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): March 21, 2017
DYNATRONICS CORPORATION
(Exact name of registrant as specified in its charter)
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Utah
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0-12697
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87-0398434
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(State or Other Jurisdiction of Incorporation)
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Commission File Number
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(IRS Employer Identification Number)
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7030 Park Centre Dr., Salt Lake City, Utah
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84121
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number, including area code:
(801) 568-7000
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:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01 Entry into a Material Definitive Agreement
Acquisition of Hausmann Industries, Inc.
On March 21, 2017, Dynatronics Corporation (the "Company" or "Dynatronics") entered into a definitive agreement (the "Asset Purchase Agreement") to acquire substantially all of the assets of Hausmann Industries, Inc., a New Jersey corporation ("HII"), for $10.0 million in cash, subject to adjustment, as provided in the Asset Purchase Agreement (the "Acquisition"). We will fund the Acquisition with proceeds from the private placement of our equity securities as described in Item 3.02 of this Current Report (the "Private Placement") and borrowings under an asset-based lending facility (the "Credit Facility") provided by Bank of the West, described below. HII is a private closely-held New Jersey corporation founded in 1955. The primary shareholder and principal executive officer of HII is David Hausmann. HII designs and manufactures medical, therapy, and athletic training equipment to customers in the United States and internationally. HII owns and conducts business in a 60,000 square-foot manufacturing and headquarters facility located at 130 Union Street, Northvale, New Jersey (the "Facility"). The Acquisition does not include a purchase of the Facility, which the Company will lease from HII following closing of the Acquisition in April, 2017 (the "Closing").
Prior to the transactions described in this Current Report on Form 8-K, there were no material relationships between the Company or HII or any affiliate of HII and the Company, other than pertaining to the Acquisition.
Asset Purchase Agreement
The Closing is conditioned upon, among other things, (i) receipt of audited financial statements for HII for the fiscal years ended December 31, 2015 and December 31, 2016, and for interim periods as determined by the Company; (ii) closing of the Private Placement; and (iii) the closing of the Credit Facility
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Under the terms of the Asset Purchase Agreement, we will acquire substantially all of the assets of HII and following the Closing we will operate the business formerly conducted by HII at its New Jersey Facility. We will lease the Facility on terms contained in a lease agreement (the "Lease") with an initial two-year term, with annual lease payments of $360,000 for the first year, and 2% increases in each subsequent year. The Lease grants us two options to extend the term of the lease for two years per extension term, subject to annual 2% per year increases in base rent, and a third option at the end of the second option term for an additional five-years at fair market value.
The purchase price for HII is $10.0 million. We will hold back $1.0 million of the purchase price for purposes of satisfying adjustments to the purchase price as may be required by the Asset Purchase Agreement and indemnification claims, if any. Subject to adjustments or claims as provided by the Asset Purchase Agreement, 25% of the holdback amount will be released to HII on January 1, 2018, and the balance of the remaining holdback amount will be released to HII 18 months after Closing. As part of the Acquisition transaction, we will pay and discharge certain liabilities and obligations of HII related to its ongoing business (primarily trade accounts and similar obligations in the ordinary course).
We will make offers of employment to employees of HII to become Dynatronics employees at Closing. The Company and David Hausmann will enter into an employment agreement (the "Employment Agreement") and he will assist in the transition of the acquired business, reporting to our CEO, Kelvyn Cullimore. Under the Employment Agreement, we will pay Mr. Hausmann an annual salary of $150,000 and annual bonus in an amount between $25,000 and $35,000 as determined by Mr. Cullimore, and provide him with other employee benefits provided to our employees generally at his level of management at the New Jersey location (including, e.g., paid time off and paid holidays, medical/dental/vision insurance, Section 125 Flexible Spending Account (FSA), and 401(k)). In addition to the restrictive covenants applicable to him under the Asset Purchase Agreement described in the next paragraph below, as a condition of his employment, Mr. Hausmann will be required to sign a confidentiality and non-compete agreement, which limits his ability to be employed by a competitor of, or otherwise to compete with, Dynatronics for a one-year period following the later of (i) termination of employment, and (ii) the latest date upon which Dynatronics makes any severance payment to Mr. Hausmann.
The Asset Purchase Agreement contains customary representations, warranties and covenants by HII and the Company, as well as customary indemnification provisions among the parties. Post-closing covenants include a covenant that for a period of five years (the "Restrictive Period"), HII and its stockholders (including Mr. Hausmann) will refrain from solicitation of employees, customers and business of HII or the Company and from other competitive activity as defined in the Asset Purchase Agreement, and requires them and their representatives (as defined in the Asset Purchase Agreement) to maintain (other than in connection with performing obligations pursuant to the Lease or the Employment Agreement, as applicable), the confidentiality of, and not use, confidential information relating to the acquired business or purchased assets, except as permitted by the Asset Purchase Agreement.
The foregoing description of the Asset Purchase Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Asset Purchase Agreement, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.
The Credit Facility
On February 27, 2017, we obtained a written commitment letter (the "Commitment") from Bank of the West ("Bank") to provide asset-based financing to the Company to be used for funding the Acquisition and for operating capital (the "Credit Facility"). As provided in the Commitment, amounts available to us under the Credit Facility will be subject to a borrowing base calculation of up to a maximum availability of $8,000,000 and will bear interest at LIBOR plus 2.25%. We will pay a commitment fee of .25% and an unused line fee of .25%. The maturity date is two years from the date of the note. The borrowing base will be an amount equal to 80% of eligible accounts receivable and a percentage of inventory to be determined by Bank following examination and appraisal of our inventory.
The Credit Facility is subject to documentation (including a loan and security agreement, financing statements, notes and other agreements) and the obligations of the Company will be secured by first priority liens on substantially all of the Company's and its subsidiaries' assets (as defined in the Credit Facility). The Commitment provides that the Credit Facility will include financial covenants, such as ratios for consolidated leverage and fixed charge coverage. The Credit Facility will also contain customary affirmative and negative covenants for a transaction of this type, including, among others, the provision of annual, quarterly and monthly financial statements and compliance certificates, maintenance of property, insurance, compliance with laws and environmental matters, restrictions on incurrence of indebtedness, granting of liens, making investments and acquisitions, paying dividends, entering into affiliate transactions and asset sales. The Credit Facility will also contain penalties in connection with customary events of default, including, among others, payment, bankruptcy, representation and warranty, covenant, change in control, judgment and events or conditions that have a Material Adverse Effect (as defined in the Credit Facility).
The foregoing description of the Credit Facility does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Commitment, a copy of which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein by reference.
Securities Purchase Agreement
The information set forth in Item 3.02 of this report regarding the Securities Purchase Agreement is incorporated into this Item 1.01 by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off- Balance Sheet Arrangement of a Registrant
The information under Item 1.01 of this Current Report on Form 8-K regarding the entry into the Credit Facility set forth under "Credit Facility" is incorporated into this Item 2.03 by reference.
Item 3.02 Unregistered Sales of Equity Securities.
To provide cash for the Acquisition, we conducted a private offering or our equity securities to raise up to $9.0 million (the "Private Placement"). As of the date of this report, we have received subscriptions for an aggregate of 1,559,000 Units, as defined below. Closing of the Private Placement under the Securities Purchase Agreement will occur simultaneously with the Closing of the Acquisition, currently anticipated during April 2017. In connection with the offer and sale of the Units, we delivered to the Investors prior to execution of the Securities Purchase Agreement, a "Supplemental Disclosure Statement" summarizing the Acquisition, including information provided by HII, which is an Appendix to the Securities Purchase Agreement.
The Units and their component and underlying securities are offered and will be issued in reliance upon exemptions from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), including Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder, relating to sales by an issuer not involving any public offering, and in reliance on similar exemptions under applicable state laws. Each Investor represented that it is an accredited investor and that it is acquiring the securities for investment purposes only and not with a view to any resale, distribution or other disposition of such securities in violation of the United States federal securities laws. Securities issued in the Private Placement are "restricted securities" under the Securities Act and may not be transferred, sold or otherwise disposed of unless they are subsequently registered or an exemption is available under the Securities Act. Neither this Current Report on Form 8-K, nor the exhibits attached hereto, is an offer to sell or the solicitation of an offer to buy the securities described herein.
In connection with the Private Placement, we offered up to 1,800,000 units ("Units") at $5.00 per Unit. Each Unit is comprised of:
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one (1) share of the Company's no par per share Common Stock priced at $2.50 per share; and
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one (1) share of Series B Preferred Stock priced at $2.50 per share.
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Each purchaser in the offering also receives a Warrant to purchase 1.5 shares of Common Stock for each Unit purchased, exercisable at a price of $2.75 per share.
Purchasers of the Units include a select group of accredited investors, including institutional investors (the "Investors"). Certain of our officers and directors and significant shareholders, as well as Mr. Hausmann and members of his family, are Investors in the Private Placement.
Subject to the terms and conditions of the Securities Purchase Agreement as described below, assuming the full $9.0 million is raised in the Private Placement, we will issue a total of 1,800,000 Units, or 1,800,000 shares of Common Stock, 1,800,000 shares of Series B Preferred and Warrants to purchase an aggregate of 2,700,000 shares of Common Stock.
Certain of the Investors,
including any officer, director, employee or consultant of the Company, are defined as "insiders" in the Securities Purchase Agreement. The issuance of our securities in the Private Placement generally and to these Investors in particular is subject to Shareholder Approval, as described below. Until we have obtained Shareholder Approval, we will not issue any shares of Common Stock as part of the Units or otherwise in an amount that exceeds 19.9% of the issued and outstanding shares of Common Stock of the Company. In addition, until we have obtained Shareholder Approval, we will not issue any shares of Common Stock to any insider or to any Investor who has agreed to defer the issuance of such Investor's Common Stock.
Our Common Stock is currently listed on The Nasdaq Capital Market and therefore we are subject to the Nasdaq Listing Rules ("Nasdaq Rules") governing listing requirements (Section 5500 of the Nasdaq Rules for securities listed on the Capital Market) and corporate governance (Section 5600 of the Nasdaq Rules) of companies with securities listed on Nasdaq. Pursuant to the terms of both the Asset Purchase Agreement and the Securities Purchase Agreement, we have covenanted to obtain approval of our shareholders ("Shareholder Approval") as may be required by the Nasdaq Rules for us to issue the shares of Common Stock included in the Units and underlying the conversion, payment of dividends and redemption of the Series B Preferred, and execution of the Warrants, including the following:
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Nasdaq Listing Rule 5635(a), which requires shareholder approval prior to the issuance of securities in connection with an acquisition of the stock or assets of another company where the total number of shares of common stock to be issued is or will be equal to or in excess of 20% of the total number of shares of common stock outstanding before the issuance of the stock or securities;
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Nasdaq Listing Rule 5635(b), which requires prior shareholder approval for issuances of securities that could result in a "change of control" of the issuer – Nasdaq may deem a change of control to occur when, as a result of an issuance, an investor or a group would own, or have the right to acquire, 20% or more of the outstanding shares of Common Stock or voting power, and such ownership or voting power of an issuer would be the largest ownership position of the issuer;
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Nasdaq Rule 5635(c), requiring shareholder approval when common stock may be issued to "insiders" (directors, officers, employees or consultants) of the issuer in transactions at prices less than market value, which includes sales deemed to be "equity compensation" paid to insiders, as well as the issuance of common stock at less than market prices in payment of dividends or for redemption of other securities or payment of debt; and
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Nasdaq Rule 5635(d), which requires shareholder approval prior to the issuance of common stock in connection with certain non-public offerings involving the sale, issuance or potential issuance of common stock (and/or securities convertible into or exercisable for common stock) equal to 20% or more of common stock outstanding before the issuance.
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We will hold a meeting of shareholders following the Closing for the purpose of obtaining Shareholder Approval as described above. Certain key shareholders of the Company (officers, directors and certain shareholders) will enter into an agreement with the Investors to vote all Common Stock over which such persons have voting control as of the record date for the meeting of shareholders, amounting to, in the aggregate, at least 35% of all current voting power of the Company in favor of the Shareholder Approvals described above.
In connection with the Private Placement, we agreed to file a registration statement under the Securities Act registering the issuance and resale of all shares of Common Stock included in the Units and underlying the conversion of and payment of dividends on the Series B Preferred, and exercise of the Warrants. The obligations of the Company and the rights of the Investors are contained in a Registration Rights Agreement to be executed at the Closing.
The rights and preferences of the Series B Preferred will be designated by the Company's Board of Directors in an amendment to the Company's Amended and Restated Articles of Incorporation (the "Designation") which will be filed prior to the Closing with the Utah Division of Corporations and Commercial Code.
Unless a holder of Series B Preferred otherwise elects at the time it purchases the Units, the holder shall not have the right to convert any portion of the Series B Preferred, to the extent that, after giving effect to the conversion, such holder (and the holders affiliates and other related persons as provided in the Designation) would beneficially own in excess of an amount defined as the "Beneficial Ownership Limitation." The "Beneficial Ownership Limitation" is 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of shares of Series B Preferred held by the applicable holder. A holder, upon prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions applicable to the holder's shares of Series B Preferred (up to 9.99% of the outstanding Common Stock after giving effect to conversion of such shares).
