Employee’s release of all rights and benefits pursuant to Civil Code Section 1542 are fully understood. In waiving the provisions of Section 1542 of the California Civil Code, Employee acknowledges that he may later discover facts in addition to or different from those which he now believes to be true with respect to the matters released in this Agreement. But, he agrees that he has taken that possibility into account in reaching this Agreement, and that the releases in this Agreement will remain in effect as full and complete releases notwithstanding the discovery or existence of additional or different facts.

 

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6. Severability . If a Court rules that any provision in this Agreement is unenforceable, it will not affect the enforceability of the remaining provisions. The Court may enforce all remaining provisions to the extent permitted by law.

7. Confidential Information . Employee acknowledges that, as a condition to his employment with Company, he executed the Confidentiality Agreement. This Agreement in no way affects, alters, or waives Employee’s obligations or Company’s rights under the Confidentiality Agreement (together with its attached exhibits). Employee’s ongoing compliance with the Confidentiality Agreement is a material condition to this Agreement, and an express condition to Employee’s receipt of the Severance Benefit described in this Agreement.

8. Integrated Agreement . This Agreement (together with the agreements and documents to which it specifically refers) contains the entire agreement of the Parties concerning its subject matter. The Parties did not make any promises or representations to each other that do not appear in this Agreement. This Agreement supersedes all other agreements between the Parties excluding the Confidentiality Agreement.

9. Waiver, Amendment and Modification . No waiver, amendment or modification of this Agreement’s terms is effective unless it is in writing and signed by all parties affected by the waiver, amendment or modification. The Parties’ waiver of any term or condition of this Agreement will not be construed as a waiver of any other term or condition.

10. Counterparts . This Agreement may be signed in counterparts and those counterparts will be treated as if they were one signed document.

11. Employee s Right To Release . Employee warrants and represents that (a) Employee has not assigned or transferred, or purported to assign or transfer, and that Employee will not in the future assign or transfer to any person or entity, any right or claim released by this Agreement, any part thereof, or any interest therein, and (b) Employee is the sole owner of the rights and claims released in this Agreement.

12. Venue and Governing Law . The validity, interpretation, enforceability, and performance of this Agreement must be governed by and construed in accordance with the laws of the State of California, exclusive of its choice-of-law rules. Any action arising under or relating to this Agreement must be commenced and maintained in the federal or state courts as applicable in San Francisco County, California. The parties agree to the personal jurisdiction of these Courts in San Francisco County.

13. Tax Liability . Employee assumes full responsibility for any and all taxes, interest and/or penalties that may be assessed upon the Severance Benefit.

14. Consideration/Revocation Period . This Agreement is intended to release and discharge any claims by Employee under the Age Discrimination in Employment Act. To satisfy the requirements of the Older Workers’ Benefit Protection Act, 29 U.S.C. section 626(f), as applicable:

 

  (a)

Employee acknowledges that he has read and understands the terms of this Agreement.

 

  (b)

Employee acknowledges that he has been advised to consult with independent counsel regarding this Agreement, and that he has received all counsel necessary to willingly and knowingly enter into this Agreement.

 

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  (c)

Employee understands that in signing this Agreement, Employee is not waiving rights or claims based on matters occurring after the date this Agreement is executed.

 

  (d)

Employee understands and agrees that Employee is waiving rights only in exchange for consideration that Employee was not already entitled to.

 

  (e)

Employee understands that this Agreement does not prohibit Employee from challenging or seeking a determination in good faith of the validity of this release or waiver under the Age Discrimination in Employment Act and does not impose any condition precedent, penalty, or costs for doing so unless specifically authorized by federal law.

 

  (f)

Employee acknowledges that he has been given twenty-one days to consider the terms of this Agreement (the “Consideration Period”), has taken sufficient time to consider whether to execute it, and has chosen to enter into this Agreement knowingly and voluntarily. If Employee does not present an executed copy of this Agreement to the Company before the expiration of the Consideration Period, this Agreement and the offer it contains will lapse.

 

  (g)

During the seven days after the execution of this Agreement (should he elect to execute it), Employee may revoke this Agreement by delivering a written revocation (via facsimile, email or personal delivery) to the Company. This Agreement will not become effective until the eighth (8th) day after Employee executes and does not revoke it (the “Effective Date”). If Employee either fails to sign the Agreement during the Consideration Period, or revokes it prior to the Effective Date, he will not receive and/or be entitled to the Severance Benefit described in this Agreement.

[ Signature Page Follows ]

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the dates written below.

 

Dated: April 17, 2019     /s/ William D. Schwieterman
   

 

William D. Schwieterman, M.D.

    MATEON THERAPEUTICS, INC.
Dated: April 17, 2019    

/s/ Matthew M. Loar

    By: Matthew M. Loar
    Its: Chief Financial Officer

 

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Exhibit 10.2

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of April         , 2019, is entered into by and between MATEON THERAPEUTICS, INC., a Delaware corporation (the “Company”) and PEAK ONE OPPORTUNITY FUND, L.P., a Delaware limited partnership (the “Buyer”).

WITNESSETH:

WHEREAS , the Company and the Buyer are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded, inter alia , by Rule 506 under Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”), and/or Section 4(2) of the 1933 Act; and

WHEREAS, the Buyer wishes to purchase from the Company, and the Company wishes to sell the Buyer, upon the terms and subject to the conditions of this Agreement, securities consisting of the Company’s Convertible Debentures due three years from the respective dates of issuance (the “Debentures”), each of which are in the form of Exhibit A hereto, which will be convertible into shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), in the aggregate principal amount of up to Four Hundred Thousand and 00/100 Dollars ($400,000.00), for an aggregate Purchase Price of up to Three Hundred Sixty Thousand and 00/100 Dollars ($360,000.00), all upon the terms and subject to the conditions of this Agreement, the Debentures, and other related documents;

NOW THEREFORE , in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. DEFINITIONS; AGREEMENT TO PURCHASE.

a. Certain Definitions. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

(i) “Affiliate” means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.

(ii) “Certificates” means certificates representing the Conversion Shares issuable hereunder, each duly executed on behalf of the Company and issued hereunder.

(iii) “Closing Date” means the date on which one of the two (2) Closings are held, which are the Signing Closing Date and the Second Closing Date.

(iv) [Reserved]


(v) “Commitment Fee” shall have the meaning ascribed to such term in Section 12(a).

(vi) “Common Stock” shall have the meaning ascribed to such term in the Recitals.

(vii) “Conversion Amount” shall mean the Conversion Amount as defined in the Debentures, provided, however that for purposes of the foregoing calculation, the full indebtedness under the Debentures shall be deemed immediately convertible, notwithstanding the 4.99% limitation on ownership set forth in the Debentures.

(viii) “Conversion Price” means the Conversion Price as defined in the Debentures.

(ix) “Conversion Shares” means the shares of Common Stock issuable upon conversion of the Debentures.

(x) “DWAC Operational” means that the Common Stock is eligible for clearing through the Depository Trust Company (“DTC”) via the DTC’s Deposit Withdrawal Agent Commission or “DWAC” system and active and in good standing for DWAC issuance by the Transfer Agent (as defined herein).

(xi) “Dollars” or “$” means United States Dollars.

(xii) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(xiii) “Investments” means Peak One Investments, LLC, the general partner of the Buyer.

(xiv) “Irrevocable Resolutions” has the meaning set forth in Section 8(i).

(xv) “Market Price of the Common Stock” means (x) the closing bid price of the Common Stock for the period indicated in the relevant provision hereof (unless a different relevant period is specified in the relevant provision), as reported by Bloomberg, LP or, if not so reported, as reported on the OTCQB, OTCQX or OTC Pink or (y) if the Common Stock is listed on a stock exchange, the closing price on such exchange, as reported by Bloomberg LP.

(xvi) “Material Adverse Effect” means a material adverse effect on the business, operations or condition (financial or otherwise) or results of operation of the Company and its Subsidiaries taken as a whole, in the reasonable commercial discretion of the Buyer, irrespective of any finding of fault, magnitude of liability (or lack of financial liability). Without limiting the generality of the foregoing, the occurrence of any of the following, in the reasonable commercial discretion of the Buyer, shall be considered a Material Adverse Effect: (i) any final money, judgment, writ or warrant of attachment, or similar process (including an arbitral determination) in excess of Fifty Thousand Dollars ($50,000) shall be entered or filed against the Company or any of its Subsidiaries (including, in any event, products liability claims against the Company or its Subsidiaries), (ii) the suspension or withdrawal of any governmental authority or permit

 

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pertaining to a material amount of the Company’s or any Subsidiary’s products or services, (iii) the loss of any material insurance coverage (including, in any case, comprehensive general liability coverage, products liability coverage or directors and officers coverage, in each case in effect at the time of execution and delivery of this Agreement), (iv) an action by a regulatory agency or governmental body affecting the Common Stock (including, without limitation, (1) the commencement of any regulatory investigation of which the Company is aware, the suspension of trading of the Common Stock by the Financial Industry Regulation Authority (“FINRA”), the SEC, the OTC Bulletin Board (“OTCBB”) or the OTC Markets Group, Inc., the failure of the Common Stock to be DTC eligible or the placing of the Common Stock on the DTC “chill list” or (2) the engaging in any market manipulation or other unlawful or improper trading or other activity by any Affiliate), (v) the Company’s independent registered accountants shall resign under circumstances where a disagreement exists between the Company and its independent registered accountants, (vi) the Company shall fail to timely file any disclosure document as required by applicable federal or state securities laws and regulations when due (including extensions) or by the rules and regulations of any exchange, trading market or quotation system to which the Company or the Common Stock is subject, or (vii) the Chief Executive Officer of the Company or any other key full-time officer or director of the Company, shall, for any reason (including, without limitation, termination, resignation, retirement, death or disability) cease to act on behalf of the Company in the same role and to the same extent as his or her involvement as of the date of execution and delivery of this Agreement.

(xvii) “Person” means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.

(xviii) “Purchase Price” means the price that the Buyer pays for the Debentures at each respective Closing, which are the Signing Purchase Price and the Second Purchase Price, as the case may be.

(xix) “Registrable Securities” shall mean the Conversion Shares, Commitment Shares (as defined in this Agreement), and, to the extent applicable, and any other shares of capital stock or other securities of the Company or any successor to the Company that are issued upon exchange of Conversion Shares and/or such Restricted Stock.

(xx) “Registration Statement” shall mean a registration statement on Form S-1 (or any successor thereto) filed or contemplated to be filed by the Company with the SEC under the Securities Act.

(xxi) “Restricted Stock” shall mean shares of Common Stock which are not freely trading shares when issued.

(xxii) “Securities” means the Debentures and the Shares.

(xxiii) “Shares” means the Conversion Shares.

(xxiv) “Second Closing Date” shall have the meaning ascribed to such term in Section 6(b).

 

3


(xxv) “Second Debenture” means the second of the two (2) Debentures, in the principal amount of Two Hundred Thousand and 00/100 Dollars ($200,000.00), which is issued by the Company to the Buyer on the Second Closing Date.

(xxvi) “Second Purchase Price” shall be One Hundred Eighty Thousand and 00/100 Dollars ($180,000.00).

(xxvii) “Signing Closing Date” shall have the meaning ascribed to such term in Section 6(a).

(xxviii) “Signing Debenture” means the first of the two (2) Debentures, in the principal amount of Two Hundred Thousand and 00/100 Dollars ($200,000.00), to be issued by the Company to the Buyer on the Signing Closing Date.

(xxix) “Signing Purchase Price” shall be One Hundred Eighty Thousand and 00/100 Dollars ($180,000.00).

(xxx) “Subsidiary” shall have the meaning ascribed to such term in Section 3(b).

(xxxi) [Intentionally Omitted].

(xxxii) [Intentionally Omitted].

(xxxiii) [Intentionally Omitted].

(xxxiv) “Transaction Documents” means, collectively, this Agreement, the Debentures, the Transfer Agent Instruction Letter, the Irrevocable Resolutions and the other agreements, documents and instruments contemplated hereby or thereby.

(xxxv) “Transfer Agent” shall have the meaning ascribed to such term in Section 4(a).

(xxxvi) “Transfer Agent Instruction Letter” shall have the meaning ascribed to such term in Section 5(a).

b. Purchase and Sale of Debentures .

(i) The Buyer agrees to purchase from the Company, and the Company agrees to sell to the Buyer, the Debentures on the terms and conditions set forth below in this Agreement and the other Transaction Documents.

