Item
1.01 – Entry into a Material Definitive Agreement.
On
January 30, 2017, the Registrant entered into a First Amendment to Transaction Documents (the “Amendment”) with five
parties (the “Signatories”), pursuant to which a Securities Purchase Agreement dated May 6, 2013 (the “2013
Purchase Agreement”) among Registrant, the Signatories, and two other parties has been amended. Pursuant to the 2013 Purchase
Agreement, Registrant offered and sold convertible notes and warrants to the Signatories and the two other parties (collectively,
the “Buyers” and individually a “Buyer”). The Buyers purchased an aggregate of approximately $4.9 million
principal amount of convertible notes and warrants to purchase shares of common stock. As part of the 2013 transaction, Registrant
entered into a security agreement dated on or about May 7, 2013 (the “Original Security Agreement”) with the Buyers
pursuant to which the Buyers were granted a security interest in all of Registrant’s assets except its patents and any other
intellectual properties in order to secure performance of the convertible notes. The 2013 Purchase Agreement, the convertible
notes and warrants issued pursuant thereto, and the Original Security Agreement are sometimes collectively referred to herein
as the “Transaction Documents.”
Section
11.11 of the 2013 Purchase Agreement provides that the 2013 Purchase Agreement or the other Transaction Documents can be amended
by a written instrument signed by the Company and by the “Required Buyers,” provided that the amended provisions apply
to all Buyers equally. The 2013 Purchase Agreement defines “Required Buyers” as Buyers holding or having the right
to acquire at least 75% of the shares of Registrant’s common stock issuable upon conversion of the convertible notes and
exercise of the warrants. The Signatories hold or have the right to acquire at least 75% of the shares of Registrant’s common
stock issuable upon conversion of the convertible notes and exercise of the warrants.
The
Amendment amends the 2013 Purchase Agreement and the Original Security Agreement, replaces the convertible notes with “Amended
Notes” and replaces the warrants with “Amended Warrants.” The Covenants section of the 2013 Purchase Agreement
is replaced by the covenants set forth in the Amendment, which provide in part for: the conduct of Registrant’s business;
the prohibition of “Fundamental Transactions” as defined in the 2013 Purchase Agreement unless the successor entity
assumes the obligations of Registrant under the Amended Notes and other Transaction Documents; and the granting of “piggyback”
registration rights to the Buyers subject to standard limitations. Registrant also is obligated to file with the Securities and
Exchange Commission by March 15, 2017 a preliminary proxy statement for a stockholders meeting at which Registrant will seek stockholder
approval of resolutions to (i) elect a new board of at least five directors, (ii) approve a reverse stock split of up to 1-for-7
(the “Authorized Reverse Split”), and (iii) if required by applicable law, approve an exempt offering of securities.
Registrant is obligated to use its best efforts to solicit stockholder approval of such resolutions, and must hold the stockholder
meeting promptly following the mailing of the definitive proxy statement. In addition, the Amendment waives any and all events
of default under the Transaction Documents existing on or prior to January 30, 2017 and amends the Defaults and Remedies section
of the 2013 Purchase Agreement.
The
Amended Notes provide that all accrued and unpaid interest thereon through October 31, 2016 be added to the principal amount of
the Amended Notes. The Amended Notes bear interest at the rate of 0% until May 1, 2017 and 16% per annum thereafter, subject to
reduction to comply with applicable law, and mature in 60 months. Upon certain financings, Registrant is obligated to make a payment
to the holders. Immediately upon the effectiveness of the Authorized Reverse Stock Split, there shall be a mandatory conversion
of 80% of the then-unpaid principal of and all of the then-accrued but unpaid interest on the Amended Notes. After the effectiveness
of the Authorized Reverse Split, and so long as any portion of the Amended Notes are outstanding, the holders thereof may convert
the unpaid principal and interest thereon into Registrant’s Common Stock at the voluntary conversion price of $0.20 per
share.
In
addition, the warrants and Original Security Agreement were amended by the Amendment.
The
above discussion does not describe all of the terms of the amendments to the Transaction Documents, and is qualified in its entirety
by the actual terms of such documents. Copies of the Amendment, including the exhibits thereto, and the 2013 Purchase Agreement
are attached hereto as Exhibits 10.1 and 10.2, and are incorporated herein by this reference.