The Series B Preferred entitles the holder to vote on an as-converted basis, one vote for each share of Common Stock issuable upon conversion of the Series B Preferred, subject to the Beneficial Ownership Limitation as provided above and subject to the restrictions on conversion as may be required by the Nasdaq Rules. The Series B Preferred will accrue an annual dividend at a rate of 8.0% that may be paid at the discretion of the Company in cash or in shares of Common Stock, subject to Shareholder Approval.
The Warrants have an exercise price of $2.75 per share of Common Stock and a term of six years. The Warrants may not be exercised unless and until Shareholder Approval has been obtained. At the election of the holder of the Warrant, the holder may be restricted from the exercise of the Warrant or any portion of the Warrant held by such holder, to the extent that, after giving effect to the conversion, such holder (together with such holder's affiliates, and any persons acting as a group together with such holder or any of such holder's affiliates) would beneficially own in excess of 4.99% (or 9.99%, as such holder may elect) of the number of shares of the Common Stock outstanding immediately after giving effect to the exercise.
Ladenburg Thalmann & Co. Inc. ("Ladenburg") acted as placement agent and we will pay Ladenburg fees for its services in connection with proceeds received in the Private Placement from Investors introduced to the Company by Ladenburg pursuant to its agreement with the Company, in accordance with applicable FINRA rules and regulations. No compensation, fees, or discounts will be paid or given to any other person in connection with the offer and sale of the securities.
The foregoing descriptions of the Designation, Securities Purchase Agreement, Registration Rights Agreement, Voting Agreement, and Warrant do not purport to be complete and are subject to, and qualified in their entirety by, the full text of the Designation, Securities Purchase Agreement, Registration Rights Agreement, Voting Agreement, and Warrant, as the case may be, substantially in the forms filed as Exhibits 3.1, 10.3, 10.4, 9.1, and 4.2, respectively, to this Current Report on Form 8-K and incorporated herein by reference.
Item 7.01. Regulation FD Disclosure.
Press Release
On March 22, 2017, we issued a press release announcing the Acquisition and the Private Placement. A copy of this press release is furnished (not filed) as Exhibit 99.1 hereto and incorporated herein by reference in its entirety. A copy of the Supplemental Disclosure Statement delivered to the Investors with the Securities Purchase Agreement dated March 21, 2017, is furnished with this Current Report as Exhibit 99.2.
Cautionary Statement Regarding Forward-Looking Statements
This Report contains forward
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looking statements that involve risks and uncertainties. These statements relate to future periods, future events or our future operating or financial performance. All statements other than statements of historical fact, including statements identified by words such as "may," "will," "could," "expect," "anticipate," "continue," "plan," "intend," "estimate," "project," "believe" and similar expressions or variations, are forward
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looking statements. Forward
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looking statements include but are not limited to statements regarding our strategy, future operations, financial condition, results of operations, projected costs, and plans and objectives of management. Actual results may differ materially from those contemplated by the forward
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looking statements due to, among others, the risks and uncertainties described in our reports and filings with the Securities and Exchange Commission. We undertake no obligation to update any forward
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looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events.
Item 9.01 Financial Statements and Exhibits.
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(a)
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Financial Statements of Business Acquired
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The financial statements required by this item are not being filed herewith. The Company will file the required financial statements as an amendment to this Current Report on Form 8-K within the time permitted by Item 9.01(a).
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(b)
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Pro Forma Financial Information
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The pro forma financial information required by this item is not being filed herewith. The Company will file the required pro forma financial information as an amendment to this Current Report on Form 8-K within the time permitted by Item 9.01(b).
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.
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DYNATRONICS CORPORATION
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By:
/s/ Kelvyn H. Cullimore, Jr.
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Kelvyn H. Cullimore, Jr.
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Chairman and President
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Date: March 21, 2017
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Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF THE SERIES B CONVERTIBLE PREFERRED STOCK OF
DYNATRONICS CORPORATION
I, Kelvyn H. Cullimore, Jr., hereby certify that I am the Chief Executive Officer of Dynatronics Corporation (the "Company"), a corporation incorporated and existing under the Utah Revised Business Corporation Act (the "Act"), and further do hereby certify:
That pursuant to the authority expressly conferred upon the Board of Directors of the Company (the "Board") by the Company's Articles of Incorporation, as amended (the "Articles of Incorporation"), the Board on March ___, 2017 adopted the following resolutions creating a series of shares of preferred stock designated as Series B Convertible Preferred Stock, none of which shares have been issued:
RESOLVED, that the Board designates the Series B Convertible Preferred Stock and the number of shares constituting such series, and fixes the rights, powers, preferences, privileges and restrictions relating to such series in addition to any set forth in the Articles of Incorporation as attached hereto.
IN WITNESS WHEREOF, the Company has caused this Certificate to be executed by Kelvyn H. Cullimore, Jr., CEO, an authorized person, on the ___ day of March, 2017.
DYNATRONICS CORPORATION
a Utah corporation,
By _____________________________________
Kelvyn H. Cullimore, Jr., CEO
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF THE SERIES B CONVERTIBLE PREFERRED STOCK OF
DYNATRONICS CORPORATION
TABLE OF CONTENTS
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Section 1.
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Definitions
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1
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Section 2.
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Designation, Amount and Par Value
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8
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Section 3.
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Dividends
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Dividends in Cash or in Kind
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9
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(b)
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Company's Ability to Pay Dividends in Cash or Kind
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10
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(c)
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Dividend Calculations
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10
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(d)
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Late Fees
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(e)
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Other Securities
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Section 4.
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Voting Rights
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(a)
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General Voting Rights
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(b)
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Class Voting Rights
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Section 5.
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Liquidation
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Section 6.
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Conversion
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(a)
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Conversions at Option of Holder
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(b)
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Conversion Price
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(c)
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Mechanics of Conversion
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(d)
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Beneficial Ownership Limitation.
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Section 7.
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Certain Adjustments
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(a)
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Stock Dividends and Stock Splits
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(b)
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Subsequent Rights Offerings
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(c)
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Pro Rata Distributions
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(d)
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Fundamental Transaction
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(e)
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Calculations
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(f)
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Notice to the Holders
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Section 8.
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Forced Conversion
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(a)
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Limited Forced Conversion
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(b)
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Full Forced Conversion
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(c)
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Application of Forced Conversion
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Section 9.
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Redemption Upon Triggering Events
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(a)
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Triggering Event
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Section 10.
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Miscellaneous
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(a)
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Notices
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(b)
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Absolute Obligation
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(c)
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Lost or Mutilated Series B Preferred Stock Certificates
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(d)
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Governing Law
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(e)
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Waiver
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(f)
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Severability
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(g)
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Next Business Day
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(h)
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Headings
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(i)
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Status of Converted or Redeemed Series B Preferred Stock
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CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF THE SERIES B CONVERTIBLE PREFERRED STOCK OF
DYNATRONICS CORPORATION
TERMS OF PREFERRED STOCK
Section 1.
Definitions
. For the purposes of this Certificate of Designations, Preferences and Rights of the Series B Convertible Preferred Stock ("
Designation of Rights
") of Dynatronics Corporation, a Utah corporation (the "
Company
"), the following terms shall have the following meanings:
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Affiliate
" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.
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Alternate Consideration
" shall have the meaning set forth in
Section 7(d)
.
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Bankruptcy Event
" means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
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Beneficial Ownership Limitation
" shall have the meaning set forth in
Section 6(d)
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Board of Directors
" means the Board of Directors of the Company.
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Bid Price
" means, for any share of Common Stock as of the particular time of determination, the price determined by the first of the following clauses that applies: (a) the bid price for the Common Stock on a Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), or (b) if the OTCQB or OTCQX is not a Trading Market, the bid price of the Common Stock as of the particular time of determination on the OTCQB or OTCQX, or, (c) if the Common Stock is not then listed or quoted for trading on the OTCQB or OTCQX and if prices for the Common Stock are then reported in the "Pink Sheets" published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the bid price per share of the Common Stock as of such time of determination.
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Business Day
" means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
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Buy-In
" shall have the meaning set forth in
Section 6(c)(iv)
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"
Change of Control Transaction
" means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d 5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of Series B Preferred Stock and the Securities issued together with the Series B Preferred Stock), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the shareholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the shareholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period of more than one half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.
"
Closing
" means the closing of the purchase and sale of the Securities pursuant to the terms of the Purchase Agreement.
"
Closing Date
" means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) each Holder's obligations to pay the Subscription Amount and (ii) the Company's obligations to deliver the Securities have been satisfied or waived.
"
Commission
" means the United States Securities and Exchange Commission.
"
Common Stock
" means the Company's common stock, no par value per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.
"
Common Stock Equivalents
" means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
"
Conversion Amount
" means the sum of the Stated Value at issue.
"Conversion Cap" shall have the meaning set forth in Section 6(a).
"
Conversion Date
" shall have the meaning set forth in
Section 6(a)
.
"
Conversion Price
" shall have the meaning set forth in
Section 6(b)
.
"
Conversion Shares
" means, collectively, the shares of Common Stock issued and issuable upon conversion of the Series B Preferred Stock in accordance with the terms hereof.
"
Conversion Shares Registration Statement
" means a registration statement that registers the resale of all Conversion Shares (and shares issued and issuable in lieu of cash payments of dividends) of the Holders, who shall be named as "selling shareholders" therein and meets the requirements of the Registration Rights Agreement.
"
Dividend Conversion Rate
" means a price that is equal to 90% of the average closing bid prices, as reported by Bloomberg L.P., for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the date the applicable Dividend Conversion Shares are issued and delivered;
provided
, that if such delivery is after the Dividend Payment Date, then the Dividend Conversion Rate shall mean the lesser of (i) 90% of the average closing bid prices, as reported by Bloomberg L.P., for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the original Dividend Payment Date or (ii) 100% of the average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the date the applicable Dividend Conversion Shares are issued and delivered if such delivery is after the Dividend Payment Date;
provided
,
further
; however, that until the date applicable Shareholder Approval has been obtained, the Dividend Conversion Rate shall mean a price that is equal to the greater of (a) the market price of the Common Stock on the Original Issue Date, or (b) the applicable market price as determined under (i) or (ii).
"
Dividend Conversion Shares
" shall have the meaning set forth in
Section 3(a).
"
Dividend Notice Period
" shall have the meaning set forth in
Section 3(a)
.
"
Dividend Payment Date
" shall have the meaning set forth in
Section 3(a)
.
"
Dividend Share Amount
" shall have the meaning set forth in
Section 3(a)
.
"
Effective Date
" means the date that the Conversion Shares Registration Statement filed by the Company pursuant to the Registration Rights Agreement is first declared effective by the Commission.
"
Equity Conditions
" means, during the period in question, (a) the Company shall have duly honored all conversions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the applicable Holder on or prior to the dates so requested or required, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the applicable Holder in respect of the Series B Preferred Stock, (c)(i) there is an effective Conversion Shares Registration Statement pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issued and issuable pursuant to the Transaction Documents (and shares issued and issuable in lieu of cash payments of dividends) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized, but unissued and otherwise unreserved, shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) the issuance of the shares in question (or, in the case of a redemption, the shares issuable upon conversion in full of the redemption amount) to the applicable Holder would not violate the limitations set forth in
Section 6(d)
herein, (g) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (h) Shareholder Approval shall have been received and effective, (i) the applicable Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) there is no existing Triggering Event and no existing event which, with the passage of time or the giving of notice, would constitute a Triggering Event.
"
Escrow Agent
" means ________ and having an office at _________.
"
Escrow Agreement
" means the escrow agreement entered into prior to the date of the Purchase Agreement, by and among the Company, the Placement Agent and the Escrow Agent pursuant to which the Holder shall deposit Subscription Amounts with the Escrow Agent to be applied to the transactions contemplated hereunder.
"
Exchange Act
" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"
Exempt Issuance
" means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any securities issued pursuant to the Purchase Agreement and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of the Purchase Agreement, provided that such securities have not been amended since the date of the Purchase Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of any such securities or to extend the term of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
"
Forced Conversion Amount
" means the sum of (a) 100% of the aggregate Stated Value then outstanding, (b) accrued but unpaid dividends and (c) all liquidated damages and other amounts due in respect of the Series B Preferred Stock.
"
Forced Conversion Notice
" shall mean a Limited Forced Conversion Notice or a Full Forced Conversion Notice.
"
Full Forced Conversion Date
" shall have the meaning set forth in
Section 8(a)
.
"
Full Forced Conversion Notice
" shall have the meaning set forth in
Section 8(a)
.
"
Full Forced Conversion Notice Date
" shall have the meaning set forth in
Section 8(a)
.
"
Fundamental Transaction
" shall have the meaning set forth in
Section 7(d)
.
"
GAAP
" means United States generally accepted accounting principles.
"
Holder
" shall have the meaning given such term in
Section 2
.
"
Junior Securities
" means the Common Stock and all Common Stock Equivalents of the Company other than those securities which are explicitly senior or
pari
passu
to the Series B Preferred Stock in dividend rights or liquidation preference.
"
Limited Forced Conversion Date
" shall have the meaning set forth in
Section 8(a)
.
"
Limited Forced Conversion Notice
" shall have the meaning set forth in
Section 8(a)
.
"
Limited Forced Conversion Notice Date
" shall have the meaning set forth in
Section 8(a)
.
"
Liquidation
" shall have the meaning set forth in
Section 5
.