(ii) Subject to the terms and conditions of this Agreement and the other Transaction Documents, the Buyer will purchase the Debentures at certain closings (each, a “Closing”) to be held on certain respective Closing Dates.

c. [Reserved]

 

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(i) [Reserved]

(ii) [Reserved]

2. BUYER’S REPRESENTATIONS, WARRANTIES, ETC.

The Buyer represents and warrants to, and covenants and agrees with, the Company as follows:

a. Investment Purpose. Without limiting the Buyer’s right to sell the Shares pursuant to a Registration Statement, Buyer is purchasing the Debentures, and will be acquiring the Conversion Shares, for its own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.

b. Accredited Investor Status. Buyer is (i) an “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the Securities.

c. Subsequent Offers and Sales. All subsequent offers and sales of the Securities by the Buyer shall be made pursuant to registration of the Shares under the 1933 Act or pursuant to an exemption from registration and compliance with applicable states’ securities laws.

d. Reliance on Exemptions. Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.

e. Information. Buyer and its advisors have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer. Buyer and its advisors have been afforded the opportunity to ask questions of the Company and have received complete and satisfactory answers to any such inquiries. Without limiting the generality of the foregoing, Buyer has also had the opportunity to obtain and to review the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018 (collectively, the “SEC Documents”).

 

5


f. Investment Risk. Buyer understands that its investment in the securities constitutes high risk investment, its investment in the Securities involves a high degree of risk, including the risk of loss of the Buyer’s entire investment.

g. Governmental Review. Buyer 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 Securities.

h. Organization; Authorization. Buyer is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. This Agreement and the other Transaction Documents have been duly and validly authorized, executed and delivered on behalf of the Buyer and create a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors’ rights generally.

i. Residency. The state in which any offer to sell Securities hereunder was made to or accepted by the Buyer is the state shown as the Buyer’s address contained herein, and Buyer is a resident of such state only.

3. COMPANY REPRESENTATIONS AND WARRANTIES, ETC.

The Company represents and warrants to the Buyer that:

a. Concerning the Debentures and the Shares. There are no preemptive rights of any stockholder of the Company to acquire the Debentures or the Shares.

b. Organization; Subsidiaries; Reporting Company Status. Attached hereto as Schedule 3(b) is an organizational chart describing all of the Company’s wholly-owned and majority-owned subsidiaries (the “Subsidiaries”) and other Affiliates, including the relationships among the Company and such Subsidiaries, including as to each Subsidiary its jurisdiction of organization and the percentage of ownership held by the Company, and the parent company of the Subsidiary, including the percentage of ownership of the Company held by it. The Company and each Subsidiary is a corporation or other form of businesses entity duly organized, validly existing and in good standing under the laws its respective jurisdiction of organization, and each of them has the requisite corporate or other power to own its properties and to carry on its business as now being conducted. The Company and each Subsidiary is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect. The Common Stock is listed and traded on the OTCM (as defined below) (trading symbol: MATN). The Company has received no notice, either oral or written, from FINRA, the SEC, or any other organization, with respect to the continued eligibility of the Common Stock for such listing, and the Company has maintained all requirements for the continuation of such listing. The Company is an operating company in that, among other things (A) it primarily engages, wholly or substantially, directly or indirectly through a majority owned Subsidiary or Subsidiaries, in the

 

6


production or sale, or the research or development, of a product or service other than the investment of capital, (B) it is not an individual or sole proprietorship, (C) it is not an entity with no specific business plan or purpose and its business plan is not to engage in a merger or acquisition with an unidentified company or companies or other entity or person, and (D) it intends to use the proceeds from the sale of the Debentures solely for the operation of the Company’s business and uses other than personal, family, or household purposes.

c. Authorized Shares . Schedule 3(c) sets forth all capital stock and derivative securities of the Company that are authorized for issuance and that are issued and outstanding. All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. The Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares, assuming the prior issuance and exercise, exchange or conversion, as the case may be, of all derivative securities authorized, as indicated in Schedule 3(c) . The Shares have been duly authorized and, when issued upon conversion of, or as interest on, the Debentures, the Shares will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. At all times, the Company shall keep available and reserved for issuance to the holders of the Debentures shares of Common Stock duly authorized for issuance against the Debentures.

d. Authorization. This Agreement, the issuance of the Debentures (including without limitation the incurrence of indebtedness thereunder), the issuance of the Conversion Shares under the Debentures, and the other transactions contemplated by the Transaction Documents, have been duly, validly and irrevocably authorized by the Company, and this Agreement has been duly executed and delivered by the Company. The Company’s board of directors, in the exercise of its fiduciary duties, has irrevocably approved the entry into and performance of the Transaction Documents, including, without limitation the sale of the Debentures and the issuance of Conversion Shares, based upon a reasonable inquiry concerning the Company’s financing objectives and financial situation. Each of the Transaction Documents, when executed and delivered by the Company, are and will be, valid, legal and binding agreements of the Company, enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally.

e. Non-contravention. The execution and delivery of the Transaction Documents, the issuance of the Securities and the consummation by the Company of the other transactions contemplated by this Agreement and the Debentures (including without limitation the incurrence of indebtedness thereunder) do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the certificate of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock, except as herein set forth or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the triggering of any anti-dilution rights, rights of first refusal or first offer on the part of holders of the Company’s securities, (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, or (iv) the Company’s listing agreement for its Common Stock (if applicable).

 

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f. Approvals. No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the entering into and performing this Agreement and the other Transaction Documents (including without limitation the issuance and sale of the Securities to the Buyer as contemplated by this Agreement) except such authorizations, approvals and consents that have been obtained, or such authorizations, approvals and consents, the failure of which to obtain would not have a Material Adverse Effect.

g. SEC Filings; Rule 144 Status. None of the SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading. The Company has timely filed all requisite forms, reports and exhibits thereto with the SEC as required, including extensions of time pursuant to Rule 12b-25 of the Exchange Act where applicable. The Company is not aware of any event occurring on or prior to the execution and delivery of this Agreement that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after such time. The Company satisfies the requirements of Rule 144(i)(2), and the Company shall continue to satisfy all applicable requirements of Rule 144 (or any successor thereto) for so long as any Securities are outstanding and not registered pursuant to an effective registration statement filed with the SEC.

h. Absence of Certain Changes. Since September 30, 2018, when viewed from the perspective of the Company and its Subsidiaries taken as a whole, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company and its Subsidiaries (including, without limitation, a change or development which constitutes, or with the passage of time is reasonably likely to become, a Material Adverse Effect), except as disclosed in the SEC Documents. Since September 30, 2018, except as provided in the SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

 

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i. Full Disclosure. There is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the SEC Documents) that has not been disclosed in writing to the Buyer that (i) would reasonably be expected to have a Material Adverse Effect, (ii) would reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to the Transaction Documents, or (iii) would reasonably be expected to materially and adversely affect the value of the rights granted to the Buyer in the Transaction Documents.

j. Absence of Litigation. Except as described in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Documents. The Company is not a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could reasonably be expected to have a Material Adverse Effect.

k. Absence of Liens. The Company’s assets are not encumbered by any liens or mortgages except as described in the SEC Documents.

l. Absence of Events of Default. No event of default (or its equivalent term), as defined in the respective agreement, indenture, mortgage, deed of trust or other instrument, to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an event of default (or its equivalent term) (as so defined in such document), has occurred and is continuing, which would have a Material Adverse Effect.

m. No Undisclosed Liabilities or Events. The Company has no liabilities or obligations other than those disclosed in the SEC Documents or those incurred in the ordinary course of the Company’s business since September 30, 2018, and which individually or in the aggregate, do not or would not have a Material Adverse Effect. No event or circumstances has occurred or exists with respect to the Company or its properties, business, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed. There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive officers of the Company which proposal would (x) change the certificate of incorporation, by-laws or any other charter document of the Company, each as currently in effect, with or without shareholder approval, which change would reduce or otherwise adversely affect the rights and powers of the shareholders of the Common Stock or (y) materially or substantially change the business, assets or capital of the Company.

n. No Integrated Offering. Neither the Company nor any of its affiliates nor any Person acting on its or their behalf has, directly or indirectly, at any time during the six month period immediately prior to the date of this Agreement made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Rule 506 of Regulation D in connection with the offer and sale of the Securities as contemplated hereby.

 

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o. Dilution. The number of Shares issuable upon conversion of the Debentures may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the Market Price of the Common Stock declines prior to the conversion of the Debentures. The Company’s executive officers and directors fully understand the nature of the securities being sold hereby and recognize that they have a potential dilutive effect and further that the conversion of the Debentures and/or sale of the Conversion Shares may have an adverse effect on the Market Price of the Common Stock. The Board of Directors of the Company has concluded, in its good faith business judgment that such issuance is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Debentures is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership percentages of other shareholders of the Company.

p. Regulatory Permits. The Company has all such permits, easements, consents, licenses, franchises and other governmental and regulatory authorizations from all appropriate federal, state, local or other public authorities (“Permits”) as are necessary to own and lease its properties and conduct its businesses in all material respects in the manner described in the SEC Documents and as currently being conducted. All such Permits are in full force and effect and the Company has fulfilled and performed all of its material obligations with respect to such Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or will result in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be disclosed in the SEC Documents. Such Permits contain no restrictions that would materially impair the ability of the Company to conduct business in the manner consistent with its past practices. The Company has not received notice or otherwise has knowledge of any proceeding or action relating to the revocation or modification of any such Permit.

q. [Intentionally Omitted].

r. Hazardous Materials. The Company is in compliance with all applicable Environmental Laws in all respects except where the failure to comply does not have and could not reasonably be expected to have a Material Adverse Effect. For purposes of the foregoing:

Environmental Laws ” means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other “Superfund” or “Superlien” law or any other applicable federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, the environment or any Hazardous Material.

Hazardous Material ” means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law.

 

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s. Independent Public Accountants. The Company’s auditor is an independent registered public accounting firm with respect to the Company, as required by the 1933 Act, the Exchange Act and the rules and regulations promulgated thereunder.

t. Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (1) transactions are executed in accordance with management’s general or specific authorization; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management’s general or specific authorization; and (4) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

u. Brokers. No Person (other than the Buyer and its principals, employees and agents) is entitled to receive any consideration from the Company or the Buyer arising from any finder’s agreement, brokerage agreement or other agreement to which the Company is a party.

v. DWAC Operational; DRS. The Company is currently and shall remain DWAC Operational and eligible for DRS.

4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a. Transfer Restrictions. The parties acknowledge and agree that (1) the Debentures have not been registered under the provisions of the 1933 Act and the Shares have not been registered under the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (2) any sale of the Securities made in reliance on Rule 144 promulgated under the 1933 Act (“Rule 144”) may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder, (3) at the request of the Buyer, the Company shall, from time to time, within two (2) business days of such request, at the sole cost and expense of the Company, either (i) deliver to its transfer agent and registrar for the Common Stock (the “Transfer Agent”) a written letter instructing and authorizing the Transfer Agent to process transfers of the Shares at such time as the Buyer has held the Securities for the minimum holding period permitted under Rule 144, subject to the Buyer’s providing to the Transfer Agent certain customary representations contemporaneously with any requested transfer, or (ii) at the Buyer’s option or if the Transfer Agent requires further confirmation of the availability of an exemption from registration, furnish to the Buyer an opinion of the Company’s counsel in favor of the Buyer (and, at the request of the Buyer, any agent of the Buyer, including but not limited to the Buyer’s broker or clearing firm) and the Transfer Agent, reasonably satisfactory in form, scope and substance to the Buyer and the Transfer Agent, to the effect that a contemporaneously requested transfer of shares does not require registration under the 1933 Act, pursuant to the 1933 Act, Rule 144 or other regulations promulgated under the 1933 Act and (4) neither the Company nor any other Person is under any obligation to register the Securities (other than pursuant to this Agreement) under the 1933 Act or to comply with the terms and conditions of any exemption thereunder.