"
Nasdaq
" means The NASDAQ Stock Market, LLC.
"
Nasdaq Insider
" means any officer, director, employee or consultant of the Company, as those terms are interpreted pursuant to Nasdaq Listing Rule 5635(c).
"
New York Courts
" shall have the meaning set forth in
Section 10(d)
.
"
Notice of Conversion
" shall have the meaning set forth in
Section 6(a)
.
"
Original Issue Date
" means the date of the first issuance of any shares of the Series B Preferred Stock regardless of the number of transfers of any particular shares of Series B Preferred Stock and regardless of the number of certificates which may be issued to evidence such Series B Preferred Stock.
"
Person
" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
"
Purchase Agreement
" means the Securities Purchase Agreement, dated as of March ___, 2017, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.
"
Registration Rights Agreement
" means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, among the Company and the original Holders, in the form of
Exhibit C
attached to the Purchase Agreement.
"
Rule 144
" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
"
Rule 424
" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
"
Securities
" means the shares of Series B Preferred Stock, the Warrants, the Warrant Shares and the Underlying Shares.
"
Securities Act
" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"
Series A Preferred Stock
" means the Company's Series A 8% Convertible Preferred Stock.
"
Series B Preferred Stock
" shall have the meaning set forth in
Section 2
.
"
Share Delivery Date
" shall have the meaning set forth in
Section 6(c).
"
Shareholder Approval
" means such approval as may be required by the applicable rules and regulations of Nasdaq (or any successor entity) from the shareholders of the Company with respect to the transactions contemplated by the Transaction Documents, including, but not limited to (i) the issuance of
all of
the
Shares and
Underlying Shares
in excess of 19.99% of the issued and outstanding Common Stock on the Closing Date, and (ii) the issuance of shares of Common Stock in payment of dividends or upon conversion or otherwise as provided in this Designation of Rights, to Nasdaq Insiders, at prices less than market value of the Common Stock in a private placement.
"
Stated Value
" shall have the meaning set forth in
Section 2
, as the same may be increased pursuant to
Section 3
.
"
Subscription Amount
" shall mean, as to each Holder, the aggregate amount to be paid for the Series B Preferred Stock purchased pursuant to the Purchase Agreement as specified below such Holder's name on the signature page of the Purchase Agreement and next to the heading "Subscription Amount," in United States dollars and in immediately available funds.
"
Subsidiary
" means any subsidiary of the Company as set forth on
Schedule 3.1(a)
of the Purchase Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date of the Purchase Agreement.
"
Successor Entity
" shall have the meaning set forth in
Section 7(d)
.
"
Threshold Period
" shall have the meaning set forth in
Section 8(a)
.
"
Trading Day
" means a day on which the principal Trading Market is open for business.
"
Trading Market
" means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTCQB or OTCQX (or any successors to any of the foregoing).
"
Transaction Documents
" means this Designation of Rights, the Purchase Agreement, the Warrants, the Registration Rights Agreement, the Escrow Agreement, the Voting Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement.
"
Transfer Agent
" means Interwest Transfer Company, the current transfer agent of the Company with a mailing address of 1981 East Murray Holladay Road, Salt Lake City, Utah 84117 and a phone number of 801-272-9294, and any successor transfer agent of the Company.
"
Triggering Event
" shall have the meaning set forth in
Section 9(a)
.
"
Triggering Redemption Amount
" means, for each share of Series B Preferred Stock, the sum of (a) the greater of (i) 130% of the Stated Value and (ii) the product of (y) the VWAP on the Trading Day immediately preceding the date of the Triggering Event and (z) the Stated Value divided by the then Conversion Price, (b) all accrued but unpaid dividends thereon and (c) all liquidated damages and other costs, expenses or amounts due in respect of the Series B Preferred Stock.
"
Triggering Redemption Payment Date
" shall have the meaning set forth in
Section 9(b)
.
"
Underlying Shares
" means the shares of Common Stock issuable upon conversion of the Series B Preferred Stock and issued or issuable in payment of dividends on the Series B Preferred Stock in accordance with
Section 3
of this Designation of Rights, and the Warrant Shares.
"
Voting Agreement
" means the written agreement, in the form of
Exhibit F
attached to the Purchase Agreement, of all of the officers and directors and shareholders holding more than 10% of the issued and outstanding shares of Common Stock on the date of the Purchase Agreement to vote all Common Stock over which such Persons have voting control as of the record date for the meeting of shareholders of the Company, amounting to, in the aggregate, at least 35% of all current voting power of the Company
"
VWAP
" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTCQB or OTCQX, (c) if the Common Stock is not then listed or quoted for trading on the OTCQB or OTCQX and if prices for the Common Stock are then reported in the "Pink Sheets" published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
"
Warrants
" means, collectively, the Warrants delivered to the Holders at the Closing in accordance with Section 2.2(a) of the Purchase Agreement, in the form of
Exhibit E
, attached to the Purchase Agreement.
"
Warrant Shares
" means the shares of Common Stock issuable upon exercise of the Warrants.
Section 2.
Designation, Amount and Par Value
. There shall hereby be created and established a series of the previously authorized, undesignated and unissued no par value preferred stock of the Company designated as "Series B Convertible Preferred Stock" (the "
Series B Preferred Stock
") and the number of shares so designated shall be up to _______ (which shall not be subject to increase without the written consent of all of the holders of the Series B Preferred Stock (each, a "
Holder
" and collectively, the "
Holders
")). Each share of Series B Preferred Stock shall have no par value per share and a stated value equal to $2.50, subject to increase as set forth herein (the "
Stated Value
").
Dividends in Cash or in Kind
. Holders shall be entitled to receive, and the Company shall pay, cumulative dividends at the rate per share (as a percentage of the Stated Value per share) of 8% per annum (subject to increase pursuant to
Section 9(b)
), payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first such date after the Original Issue Date, on each Full Forced Conversion Date, on each Limited Forced Conversion Date, and on each Conversion Date (with respect only to shares of Series B Preferred Stock being converted) (each such date, a "
Dividend Payment Date
") (if any Dividend Payment Date is not a Trading Day, the applicable payment shall be due on the next succeeding Trading Day) in cash, or at the Company's option, following Shareholder Approval (including, for the avoidance of doubt, any Shareholder Approval that may be required in connection with (A) Nasdaq Listing Rule 5635 in connection with issuances of Common Stock equal to or in excess of 20% of the number of shares of Common Stock outstanding, or voting power equal to in excess of 20% of the voting power outstanding, or (b) dividend payments to Nasdaq Insiders to comply with Nasdaq Listing Rule 5635(c)), in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this
Section 3(a)
, or a combination thereof (the dollar amount to be paid in shares of Common Stock, the "
Dividend Share Amount
"). The form of dividend payments to each Holder shall be determined in the following order of priority: (i) if funds are legally available for the payment of dividends and the Equity Conditions have not been met during the 20 consecutive Trading Days immediately prior to the applicable Dividend Payment Date (the "
Dividend Notice Period
"), in cash only, (ii) if funds are legally available for the payment of dividends and the Equity Conditions have been met during the Dividend Notice Period, at the sole election of the Company, in cash or shares of Common Stock (following Shareholder Approval), which shall be valued at the Dividend Conversion Rate, (iii) if funds are not legally available for the payment of dividends and the Equity Conditions have been met during the Dividend Notice Period, in shares of Common Stock (following Shareholder Approval), which shall be valued at the Dividend Conversion Rate, (iv) if funds are not legally available for the payment of dividends and the Equity Condition relating to an effective Conversion Shares Registration Statement has been waived by such Holder, as to such Holder only, in unregistered shares of Common Stock (following Shareholder Approval) which shall be valued at the Dividend Conversion Rate, and (v) if funds are not legally available for the payment of dividends and the Equity Conditions have not been met during the Dividend Notice Period, then, at the election of such Holder, such dividends shall accrue to the next Dividend Payment Date or shall be accreted to, and increase, the outstanding Stated Value. In addition, as a condition to paying dividends in shares of Common Stock, as to such Dividend Payment Date, prior to such Dividend Notice Period (but not more than five (5) Trading Days prior to the commencement of such Dividend Notice Period), the Company shall have delivered to each Holder's account with The Depository Trust Company a number of shares of Common Stock to be applied against such Dividend Share Amount equal to the quotient of (x) the applicable Dividend Share Amount divided by (y) the Dividend Conversion Rate, assuming for such purposes that the Dividend Payment Date is the Trading Day immediately prior to the commencement of the Dividend Notice Period (the "
Dividend Conversion Shares
"). The Holders shall have the same rights and remedies with respect to the delivery of any such shares as if such shares were being issued pursuant to
Section 6
.
(b)
Company's Ability to Pay Dividends in Cash or Kind
. On the Closing Date, the Company shall have notified the Holders whether or not it may legally pay cash dividends as of the Closing Date. The Company shall promptly notify the Holders at any time the Company shall become able or unable, as the case may be, to legally pay cash dividends. If at any time the Company has the right to pay dividends in cash or shares of Common Stock, the Company must provide the Holders with at least 20 Trading Days' notice of its election to pay a regularly scheduled dividend in shares of Common Stock (the Company may indicate in such notice that the election contained in such notice shall continue for later periods until revised by a subsequent notice). If at any time the Company delivers a notice to the Holders of its election to pay the dividends in shares of Common Stock and such shares are included on a registration statement, the Company shall timely file a prospectus supplement pursuant to Rule 424 disclosing such election. The aggregate number of shares of Common Stock otherwise issuable to a Holder on a Dividend Payment Date shall be reduced by the number of shares of Common Stock previously issued to such Holder in connection with such Dividend Payment Date. If any Dividend Conversion Shares are issued to a Holder in connection with a Dividend Payment Date and are not applied against a Dividend Share Amount, then such Holder shall promptly return such excess shares to the Company.
(c)
Dividend Calculations
. Dividends on the Series B Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve 30-calendar day periods, and shall accrue daily commencing on the Original Issue Date, and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends. Payment of dividends in shares of Common Stock shall otherwise occur pursuant to
Section 6(c)(i)
herein and, solely for purposes of the payment of dividends in shares, the Dividend Payment Date shall be deemed the Conversion Date. Dividends shall cease to accrue with respect to (i) any shares of Series B Preferred Stock that would have been converted pursuant to
Sections 8(a) or 8(b)
but for the ownership limitations of Section 6(d), and (ii) any shares of Series B Preferred Stock actually converted, provided that the Company actually delivers the Conversion Shares within the time period required by
Section 6(c)(i)
herein. Except as otherwise provided herein, if at any time the Company pays dividends partially in cash and partially in shares, then such payment shall be distributed ratably among the Holders based upon the number of shares of Series B Preferred Stock held by each Holder on such Dividend Payment Date.
(d)
Late Fees
. Any dividends, whether paid in cash or shares of Common Stock, that are not paid within five (5) Trading Days following a Dividend Payment Date shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 18% per annum or the lesser rate permitted by applicable law which shall accrue daily from the Dividend Payment Date through and including the date of actual payment in full.
(e)
Other Securities
. So long as any shares of Series B Preferred Stock shall remain outstanding, neither the Company nor any Subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities. So long as any shares of Series B Preferred Stock shall remain outstanding, neither the Company nor any Subsidiary thereof shall directly or indirectly pay or declare any dividend or make any distribution upon (other than a dividend or distribution described in
Section 6
or dividends due and paid in the ordinary course on any other series of preferred stock of the Company at such times when the Company is in compliance with its payment and other obligations hereunder), nor shall any distribution be made in respect of, any Junior Securities as long as any dividends due on the Series B Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities or shares
pari
passu
with the Series B Preferred Stock.
Section 4.
Voting Rights
(a)
General Voting Rights. The Holder of each share of Series B Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Series B Preferred Stock could be converted (taking into account, for the avoidance of doubt, (i) any adjustment pursuant to Section 7, (ii) the Beneficial Ownership Limitation and (iii) the restrictions on conversion prior to Shareholder Approval as provided for in Section 6(a)) for purposes of determining the shares entitled to vote at any regular, annual or special meeting of the shareholders of the Company, and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class); provided, however, that no Holder of Series B Preferred Stock shall be entitled to cast votes for the number of shares of Common Stock issuable upon conversion of such shares of Series B Preferred Stock held by such Holder that exceeds (subject to a proportionate adjustment in the event of a stock split, stock dividend, combination or other proportionate recapitalization) the quotient of (x) the aggregate purchase price paid by such Holder of Series B Preferred Stock for its shares of Series B Preferred Stock, divided by (y) the greater of (i) $2.50 and (ii) the closing Bid Price of the Common Stock on the Trading Day immediately prior to the date of issuance of such Holder's Series B Preferred Stock. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series B Preferred Stock held by each Holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). The Holders of Series B Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the bylaws of the Company.
(b)
Class Voting Rights
. As long as any shares of Series B Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend this Designation of Rights, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined in
Section 5
) senior to, or otherwise
pari
passu
with, the Series B Preferred Stock, (c) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series B Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.
Section 5.
Liquidation
. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "
Liquidation
"), subject to the preferences of the Series A Preferred Stock, the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Designation of Rights, for each share of Series B Preferred Stock, before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A Fundamental Transaction or Change of Control Transaction shall not be deemed a Liquidation. The Company shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
Section 6.
Conversion
.