 

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b. Restrictive Legend . The Buyer acknowledges and agrees that the Debentures, and, until such time as the Shares have been registered under the 1933 Act as contemplated hereby and sold in accordance with an effective Registration Statement, certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

c. Piggy-Back Registration Rights. From and after the Signing Closing Date and until eighteen (18) months after the Signing Closing Date, if the Company contemplates making an offering of Common Stock (or other equity securities convertible into or exchangeable for Common Stock) registered for sale under the Securities Act or proposes to file a Registration Statement covering any of its securities, the Company shall at each such time give prompt written notice to Investments and Buyer of its intention to do so and of the registration rights granted under this Agreement. Upon the written request of Investments and/or Buyer made within thirty (30) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by Investments and/or Buyer and the intended method of disposition thereof), the Company shall, at its sole cost and expense, use its best efforts to effect the registration of all Registrable Securities which the Company has been so requested to register by Investments and/or Buyer, to the extent requisite to permit the disposition (in accordance with the intended methods of disposition) of the Registrable Securities by Investments and/or Buyer, by inclusion of such Registrable Securities in the Registration Statement which covers the securities which the Company proposes to register; provided, that if the Company is unable to register the full amount of Registrable Securities in an “at the market offering” under SEC rules and regulations due to the high percentage of the Company’s Common Stock the Registrable Securities represents (giving effect to all other securities being registered in the Registration Statement), then the Company may reduce, on a pro rata basis, the amount of Registrable Securities subject to the Registration

 

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Statement to a lesser amount which equals the maximum number of Registrable Securities that the Company is permitted to register in an “at the market offering”; and provided, further, that if, at any time after giving written notice of its intention to register any Registrable Securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such Registrable Securities, the Company may, at its election, give written notice of such determination to Investments and/or the Buyer and, thereupon, (i) in the case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the expenses of registration in connection therewith), and (ii) in the case of a determination to delay registering such Registrable Securities, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. If Buyer shall have transferred all or part of its Registrable Securities, then for purposes of this Section, the term “Buyer” shall reference Buyer and/or such transferee(s).

d. Securities Filings. The Company undertakes and agrees to make all necessary filings (including, without limitation, a Form D) in connection with the sale of the Securities to the Buyer required under any United States laws and regulations applicable to the Company (including without limitation state “blue sky” laws), or by any domestic securities exchange or trading market, and to provide a copy thereof to the Buyer promptly after such filing.

e. Reporting Status; Public Trading Market; DTC Eligibility. So long as the Buyer and/or Investments beneficially own any Securities, (i) the Company shall timely file, prior to or on the date when due, all reports that would be required to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if the Company had securities registered under Section 12(b) or 12(g) of the Exchange Act; (ii) the Company shall not be operated as, or report, to the SEC or any other Person, that the Company is a “shell company” or indicate to the contrary to the SEC or any other Person; (iii) the Company shall take all other action under its control necessary to ensure the availability of Rule 144 under the 1933 Act for the sale of Shares by the Buyer at the earliest possible date; and (iv) the Company shall at all times while any Securities are outstanding maintain its engagement of an independent registered public accounting firm. Except as otherwise set forth in Transaction Documents, the Company shall take all action under its control necessary to obtain and to continue the listing and trading of its Common Stock (including, without limitation, all Registrable Securities) on the OTC Markets, Inc. (“OTCM”) on the OTC Pink (“OTCP”), OTCQB (“OTCQB”), or OTCQX (“OTCQX”), and will comply in all material respects with the Company’s reporting, filing and other obligations under the by-laws or rules of the Financial Industry Regulatory Authority (“FINRA”). If, so long as the Buyer and/or Investments beneficially own any of the Securities, the Company receives any written notice from the OTCM, FINRA, or the SEC with respect to either any alleged deficiency in the Company’s compliance with applicable rules and regulations (including without limitation any comments from the SEC on any of the Company’s documents filed (or the failure to have made any such filing) under the 1933 Act or the Exchange Act) (each, a “Regulatory Notice”), then the Company shall promptly, and in any event within two (2) business days, provide copies of the Regulatory Notice to the Buyer, and shall promptly, and in any event within five (5) business days of receipt of the Regulatory Notice (a “Regulatory Response”), respond in writing to the OTCM, FINRA and/or SEC (as the case may be), setting forth the Company’s explanation and/or response to the issues

 

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raised in the Regulatory Notice, with a view towards maintaining and/or regaining full compliance with the applicable rules and regulations of the OTCM, FINRA and/or SEC and maintaining or regaining good standing of the Company with the OTCM, FINRA and/or SEC, as the case may be, the intent being to ensure that the Company maintain its reporting company status with the SEC and that its Common Stock be and remain available for trading on the OTCP, OTCQB, or OTCQX. Further, at all times while any Securities are outstanding, the Common Stock shall be DWAC Operational, and the Common Stock shall not be subject to any DTC “chill” designation or similar restriction on the clearing of the Common Stock through DTC.

f. Use of Proceeds. The Company shall use the proceeds from the sale of the Debentures for working capital purposes only subject to customary restrictions. Absent the prior written approval of a majority of the principal amount of the Debentures then outstanding, the Company shall not use any portion of the proceeds of the sale of the Debentures to (i) repay any indebtedness or other obligation of the Company incurred prior to the date of this Agreement outside the normal course of business, (ii) pay any dividends or redemption amount on any of the Company’s equity or equity equivalents, (iii) pay any amounts, whether on account of debt obligations of the Company or otherwise, except for compensation, to any officer, director or other related party of the Company or (iv) pay deferred compensation or any compensation to any of the directors or officers of the Company in excess of the rate or amount paid or accrued during the fiscal year ended December 31, 2017 (as base compensation and excluding any discretionary amounts), other than modest increases consistent with prior practice that are approved by the Company’s Board of Directors.

g. Available Shares. Commencing on the date of execution and delivery of this Agreement, the Company shall have and maintain authorized and reserved for issuance, free from preemptive rights, that number of shares equal to Seven Hundred percent (700%) of the number of shares of Common Stock (1) issuable based upon the conversion of the then-outstanding Debentures (including accrued interest thereon) as may be required to satisfy the conversion rights of the Buyer pursuant to the terms and conditions of the Debenture (for the avoidance of doubt, this shall be calculated based on the applicable conversion price that would result after the date that is 180 calendar days after the issuance date of the respsective Debenture(s) regardless of the date of calculation(without giving effect to the 4.99% limitation on ownership as set forth in the Debentures), provided, however that for purposes of the foregoing calculation, the full indebtedness under the funded Debentures shall be deemed immediately convertible (collectively in the aggregate the “Required Reserve Amount”). The Company shall monitor its compliance with the foregoing requirements on an ongoing basis. If at any time the Company does not have available an amount of authorized and non-issued Shares required to be reserved pursuant to this Section, then the Company shall, without notice or demand by the Buyer, call within thirty (30) days of such occurrence and hold within sixty (60) days of such occurrence a special meeting of shareholders, for the sole purpose of increasing the number of shares authorized. Management of the Company shall recommend to shareholders to vote in favor of increasing the number of Common Stock authorized at the meeting. Members of the Company’s management shall also vote all of their own shares in favor of increasing the number of Common Stock authorized at the meeting. If the increase in authorized shares is approved by the stockholders at the meeting, the Company shall implement the increase in authorized shares within one (1) business day following approval at such meeting. Alternatively, to the extent permitted by applicable law, in lieu of calling

 

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and holding a meeting as described above, the Company may, within thirty (30) days of the date when the Company does not have available an amount of authorized and non-issued Shares required to be reserved as described above, procure the written consent of stockholders to increase the number of shares authorized, and provide the stockholders with notice thereof as may be required under applicable law (including without limitation Section 14(c) of the Exchange Act and Regulation 14C thereunder). Upon obtaining stockholder approval as aforesaid, the Company shall cause the appropriate increase in its authorized shares of Common Stock within one (1) business day (or as soon thereafter as permitted by applicable law). Company’s failure to comply with these provisions will be an Event of Default (as defined in the Debentures).

h. Reimbursement. If (i) Buyer and/or Investments becomes a party defendant in any capacity in any action or proceeding brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if the Buyer and/or Investments is impleaded in any such action, proceeding or investigation by any Person, or (ii) the Buyer and/or Investments, other than by reason of its own gross negligence, willful misconduct or breach of law (as adjudicated by a court of law having proper jurisdiction and such adjudication is not subject to appeal), becomes a party defendant in any capacity in any action or proceeding brought by the SEC against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if the Buyer or Investments is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company shall promptly reimburse the Buyer and/or Investments for its or their reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of the Buyer and/or Investments who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling Persons (if any), as the case may be, of the Buyer, Investments and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Buyer, Investments and any such Affiliate and any such Person. Except as otherwise set forth in the Transaction Documents, the Company also agrees that neither any Buyer, Investments nor any such Affiliate, partners, directors, agents, employees or controlling Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of the Transaction Documents.

i. The Company shall provide the Transfer Agent and/or the Buyer, Investments or their respective brokerage and/or clearing firm with all relevant legal opinions and other documentation requested by the Buyer or Investments in connection with the issuance of the Conversion Shares or the Restricted Stock, or the sale thereof, to confirm the share issuance(s) such that the Conversion Shares and/or Restricted Stock may be deposited with the applicable brokerage and/or clearing firm.

j. No Payments to Affiliates or Related Parties.  So long as any of the Debentures remain outstanding, if the Debentures are in default, the Company shall not, absent the prior written consent of the holders of all Debentures then outstanding, make any payments to any of the Company’s or the Subsidiaries’ respective affiliates or related parties, including without limitation payments or prepayments of principal or interest accrued on any indebtedness or

 

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obligation in favor of affiliates or related parties. Notwithstanding anything to the contrary contained herein, the provisions of this Section 4(j) shall not apply to payments to the Subsidiaries, or other businesses in which affiliates have an interest, made in the ordinary course of business and consistent with past practice as disclosed in the SEC Documents.

k. Notice of Material Adverse Effect. The Company shall notify the Buyer (and any subsequent holder of the Debentures), as soon as practicable and in no event later than three (3) business days of the Company’s knowledge of any Material Adverse Effect on the Company. For purposes of the foregoing, “knowledge” means the earlier of the Company’s actual knowledge or the Company’s constructive knowledge upon due inquiry.

l. Public Disclosure. Except to the extent required by applicable law, absent the Buyer’s prior written consent, the Company shall not reference the name of the Buyer in any press release, securities disclosure, business plan, marketing or funding proposal.

m. Nature of Transaction; Savings Clause. It is the parties’ express understanding and agreement that the transactions contemplated by the Transaction Documents constitute an investment and not a loan. If nonetheless such transactions are deemed to be a loan (as adjudicated by a court of law having proper jurisdiction and such adjudication is not subject to appeal), the Company shall not be obligated or required to pay interest at a rate that could subject Buyer to either civil or criminal liability as a result of such rate exceeding the maximum rate that the Buyer is permitted to charge under applicable law, and the Company’s obligations under the Transaction Documents shall not be void or voidable on the basis of the Buyer’s lack of any license or registration as a lender with any governmental authority. It is expressly understood and agreed by the parties that neither the amounts payable pursuant to Section 12, any redemption premium, remedy upon an Event of Default (as defined in the Debentures) or any Acceleration Amount (as defined in the Debentures), original issue discount nor any investment returns of the Buyer on the sale of the Debentures or the sale of any Conversion Shares (whether unrealized or realized) shall be construed as interest. If, by the terms of the Debentures, any other Transaction Document or any other instrument, Company is at any time required or obligated to pay interest at a rate exceeding such maximum rate, interest payable under the Debenture and/or such other Transaction Documents or other instrument shall be computed (or recomputed) at such maximum rate, and the portion of all prior interest payments (if any) exceeding such maximum shall be applied to payment of the outstanding principal of the Debentures.

5. TRANSFER AGENT INSTRUCTIONS.

a. Transfer Agent Instruction Letter. On or before the Signing Closing Date, the Company shall irrevocably instruct its Transfer Agent in writing using the letter substantially in the form of Exhibit B annexed hereto, with only such modifications as the Buyer agrees to, executed by the Company, the Buyer and the Transfer Agent (the “Transfer Agent Instruction Letter”), to (i) reserve that number of shares of Common Stock as is required under Section 4(g) hereof, and (ii) issue Common Stock from time to time upon conversion of the Debentures in such amounts as specified from time to time by the Buyer to the Transfer Agent in a Notice of Conversion, in such denominations to be specified by the Buyer in connection with each conversion of the Debentures. The Transfer Agent shall not be restricted from issuing shares from

 

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only the allotment reserved hereunder for the Conversion Amount (as defined in the Debentures), but instead may, to the extent necessary to satisfy the amount of shares issuable upon conversion, issue shares above and beyond the amount reserved on account of the Conversion Amount, without any additional instructions or authorization from the Company, and the Company shall not provide the Transfer Agent with any instructions or documentation contrary to the foregoing. As of the date of this Agreement, the Transfer Agent is American Stock Transfer & Trust Company. The Company shall at all times while any Debentures are outstanding engage a Transfer Agent which is a party to the Transfer Agent Instruction Letter. If for any reason the Company’s Transfer Agent is not a signatory of the Transfer Agent Instruction Letter while any Debentures or Restricted Stock are outstanding and held by the Buyer, then such Transfer Agent shall nonetheless be deemed bound by the Transfer Agent Instruction Letter, and the Company shall neither (i) permit the Transfer Agent to disclaim, disregard or refuse to abide by the Transfer Agent’s obligations, terms and agreements set forth in the Transfer Agent Instruction Letter, nor (ii) issue any instructions to the Transfer Agent contrary to the obligations, terms and agreements set forth in the Transfer Agent Instruction Letter . The Company shall not terminate the Transfer Agent or otherwise change Transfer Agents without at least fifteen (15) days prior written notice to the Buyer and with the Buyer’s prior written consent to such change, which the Buyer may grant or withhold in its sole discretion. The Company shall continuously monitor its compliance with the share reservation requirements and, if and to the extent necessary to increase the number of reserved shares to remain and be at least the Required Reserve Amount to account for any decrease in the Market Price of the Common Stock, the Company shall immediately (and in any event within one (1) business day) notify the Transfer Agent in writing of the reservation of such additional shares, provided that in the event that the number of shares reserved for conversion of the Debentures is less than the Required Reserve Amount, the Buyer may also directly instruct the Transfer Agent to increase the reserved shares as necessary to satisfy the minimum reserved share requirement, and the Transfer Agent shall act accordingly, provided, further, that the Company shall within one (1) business day provide any written confirmation, assent or documentation thereof as the Transfer Agent may request to act upon a share increase instruction delivered by the Buyer. The Company shall provide the Buyer with a copy of all written instructions to the Company’s Transfer Agent with respect to the reservation of shares simultaneously with the issuance of such instructions to the Transfer Agent. The Company covenants that no instruction other than such instructions referred to in this Section 5 and stop transfer instructions to give effect to Section 4(a) hereof prior to registration and sale of the Conversion Shares under the 1933 Act will be given by the Company to the Transfer Agent and that the Conversion Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and applicable law. If the Buyer provides the Company and/or the Transfer Agent with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is not required under the 1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of this Agreement) permit the de-legending or transfer of the Securities and, in the case of the Conversion Shares, instruct the Company’s Transfer Agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Buyer.

b. Conversion. (i) The Company shall permit the Buyer to exercise the right to convert the Debentures by faxing, emailing or delivering overnight an executed and completed Notice of Conversion to the Company or the Transfer Agent. If so requested by the Buyer or the Transfer Agent, the Company shall within one (1) business day respond with its endorsement so as to confirm the outstanding principal amount of any Debenture submitted for conversion or shall reconcile any difference with the Buyer promptly after receiving such Notice of Conversion.

 

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(ii) The term “Conversion Date” means, with respect to any conversion elected by the holder of the Debentures, the date specified in the Notice of Conversion, provided the copy of the Notice of Conversion is given either via mail or facsimile to or otherwise delivered to the Transfer Agent and/or the Company in accordance with the provisions hereof so that it is received by the Transfer Agent and/or the Company on or before such specified date.

(iii) The Company shall deliver (or will cause the Transfer Agent to deliver) the Conversion Shares issuable upon conversion as follows: (1) if the Company is then DWAC Operational, via DWAC, (2) if the Common Stock is then eligible for the Depository Trust Company’s Direct Registration System (“DRS”), if so requested by the Buyer, or (3) if the Company is not then DWAC Operational or the Common Stock is not then eligible for DRS, in certificated form, to the Buyer at the address specified in the Notice of Conversion (which may be the Buyer’s address for notices as contemplated by Section 10 hereof or a different address) via express courier, in each case within two (2) business days (the “Delivery Date”) after (A) the business day on which the Company or the Transfer Agent has received the Notice of Conversion (by facsimile, email or other delivery) or (B) the date on which payment of interest and principal on the Debentures, which the Company has elected to pay by the issuance of Common Stock, as contemplated by the Debentures, was due, as the case may be.

c. Failure to Timely Issue Conversion Shares or De-Legended Shares. The Company’s failure to issue and deliver Conversion Shares to the Buyer (either by DWAC, DRS or in certificated form, as required by Section 5(b)) on or before the Delivery Date shall be considered an Event of Default, which shall entitle the Buyer to certain remedies set forth in the Debentures and provided by applicable law . Similarly, the Company’s failure to issue and deliver Common Stock in unrestricted form without a restrictive legend when required under the Transaction Documents shall entitle the Buyer to damages for the diminution in value (if any) of the relevant shares between the date delivery was due versus the date ultimately delivered in unrestricted form. The Company acknowledges that its failure to timely honor a Notice of Conversion (or the occurrence of any other Event of Default) shall cause definable financial hardship on the Buyer(s) and that the remedies set forth herein and in the Debentures are reasonable and appropriate.

d. Duties of Company; Authorization. The Company shall inform the Transfer Agent of the reservation of shares contemplated by Section 4(g) and this Section 5, and shall keep current in its payment obligations to the Transfer Agent such that the Transfer Agent will continue to process share transfers and the initial issuance of shares of Common Stock upon the conversion of Debentures. The Company hereby authorizes and agrees to authorize the Transfer Agent to correspond and otherwise communicate with the Buyer or their representatives in connection with the foregoing and other matters related to the Common Stock. Further, the Company hereby authorizes the Buyer or its representative to provide instructions to the Transfer Agent that are consistent with the foregoing and instructs the Transfer Agent to honor any such instructions. Should the Company fail for any reason to keep current in its payment obligations to the Transfer Agent, the Buyer and/or Investments may pay such amounts as are necessary to compensate the

 

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Transfer Agent for performing its duties with respect to share reservation, issuance of Conversion Shares and/or de-legending certificates representing Restricted Stock, and all amounts so paid shall be promptly reimbursed by the Company. If not so reimbursed within thirty (30) days, such amounts shall, at the option of the Buyer and without prior notice to or consent of the Company, be added to the principal amount due under the Debenture(s) held by the Buyer, whereupon interest will begin to accrue on such amounts at the rate specified in the Debentures.

e. Effect of Bankruptcy. The Buyer shall be entitled to exercise its conversion privilege with respect to the Debentures notwithstanding the commencement of any case under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”). In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the Buyer’s conversion privilege. The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the Debentures. The Company agrees, without cost or expense to the Buyer, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C. §362.

6. CLOSINGS.

a. Signing Closing. Promptly upon the execution and delivery of this Agreement, the Signing Debenture, and all conditions in Sections 7 and 8 herein are met (the “Signing Closing Date”), (A) the Company shall deliver to the Buyer the following: (i) the Signing Debenture; (ii) the Transfer Agent Instruction Letter; (iii) duly executed counterparts of the Transaction Documents; and (iv) an officer’s certificate of the Company confirming the accuracy of the Company’s representations and warranties contained herein, and (B) the Buyer shall deliver to the Company the following: (i) the Signing Purchase Price and (ii) duly executed counterparts of the Transaction Documents (as applicable). The Company shall immediately pay the fees due under Section 12 of this Agreement upon receipt of the Signing Purchase Price if Buyer does not withhold such amounts from the Signing Purchase Price pursuant to Section 12.

b. Second Closing. At any time after thirty (30) days following the Signing Closing Date, subject to the mutual agreement of the Buyer and the Company, for the “Second Closing Date” and subject to satisfaction of the conditions set forth in Sections 7 and 8, (A) the Company shall deliver to the Buyer the following: (i) the Second Debenture; (ii) an amendment to the Transfer Agent Instruction Letter instructing the Transfer Agent to reserve that number of shares of Common Stock as is required under Section 4(g) hereof, if necessary; and (iii) an officer’s certificate of the Company confirming, as of the Second Closing Date, the accuracy of the Company’s representations and warranties contained herein and updating Schedules 3(b), 3(c) and 3(k) as of the Second Closing Date, and (B) the Buyer shall deliver to the Company the Second Purchase Price.

c. [Intentionally Omitted].

d. Location and Time of Closings. Each Closing shall be deemed to occur on the related Closing Date at the office of the Buyer’s counsel and shall take place no later than 5:00 P.M., east coast time, on such day or such other time as is mutually agreed upon by the Company and the Buyer.

 

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7. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

The Company’s obligation to sell the Debentures to the Buyer pursuant to this Agreement on each Closing Date is conditioned upon:

a. Purchase Price. Delivery to the Company of good funds as payment in full of the respective Purchase Price for the Debentures at each Closing in accordance with this Agreement;

b. Representations and Warranties; Covenants. The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement, each as if made on such date, and the performance by the Buyer on or before such date of all covenants and agreements of the Buyer required to be performed on or before such date; and

c. Laws and Regulations; Consents and Approvals. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

8. CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.

The Buyer’s obligation to purchase the Debentures at each Closing is conditioned upon:

a. Transaction Documents. The execution and delivery of this Agreement by the Company;

b. Debenture(s). Delivery by the Company to the Buyer of the Debentures to be purchased in accordance with this Agreement;

c. Section 4(2) Exemption. The Debentures and the Conversion Shares shall be exempt from registration under the 1933 Act, pursuant to Section 4(2) thereof;

d. DWAC Status . The Common Stock shall be DWAC Operational;

e. Representations and Warranties; Covenants. The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;

f. Good-faith Opinion. It should be Buyer’s reasonable belief that (i) no Event of Default under the terms of any outstanding indebtedness of the Company shall have occurred or would likely occur with the passage of time and (ii) no material adverse change in the financial condition or business operations of the Company shall have occurred;

 

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g. Legal Proceedings. There shall be no litigation, criminal or civil, regulatory impairment or other legal and/or administrative proceedings challenging or seeking to limit the Company’s ability to issue the Securities or the Common Stock;

h. [Reserved];

i. Corporate Resolutions. Delivery by the Company to the Buyer a copy of resolutions of the Company’s board of directors, approving and authorizing the execution, delivery and performance of the Transaction Documents and the transactions contemplated thereby in the form attached hereto as Exhibit C (the “Irrevocable Resolutions”);

j. Officer’s Certificate. Delivery by the Company to the Buyer of a certificate of the Chief Executive Officer of the Company in the form attached hereto as Exhibit D ;

k. Search Results. Delivery by the Company to the Buyer of copies of UCC search reports, issued by the Secretary of State of the state of incorporation of the Company and each Subsidiary, dated such a date as is reasonably acceptable to Buyer, listing all effective financing statements which name the Company or Subsidiary (as applicable), under its present name and any previous names, as debtor, together with copies of such financing statements;

l. Certificate of Good Standing. Delivery by the Company to the Buyer of a copy of a certificate of good standing with respect to the Company, issued by the Secretary of State of the state of incorporation of the Company, dated such a date as is reasonably acceptable to Buyer, evidencing the good standing thereof;

m. Laws and Regulations; Consents and Approvals. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained; and

n. Adverse Changes. From and after the date hereof to and including each Closing Date, (i) the trading of the Common Stock shall not have been suspended by the SEC, FINRA, or any other governmental or self-regulatory organization, and trading in securities generally on OTCM shall not have been suspended or limited, nor shall minimum prices been established for securities traded on the OTCM; (ii) there shall not have occurred any outbreak or escalation of hostilities involving the United States or any material adverse change in any financial market that in either case in the reasonable judgment of the Buyer makes it impracticable or inadvisable to purchase the Debentures.

o. 2018 Annual Report. The Company shall have filed with the SEC its Form 10-K for the year ended December 31, 2018, including all items required to be included by the applicable rules and regulations.

p. Acquisition of Oncotelic, Inc. The Company shall have fully consummated its acquisition of Oncotelic, Inc. (the “Target”), including but not limited to the satisfaction of all conditions contained in all of the transaction documents, that have been or will be entered into between the Company and the Target, related to the acquisition of the Target.

 

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9. GOVERNING LAW; MISCELLANEOUS.

a. MANDATORY FORUM SELECTION. ANY DISPUTE ARISING UNDER, RELATING TO, OR IN CONNECTION WITH THE AGREEMENT OR RELATED TO ANY MATTER WHICH IS THE SUBJECT OF OR INCIDENTAL TO THE AGREEMENT (WHETHER OR NOT SUCH CLAIM IS BASED UPON BREACH OF CONTRACT OR TORT) SHALL BE SUBJECT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE STATE AND/OR FEDERAL COURTS LOCATED IN MIAMI-DADE COUNTY, FLORIDA. THIS PROVISION IS INTENDED TO BE A “MANDATORY” FORUM SELECTION CLAUSE AND GOVERNED BY AND INTERPRETED CONSISTENTLY WITH FLORIDA LAW.

b. Governing Law. Except in the case of the Mandatory Forum Selection clause above, this Agreement shall be delivered and accepted in and shall be deemed to be contracts made under and governed by the internal laws of the State of Nevada, and for all purposes shall be construed in accordance with the laws of the State of Nevada, without giving effect to the choice of law provisions. To the extent determined by the applicable court described above, the Company shall reimburse the Buyer for any reasonable legal fees and disbursements incurred by the Buyer in enforcement of or protection of any of its rights under any of the Transaction Documents.

c. Waivers. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

e. Construction. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

f. Facsimiles; E-mails. A facsimile or email transmission of this signed Agreement or a Notice of Conversion under the Debentures shall be legal and binding on all parties hereto. Such electronic signatures shall be the equivalent of original signatures.

g. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.

h. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

i. Enforceability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

 

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j. Amendment. This Agreement may be amended only by the written consent of a majority in interest of the holders of the Debentures and an instrument in writing signed by the Company.

k. Entire Agreement. This Agreement, together with the other Transaction Documents, supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

l. No Strict Construction. This Agreement shall be construed as if both Parties had equal say in its drafting, and thus shall not be construed against the drafter.

m. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

10. NOTICES.

Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:

a. the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile or email transmission,

b. the third (3 rd ) business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or

c. the first (1 st ) business day after deposit with a recognized courier service (e.g. FedEx, UPS, DHL, US Postal Service) for delivery by next-day express courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) days’ advance written notice similarly given to each of the other parties hereto):

 

COMPANY:   

Mateon Therapeutics, Inc.

701 Gateway Blvd., Suite 210

South San Francisco, CA 94080

Attention: William Schwieterman, Chief Executive Officer

Email:

 

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With copies to (which shall not constitute notice):

 

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

One Financial Center

Boston, MA 02111

Attention: Megan Gates, Esq.

Email:

BUYER:   

Peak One Opportunity Fund, L.P.