(a)
Conversions at Option of Holder
. Each share of Series B Preferred Stock shall be convertible, at any time and from time to time after Shareholder Approval is received and effective, at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations set forth in
Section 6(d)
) determined by dividing the Stated Value of such Series B Preferred Stock by the Conversion Price. Holders shall effect conversions by providing the Company with the form of conversion notice attached hereto as Annex A (a "
Notice of Conversion
"). Each Notice of Conversion shall specify the number of shares of Series B Preferred Stock to be converted, the number of shares of Series B Preferred Stock owned prior to the conversion at issue, the number of shares of Series B Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Company (such date, the "
Conversion Date
"). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Company is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions of the Series B Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing shares of the Series B Preferred Stock to the Company unless all of the shares of Series B Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series B Preferred Stock promptly following the Conversion Date at issue. Series B Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued.
(b)
Conversion Price
. The conversion price for the Series B Preferred Stock shall equal $2.50 per share, subject to adjustment herein (the "
Conversion Price
").
(c)
Mechanics of Conversion
.
(i)
Delivery of Conversion Shares Upon Conversion
. Not later than the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the "
Share Delivery Date
"), the Company shall deliver, or cause to be delivered, to the converting Holder (A) the number of Conversion Shares being acquired upon the conversion of the Series B Preferred Stock (including, if the Company has given continuous notice pursuant to
Section 3(b)
for payment of dividends in shares of Common Stock at least 20 Trading Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of Common Stock representing the payment of accrued dividends otherwise determined pursuant to
Section 3(a)
but assuming that the Dividend Notice Period is the 20 Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the Company and excluding for such issuance the condition that the Company deliver the Dividend Share Amount as to such dividend payment prior to the commencement of the Dividend Notice Period) which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions, and (B) a bank check in the amount of accrued and unpaid dividends (if the Company has elected or is required to pay accrued dividends in cash). On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall deliver the Conversion Shares required to be delivered by the Company under this
Section 6
electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, "Standard Settlement Period" means the standard settlement period, expressed in a number of Trading Days, on the Company's primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.
(ii)
Failure to Deliver Conversion Shares
. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Series B Preferred Stock certificate delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.
(iii)
Obligation Absolute; Partial Liquidated Damages
. The Company's obligation to issue and deliver the Conversion Shares upon conversion of Series B Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to such Holder in connection with the issuance of such Conversion Shares;
provided
,
however
, that such delivery shall not operate as a waiver by the Company of any such action that the Company may have against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its shares of Series B Preferred Stock, the Company may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series B Preferred Stock of such Holder shall have been sought and obtained, and the Company posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of the Series B Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Company fails to deliver to a Holder such Conversion Shares pursuant to
Section 6(c)(i)
on the Second Trading Day after the Share Delivery Date applicable to such conversion, the Company shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of the shares of Series B Preferred Stock being converted, $50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day and increasing to $200 per Trading Day on the sixth Trading Day after such damages begin to accrue) for each Trading Day after such second Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder's right to pursue actual damages or declare a Triggering Event pursuant to
Section 9
hereof for the Company's failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
(iv)
Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion
. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to
Section 6(c)(i)
, and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a "
Buy-In
"), then the Company shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder's total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Series B Preferred Stock equal to the number of shares of Series B Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under
Section 6(c)(i)
. For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Series B Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay such Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver the Conversion Shares upon conversion of shares of Series B Preferred Stock as required pursuant to the terms hereof.
(v)
Reservation of Shares Issuable Upon Conversion
. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series B Preferred Stock and payment of dividends on the Series B Preferred Stock, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other Holders of the Series B Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of
Section 7
) upon the conversion of the then outstanding shares of Series B Preferred Stock and payments of dividends hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Conversion Shares Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Conversion Shares Registration Statement (subject to such Holder's compliance with its obligations under the Registration Rights Agreement).
(vi)
Fractional Shares
. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series B Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
(vii)
Transfer Taxes and Expenses
. The issuance of Conversion Shares on conversion of this Series B Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series B Preferred Stock and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.
(d)
Beneficial Ownership Limitation.
Unless a Holder has made an election on its signature page to the Purchase Agreement to have this Section 6(d) not apply to such Holder, the Company shall not effect any conversion of such Holder's shares of Series B Preferred Stock, and such Holder shall not have the right to convert any portion of the Series B Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder's Affiliates, and any Persons acting as a group together with such Holder or any of such Holder's Affiliates (such Persons, "Attribution Parties")) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by a Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Stated Value of Series B Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Series B Preferred Stock or the Warrants) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the shares of Series B Preferred Stock are convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Series B Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder's determination of whether the shares of Series B Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and how many shares of Series B Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Series B Preferred Stock, by such Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The "
Beneficial Ownership Limitation
" shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of shares of Series B Preferred Stock held by the applicable Holder. A Holder, upon prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(d) applicable to its shares of Series B Preferred Stock provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the shares of Series B Preferred Stock held by the Holder and the provisions of this Section 6(d) shall continue to apply. Any such increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company and shall only apply to such Holder and no other Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor Holder of shares of the Series B Preferred Stock.
Section 7.
Certain Adjustments
.
(a)
Stock Dividends and Stock Splits
. If the Company, at any time while shares of this Series B Preferred Stock are outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a dividend on, the Series B Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this
Section 7(a)
shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re classification.
(b)
Subsequent Rights Offerings
. In addition to any adjustments pursuant to
Section 7(a)
above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the "
Purchase Rights
"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder's shares of Series B Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation and the Conversion Cap) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
(c)
Pro Rata Distributions
. During such time as the Series B Preferred Stock is outstanding, if the Company declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "
Distribution
"), then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete Conversion of this Series B Preferred Stock (if prior to Shareholder Approval, subject to the Conversion Cap, but generally without regard to any other limitations on Conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (
provided
,
however
, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
(d)
Fundamental Transaction
. If, at any time while this Series B Preferred Stock is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a "
Fundamental Transaction
"), then, upon any subsequent conversion of this Series B Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6(a) and
Section 6(d)
on the conversion of this Series B Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "
Alternate Consideration
") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Series B Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(a) and
Section 6(d)
on the conversion of this Series B Preferred Stock). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Series B Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall file a new Designation of Rights with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders' right to convert such preferred stock into Alternate Consideration. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "
Successor Entity
") to assume in writing all of the obligations of the Company under this Designation of Rights and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this
Section 7(d)
pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder of shares of this Series B Preferred Stock, deliver to the Holder in exchange for the shares of Series B Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Series B Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Series B Preferred Stock (without regard to any limitations on the conversion of this Series B Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Series B Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Designation of Rights and the other Transaction Documents referring to the "Corporation" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Designation of Rights and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
(e)
Calculations
. All calculations under this
Section 7
shall be made to the nearest cent or the nearest 1/100
th
of a share, as the case may be. For purposes of this
Section 7
, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
(f)
Notice to the Holders
.
(i)
Adjustment to Conversion Price
. Whenever the Conversion Price is adjusted pursuant to any provision of this
Section 7
, the Company shall promptly deliver to each Holder by facsimile or email a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
(ii)
Notice to Allow Conversion by Holder
. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Series B Preferred Stock, and shall cause to be delivered by facsimile or email to each Holder at its last facsimile number or email address as it shall appear upon the stock books of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of this Series B Preferred Stock (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 8.
Forced Conversion
.
(a)
Limited
Forced Conversion
. Notwithstanding anything herein to the contrary, if: (i) the Common Stock has a VWAP of at least $7.50 per share (subject to adjustment for forward and reverse stock splits and the like) on each of the 40 Trading Days prior to the date in question and (ii) all of the Equity Conditions have been met, the Company may, within one (1) Trading Day after such conditions are met, deliver a written notice to all Holders (a "
Limited Forced Conversion Notice
" and the date such notice is delivered to all Holders, the "
Limited Forced Conversion Notice Date
") to cause each Holder to convert up to one half (if prior to Shareholder Approval, subject to the Conversion Cap) of such Holder's shares of Series B Preferred Stock (as specified in such Limited Forced Conversion Notice) plus all accrued but unpaid dividends thereon and all liquidated damages and other amounts due in respect of the Series B Preferred Stock pursuant to
Section 6
, it being agreed that the "
Conversion Date
" for purposes of
Section 6
shall be deemed to occur on the third Trading Day following the Limited Forced Conversion Notice Date (such third Trading Day, the "
Limited Forced Conversion Date
").
(b)
Full Forced Conversion
. Notwithstanding anything herein to the contrary, if: (i) the Common Stock has a VWAP of at least $10.00 per share (subject to adjustment for forward and reverse stock splits and the like) on each of the 40 Trading Days prior to the date in question and (ii) the Equity Conditions have been met, the Company may, within one (1) Trading Day after such conditions are met, deliver a written notice to all Holders (a "
Full Forced Conversion Notice
" and the date such notice is delivered to all Holders, the "
Full Forced Conversion Notice Date
") to cause each Holder to convert all or part (if prior to Shareholder Approval, subject to the Conversion Cap) of such Holder's shares of Series B Preferred Stock (as specified in such Full Forced Conversion Notice) plus all accrued but unpaid dividends thereon and all liquidated damages and other amounts due in respect of the Series B Preferred Stock pursuant to
Section 6
, it being agreed that the "
Conversion Date
" for purposes of
Section 6
shall be deemed to occur on the third Trading Day following the Full Forced Conversion Notice Date (such third Trading Day, the "
Full Forced Conversion Date
").
(c)
Application of Forced Conversion
. Any Forced Conversion Notices shall be applied ratably to all of the Holders based on each Holder's initial purchases of Series B Preferred Stock, provided that any voluntary conversions by a Holder shall be applied against such Holder's
pro
rata
allocation, thereby decreasing the aggregate amount forcibly converted hereunder if less than all shares of the Series B Preferred Stock are forcibly converted. For purposes of clarification, a Forced Conversion shall be subject to all of the provisions of
Section 6
, including, without limitation, the provisions requiring payment of liquidated damages and limitations on conversions.
Section 9.
Redemption Upon Triggering Events
.
(a)
Triggering Event
. "Triggering Event" means, wherever used herein any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
(i)
the failure of the initial Conversion Shares Registration Statement (subject to any Rule 415 or other cutbacks pursuant to the Registration Rights Agreement, as to which the Company is paying any Liquidated Damages pursuant to the terms of the Registration Rights Agreement) to be declared effective by the Commission on or prior to the 180th day after the Original Issue Date or the Company does not meet the current public information requirements under Rule 144 in respect of the Registrable Securities (as defined under the Registration Rights Agreement);
(ii)
if, during the Effectiveness Period (as defined in the Registration Rights Agreement), the effectiveness of the Conversion Shares Registration Statement lapses for more than an aggregate of 60 calendar days (which need not be consecutive calendar days) during any 12-month period, or the Holders shall not otherwise be permitted to resell Registrable Securities under the Conversion Shares Registration Statement for more than an aggregate of 60 calendar days (which need not be consecutive calendar days) during any 12-month period;
(iii)
the Company shall fail to deliver Conversion Shares issuable upon a conversion hereunder that comply with the provisions hereof prior to the fifth Trading Day after such shares are required to be delivered hereunder, or the Company shall provide written notice to any Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion of any shares of the Series B Preferred Stock in accordance with the terms hereof;
(iv)
one of the Events (as defined in the Registration Rights Agreement) described in subsections (i), (ii) or (iii) of Section 2(d) of the Registration Rights Agreement shall not have been cured to the satisfaction of the Holders prior to the expiration of 30 calendar days from the Event Date (as defined in the Registration Rights Agreement) relating thereto (other than an Event resulting from a failure of a Conversion Shares Registration Statement to be declared timely effective by the Commission on or prior to the 180th day after the Original Issue Date, which shall be covered by
Section 9(a)(i)
);
(v)
the Company shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within five (5) calendar days after notice therefor is delivered hereunder or shall fail to pay all amounts owed on account of any Event (as defined in the Registration Rights Agreement) within five (5) days of the date due and payable;
(vi)
the Company shall fail to have available a sufficient number of authorized and unreserved shares of Common Stock to issue to such Holder upon a conversion hereunder;
(vii)
unless specifically addressed elsewhere in this Designation of Rights as a Triggering Event, the Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents, and such failure or breach shall not, if subject to the possibility of a cure by the Company, have been cured within 30 calendar days after the date on which written notice of such failure or breach shall have been delivered;
(viii)
the Company shall redeem more than a de minimis number of Junior Securities other than as to repurchases of Common Stock or Common Stock Equivalents from departing officers and directors, provided that, while any of the Series B Preferred Stock remains outstanding, such repurchases shall not exceed an aggregate of $10,000 from all officers and directors;
(ix)
the Company shall be party to a Change of Control Transaction;
(x)
there shall have occurred a Bankruptcy Event;
(xi)
the Common Stock shall fail to be listed or quoted for trading on a Trading Market for more than five (5) Trading Days, which need not be consecutive Trading Days;
(xii)
the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a "chill";
(xiii)
any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days; or
(xiv)
any breach of the agreements delivered to the initial Holders at the Closing pursuant to Section 2.2(a)(vii) of the Purchase Agreement.