333 South Hibiscus Drive

Miami Beach, FL 33139

Attention: Jason Goldstein

Email:

   With copies to (which shall not constitute notice):
  

Anthony L.G., PLLC

625 N. Flagler Drive, Suite 600

West Palm Beach, FL 33401

Attention: Chad Friend, Esq., LL.M.

Email:

11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company’s representations and warranties herein shall survive for so long as any Debentures are outstanding, and shall inure to the benefit of the Buyer, its successors and assigns.

12. FEES; EXPENSES.

a. Commitment Fee . A non-accountable fee (the “Commitment Fee”) of Five Thousand and 00/100 Dollars ($5,000.00) on the Signing Closing Date (with respect to the Signing Debenture), shall be withheld from the Signing Purchase Price to cover the Buyer’s accounting fees, legal fees, and other transactional costs incurred in connection with the transactions contemplated by this Agreement. In addition, the Company shall issue 350,000 shares of Restricted Stock (the “Commitment Shares”) to Investments as a commitment fee on the Signing Closing Date. The Commitment Shares shall be earned in full as of the Signing Closing Date. The cash portion of the Commitment Fee shall be paid on the Signing Closing Date if Buyer does not withhold such amount from the Signing Purchase Price pursuant to Section 12(b).

b. Disbursements. In furtherance of the foregoing, the Company hereby authorizes the Buyer to deduct the cash portion of the Commitment Fee from the Signing Purchase Price and transmit same to the respective payee.

[Signature Page Follows]

 

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IN WITNESS WHEREOF , this Agreement has been duly executed by the Buyer and the Company as of the date first set forth above.

 

COMPANY:
MATEON THERAPEUTICS, INC.
By:    
Name:   William Schwieterman
Title:   Chief Executive Officer
BUYER:
PEAK ONE OPPORTUNITY FUND, L.P.
By:  

Peak One Investments, LLC,

General Partner

  By:                                                            
  Name: Jason Goldstein
  Title: Managing Member

[Signature Page to Securities Purchase Agreement]


ACKNOWLEDGEMENT AND GUARANTY

Oncotelic, Inc. and its respective successors hereby acknowledge, approve, and accept all of the transactions contemplated by the securities purchase agreement between MATEON THERAPEUTICS, INC., a Delaware corporation (the “Company”) and PEAK ONE OPPORTUNITY FUND, L.P., a Delaware limited partnership (the “Buyer”), as well as jointly and severally, absolutely, unconditionally and irrevocably, guarantees to Buyer and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Company when due (whether at the stated maturity, by acceleration or otherwise) of all amounts due under, and all other obligations under, the Debentures. The undersigned’s liability under this acknowledgement and guaranty shall be unlimited, open and continuous for so long as the Debentures remain unpaid.

 

ONCOTELIC, INC.
By:    
Name:   Vuong Trieu
Title:   Chief Executive Officer


EXHIBITS

 

Exhibit A    FORM OF DEBENTURE
Exhibit B    FORM OF TRANSFER AGENT INSTRUCTION LETTER
Exhibit C    FORM OF RESOLUTIONS OF THE BOARD OF DIRECTORS
Exhibit D    FORM OF OFFICER’S CERTIFICATE

Exhibit 10.3

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of April     , 2019, is entered into by and between MATEON THERAPEUTICS, INC., a Delaware corporation (the “Company”) and the individuals identified on the signature page hereto (each a “Buyer” and collectively, the “Buyers”).

WITNESSETH:

WHEREAS , the Company and the Buyers are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded, inter alia, by Rule 506 under Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”), and/or Section 4(2) of the 1933 Act; and

WHEREAS, the Buyers wish to purchase from the Company, and the Company wishes to sell to the Buyers, upon the terms and subject to the conditions of this Agreement, securities consisting of the Company’s Convertible Debentures due three years from the respective dates of issuance (the “Debentures”), each of which are in the form of Exhibit A hereto, which will be convertible into shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), in the aggregate principal amount of up to Four Hundred Thousand and 00/100 Dollars ($400,000.00), for an aggregate Purchase Price of up to Three Hundred Sixty Thousand and 00/100 Dollars ($360,000.00), all upon the terms and subject to the conditions of this Agreement, the Debentures, and other related documents;

NOW THEREFORE , in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. DEFINITIONS; AGREEMENT TO PURCHASE.

a. Certain Definitions. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

(i) “Affiliate” means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.

(ii) “Certificates” means certificates representing the Conversion Shares issuable hereunder, each duly executed on behalf of the Company and issued hereunder.

(iii) “Closing Date” means the date on which one of the two (2) Closings are held, which are the Signing Closing Date and the Second Closing Date.

(iv) [Intentionally Omitted].


(v) [Intentionally Omitted].

(vi) “Common Stock” shall have the meaning ascribed to such term in the Recitals.

(vii) “Conversion Amount” shall mean the Conversion Amount as defined in the Debentures.

(viii) “Conversion Price” means the Conversion Price as defined in the Debentures.

(ix) “Conversion Shares” means the shares of Common Stock issuable upon conversion of the Debentures.

(x) “DWAC Operational” means that the Common Stock is eligible for clearing through the Depository Trust Company (“DTC”) via the DTC’s Deposit Withdrawal Agent Commission or “DWAC” system and active and in good standing for DWAC issuance by the Transfer Agent (as defined herein).

(xi) “Dollars” or “$” means United States Dollars.

(xii) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(xiii) [Intentionally Omitted].

(xiv) [Intentionally Omitted].

(xv) “Market Price of the Common Stock” means (x) the closing bid price of the Common Stock for the period indicated in the relevant provision hereof (unless a different relevant period is specified in the relevant provision), as reported by Bloomberg, LP or, if not so reported, as reported on the OTCQB, OTCQX or OTC Pink or (y) if the Common Stock is listed on a stock exchange, the closing price on such exchange, as reported by Bloomberg LP.

(xvi) “Material Adverse Effect” means a material adverse effect on the business, operations or condition (financial or otherwise) or results of operation of the Company and its Subsidiaries taken as a whole, in the reasonable commercial discretion of the Buyer, irrespective of any finding of fault, magnitude of liability (or lack of financial liability). Without limiting the generality of the foregoing, the occurrence of any of the following, in the reasonable commercial discretion of a Buyer, shall be considered a Material Adverse Effect: (i) any final money, judgment, writ or warrant of attachment, or similar process (including an arbitral determination) in excess of Fifty Thousand Dollars ($50,000) shall be entered or filed against the Company or any of its Subsidiaries (including, in any event, products liability claims against the Company or its Subsidiaries), (ii) the suspension or withdrawal of any governmental authority or permit pertaining to a material amount of the Company’s or any Subsidiary’s products or services, (iii) the loss of any material insurance coverage (including, in any case, comprehensive general liability coverage, products liability coverage or directors and officers coverage, in each case in effect at the time of execution and delivery of this Agreement), (iv) an action by a regulatory agency or

 

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governmental body affecting the Common Stock (including, without limitation, (1) the commencement of any regulatory investigation of which the Company is aware, the suspension of trading of the Common Stock by the Financial Industry Regulation Authority (“FINRA”), the SEC, the OTC Bulletin Board (“OTCBB”) or the OTC Markets Group, Inc., the failure of the Common Stock to be DTC eligible or the placing of the Common Stock on the DTC “chill list” or (2) the engaging in any market manipulation or other unlawful or improper trading or other activity by any Affiliate), (v) the Company’s independent registered accountants shall resign under circumstances where a disagreement exists between the Company and its independent registered accountants, or (vi) the Company shall fail to timely file any disclosure document as required by applicable federal or state securities laws and regulations when due (including extensions) or by the rules and regulations of any exchange, trading market or quotation system to which the Company or the Common Stock is subject.

(xvii) “Person” means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.

(xviii) “Purchase Price” means the price that a Buyer pays for the Debentures at each respective Closing, which are the Signing Purchase Price and the Second Purchase Price, as the case may be.

(xix) “Registrable Securities” shall mean the Conversion Shares and, to the extent applicable, and any other shares of capital stock or other securities of the Company or any successor to the Company that are issued upon exchange of Conversion Shares and/or such Restricted Stock.

(xx) “Registration Statement” shall mean a registration statement on Form S-1 (or any successor thereto) filed or contemplated to be filed by the Company with the SEC under the Securities Act.

(xxi) “Restricted Stock” shall mean shares of Common Stock which are not freely trading shares when issued.

(xxii) “Securities” means the Debentures and the Shares.

(xxiii) “Shares” means the Conversion Shares.

(xxiv) “Second Closing Date” shall have the meaning ascribed to such term in Section 6(b).

(xxv) “Second Debenture” means the second of the two (2) tranches of Debentures, in the aggregate principal amount of Two Hundred Thousand and 00/100 Dollars ($200,000.00), which is issued by the Company to the Buyers on the Second Closing Date.

(xxvi) “Second Purchase Price” shall be an aggregate of One Hundred Eighty Thousand and 00/100 Dollars ($180,000.00).

 

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(xxvii) “Signing Closing Date” shall have the meaning ascribed to such term in Section 6(a).

(xxviii) “Signing Debenture” means the first of the two (2) tranches of Debentures, in the aggregate principal amount of Two Hundred Thousand and 00/100 Dollars ($200,000.00), to be issued by the Company to the Buyers on the Signing Closing Date.

(xxix) “Signing Purchase Price” shall be an aggregate of One Hundred Eighty Thousand and 00/100 Dollars ($180,000.00).

(xxx) “Subsidiary” shall have the meaning ascribed to such term in Section 3(b).

(xxxi) [Intentionally Omitted].

(xxxii) [Intentionally Omitted].

(xxxiii) [Intentionally Omitted].

(xxxiv) “Transaction Documents” means, collectively, this Agreement, the Debentures, and the other agreements, documents and instruments contemplated hereby or thereby.

(xxxv) “Transfer Agent” shall have the meaning ascribed to such term in Section 4(a).

(xxxvi) [Intentionally Omitted].

b. Purchase and Sale of Debentures .

(i) The Buyers, severally and not jointly, agree to purchase from the Company, and the Company agrees to sell to the Buyer, the Debentures on the terms and conditions set forth below in this Agreement and the other Transaction Documents.

(ii) Subject to the terms and conditions of this Agreement and the other Transaction Documents, the Buyers will purchase the Debentures at certain closings (each, a “Closing”) to be held on certain respective Closing Dates.

c. [Reserved]

(i) [Reserved]

(ii) [Reserved]

2. BUYER’S REPRESENTATIONS, WARRANTIES, ETC.

Each Buyer, severally and not jointly represents and warrants to, and covenants and agrees with, the Company as follows:

 

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a. Investment Purpose. Without limiting the Buyer’s right to sell the Shares pursuant to a Registration Statement, the Buyer is purchasing the Debentures, and will be acquiring the Conversion Shares, for its own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.

b. Accredited Investor Status. The Buyer is (i) an “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the Securities.

c. Subsequent Offers and Sales. All subsequent offers and sales of the Securities by the Buyer shall be made pursuant to registration of the Shares under the 1933 Act or pursuant to an exemption from registration and compliance with applicable states’ securities laws.

d. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.

e. Information. The Buyer and its advisors have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer. The Buyer and its advisors have been afforded the opportunity to ask questions of the Company and have received complete and satisfactory answers to any such inquiries. Without limiting the generality of the foregoing, the Buyer has also had the opportunity to obtain and to review the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (collectively, the “SEC Documents”).

f. Investment Risk. The Buyer understands that its investment in the securities constitutes high risk investment, its investment in the Securities involves a high degree of risk, including the risk of loss of the Buyer’s entire investment.

g. Governmental Review. The Buyer 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 Securities.

 

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h. Organization; Authorization. The Buyer, if an entity, is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. This Agreement and the other Transaction Documents have been duly and validly authorized, executed and delivered on behalf of the Buyer and create a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors’ rights generally.

i. Residency. The state in which any offer to sell Securities hereunder was made to or accepted by the Buyer is the state shown as the Buyer’s address contained herein, and the Buyer is a resident of such state only.

3. COMPANY REPRESENTATIONS AND WARRANTIES, ETC.

The Company represents and warrants to each Buyer that:

a. Concerning the Debentures and the Shares. There are no preemptive rights of any stockholder of the Company to acquire the Debentures or the Shares.

b. Organization; Subsidiaries; Reporting Company Status. Attached hereto as Schedule 3(b) is an organizational chart describing all of the Company’s wholly-owned and majority-owned subsidiaries (the “Subsidiaries”) and other Affiliates, including the relationships among the Company and such Subsidiaries, including as to each Subsidiary its jurisdiction of organization and the percentage of ownership held by the Company, and the parent company of the Subsidiary, including the percentage of ownership of the Company held by it. The Company and each Subsidiary is a corporation or other form of businesses entity duly organized, validly existing and in good standing under the laws its respective jurisdiction of organization, and each of them has the requisite corporate or other power to own its properties and to carry on its business as now being conducted. The Company and each Subsidiary is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect. The Common Stock is listed and traded on the OTCM (as defined below) (trading symbol: MATN). The Company has received no notice, either oral or written, from FINRA, the SEC, or any other organization, with respect to the continued eligibility of the Common Stock for such listing, and the Company has maintained all requirements for the continuation of such listing. The Company is an operating company in that, among other things (A) it primarily engages, wholly or substantially, directly or indirectly through a majority owned Subsidiary or Subsidiaries, in the production or sale, or the research or development, of a product or service other than the investment of capital, (B) it is not an individual or sole proprietorship, (C) it is not an entity with no specific business plan or purpose and its business plan is not to engage in a merger or acquisition with an unidentified company or companies or other entity or person, and (D) it intends to use the proceeds from the sale of the Debentures solely for the operation of the Company’s business and uses other than personal, family, or household purposes.

c. Authorized Shares . Schedule 3(c) sets forth all capital stock and derivative securities of the Company that are authorized for issuance and that are issued and outstanding. All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. The Shares have been duly authorized and, when issued upon conversion of, or as interest on, the Debentures, the Shares will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder.

 

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d. Authorization. This Agreement, the issuance of the Debentures (including without limitation the incurrence of indebtedness thereunder), the issuance of the Conversion Shares under the Debentures, and the other transactions contemplated by the Transaction Documents, have been duly, validly and irrevocably authorized by the Company, and this Agreement has been duly executed and delivered by the Company. The Company’s board of directors, in the exercise of its fiduciary duties, has irrevocably approved the entry into and performance of the Transaction Documents, including, without limitation the sale of the Debentures and the issuance of Conversion Shares, based upon a reasonable inquiry concerning the Company’s financing objectives and financial situation. Each of the Transaction Documents, when executed and delivered by the Company, are and will be, valid, legal and binding agreements of the Company, enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally.

e. Non-contravention. The execution and delivery of the Transaction Documents, the issuance of the Securities and the consummation by the Company of the other transactions contemplated by this Agreement and the Debentures (including without limitation the incurrence of indebtedness thereunder) do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the articles of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock, except as herein set forth or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the triggering of any anti-dilution rights, rights of first refusal or first offer on the part of holders of the Company’s securities, (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, or (iv) the Company’s listing agreement for its Common Stock (if applicable).

f. Approvals. No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the entering into and performing this Agreement and the other Transaction Documents (including without limitation the issuance and sale of the Securities to the Buyer as contemplated by this Agreement) except such authorizations, approvals and consents that have been obtained, or such authorizations, approvals and consents, the failure of which to obtain would not have a Material Adverse Effect.

g. SEC Filings; Rule 144 Status. None of the SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading. The Company has timely filed all

 

7


requisite forms, reports and exhibits thereto with the SEC as required, including extensions of time pursuant to Rule 12b-25 of the Exchange Act where applicable. The Company is not aware of any event occurring on or prior to the execution and delivery of this Agreement that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after such time. The Company satisfies the requirements of Rule 144(i)(2), and the Company shall continue to satisfy all applicable requirements of Rule 144 (or any successor thereto) for so long as any Securities are outstanding and not registered pursuant to an effective registration statement filed with the SEC.

h. Absence of Certain Changes. Since December 31, 2018, when viewed from the perspective of the Company and its Subsidiaries taken as a whole, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company and its Subsidiaries (including, without limitation, a change or development which constitutes, or with the passage of time is reasonably likely to become, a Material Adverse Effect), except as disclosed in the SEC Documents. Since December 31, 2018, except as provided in the SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

i. Full Disclosure. There is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the SEC Documents) that has not been disclosed in writing to the Buyer that (i) would reasonably be expected to have a Material Adverse Effect, (ii) would reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to the Transaction Documents, or (iii) would reasonably be expected to materially and adversely affect the value of the rights granted to the Buyers in the Transaction Documents.

j. Absence of Litigation. Except as described in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Documents. The Company is not a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could reasonably be expected to have a Material Adverse Effect.

 

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k. Absence of Liens. The Company’s assets are not encumbered by any liens or mortgages except as described in the SEC Documents.

l. Absence of Events of Default. No event of default (or its equivalent term), as defined in the respective agreement, indenture, mortgage, deed of trust or other instrument, to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an event of default (or its equivalent term) (as so defined in such document), has occurred and is continuing, which would have a Material Adverse Effect.

m. No Undisclosed Liabilities or Events. The Company has no liabilities or obligations other than those disclosed in the SEC Documents or those incurred in the ordinary course of the Company’s business since December 31, 2018, and which individually or in the aggregate, do not or would not have a Material Adverse Effect. No event or circumstances has occurred or exists with respect to the Company or its properties, business, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed. There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive officers of the Company which proposal would (x) change the articles of incorporation, by-laws or any other charter document of the Company, each as currently in effect, with or without shareholder approval, which change would reduce or otherwise adversely affect the rights and powers of the shareholders of the Common Stock or (y) materially or substantially change the business, assets or capital of the Company.

n. No Integrated Offering. Neither the Company nor any of its affiliates nor any Person acting on its or their behalf has, directly or indirectly, at any time during the six month period immediately prior to the date of this Agreement made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Rule 506 of Regulation D in connection with the offer and sale of the Securities as contemplated hereby.

o. Dilution. The number of Shares issuable upon conversion of the Debentures may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the Market Price of the Common Stock declines prior to the conversion of the Debentures. The Company’s executive officers and directors fully understand the nature of the securities being sold hereby and recognize that they have a potential dilutive effect and further that the conversion of the Debentures and/or sale of the Conversion Shares may have an adverse effect on the Market Price of the Common Stock. The Board of Directors of the Company has concluded, in its good faith business judgment that such issuance is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Debentures is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership percentages of other shareholders of the Company.

 

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p. Regulatory Permits. The Company has all such permits, easements, consents, licenses, franchises and other governmental and regulatory authorizations from all appropriate federal, state, local or other public authorities (“Permits”) as are necessary to own and lease its properties and conduct its businesses in all material respects in the manner described in the SEC Documents and as currently being conducted. All such Permits are in full force and effect and the Company has fulfilled and performed all of its material obligations with respect to such Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or will result in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be disclosed in the SEC Documents. Such Permits contain no restrictions that would materially impair the ability of the Company to conduct business in the manner consistent with its past practices. The Company has not received notice or otherwise has knowledge of any proceeding or action relating to the revocation or modification of any such Permit.

q. [Intentionally Omitted].

r. Hazardous Materials. The Company is in compliance with all applicable Environmental Laws in all respects except where the failure to comply does not have and could not reasonably be expected to have a Material Adverse Effect. For purposes of the foregoing:

Environmental Laws ” means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other “Superfund” or “Superlien” law or any other applicable federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, the environment or any Hazardous Material.

Hazardous Material ” means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law.

s. Independent Public Accountants. The Company’s auditor is an independent registered public accounting firm with respect to the Company, as required by the 1933 Act, the Exchange Act and the rules and regulations promulgated thereunder.

t. Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (1) transactions are executed in accordance with management’s general or specific authorization; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management’s general or specific authorization; and (4) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

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u. Brokers. No Person (other than the Buyer and its principals, employees and agents) is entitled to receive any consideration from the Company or the Buyer arising from any finder’s agreement, brokerage agreement or other agreement to which the Company is a party.

v. DWAC Operational; DRS. The Company is currently and shall remain DWAC Operational and eligible for DRS.

4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a. Transfer Restrictions. The parties acknowledge and agree that (1) the Debentures have not been registered under the provisions of the 1933 Act and the Shares have not been registered under the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (2) any sale of the Securities made in reliance on Rule 144 promulgated under the 1933 Act (“Rule 144”) may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder, (3) at the request of a Buyer, the Company shall, from time to time, within two (2) business days of such request, at the sole cost and expense of the Company, either (i) deliver to its transfer agent and registrar for the Common Stock (the “Transfer Agent”) a written letter instructing and authorizing the Transfer Agent to process transfers of the Shares at such time as the Buyer has held the Securities for the minimum holding period permitted under Rule 144, subject to the Buyer’s providing to the Transfer Agent certain customary representations contemporaneously with any requested transfer, or (ii) at the Buyer’s option or if the Transfer Agent requires further confirmation of the availability of an exemption from registration, furnish to the Buyer an opinion of the Company’s counsel in favor of the Buyer (and, at the request of the Buyer, any agent of the Buyer, including but not limited to the Buyer’s broker or clearing firm) and the Transfer Agent, reasonably satisfactory in form, scope and substance to the Buyer and the Transfer Agent, to the effect that a contemporaneously requested transfer of shares does not require registration under the 1933 Act, pursuant to the 1933 Act, Rule 144 or other regulations promulgated under the 1933 Act and (4) neither the Company nor any other Person is under any obligation to register the Securities (other than pursuant to this Agreement) under the 1933 Act or to comply with the terms and conditions of any exemption thereunder.

b. Restrictive Legend. Each Buyer acknowledges and agrees that the Debentures, and, until such time as the Shares have been registered under the 1933 Act as contemplated hereby and sold in accordance with an effective Registration Statement, certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):

 

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THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

c. Piggy-Back Registration Rights. From and after the Signing Closing Date and until eighteen (18) months after the Signing Closing Date, if the Company contemplates making an offering of Common Stock (or other equity securities convertible into or exchangeable for Common Stock) registered for sale under the Securities Act or proposes to file a Registration Statement covering any of its securities, the Company shall at each such time give prompt written notice to each Buyer of its intention to do so and of the registration rights granted under this Agreement. Upon the written request of a Buyer made within thirty (30) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Buyer and the intended method of disposition thereof), the Company shall, at its sole cost and expense, use its best efforts to effect the registration of all Registrable Securities which the Company has been so requested to register each Buyer, to the extent requisite to permit the disposition (in accordance with the intended methods of disposition) of the Registrable Securities each Buyer, by inclusion of such Registrable Securities in the Registration Statement which covers the securities which the Company proposes to register; provided, that if the Company is unable to register the full amount of Registrable Securities in an “at the market offering” under SEC rules and regulations due to the high percentage of the Company’s Common Stock the Registrable Securities represents (giving effect to all other securities being registered in the Registration Statement), then the Company may reduce, on a pro rata basis, the amount of Registrable Securities subject to the Registration Statement to a lesser amount which equals the maximum number of Registrable Securities that the Company is permitted to register in an “at the market offering”; and provided, further, that if, at any time after giving written notice of its intention to register any Registrable Securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such Registrable Securities, the Company may, at its election, give written notice of such determination to each Buyer and, thereupon, (i) in the case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the expenses of registration in connection therewith), and (ii) in the case of a determination to delay registering such Registrable Securities, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. If a Buyer shall have transferred all or part of its Registrable Securities, then for purposes of this Section, the term “Buyer” shall reference Buyer and/or such transferee(s).

 

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d. Securities Filings. The Company undertakes and agrees to make all necessary filings (including, without limitation, a Form D) in connection with the sale of the Securities to each Buyer required under any United States laws and regulations applicable to the Company (including without limitation state “blue sky” laws), or by any domestic securities exchange or trading market, and to provide a copy thereof to each Buyer promptly after such filing.

e. Reporting Status; Public Trading Market; DTC Eligibility. So long as a Buyer beneficially own any Securities, (i) the Company shall timely file, prior to or on the date when due, all reports that would be required to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if the Company had securities registered under Section 12(b) or 12(g) of the Exchange Act; (ii) the Company shall not be operated as, or report, to the SEC or any other Person, that the Company is a “shell company” or indicate to the contrary to the SEC or any other Person; (iii) the Company shall take all other action under its control necessary to ensure the availability of Rule 144 under the 1933 Act for the sale of Shares by a Buyer at the earliest possible date; and (iv) the Company shall at all times while any Securities are outstanding maintain its engagement of an independent registered public accounting firm. Except as otherwise set forth in Transaction Documents, the Company shall take all action under its control necessary to obtain and to continue the listing and trading of its Common Stock (including, without limitation, all Registrable Securities) on the OTC Markets, Inc. (“OTCM”) on the OTC Pink (“OTCP”), OTCQB (“OTCQB”), or OTCQX (“OTCQX”), and will comply in all material respects with the Company’s reporting, filing and other obligations under the by-laws or rules of the Financial Industry Regulatory Authority (“FINRA”). If, so long as a Buyer beneficially owns any of the Securities, the Company receives any written notice from the OTCM, FINRA, or the SEC with respect to either any alleged deficiency in the Company’s compliance with applicable rules and regulations (including without limitation any comments from the SEC on any of the Company’s documents filed (or the failure to have made any such filing) under the 1933 Act or the Exchange Act) (each, a “Regulatory Notice”), then the Company shall promptly, and in any event within two (2) business days, provide copies of the Regulatory Notice to the Buyers, and shall promptly, and in any event within five (5) business days of receipt of the Regulatory Notice (a “Regulatory Response”), respond in writing to the OTCM, FINRA and/or SEC (as the case may be), setting forth the Company’s explanation and/or response to the issues raised in the Regulatory Notice, with a view towards maintaining and/or regaining full compliance with the applicable rules and regulations of the OTCM, FINRA and/or SEC and maintaining or regaining good standing of the Company with the OTCM, FINRA and/or SEC, as the case may be, the intent being to ensure that the Company maintain its reporting company status with the SEC and that its Common Stock be and remain available for trading on the OTCP, OTCQB, or OTCQX. Further, at all times while any Securities are outstanding, the Common Stock shall be DWAC Operational, and the Common Stock shall not be subject to any DTC “chill” designation or similar restriction on the clearing of the Common Stock through DTC.