(b)
Upon the occurrence of a Triggering Event, each Holder shall (in addition to all other rights it may have hereunder or under applicable law) have the right, exercisable at the sole option of such Holder, to require the Company to, (A) with respect to the Triggering Events set forth in
Sections 9(a)(iii)
,
(v)
,
(vii)
,
(ix)
,
(ix)
(as to Changes of Control approved by the Board of Directors of the Company) and
(x)
(as to voluntary filings only), redeem all of the shares of Series B Preferred Stock then held by such Holder for a redemption price, in cash, equal to the Triggering Redemption Amount or (B) at the option of each Holder and with respect to the Triggering Events set forth in
Sections 9(a)(i), (ii), (iv), (vi), (viii), (ix)
(as to Changes of Control not approved by the Board of Directors of the Company),
(x)
(as to involuntary filings only),
(xii)
,
(xiii)
, and (
xiv
) either (a) redeem all of the shares of Series B Preferred Stock then held by such Holder for a redemption price, in shares of Common Stock, equal to a number of shares of Common Stock equal to the Triggering Redemption Amount divided by 75% of the average of the 10 VWAPs immediately prior to the date of election hereunder;
provided
,
however
, that, prior to Shareholder Approval, the Company shall not, under any circumstances, issue any shares of Common Stock pursuant to this
Section 9
, or (b) increase the dividend rate on all of the outstanding shares of Series B Preferred Stock held by such Holder to 18% per annum thereafter. The Triggering Redemption Amount, in cash or in shares, shall be due and payable or issuable, as the case may be, within five (5) Trading Days of the date on which the notice for the payment therefor is provided by a Holder (the "
Triggering Redemption Payment Date
"). If the Company fails to pay in full the Triggering Redemption Amount hereunder on the date such amount is due in accordance with this
Section 9
(whether in cash or shares of Common Stock), the Company will pay interest thereon at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law, accruing daily from such date until the Triggering Redemption Amount, plus all such interest thereon, is paid in full. For purposes of this
Section 9
, a share of Series B Preferred Stock is outstanding until such date as the applicable Holder shall have received Conversion Shares upon a conversion (or attempted conversion) thereof that meets the requirements hereof or has been paid the Triggering Redemption Amount in cash.
Section 10.
Miscellaneous
.
(a)
Notices
. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile or email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the principal office of the Company, Attention: Chief Executive Officer, facsimile number 801-568-7711, e-mail address: kelvyn@dynatronics.com, or such other address or facsimile number or e-mail address as the Company may specify for such purposes by notice to the Holders delivered in accordance with this
Section 10
. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile or e-mail, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Company, or if no such facsimile number or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or e-mail at the e-mail address set forth in this
Section 10
at or prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or e-mail at the e-mail address set forth in this
Section 10
on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
(b)
Absolute Obligation
. Except as expressly provided herein, no provision of this Designation of Rights shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay liquidated damages, accrued dividends and accrued interest, as applicable, on the Series B Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.
(c)
Lost or Mutilated Series B Preferred Stock Certificates
. If a Holder's Series B Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series B Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Company.
(d)
Governing Law
. All questions concerning the construction, validity, enforcement and interpretation of this Designation of Rights shall be governed by and construed and enforced in accordance with the internal laws of the State of Utah, without regard to the principles of conflict of laws thereof.
Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the "New York Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Designation of Rights and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Designation of Rights or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Designation of Rights, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys' fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
(e)
Waiver
. Any waiver by the Company or a Holder of a breach of any provision of this Designation of Rights shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Designation of Rights or a waiver by any other Holders. The failure of the Company or a Holder to insist upon strict adherence to any term of this Designation of Rights on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Designation of Rights on any other occasion. Any waiver by the Company or a Holder must be in writing.
(f)
Severability
. If any provision of this Designation of Rights is invalid, illegal or unenforceable, the balance of this Designation of Rights shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.
(g)
Next Business Day
. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
(h)
Headings
. The headings contained herein are for convenience only, do not constitute a part of this Designation of Rights and shall not be deemed to limit or affect any of the provisions hereof.
(i)
Status of Converted or Redeemed Series B Preferred Stock
. Series B Preferred Stock may only be issued pursuant to the Purchase Agreement. If any shares of Series B Preferred Stock shall be converted, redeemed or reacquired by the Company, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series B Convertible Preferred Stock.
*********************
ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series B Convertible Preferred Stock indicated below into shares of common stock, no par value per share (the "
Common Stock
"), of Dynatronics Corporation, a Utah corporation (the "
Company
"), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Company in accordance with the Purchase Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.
Conversion calculations:
|
Date to Effect Conversion: _____________________________________________
|
|
Number of Shares of Series B Preferred Stock owned prior to Conversion: _______________
|
|
Number of Shares of Series B Preferred Stock to be Converted: ________________________
|
|
Stated Value of Series B Preferred Stock to be Converted: ____________________
|
|
Number of Shares of Common Stock to be Issued: ___________________________
|
|
Applicable Conversion Price:____________________________________________
|
|
Number of shares of Series B Preferred Stock subsequent to Conversion: ________________
|
|
Address for Delivery: ______________________
or
DWAC Instructions:
Broker no: _________
Account no: ___________
|
|
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[HOLDER]
By:___________________________________
Name:
Title:
|
Exhibit 4.2
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
DYNATRONICS CORPORATION
No. ____
Warrant Shares: _______
Issuance Date: ____________, 2017
THIS COMMON STOCK PURCHASE WARRANT (this "
Warrant
") certifies that, for value received, _____________ (the "
Holder
") is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date Shareholder Approval is received and on or prior to the close of business on the six‑year anniversary (the "
Termination Date
") of the date this Warrant was originally issued but not thereafter, to subscribe for and purchase from Dynatronics Corporation, a Utah corporation (the "
Company
"), up to ______ shares (as subject to adjustment hereunder, the "
Warrant Shares
") of Common Stock. The date on which the Warrant may first be exercised as provided above shall be the "
Initial Exercise Date
." The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in
Section 2(b)
.
Section 1.
Definitions
. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the "
Purchase Agreement
"), dated March __, 2017, among the Company and the purchasers signatory thereto.
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(a)
|
Exercise of Warrant
. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company or the Transfer Agent (or such other office or agency that the Company may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company), as applicable, of a duly executed facsimile copy or PDF copy submitted by electronic (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the "
Notice of Exercise
"). Within the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier's check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise.
No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice.
The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
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(b)
Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be
$2.75
, subject to adjustment hereunder (the "
Exercise Price
").
(c)
Cashless Exercise
. If at any time there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a "cashless exercise" in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of "regular trading hours" (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder's execution of the applicable Notice of Exercise if such Notice of Exercise is executed during "regular trading hours" on a Trading Day and is delivered within two (2) hours thereafter pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 1(a) hereof after the close of "regular trading hours" on such Trading Day;
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).
"
Bid Price
" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the "Pink Sheets" published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
"
VWAP
" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the "Pink Sheets" published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
(d)
Mechanics of Exercise
.
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i.
|
Delivery of Warrant Shares Upon Exercise
. Warrant Shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder's or its designee's balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system ("
DWAC
") if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the Company's share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) the earlier of (A) three (3) Trading Days after the delivery to the Company of the Notice of Exercise and (B) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the "
Warrant Share Delivery Date
"). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) three Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, "
Standard Settlement Period
" means the standard settlement period, expressed in a number of Trading Days, on the Company's primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.
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ii.
|
Delivery of New Warrants Upon Exercise
. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificates for the Warrant Shares, deliver to Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
|
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iii.
|
No Fractional Shares or Scrip
. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
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iv.
|
Charges, Taxes and Expenses
. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder;
provided
,
however
, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto as
Exhibit B
, duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.
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v.
|
Rescission Rights
. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to
Section 2(d)(i)
by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
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vi.
|
Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise
. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "
Buy-In
"), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
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vii.
|
Closing of Books
. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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(e)
|
[
Holder's Exercise Limitations
. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder's Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder's Affiliates (such Persons, "
Attribution Parties
")), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The "
Beneficial Ownership Limitation
" shall be [9.99/4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61
st
day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.][TO BE REPLACED WITH "INTENTIONALLY OMITTED" IF AN INVESTOR ELECTS NOT TO HAVE A BLOCKER]
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Section 3.
Certain Adjustments
.
(a)
Stock Dividends and Splits
. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this
Section 3(a)
shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re‑classification.
(b)
Subsequent Rights Offerings
. In addition to any adjustments pursuant to
Section 3(a)
above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the "
Purchase Rights
"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
(c)
Pro Rata Distributions
. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "
Distribution
"), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (
provided
,
however
, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
(d)
Fundamental Transaction
.
(i)
If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a "
Fundamental Transaction
"), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in
Section 2(e)
on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "
Alternate Consideration
") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in
Section 2(e)
on the exercise of this Warrant).
(ii)
For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.
(iii)
If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.
(iv)
Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the Company or any Successor Entity (as defined below) shall, at the Holder's option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction,
purchase this Warrant from the Holder by paying to the Holder
a "
Warrant Settlement Payment
" (defined in subsection (v) below), equal in value to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction (referred to herein as the "
Warrant Settlement Right
"). "
Black Scholes Value
" means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the "OV" function on Bloomberg, L.P. ("
Bloomberg
") determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date.
(v)
The Warrant Settlement Payment shall be paid using the same type or form of consideration that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock, or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction. By way of example only, if the holders of Common Stock are to receive cash only in connection with the Fundamental Transaction, the holders of this Warrant shall also receive cash only in payment of the Warrant Settlement Payment. If the holders of Common Stock are to receive shares of stock only in connection the Fundamental Transaction, the holders of this Warrant shall be paid the Warrant Settlement Payment with shares of the same stock. Likewise, if the holders of Common Stock are given the right and option to choose from among alternative forms of consideration as payment for their shares in connection with the Fundamental Transaction, the holders of this Warrant shall be given the same right to choose from among the same alternative forms of consideration as payment for their Warrant Settlement Payment. In no case shall the holders of this warrant receive cash only for their Warrant Settlement Payment, if the holders of the Common Stock of the Company are not also receiving cash only for their shares of Common Stock in connection with the Fundamental Transaction.
(vi)
The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "
Successor Entity
") to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of
this
Section 3(d)
pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
(e)
Calculations
. All calculations under this
Section 3
shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this
Section 3
, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
(i)
Adjustment to Exercise Price
. Whenever the Exercise Price is adjusted pursuant to any provision of this
Section 3
, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
(ii)
Notice to Allow Exercise by Holder
. If (A) the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4.
Transfer of Warrant
.
(a)
Transferability
. Subject to compliance with any applicable securities laws and the conditions set forth in
Section 4(d)
hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
(b)
New Warrants
. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with
Section 4(a)
, as to any transfer which may be involved
in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original issuance date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
(c)
Warrant Register
. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "
Warrant Register
"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
(d)
Transfer Restrictions
. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.
(e)
Representation by the Holder
. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
Section 5.
Miscellaneous
.
(a)
No Rights as Stockholder Until Exercise
. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in
Section 2(d)(i)
, except as expressly set forth in
Section 3
.
(b)
Loss, Theft, Destruction or Mutilation of Warrant
. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
(c)
Saturdays, Sundays, Holidays, etc.
If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
(i)
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
(ii)
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (A) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (B) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (C) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
(iii)
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
(e)
Jurisdiction
. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
(f)
Restrictions
. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered or exercised via cashless exercise by a non-Affiliate of the Company, will have restrictions upon resale imposed by state and federal securities laws.
(g)
Nonwaiver and Expenses
. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
(h)
Notices
. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.
(i)
Limitation of Liability
. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
(j)
Remedies
. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
(k)
Successors and Assigns
. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
(l)
Amendment
. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
(m)
Severability
. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
(n)
Headings
. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
(Signature Page Follows)
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
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DYNATRONICS CORPORATION
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By:__________________________________________
Name: Kelvyn Cullimore, Jr.
Title: Chief Executive Officer
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EXHIBIT A
NOTICE OF EXERCISE
TO:
DYNATRONICS CORPORATION
(1)
The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2)
Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3)
Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
(4)
The Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
(5)
Accredited Investor
. The undersigned is an "accredited investor" as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: ______________________________________________________________
Signature of Authorized Signatory of Investing Entity
: _______________________________________
Name of Authorized Signatory: _________________________________________________________
Title of Authorized Signatory: ___________________________________________________________
Date: _______________________________________________________________________________
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
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Name:
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(Please Print)
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Address:
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(Please Print)
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Dated: _______________ __, ______
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Holder's Signature:
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Holder's Address:
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Exhibit 9.1
This Voting Agreement is dated as of [•], 2017 (this "
Agreement
"), by and between Dynatronics Corporation, a Utah corporation (the "
Company
"), and the shareholder named on the signature page hereto under the heading "Shareholder" (the "
Shareholder
").
WHEREAS, the Company and certain investors (each, an "
Investor
," and collectively, the "
Investors
") have entered into a Securities Purchase Agreement, dated as of [•], 2017 (the "
Securities Purchase Agreement
"), pursuant to which, among other things, the Company has agreed to issue and sell to the Investors and the Investors have agreed to purchase, up to [•] units, each "
Unit
" consisting of one (1) share of common stock, no par value per share, of the Company ("
Common Stock
"), one (1) share of the Company's Series B Convertible Preferred Stock, and five-year warrants to purchase shares of Common Stock (the "
Warrants
");
WHEREAS, as of the date hereof, Shareholder owns the number of shares of Common Stock and/or Series A 8% Convertible Preferred Stock of the Company ("
Series A Preferred
") set forth below Shareholder's name on the signature page hereto;
WHEREAS, Shareholder's ownership of Common Stock and Series A Preferred represents the authority to vote the aggregate number of Common Stock or Common Stock equivalent votes set forth on the signature page hereto; and
WHEREAS, as a condition to the willingness of the Investors to enter into the Securities Purchase Agreement and to consummate the transactions contemplated thereby (collectively, the "
Transaction
"), the Investors have required that Shareholder agree, and in order to induce the Investors to enter into the Securities Purchase Agreement, Shareholder has agreed, to enter into this Agreement with respect to all of the shares of Common Stock and Series A Preferred now owned and which may hereafter be acquired by Shareholder and any other securities, if any (the "
Other Securities
"), which Shareholder is currently entitled to vote, or after the date hereof, becomes entitled to vote, at any meeting of shareholders of the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows:
1.
Voting Agreement
. Subject to the last sentence of this
Section 1
, Shareholder hereby agrees that at any meeting of the shareholders of the Company, however called, and in any action by written consent of the Company's shareholders, Shareholder shall vote Shareholder's Common Stock, Series A Preferred, and any Other Securities: (a) in favor of the Shareholder Approval (as defined in the Securities Purchase Agreement) as described in Section 4.9(c) of the Securities Purchase Agreement; and (b) against any proposal or any other corporate action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Securities Purchase Agreement or which could result in any of the conditions to the Company's obligations under the Securities Purchase Agreement not being fulfilled. Shareholder hereby acknowledges receipt and review of a copy of the Securities Purchase Agreement and the other Transaction Documents (as defined in the Securities Purchase Agreement). The obligations of Shareholder under this Section 1.01 shall terminate immediately following the occurrence of the Shareholder Approval.
2.
Representations and Warranties of Shareholder
. Shareholder hereby represents and warrants to each of the Investors as follows:
2.1
Authority
. Shareholder has all necessary legal capacity, power and authority to execute and deliver this Agreement, to perform his, her or its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Shareholder and constitutes a legal, valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, except (a) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws now or hereafter in effect relating to, or affecting generally, the enforcement of creditors' and other obligees' rights, (b) where the remedy of specific performance or other forms of equitable relief may be subject to certain equitable defenses and principles and to the discretion of the court before which the proceeding may be brought, and (c) where rights to indemnity and contribution thereunder may be limited by applicable law and public policy.
2.2
No Conflict; Consents; Approvals
. The execution and delivery of this Agreement by Shareholder does not, and the performance of this Agreement by Shareholder shall not, (a) conflict with or violate any federal, state or local law, statute, ordinance, rule, regulation, order, judgment or decree applicable to Shareholder or by which the Common Stock or the Other Securities owned by Shareholder are bound or affected or (b) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the Common Stock or the Other Securities owned by Shareholder pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Shareholder is a party or by which Shareholder or the Common Stock or Other Securities owned by Shareholder are bound. The execution and delivery of this Agreement by Shareholder does not, and the performance of this Agreement by Shareholder shall not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental entity by Shareholder.
2.3
Title
. As of the date hereof, Shareholder is the beneficial owner of the securities set forth on the signature page hereto, entitled to vote, without restriction, on all matters brought before holders of capital stock of the Company, which securities represent on the date hereof the percentage of the outstanding stock and voting power of the Company set forth on the signature page. Such shares of Common Stock, Series A Preferred, and Other Securities are all the securities of the Company owned, either of record or beneficially, by Shareholder. Such shares of Common Stock, Series A Preferred, and Other Securities are owned free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on Shareholder's voting rights, charges and other encumbrances of any nature whatsoever. Shareholder has not appointed or granted any proxy, which appointment or grant is still effective, with respect to the Common Stock, Series A Preferred, or Other Securities owned by Shareholder.
3.
No Disposition or Encumbrance of Stock
. Shareholder hereby covenants and agrees that, until the Shareholder Approval has been obtained, except as contemplated by this Agreement, Shareholder shall not offer or agree to sell, transfer, tender, assign, hypothecate or otherwise dispose of, grant a proxy or power of attorney with respect to, or create or permit to exist any security interest, lien, claim, pledge, option, right of first refusal, agreement, limitation on the Shareholder's voting rights, charge or other encumbrance of any nature whatsoever ("
Encumbrance
") with respect to the Common Stock, Series A Preferred or Other Securities, or directly or indirectly, initiate, solicit or encourage any person to take actions which could reasonably be expected to lead to the occurrence of any of the foregoing;
provided, however
, that Shareholder may assign, sell or transfer any Common Stock, Series A Preferred or Other Securities provided that any such recipient of the Common Stock, Series A Preferred or Other Securities has delivered to the Company and each Investor a written agreement in a form reasonably satisfactory to the Investors that the recipient shall be bound by, and the Common Stock, Series A Preferred and/or Other Securities so transferred, assigned or sold shall remain subject to this Agreement.
4.
Company Cooperation
. The Company hereby covenants and agrees that it will not, and Shareholder irrevocably and unconditionally acknowledges and agrees that the Company will not (and waives any rights against the Company in relation thereto), recognize any Encumbrance or agreement on any of the Common Stock, Series A Preferred or Other Securities subject to this Agreement unless the provisions of
Section 3
, above, have been complied with. The Company agrees to use its reasonable best efforts to ensure that at any time in which any Shareholder Approval is required pursuant to Section 4.9(c) of the Securities Purchase Agreement, it will cause holders of Common Stock, Series A Preferred or Other Securities representing the percentage of outstanding capital stock required to vote in favor of the Transaction in order for the Company to comply with its obligations under Section 4.9(c) of the Securities Purchase Agreement to become party to and bound by the terms and conditions of this Agreement and the Common Stock, Series A Preferred and Other Securities held by such holders to be subject to the terms and conditions of this Agreement.
5.
Miscellaneous
.
5.1
Further Assurances
. Shareholder will execute and deliver such further documents and instruments and take all further action as may be reasonably necessary in order to consummate the transactions contemplated hereby.
5.2
Specific Performance
. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that any Investor (without being joined by any other Investor) shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. Any Investor shall be entitled to its reasonable attorneys' fees in any action brought to enforce this Agreement in which it is the prevailing party.
5.3
Entire Agreement
. This Agreement constitutes the entire agreement between the Company and Shareholder with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, between the Company and Shareholder with respect to the subject matter hereof.
5.4
Amendment
. The provisions of this Agreement may not be amended or waived, nor may this Agreement be terminated by the Company other than pursuant to the provisions of
Section 5.7
, below.
5.5
Severability
. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision with a valid provision, the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision.
5.6
Governing Law
. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The parties hereby agree that all actions or proceedings arising directly or indirectly from or in connection with this Agreement shall be litigated only in the Supreme Court of the State of New York or the United States District Court for the Southern District of New York located in New York County, New York. The parties consent to the jurisdiction and venue of the foregoing courts and consent that any process or notice of motion or other application to any of said courts or a judge thereof may be served inside or outside the State of New York or the Southern District of New York by registered mail, return receipt requested, directed to the party being served at its address set forth on the signature ages to this Agreement (and service so made shall be deemed complete three (3) days after the same has been posted as aforesaid) or by personal service or in such other manner as may be permissible under the rules of said courts. Each of the Company and Shareholder irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action, or proceeding brought in such a court and any claim that suit, action, or proceeding has been brought in an inconvenient forum.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY
.
5.7
Termination
. This Agreement shall terminate immediately following the earlier to occur of: (i) the occurrence of Shareholder Approval or (ii) the termination of the Securities Purchase Agreement pursuant to its terms.
[Signature Page Follows]
IN WITNESS WHEREOF
,
the parties hereto have caused this Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
THE COMPANY:
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DYNATRONICS CORPORATION
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By:__________________________________________
Name:________________________________________
Title:_________________________________________
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SHAREHOLDER:
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By:__________________________________________
Name:________________________________________
Title:_________________________________________
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Class of Stock Owned:
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Total No. of
Shares Over
Which Shareholder
Exercises Voting
Control:
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Voting Power
(after application
of any voting
cutback):
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Common
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Series A Preferred acquired in June 2015
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Series A Preferred acquired in December 2016
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Other (Describe):
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Total Percentage Voting Power of Shareholder (based upon total of _______ votes available and outstanding as of the date of this Agreement):
______ percent
Exhibit 10.1
Exhibit 10.2
-Exhibit 10.3
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
DYNATRONICS CORPORATION
AND
EACH PURCHASER IDENTIFIED ON THE SIGNATURE PAGES HERETO
TABLE OF CONTENTS
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ARTICLE I.
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DEFINITIONS
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5
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1.1
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Definitions
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5
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ARTICLE II.
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PURCHASE AND SALE
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11
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2.1
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Closing
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11
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2.2
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Deliveries
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12
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(a)
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Company Deliveries
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12
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(b)
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Purchaser Deliveries
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13
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(c)
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Deferral Purchasers and non-Deferral Purchasers
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13
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2.3
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Closing Conditions
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13
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(a)
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Company Conditions
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13
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(b)
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Purchaser Conditions
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13
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ARTICLE III.
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REPRESENTATIONS, WARRANTIES AND COVENANTS
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14
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3.1
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Representations and Warranties of the Company
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14
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(a)
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Subsidiaries
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15
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(b)
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Organization and Qualification
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15
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(c)
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Authorization; Enforcement
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15
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(d)
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No Conflicts
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16
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(e)
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Filings, Consents and Approvals
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16
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(f)
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Issuance of the Securities
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16
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(g)
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Capitalization
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16
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(h)
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SEC Reports; Financial Statements
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17
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(i)
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Material Changes; Undisclosed Events, Liabilities or Developments
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18
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(j)
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Litigation
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18
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(k)
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Labor Relations
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19
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(l)
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Compliance
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19
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(m)
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Regulatory Permits
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19
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(n)
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Title to Assets
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19
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(o)
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Intellectual Property
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20
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(p)
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Insurance
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20
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(q)
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Transactions With Affiliates and Employees
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20
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(r)
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Sarbanes-Oxley; Internal Accounting Controls
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21
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(s)
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Certain Fees
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21
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(t)
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Private Placement
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21
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(u)
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Investment Company
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22
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(v)
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Registration Rights
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22
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(w)
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Listing and Maintenance Requirements
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22
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(x)
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Application of Takeover Protections
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22
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(y)
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Disclosure
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22
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(z)
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Solvency
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23
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(aa)
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Tax Status
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23
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(bb)
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No General Solicitation
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24
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(cc)
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Foreign Corrupt Practices Act
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24
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(dd)
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Accountants
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24
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(ee)
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Seniority
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24
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(ff)
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No Disagreements with Accountants and Lawyers
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24
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(gg)
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Acknowledgment Regarding Purchasers' Purchase of Securities
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24
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(hh)
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Acknowledgment Regarding Purchaser's Trading Activity
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25
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(ii)
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Regulation M Compliance
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25
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(jj)
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FDA
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25
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(kk)
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Stock Option Plans
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26
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(ll)
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Office of Foreign Assets Control
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26
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(mm)
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U.S. Real Property Holding Corporation
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26
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(nn)
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Bank Holding Company Act
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27
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(oo)
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Money Laundering
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27
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(pp)
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No Disqualification Events
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27
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(qq)
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Other Covered Persons
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27
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(rr)
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Notice of Disqualification Events
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27
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(ss)
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No Integrated Offering
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27
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(tt)
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Form S-3 Eligibility
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28
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(uu)
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Environmental Laws
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28
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(vv)
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Rule 144
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28
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3.2
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Representations and Warranties of the Purchasers
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28
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(a)
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Organization; Authority
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28
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(b)
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Own Account
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29
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(c)
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Purchaser Status
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29
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(d)
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Experience of Purchaser
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29
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(e)
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General Solicitation
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29
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(f)
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Certain Transactions and Confidentiality
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29
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(g)
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Access to Information
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30
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(h)
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Risk Factors
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30
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(i)
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Foreign Purchaser
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31
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ARTICLE IV.
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OTHER AGREEMENTS OF THE PARTIES
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31
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4.1
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Transfer Restrictions
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31
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4.2
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Furnishing of Information; Public Information, Failure of Registration
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33
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4.3
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Integration
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34
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4.4
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Conversion and Exercise Procedures
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34
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4.5
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Securities Laws Disclosure; Publicity
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35
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4.6
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Shareholder Rights Plan
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35
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4.7
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Non-Public Information
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35
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4.8
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Use of Proceeds
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36
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4.9
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Reservation and Listing of Securities
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36
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4.10
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Certain Transactions and Confidentiality
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37
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4.11
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Equal Treatment of Purchasers
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37
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4.12
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Indemnification of Purchasers
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38
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4.13
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Subsequent Equity Sales
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39
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4.14
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Form D; Blue Sky Filings
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39
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ARTICLE V.
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MISCELLANEOUS
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40
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5.1
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Termination
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40
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5.2
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Fees and Expenses
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40
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5.3
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Entire Agreement
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40
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5.4
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Notices
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40
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5.5
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Amendments; Waivers
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40
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5.6
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Headings
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41
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5.7
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Successors and Assigns
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41
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5.8
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No Third-Party Beneficiaries
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41
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5.9
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Governing Law
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41
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5.10
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Survival
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42
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5.11
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Execution
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42
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5.12
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Severability
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42
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5.13
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Replacement of Securities
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42
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5.14
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Remedies
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42
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5.15
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Payment Set Aside
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42
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5.16
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Independent Nature of Purchasers' Obligations and Rights
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43
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5.17
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Saturdays, Sundays, Holidays, etc.