f. Use of Proceeds. The Company shall use the proceeds from the sale of the Debentures for working capital purposes only subject to customary restrictions. Absent the prior written approval of a majority of the principal amount of the Debentures then outstanding, the Company shall not use any portion of the proceeds of the sale of the Debentures to (i) repay any indebtedness or other obligation of the Company incurred prior to the date of this Agreement outside the normal course of business, (ii) pay any dividends or redemption amount on any of the

 

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Company’s equity or equity equivalents, (iii) pay any amounts, whether on account of debt obligations of the Company or otherwise, except for compensation, to any officer, director or other related party of the Company or (iv) pay deferred compensation or any compensation to any of the directors or officers of the Company in excess of the rate or amount paid or accrued during the fiscal year ended December 31, 2018 (as base compensation and excluding any discretionary amounts), other than modest increases consistent with prior practice that are approved by the Company’s Board of Directors.

g. [Intentionally Omitted].

h. Reimbursement. If (i) a Buyer becomes a party defendant in any capacity in any action or proceeding brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if a Buyer is impleaded in any such action, proceeding or investigation by any Person, or (ii) the Buyer, other than by reason of its own gross negligence, willful misconduct or breach of law (as adjudicated by a court of law having proper jurisdiction and such adjudication is not subject to appeal), becomes a party defendant in any capacity in any action or proceeding brought by the SEC against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if a Buyer is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company shall promptly reimburse the Buyer for its or their reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of the Buyer who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling Persons (if any), as the case may be, of the Buyer, and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Buyer, and any such Affiliate and any such Person. Except as otherwise set forth in the Transaction Documents, the Company also agrees that neither any Buyer, nor any such Affiliate, partners, directors, agents, employees or controlling Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of the Transaction Documents.

i. Legal Opinions. The Company shall provide the Transfer Agent and/or each Buyer, or their respective brokerage and/or clearing firm with all relevant legal opinions and other documentation requested by a Buyer in connection with the issuance of the Conversion Shares or the Restricted Stock, or the sale thereof, to confirm the share issuance(s) such that the Conversion Shares and/or Restricted Stock may be deposited with the applicable brokerage and/or clearing firm.

j. [Intentionally Omitted].

k. Notice of Material Adverse Effect. The Company shall notify each Buyer (and any subsequent holder of the Debentures), as soon as practicable and in no event later than three (3) business days of the Company’s knowledge of any Material Adverse Effect on the Company. For purposes of the foregoing, “knowledge” means the earlier of the Company’s actual knowledge or the Company’s constructive knowledge upon due inquiry.

 

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l. Public Disclosure. Except to the extent required by applicable law, absent each Buyer’s prior written consent, the Company shall not reference the name of the Buyer in any press release, securities disclosure, business plan, marketing or funding proposal.

m. Nature of Transaction; Savings Clause. It is the parties’ express understanding and agreement that the transactions contemplated by the Transaction Documents constitute an investment and not a loan. If nonetheless such transactions are deemed to be a loan (as adjudicated by a court of law having proper jurisdiction and such adjudication is not subject to appeal), the Company shall not be obligated or required to pay interest at a rate that could subject Buyer to either civil or criminal liability as a result of such rate exceeding the maximum rate that the Buyer is permitted to charge under applicable law, and the Company’s obligations under the Transaction Documents shall not be void or voidable on the basis of the Buyer’s lack of any license or registration as a lender with any governmental authority. It is expressly understood and agreed by the parties that neither the amounts payable pursuant to Section 12, any redemption premium, remedy upon an Event of Default (as defined in the Debentures), original issue discount nor any investment returns of the Buyer on the sale of the Debentures or the sale of any Conversion Shares (whether unrealized or realized) shall be construed as interest. If, by the terms of the Debentures, any other Transaction Document or any other instrument, Company is at any time required or obligated to pay interest at a rate exceeding such maximum rate, interest payable under the Debenture and/or such other Transaction Documents or other instrument shall be computed (or recomputed) at such maximum rate, and the portion of all prior interest payments (if any) exceeding such maximum shall be applied to payment of the outstanding principal of the Debentures.

5. TRANSFER AGENT INSTRUCTIONS.

a. [Intentionally Omitted].

b. Conversion.

(i) The Company shall permit each Buyer to exercise the right to convert the Debentures by faxing, emailing or delivering overnight an executed and completed Notice of Conversion to the Company or the Transfer Agent. If so requested by the Buyer or the Transfer Agent, the Company shall within one (1) business day respond with its endorsement so as to confirm the outstanding principal amount of any Debenture submitted for conversion or shall reconcile any difference with the Buyer promptly after receiving such Notice of Conversion.

(ii) The term “Conversion Date” means, with respect to any conversion elected by the holder of the Debentures, the date specified in the Notice of Conversion, provided the copy of the Notice of Conversion is given either via mail or facsimile to or otherwise delivered to the Transfer Agent and/or the Company in accordance with the provisions hereof so that it is received by the Transfer Agent and/or the Company on or before such specified date.

 

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(iii) The Company shall deliver (or will cause the Transfer Agent to deliver) the Conversion Shares issuable upon conversion as follows: (1) if the Company is then DWAC Operational, via DWAC, (2) if the Common Stock is then eligible for the Depository Trust Company’s Direct Registration System (“DRS”), if so requested by the Buyer, or (3) if the Company is not then DWAC Operational or the Common Stock is not then eligible for DRS, in certificated form, to the Buyer at the address specified in the Notice of Conversion (which may be the Buyer’s address for notices as contemplated by Section 10 hereof or a different address) via express courier, in each case within two (2) business days (the “Delivery Date”) after (A) the business day on which the Company or the Transfer Agent has received the Notice of Conversion (by facsimile, email or other delivery) or (B) the date on which payment of interest and principal on the Debentures, which the Company has elected to pay by the issuance of Common Stock, as contemplated by the Debentures, was due, as the case may be.

c. Failure to Timely Issue Conversion Shares or De-Legended Shares. The Company’s failure to issue and deliver Conversion Shares to the Buyer (either by DWAC, DRS or in certificated form, as required by Section 5(b)) on or before the Delivery Date shall be considered an Event of Default, which shall entitle the Buyer to certain remedies set forth in the Debentures and provided by applicable law . Similarly, the Company’s failure to issue and deliver Common Stock in unrestricted form without a restrictive legend when required under the Transaction Documents shall entitle the Buyer to damages for the diminution in value (if any) of the relevant shares between the date delivery was due versus the date ultimately delivered in unrestricted form. The Company acknowledges that its failure to timely honor a Notice of Conversion (or the occurrence of any other Event of Default) shall cause definable financial hardship on the Buyer(s) and that the remedies set forth herein and in the Debentures are reasonable and appropriate.

d. Duties of Company; Authorization. The Company hereby authorizes and agrees to authorize the Transfer Agent to correspond and otherwise communicate with the Buyer or their representatives in connection with the foregoing and other matters related to the Common Stock. Further, the Company hereby authorizes the Buyer or its representative to provide instructions to the Transfer Agent that are consistent with the foregoing and instructs the Transfer Agent to honor any such instructions. Should the Company fail for any reason to keep current in its payment obligations to the Transfer Agent, the Buyer may pay such amounts as are necessary to compensate the Transfer Agent for performing its duties with respect to issuance of Conversion Shares and/or de-legending certificates representing Restricted Stock, and all amounts so paid shall be promptly reimbursed by the Company. If not so reimbursed within thirty (30) days, such amounts shall, at the option of the Buyer and without prior notice to or consent of the Company, be added to the principal amount due under the Debenture(s) held by the Buyer, whereupon interest will begin to accrue on such amounts at the rate specified in the Debentures.

e. Effect of Bankruptcy. Each Buyer shall be entitled to exercise its conversion privilege with respect to the Debentures notwithstanding the commencement of any case under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”). In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of each Buyer’s conversion privilege. The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the Debentures. The Company agrees, without cost or expense to a Buyer, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C. §362.

 

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6. CLOSINGS.

a. Signing Closing. Promptly upon the execution and delivery of this Agreement, the Signing Debenture, and all conditions in Sections 7 and 8 herein are met (the “Signing Closing Date”), (A) the Company shall deliver to the Buyer the following: (i) the Signing Debenture; (ii) [Intentionally Omitted]; (iii) duly executed counterparts of the Transaction Documents; and (iv) an officer’s certificate of the Company confirming the accuracy of the Company’s representations and warranties contained herein, and (B) each Buyer shall deliver to the Company the following: (i) their respective Signing Purchase Price and (ii) duly executed counterparts of the Transaction Documents (as applicable).

b. Second Closing. At any time after thirty (30) days following the Signing Closing Date, subject to the mutual agreement of the Buyer and the Company, for the “Second Closing Date” and subject to satisfaction of the conditions set forth in Sections 7 and 8, (A) the Company shall deliver to the Buyers the following: (i) the Second Debenture; (ii) [Intentionally Omitted]; and (iii) an officer’s certificate of the Company confirming, as of the Second Closing Date, the accuracy of the Company’s representations and warranties contained herein and updating Schedules 3(b), 3(c) and 3(k) as of the Second Closing Date, and (B) each Buyer shall deliver to the Company their respective Second Purchase Price.

c. [Intentionally Omitted].

d. Location and Time of Closings. Each Closing shall be deemed to occur on the related Closing Date at the office of the Buyer’s counsel and shall take place no later than 5:00 P.M., east coast time, on such day or such other time as is mutually agreed upon by the Company and the Buyer.

7. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

The Company’s obligation to sell the Debentures to each Buyer pursuant to this Agreement on each Closing Date is conditioned upon:

a. Purchase Price. Delivery to the Company of good funds as payment in full of the respective Purchase Price for the Debentures at each Closing in accordance with this Agreement;

b. Representations and Warranties; Covenants. The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement, each as if made on such date, and the performance by the Buyer on or before such date of all covenants and agreements of the Buyer required to be performed on or before such date; and

 

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c. Laws and Regulations; Consents and Approvals. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

8. CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.

Each Buyer’s obligation to purchase the Debentures at each Closing is conditioned upon:

a. Transaction Documents. The execution and delivery of this Agreement by the Company;

b. Debenture(s). Delivery by the Company to the Buyer of the Debentures to be purchased in accordance with this Agreement;

c. Section 4(2) Exemption. The Debentures and the Conversion Shares shall be exempt from registration under the 1933 Act, pursuant to Section 4(2) thereof;

d. DWAC Status . The Common Stock shall be DWAC Operational;

e. Representations and Warranties; Covenants. The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;

f. Good-faith Opinion. It should be the Buyer’s reasonable belief that (i) no Event of Default under the terms of any outstanding indebtedness of the Company shall have occurred or would likely occur with the passage of time and (ii) no material adverse change in the financial condition or business operations of the Company shall have occurred;

g. Legal Proceedings. There shall be no litigation, criminal or civil, regulatory impairment or other legal and/or administrative proceedings challenging or seeking to limit the Company’s ability to issue the Securities or the Common Stock;

h. [Reserved];

i. Corporate Resolutions. Delivery by the Company to the Buyer a copy of resolutions of the Company’s board of directors, approving and authorizing the execution, delivery and performance of the Transaction Documents and the transactions contemplated thereby in the form attached hereto as Exhibit C (the “Irrevocable Resolutions”);

j. Officer’s Certificate. Delivery by the Company to the Buyer of a certificate of the Chief Executive Officer of the Company in the form attached hereto as Exhibit D ;

k. Search Results. Delivery by the Company to the Buyer of copies of UCC search reports, issued by the Secretary of State of the state of incorporation of the Company and each Subsidiary, dated such a date as is reasonably acceptable to Buyer, listing all effective financing statements which name the Company or Subsidiary (as applicable), under its present name and any previous names, as debtor, together with copies of such financing statements;

 

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l. Certificate of Good Standing. Delivery by the Company to the Buyer of a copy of a certificate of good standing with respect to the Company, issued by the Secretary of State of the state of incorporation of the Company, dated such a date as is reasonably acceptable to Buyer, evidencing the good standing thereof;

m. Laws and Regulations; Consents and Approvals. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained; and

n. Adverse Changes. From and after the date hereof to and including each Closing Date, (i) the trading of the Common Stock shall not have been suspended by the SEC, FINRA, or any other governmental or self-regulatory organization, and trading in securities generally on OTCM shall not have been suspended or limited, nor shall minimum prices been established for securities traded on the OTCM; (ii) there shall not have occurred any outbreak or escalation of hostilities involving the United States or any material adverse change in any financial market that in either case in the reasonable judgment of the Buyer makes it impracticable or inadvisable to purchase the Debentures.

o. [Intentionally Omitted].

p. Acquisition of Oncotelic, Inc. The Company shall have fully consummated its acquisition of Oncotelic, Inc. (the “Target”), including but not limited to the satisfaction of all conditions contained in all of the transaction documents, that have been or will be entered into between the Company and the Target, related to the acquisition of the Target.