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43
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5.18
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Construction
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43
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5.19
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Liquidated Damages
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43
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5.20
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WAIVER OF JURY TRIAL
|
43
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "
Agreement
") is dated as of March 21, 2017, between Dynatronics Corporation, a Utah corporation (the "
Company
"), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a "
Purchaser
" and collectively, the "
Purchasers
").
RECITALS
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the "
Securities Act
"), and Rule 506(b) promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement and referenced herein as "
Units
".
WHEREAS, each "
Unit
" consists of one (1) share of Common Stock, one (1) share of Preferred Stock and warrants ("
Warrants
") to purchase Common Stock in the amount indicated in
Section
2.2(a)
.
The Units, Common Shares, the Preferred Stock, the Warrants and the Underlying Shares are collectively referred to herein as the "
Securities
".
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1
Definitions
. In addition to the terms defined elsewhere in this Agreement and defined in the Certificate of Designation (as defined below), the following terms have the meanings set forth in this
Section
1.1
:
"
Acquisition
" means the proposed acquisition by the Company of substantially all of the assets of Hausmann Industries, Inc. ("
Hausmann
") pursuant to and in accordance with the Acquisition Agreement.
"
Acquisition Agreement
" means that certain Asset Purchase Agreement, dated March 21, 2017, by and between the Company and Hausmann.
"
Acquiring Person
" shall have the meaning ascribed to such term in
Section
4.6
.
"
Action
" shall have the meaning ascribed to such term in
Section
3.1(j)
.
"
Affiliate"
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
"
Board of Directors
" means the board of directors of the Company.
"
Business Day
" means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
"
Certificate of Designation
" means the Certificate of Designation of the Series B Convertible Preferred Stock of the Company to be filed prior to the Closing by the Company with the Utah Division of Corporations and Commercial Code, in the form of
Exhibit A
attached hereto.
"
Closing
" means the closing of the purchase and sale of the Securities pursuant to
Section
2.1
.
"
Closing Date
" means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers' obligations to pay the Subscription Amount and (ii) the Company's obligations to deliver the Securities, in each case, have been satisfied or waived.
"
Commission
" means the United States Securities and Exchange Commission.
"
Common Shares
" means the shares of Common Stock issued or issuable to the Purchasers pursuant to this Agreement as part of the Units, as distinguished from the Underlying Shares.
"
Common Stock
" means the common stock, no par value per share, of the Company and any other shares of stock issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation, other corporate reorganization or other similar event with respect to the Common Stock).
"
Common Stock Equivalents
" means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
"
Company Counsel
" means Durham Jones & Pinegar, P.C., with offices located at 111 South Main Street, Suite 2400, Salt Lake City, Utah 84111.
"
Company Accounting Firm
" means Tanner LLC, with offices located at 36 State St #600, Salt Lake City, UT 84111.
"
Contingent Obligation
" means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.
"
Conversion Price
" shall have the meaning ascribed to such term in the Certificate of Designation.
"
Conversion Shares
" shall mean the shares of Common Stock issuable upon conversion of the Preferred Stock, including without limitation in connection with payment of dividends on the Preferred Stock, as described in the Certificate of Designation.
"
Deferral Purchaser
" shall mean each Insider, and any Purchaser who agrees, by signing the form of Deferral Letter attached hereto, to defer the receipt of such Deferral Purchaser's Common Shares underlying his/its Units, until such time as the Company secures Shareholder Approval.
"
Disclosure Schedules
" shall have the meaning ascribed to such term in
Section
3.1
.
"
Effective Date
" means the earliest of the date that (a) the initial Registration Statement has been declared effective by the Commission, (b) all of the Shares and Underlying Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions or (c) following the one-year anniversary of the Closing Date provided that a holder of the Shares and Underlying Shares is not an Affiliate of the Company, all of the Shares and Underlying Shares may be sold pursuant to an exemption from registration under Section 4(1) of the Securities Act without volume or manner-of-sale restrictions and Company counsel has delivered to such holders a standing written unqualified opinion that resales may then be made by such holders of the Shares and Underlying Shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.
"
EGS
" means Ellenoff Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New York, New York 10105-0302.
"
Escrow Agent
" means an escrow agent to be identified and agreed upon between the Company and the Placement Agent prior to the Closing.
"
Escrow Agreement
" means the escrow agreement to be entered into prior to the Closing, by and among the Company, the Placement Agent and the Escrow Agent and to be attached hereto as
Exhibit B
pursuant to which the Purchasers shall deposit Subscription Amounts with the Escrow Agent to be applied to the transactions contemplated hereunder.
"
Evaluation Date
" shall have the meaning ascribed to such term in
Section
3.1(p)
.
"
Exchange Act
" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"
Exempt Issuance
" means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities or to extend the term of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
"
FCPA
" means the Foreign Corrupt Practices Act of 1977, as amended.
"
FDA
" shall have the meaning ascribed to such term in
Section
3.1(ii)
.
"
FDCA
" shall have the meaning ascribed to such term in
Section
3.1(ii)
.
"
GAAP
" shall have the meaning ascribed to such term in
Section
3.1(h)
.
"
Indebtedness
" shall have the meaning ascribed to such term in
Section 3.1(z)
.
"
Insider
" shall mean an "insider" as interpreted by Nasdaq in the application of Nasdaq Rule 5635, including any officer, director, employee or consultant of the Company.
"
Intellectual Property Rights
" shall have the meaning ascribed to such term in
Section
3.1(o)
.
"
Legend Removal Date
" shall have the meaning ascribed to such term in
Section
4.1
.
"
Liens
" means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
"
Material Adverse Effect
" shall have the meaning ascribed to such term in
Section 3.1(b)
.
"
Material Permits
" shall have the meaning ascribed to such term in
Section
3.1(m)
.
"
Nasdaq
" shall mean The NASDAQ Stock Market LLC.
"
Person
" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
"
Placement Agent
" means Ladenburg Thalmann & Co. Inc.
"
Preferred Stock
" means up to 1,800,000 shares of the Company's Series B Convertible Preferred Stock having the rights, preferences and privileges set forth in the Certificate of Designation.
"
Proceeding
" means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
"
Public Information Failure
" shall have the meaning ascribed to it in
Section
4.2(b)
.
"
Public Information Failure Payments
" shall have the meaning ascribed to it in
Section
4.2(b)
.
"
Purchaser Party
" shall have the meaning ascribed to such term in Section 4.12.
"
Registration Rights Agreement
" means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchasers, in the form of
Exhibit C
attached hereto.
"
Registration Statement
" means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Shares and Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement.
"
Required Approvals
" shall have the meaning ascribed to such term in
Section
3.1(e)
.
"
Required Minimum
" means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants or conversion in full of all shares of Preferred Stock, ignoring any conversion or exercise limits set forth therein, and assuming that any previously unconverted shares of Preferred Stock are held until the third anniversary of the Closing Date and all dividends are paid in shares of Common Stock until such third anniversary .
"
Rule 144
" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
"
Rule 424
" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
"
SEC Reports
" shall have the meaning ascribed to such term in
Section
3.1(h)
.
"
Securities
" shall have the meaning ascribed to such term in the Recitals.
"
Securities Act
" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"
Shareholder Approval
" means such approval as may be required by the applicable rules and regulations of Nasdaq (or any successor entity) from the shareholders of the Company with respect to the transactions contemplated by the Transaction Documents, including, but not limited to, the issuance of all of the Shares and Underlying Shares in excess of 19.99% of the issued and outstanding Common Stock on the Closing Date, or the issuance of the Shares and Underlying Shares to Insiders or Deferral Purchasers.
"
Shares
" means the Common Shares.
"
Short Sales
" means all "short sales" as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).
"
Stated Value
" means $2.50 per share of Preferred Stock.
"
Subscription Amount
" means, as to each Purchaser, the aggregate amount to be paid for the Units purchased hereunder as specified below such Purchaser's name on the signature page of this Agreement and next to the heading "Subscription Amount," in United States dollars and in immediately available funds.
"
Subsidiary
" means any subsidiary of the Company as set forth on
Schedule
3.1(b)
and
shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
"
Supplemental Disclosure
" means the information provided to Purchasers regarding the Acquisition and the Acquisition Agreement, set forth in
Exhibit D
hereto.
"
Trading Day
" means a day on which the principal Trading Market is open for trading.
"
Trading Market
" means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).
"
Transaction Documents
" means this Agreement, the Certificate of Designation, the Warrants, the Registration Rights Agreement, the Escrow Agreement, the Voting Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
"
Transfer Agent
" means Interwest Transfer Company, the current transfer agent of the Company, with a mailing address of 1981 East Murray Holladay Road, Salt Lake City, Utah 84117 and a phone number of 801-272-9294, and any successor transfer agent of the Company.
"
Underlying Shares
" means the shares of Common Stock issued and issuable upon conversion or redemption of the Preferred Stock and upon exercise of the Warrants and issued and issuable in lieu of the cash payment of dividends on the Preferred Stock in accordance with the terms of the Certificate of Designation.
"
Units
" shall have the meaning ascribed to such term in the Recitals.
"
Variable Rate Transaction
" shall have the meaning ascribed to such term in Section 4.13(b).
"
Voting Agreement
" means the written agreement, in the form of
Exhibit F
attached hereto, of all of the officers, directors and stockholders holding more than 10% of the issued and outstanding shares of Common Stock on the date hereof to vote all Common Stock over which such Persons have voting control as of the record date for the meeting of stockholders of the Company, amounting to, in the aggregate, at least 35% of the issued and outstanding Common Stock.
"
VWAP
" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the "Pink Sheets" published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
"
Warrants
" means the Common Stock purchase warrants included in the Units and delivered to the Purchasers at the Closing in accordance with Section 2.2(a), in the form attached hereto as
Exhibit E
.
"
Warrant Shares
" means the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1
Closing
. On the date of the Closing, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of 1,800,000 Units at a per Unit purchase price equal to $5.00 per Unit, for total offering proceeds to the Company of Nine Million Dollars ($9,000,000). Each Unit price of $5.00 consists of a per share price of $2.50 for the share of Preferred Stock
plus
a per share price of $2.50 for the share of Common Stock. For every Unit subscribed by each applicable Purchaser, the Company shall issue such number of Warrants as set forth in
Section
2.2(a)
below. Each Purchaser shall deliver to the Escrow Agent via wire transfer or a certified check of immediately available funds equal to such Purchaser's Subscription Amount as set forth on the signature page hereto executed by such Purchaser and the Company shall deliver to each Purchaser its respective Shares, Preferred Stock and Warrants as determined pursuant to
Section
2.2(a)
, and the Company and each Purchaser shall deliver the other items set forth in
Section
2.2
deliverable at the Closing. With the consent of the Placement Agent, in lieu of delivering such funds to the Escrow Agent, Purchaser may deliver such funds at the Closing to the Company via wire transfer or a certified check of immediate available funds. Upon satisfaction of the covenants and conditions set forth in
Sections
2.2
and
2.3
, the Closing shall occur at the offices of EGS or such other location as the parties shall mutually agree and the Subscription Amount shall be released from escrow to the account of the Company in accordance with the terms of the Escrow Agreement.
(a)
Company Deliveries
. On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:
(i)
this Agreement duly executed by the Company;
(ii)
a legal opinion of Company Counsel, substantially in the form of
Exhibit G
attached hereto;
(iii)
a copy of the Certificate of Designation as filed with the Utah Division of Corporations and Commercial Code and evidence of acceptance of the Certificate of Designation by the Utah Division of Corporations and Commercial Code that is reasonably satisfactory the Purchasers;
(iv)
a Good Standing Certificate of the Company;
(v)
for each Purchaser who is not a Deferral Purchaser, a copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver, on an expedited basis, (x) a certificate evidencing a number of Common Shares equal to the number of Units subscribed for by such Purchaser, registered in the name of such Purchaser; and (y) a certificate evidencing a number of shares of Preferred Stock equal to the number of Units subscribed for by such Purchaser, registered in the name of such Purchaser;
(vi)
for each Purchaser who is a Deferral Purchaser, a copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver, on an expedited basis, a certificate evidencing a number of shares of Preferred Stock equal to the number of Units subscribed for by such Purchaser, registered in the name of such Purchaser;
(vii)
a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 150% of such Purchaser's Units, with an exercise price equal to $2.75 per share of Common Stock, subject to adjustment therein;
(viii)
the Voting Agreements;
(ix)
the Registration Rights Agreement duly executed by the Company; and
(x)
the Escrow Agreement, duly executed by the parties thereto.
(b)
Purchaser Deliveries
. On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:
(i)
this Agreement duly executed by such Purchaser;
(ii)
such Purchaser's Subscription Amount by wire transfer to the account as specified in the Escrow Agreement or to the account as specified by the Company in writing, as applicable; and
(iii)
the Registration Rights Agreement, duly executed by such Purchaser.