9. GOVERNING LAW; MISCELLANEOUS.

a. MANDATORY FORUM SELECTION. ANY DISPUTE ARISING UNDER, RELATING TO, OR IN CONNECTION WITH THE AGREEMENT OR RELATED TO ANY MATTER WHICH IS THE SUBJECT OF OR INCIDENTAL TO THE AGREEMENT (WHETHER OR NOT SUCH CLAIM IS BASED UPON BREACH OF CONTRACT OR TORT) SHALL BE SUBJECT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE STATE AND/OR FEDERAL COURTS LOCATED IN MIAMI-DADE COUNTY, FLORIDA. THIS PROVISION IS INTENDED TO BE A “MANDATORY” FORUM SELECTION CLAUSE AND GOVERNED BY AND INTERPRETED CONSISTENTLY WITH FLORIDA LAW.

b. Governing Law. Except in the case of the Mandatory Forum Selection clause above, this Agreement shall be delivered and accepted in and shall be deemed to be contracts made under and governed by the internal laws of the State of Nevada, and for all purposes shall be construed in accordance with the laws of the State of Nevada, without giving effect to the choice of law provisions. To the extent determined by the applicable court described above, the Company shall reimburse the Buyer for any reasonable legal fees and disbursements incurred by the Buyer in enforcement of or protection of any of its rights under any of the Transaction Documents.

 

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c. Waivers. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

e. Construction. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

f. Facsimiles; E-mails. A facsimile or email transmission of this signed Agreement or a Notice of Conversion under the Debentures shall be legal and binding on all parties hereto. Such electronic signatures shall be the equivalent of original signatures.

g. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.

h. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

i. Enforceability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

j. Amendment. This Agreement may be amended only by the written consent of a majority in interest of the holders of the Debentures and an instrument in writing signed by the Company.

k. Entire Agreement. This Agreement, together with the other Transaction Documents, supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

l. No Strict Construction. This Agreement shall be construed as if both Parties had equal say in its drafting, and thus shall not be construed against the drafter.

m. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

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10. NOTICES.

Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:

a. the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile or email transmission,

b. the third (3 rd ) business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or

c. the first (1 st ) business day after deposit with a recognized courier service (e.g. FedEx, UPS, DHL, US Postal Service) for delivery by next-day express courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) days’ advance written notice similarly given to each of the other parties hereto):

 

COMPANY:   

Mateon Therapeutics, Inc.

701 Gateway Blvd., Suite 210

South San Francisco, CA 94080

Attention: William Schwieterman, Chief Executive Officer

Email:

  

With copies to (which shall not constitute notice):

 

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

One Financial Center

Boston, MA 02111

Attention: Megan Gates, Esq.

Email:

BUYER:    To the address set forth below their signature on the signature page
   With copies to (which shall not constitute notice):
  

Sheppard Mullin Richter & Hampton LLP

12275 El Camino Real, Suite 200

San Diego CA, 92130

Attention: James A. Mercer III, Esq.

Email:

11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company’s representations and warranties herein shall survive for so long as any Debentures are outstanding, and shall inure to the benefit of the Buyer, its successors and assigns.

 

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12. FEES; EXPENSES.

a. [Intentionally Omitted] .

b. [Intentionally Omitted].

[Signature Page Follows]

 

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IN WITNESS WHEREOF , this Agreement has been duly executed by the Buyer and the Company as of the date first set forth above.

 

COMPANY:
MATEON THERAPEUTICS, INC.
By:    
Name:   William Schwieterman
Title:   Chief Executive Officer
BUYER:
   
  Name: Vuong Trieu
  Address:
   
  Name:
  Address:

[Signature Page to Securities Purchase Agreement]


EXHIBITS

 

Exhibit A    FORM OF DEBENTURE
Exhibit B    [INTENTIONALLY OMITTED]
Exhibit C    FORM OF RESOLUTIONS OF THE BOARD OF DIRECTORS
Exhibit D    FORM OF OFFICER’S CERTIFICATE

Exhibit 99.1

Mateon Enters into Merger Agreement with Oncotelic

- Forms Late Clinical-Stage Cancer Immunotherapy Company Focusing on TGF-ß RNA Therapeutics

SOUTH SAN FRANCISCO, CA AND AGOURA HILLS, CA, April 18, 2019 – Mateon Therapeutics, Inc. (OTCQB:MATN) and Oncotelic Inc., a privately-held, late clinical-stage cancer immunotherapy company, announced today that they have entered into a definitive agreement with respect to a merger, creating a publicly traded immuno-oncology company with a robust pipeline of first in class TGF-ß immunotherapies for late stage cancers such as gliomas, pancreatic cancer and melanoma.

“We believe that the merger of Oncotelic and Mateon will create a combined company that can generate shareholder value through a promising pipeline of next generation immunotherapies targeting several significant cancer markets where there is a paucity of therapeutic options and lack of an effective immunotherapy protocol,” said Vuong Trieu, Ph.D., Co-Founder, Chairman and Chief Executive Officer of Oncotelic. “We chose Mateon due to the synergies between the two organizations’ pipelines, including the natural synergy of Mateon’s CA4P necrotic cell death product candidate and Oncotelic’s proprietary self-immunization protocol (SIP) platform, particularly our TGF-ß inhibitor OT-101.”

“Our priority has been to continue our mission to help patients and to provide meaningful value to our stockholders,” said William D. Schwieterman, M.D., Mateon’s President and Chief Executive Officer. “After a review of their pipeline, and a thorough consideration of potential strategic alternatives, we have concluded that a merger with Oncotelic, which has multiple late clinical-stage product candidates in areas of unmet medical need, offers our best opportunity to create such value. I look forward to completing this merger expeditiously and working with the full Oncotelic team as clinical trial milestones occur in 2019 and beyond.”

SIP ® Platform

Oncotelic’s SIP® Platform is based on novel and proprietary sequential treatment of cancers with OT-101, an antisense against TGF-ß2 combined sequentially with widely used chemotherapies. This sequential treatment has resulted in many instances in patients’ self-immunization against their own tumors, resulting in robust response and survival. In some cases, this was curative. The use of OT-101 has lifted the immunosuppression in local tumor environment allowing for effective initial priming of the immune response. The subsequent chemotherapy-released neoantigens have served as a boost to bolster the immune system against the tumors. Judicious placement of immune expanders such as IL-2 and/or checkpoint inhibitors within the immunization protocol is expected to have dramatic impact on survival.

Growing Product Pipeline

Oncotelic is developing OT-101 in combination with chemotherapy for the treatment of gliomas and pancreatic cancers. Oncotelic plans to initiate several Phase 3 registration trials for OT-101 in multiple cancer indications, including gliomas and pancreatic cancers.

During phase 2 clinical trials in gliomas (Study G004) and pancreatic cancer, melanoma, and colorectal cancers (Study P001), meaningful clinical benefits were observed with favorable safety profiles. These clinical benefits included long term survival as well as tumor reduction. These findings have been presented at recent scientific conferences recently and are available for viewing at www.oncotelic.com.

 

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Merger Terms

In the transaction, Mateon will issue 41,000,033 shares of common stock and 193,713 shares of newly designated Series A preferred stock to Oncotelic shareholders. Each share of Series A preferred stock will be convertible into 1,000 shares of common stock, and will be automatically converted into common stock following stockholder approval of additional authorized shares of common stock or a reverse split. Assuming the conversion of all preferred shares, current Oncotelic stockholders would own 85% of the combined company, and current Mateon stockholders will own 15%.

In addition to their ownership position in the newly combined company, Mateon stockholders of record as of the business day immediately preceding the closing date of the merger will receive a contingent value right (CVR) related to Mateon’s drug candidates OXi4503 and CA4P. CVR holders are entitled to receive 75% of the net proceeds in excess of $0.5 million from a sale of assets relating to these two drug candidates for a four-year period following the merger. The CVRs will not be registered to trade on any stock exchange, and new discoveries related to these drug candidates are not subject to payment obligations under the CVR.

The merger is subject to customary conditions to closing including the approval by Oncotelic’s shareholders. Approval is expected within one business day, and the merger is expected to close on or about April 22, 2019.

In connection with the merger agreement, the company has entered into a series of bridge financing agreements for the issuance of debentures with a face amount of up to $1.2 million. The first tranche of convertible debentures with a face value of $600,000 is expected to fund shortly following the closing of the merger. A second tranche of convertible debentures, also aggregating $600,000, is available if requested by the company. The debentures will be issued at a discount of 10% and convertible into common stock at a fixed price of $0.10 per share for six months, if not repaid by the company. The company can repay the debentures in accordance with a sliding schedule of premiums over a six month period, after which the debentures are convertible into common stock at a discount to the stock price at the time of conversion.

Management Team

Following the close of the merger transaction, the management team will be comprised of

 

   

Chief Executive Officer - Vuong Trieu, PhD, Co-Founder, Chairman, CEO of Oncotelic

 

   

Chief Medical Officer - Fatih Uckun, MD, PhD

 

   

Chief Technology Officer - Chulho Park, PhD, Co-Founder and Chief Business Officer of Oncotelic

 

   

Chief Financial Officer - Matthew M. Loar, currently Chief Financial Officer of Mateon.

Board of Directors

At the close of the merger, the board of directors will consist of Vuong Trieu, PhD, Co-Founder, Chairman, CEO of Oncotelic and William D. Schwieterman, M.D., President and Chief Executive Officer of Mateon.

Following a requisite period of notice to stockholders, additional directors will include:

 

   

Steve King, formerly CEO of Peregrine and its subsidiary Avid Bioservices for over 15 years during which time the company advanced its lead compound though phase 3 development while growing annual revenues to over $55M

 

   

Anthony Maida MBA PhD, Audit chair at three Nasdaq listed companies. Dr. Maida has been involved in the clinical development of immunotherapy for 27+ years at various C levels.

 

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About Mateon Therapeutics, Inc.

Mateon is a biopharmaceutical company developing investigational drugs for the treatment of orphan oncology indications, with programs in acute myeloid leukemia and immuno-oncology. Mateon is committed to leveraging its product development expertise and intellectual property to bring improved and medically necessary new therapies to cancer patients worldwide. More information is available at www.mateon.com

About Oncotelic, Inc.

Oncotelic is a privately held cancer immunotherapy company dedicated to the development of first in class in self-immunization protocol (SIP©) as a durable cure for difficult to treat cancers. This therapeutic cancer vaccine has broad-spectrum applicability for multiple cancer types and does not require extraction of the tumor and isolation of the antigen for immunization- a lengthy/laborious process with limited clinical effectiveness. It showed promising clinical activity in phase 2 trials for the treatment of gliomas and pancreatic cancers. The company aims to translate its unique insights spanning more than three decades with original work at Genetic Therapy Inc using adenovirus as RNA therapeutics to the current deployment of antisense as RNA therapeutics for diseases caused by TGF-beta overexpression including cancer. The founding team of Oncotelic was part of the team who developed Abraxane® as chemotherapeutic agents for breast, lung, melanoma, and pancreatic cancer. Abraxane® was approved in 2005 and has $1B in sales annually. The team later on led the development and commercialization of Cynviloq®, a next-generation Abraxane. Cynviloq® was acquired by NantPharma. Oncotelic intends to leverage its deep expertise in oncology and RNA therapeutic drug development to promote the eventual cure and eradication of cancers. For more information, please visit www.oncotelic.com .

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “hope”, “vision”, “optimism”, “design”, “exciting”, “promising”, “will”, “conviction”, “may,” “will,” “expect,” “plan,” “anticipate,” “estimate,” “intend,” “believe” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements. These forward-looking statements are based on expectations and assumptions as of the date of this press release. Each of these forward-looking statements involves risks and uncertainties. Actual results may differ materially from these forward-looking statements. Forward-looking statements contained in this press release include, but are not limited to, statements about the progress, timing, clinical development, and scope of clinical trials and the reporting of clinical data for Oncotelic’s product candidate OT-101, and the potential use of the companies’ product candidates to treat various cancer indications. Many factors may cause differences between current expectations and actual results including unexpected safety or efficacy data observed during preclinical or clinical studies, clinical trial site activation or enrollment rates that are lower than expected, changes in expected or existing competition, changes in the regulatory environment, failure of collaborators to support or advance collaborations or product candidates and unexpected litigation or other disputes. Except as required by law, neither Mateon nor Oncotelic assume any obligation to update forward-looking statements contained herein to reflect any change in expectations, even as new information becomes available.

This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

###

 

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Contact Information:

Mateon Therapeutics, Inc.

Matthew M. Loar

Email: ir@mateon.com

Oncotelic Inc.

David Nam

info@oncotelic.com

 

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