(c)
Deferral
Purchasers and non-Deferral Purchasers
. The parties hereto agree that prior to Shareholder Approval, the Company shall not issue any Common Shares to the Deferral Purchasers. Also, prior to Shareholder Approval, the Company shall not issue any Common Shares to non-Deferral Purchasers that would exceed 19.9% of the shares of Common Stock of the Company issued and outstanding before this offering. Accordingly, consistent with the provisions of
Section
2.2(a)(vi)
, the Company shall instruct the Transfer Agent not to issue and deliver any Common Shares under
Section
2.2(a)(vi)
to any Deferral Purchaser, and such Deferral Purchaser shall have no right to acquire or exercise any beneficial rights of ownership with respect to his/its Common Shares until after Shareholder Approval has been obtained as provided in
Section
4.9(c)
in compliance with applicable Nasdaq rules. The deliveries of Common Shares to such Deferral Purchasers shall be made within three (3) Trading Days of the Shareholder Approval obtained pursuant to
Section
4.9(c)
.
(a)
Company Conditions
. The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met, any such condition may be waived by the Company in its sole discretion:
(i)
the accuracy in all material respects on the Closing Date of the representations and warranties of each Purchaser contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);
(ii)
all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and
(iii)
the delivery by each Purchaser of the items set forth in
Section
2.2(b)
of this Agreement.
(b)
Purchaser Conditions
. The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met, any such condition may be waived by a Purchaser in its sole discretion:
(i)
the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein (except for those which by their terms specifically refer to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects as of such earlier date);
(ii)
all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;
(iii)
the delivery by the Company of the items set forth in
Section
2.2
(a)
of
this Agreement, except as to the delivery of the Securities under
Section
2.2(a)(vi)
to Purchasers who are Deferral Purchasers as provided in
Section
2.2(c)
,
which shall not be required until after Shareholder Approval has been obtained;
(iv)
there shall have been no Material Adverse Effect with respect to the Company since the date hereof;
(v)
as of the Closing Date, Nasdaq shall have approved the additional listing with respect to the Shares, the Conversion Shares, and the Warrant Shares, subject to Shareholder Approval;
(vi)
the Company and Hausmann shall have satisfied all conditions precedent to the closing of the Acquisition as set forth in the Acquisition Agreement, except for the Closing of the sale of the Securities under this Agreement, which is a condition to the closing of the Acquisition and is to occur simultaneously with the consummation of the Acquisition; and
(vii)
from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company's principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing) and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.
ARTICLE III.
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1
Representations and Warranties of the Company
. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:
(a)
Subsidiaries
. All of the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a)
.
The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
(b)
Organization and Qualification
. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company's ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a "
Material Adverse Effect
") and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c)
Authorization; Enforcement
. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company's shareholders in connection herewith or therewith. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(d)
No Conflicts
. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company's or any Subsidiary's certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
(e)
Filings, Consents and Approvals
. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to
Section 4.5
of this Agreement, (ii) the filing of the Registration Statement with the Commission pursuant to the Registration Rights Agreement, (iii) the notice and/or application(s) to Nasdaq for the issuance and sale of the Securities and the listing of the Shares and Underlying Shares for trading thereon in the time and manner required thereby, (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, and (v) any consents set forth on
Schedule
3.1(e)
(which have been obtained prior to the date hereof) (collectively, the "
Required Approvals
").
(f)
Issuance of the Securities
. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Shares and Underlying Shares at least equal to the Required Minimum on the date hereof.
(g)
Capitalization.
The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially and of record by Affiliates of the Company as of the date hereof, and shall include a "pro-forma" capitalization giving effect to the transactions contemplated hereby and by the Acquisition Agreement. The Company has not issued any capital stock since its most recently filed SEC Report (as defined below), other than pursuant to the exercise of employee stock options under the Company's stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company's employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed SEC Report. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Other than as disclosed on Schedule 3.1(g) or in the SEC Reports of the Company, except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. Other than as disclosed on Schedule 3.1(g), there are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except for Shareholder Approval, no further approval or authorization of any shareholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company's capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company's shareholders.
(h)
SEC Reports; Financial Statements
. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the "
SEC Reports
") on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved ("
GAAP
"), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
(i)
Material Changes; Undisclosed Events, Liabilities or Developments
. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof, and except as disclosed in
Schedule
3.1(i)
, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth on
Schedule
3.1(i)
, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one (1) Trading Day prior to the date that this representation is made.
(j)
Litigation
. Except as disclosed in
Schedule
3.1(j)
, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an "
Action
") which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.
(k)
Labor Relations
. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company's or its Subsidiaries' employees is a member of a union that relates to such employee's relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(l)
Compliance
. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.
(m)
Regulatory Permits
. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect ("
Material Permits
"), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
(n)
Title to Assets
. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.
(o)
Intellectual Property
. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the "
Intellectual Property Rights
"). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(p)
Insurance
. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage in amounts up to Three Million Dollars ($3,000,000) in the aggregate with respect to any single event or series of related events. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
(q)
Transactions With Affiliates and Employees
. Except as set forth in the SEC Reports, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.
(r)
Sarbanes-Oxley; Internal Accounting Controls
. Except as disclosed in
Schedule 3.1(r)
, the Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. The Company's certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed SEC Report under the Exchange Act (such date, the "
Evaluation Date
"). The Company presented in its most recently filed SEC Report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.
(s)
Certain Fees
. Except as disclosed in
Schedule
3.1(s)
,
no brokerage or finder's fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
(t)
Private Placement
. Assuming the accuracy of the Purchasers' representations and warranties set forth in
Section
3.2
, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.
(u)
Investment Company
. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an "investment company" subject to registration under the Investment Company Act of 1940, as amended.
(v)
Registration Rights
. Other than each of the Purchasers, and as set forth on
Schedule 3.1(v)
, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.
(w)
Listing and Maintenance Requirements
. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the twelve (12) months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Common Stock is currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.
(x)
Application of Takeover Protections
. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company's certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company's issuance of the Securities and the Purchasers' ownership of the Securities.
(y)
Disclosure
. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents and the Supplemental Disclosure, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement and the Supplemental Disclosure, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve (12) months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in
Section
3.2
hereof.
(z)
Solvency
. Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company's assets exceeds the amount that will be required to be paid on or in respect of the Company's existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company's assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.
Schedule
3.1(z)
sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, "
Indebtedness
" means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other Contingent Obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company's consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Except as may be disclosed in
Schedule
3.1(z)
, neith
er the Company nor any Subsidiary is in default with respect to any Indebtedness.
(aa)
Tax Status
. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.
(bb)
No General Solicitation
. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other "accredited investors" within the meaning of Rule 501 under the Securities Act.
(cc)
Foreign Corrupt Practices Act
. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.
(dd)
Accountants
. To the knowledge and belief of the Company, the Company Accounting Firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company's Annual Report for the fiscal year ending June 30, 2017, as well as the financial statements of Hausmann for the years ended December 31, 2015 and 2016.
(ee)
Seniority
. Except as disclosed
in
Schedule
3.1(ee)
,
as of the Closing Date, no Indebtedness or other claim against the Company is senior to the Preferred Stock in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).
(ff)
No Disagreements with Accountants and Lawyers
. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company's ability to perform any of its obligations under any of the Transaction Documents.
(gg)
Acknowledgment Regarding Purchasers' Purchase of Securities
. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm's length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers' purchase of the Securities. The Company further represents to each Purchaser that the Company's decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
(hh)
Acknowledgment Regarding Purchaser's Trading Activity
. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections
3.2(f)
and
4.10
hereof
), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or "derivative" securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or "derivative" transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company's publicly-traded securities, (iii) any Purchaser, and counter-parties in "derivative" transactions to which any such Purchaser is a party, directly or indirectly, may presently have a "short" position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm's length counter-party in any "derivative" transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Shares and Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing shareholders' equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.
(ii)
Regulation M Compliance
. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Placement Agent in connection with the placement of the Securities.
(jj)
FDA
. As to each product subject to the jurisdiction of the U.S. Food and Drug Administration ("
FDA
") under the Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder ("
FDCA
") that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries, such product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration, investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be in compliance would not have a Material Adverse Effect. There is no pending, completed or, to the Company's knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received any notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any such product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any such product, (iii) imposes a clinical hold on any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with the Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would have a Material Adverse Effect. The properties, business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA. The Company has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by the Company nor has the FDA expressed any concern as to approving or clearing for marketing any product being developed or proposed to be developed by the Company.
(kk)
Stock Option Plans
. Each stock option granted by the Company under the Company's stock option plan was granted (i) in accordance with the terms of the Company's stock option plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company's stock option plan has been backdated. The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.
(ll)
Office of Foreign Assets Control
. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department ("
OFAC
").
(mm)
U.S. Real Property Holding Corporation
. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, (the "
Code
") and the Company shall so certify upon Purchaser's request.
(nn)
Bank Holding Company Act
. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the "
BHCA
") and to regulation by the Board of Governors of the Federal Reserve System (the "
Federal Reserve
"). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(oo)
Money Laundering
. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the "
Money Laundering Laws
"), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company and any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
(pp)
No Disqualification Events
. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company's outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an "
Issuer Covered Person
" and, together, "
Issuer Covered Persons
") is subject to any of the "
Bad Actor
" disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a "
Disqualification Event
"), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder
(qq)
Other Covered Persons
. Other than as set forth on
Schedule
3.1(rr)
and the Placement Agent, the Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of any Securities
(rr)
Notice of Disqualification Events
. The Company will notify the Purchasers and the Placement Agent in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person
.
(ss)
No Integrated Offering
. Assuming the accuracy of the Purchasers' representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) except as set forth on
Schedule 3.1(ss)
, any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.
(tt)
Form S-3 Eligibility
. Subject to the provisions of the Registration Rights Agreement, the Company is eligible to register the resale of the Shares and Underlying Shares for resale by the Purchaser on Form S-3 promulgated under the Securities Act.
(uu)
Environmental Laws
.
The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, "
Hazardous Materials
") into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder ("
Environmental Laws
"); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
(vv)
Rule 144.
The Company represents and acknowledges that the holding period of the Securities commences on the Closing Date for purposes of Rule 144 and the holding period of the Common Shares issued to the Deferral Purchasers following Shareholder Approval tack to the Closing Date for purposes of Rule 144. The Company agrees to not take a position contrary to the foregoing sentence and to take all actions, including, without limitation, causing the issuance by its legal counsel of any necessary legal opinions in connection with the foregoing sentence.
3.2
Representations and Warranties of the Purchasers
. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):
(a)
Organization; Authority
. Such Purchaser is either an individual or an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate, limited liability company, partnership or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b)
Own Account
. Such Purchaser understands that the Securities are "restricted securities" and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser's right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
(c)
Purchaser Status
. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it is issued Securities, exercises any Warrants or converts any shares of Preferred Stock, it will be an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(d)
Experience of Purchaser
. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(e)
General Solicitation
. Such Purchaser is not, to its knowledge, purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or, to such Purchaser's knowledge, any other general solicitation or general advertisement.
(f)
Certain Transactions and Confidentiality
. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser's assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, or to such Purchaser's representatives, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect Short Sales or similar transactions in the future.
(g)
Access to Information
. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the SEC Reports and the Supplement Disclosure, and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; (iii) access to information about the Acquisition; and (iv) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Such Purchaser acknowledges and agrees that neither the Placement Agent nor any Affiliate of the Placement Agent has provided such Purchaser with any information or advice with respect to the Securities nor is such information or advice necessary or desired. Neither the Placement Agent nor any Affiliate has made or makes any representation as to the Company or the quality of the Securities and the Placement Agent and any Affiliate may have acquired non-public information with respect to the Company which such Purchaser agrees need not be provided to it. In connection with the issuance of the Securities to such Purchaser, neither the Placement Agent nor any of its Affiliates has acted as a financial advisor or fiduciary to such Purchaser. Further, such Purchaser acknowledges that the Placement Agent and certain employees and/or affiliates of the Placement Agent are existing security holders of the Company and own a series of preferred stock of the Company that ranks senior to the Preferred Stock issued pursuant to this Agreement.
(h)
Risk Factors
. Such Purchaser understands and is aware that an investment in the Securities involves substantial risks, including, but not limited to, the risks as set forth in Item 1A of the Annual Report of the Company on Form 10-K for the Year Ended June 30, 2016 and in the Supplemental Disclosure.
(i)
Foreign Purchaser
. If Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Code), such Purchaser hereby represents that such Purchaser has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Securities or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Securities, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any government or other consents that may need to be obtained in connection with such purchase, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Securities. The Company's offer and sale and such Purchaser's subscription and payment for and continued beneficial ownership of the Securities will not violate any applicable securities or other laws of such Purchaser's jurisdiction. Such Purchaser will comply with all applicable laws and regulations in effect in any jurisdiction in which it purchases or sells the Securities and will obtain any consent, approval or permission required for such purchases or sales of the Securities under the laws and regulations of any jurisdiction to which such Purchaser is subject or in which such Purchaser makes such purchases or sales, and the Company shall have no responsibility therefor.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1
Transfer Restrictions
.
(a)
The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and the Registration Rights Agreement and shall have the rights and obligations of a Purchaser under this Agreement and the Registration Rights Agreement.
(b)
The Purchasers agree to the imprinting, so long as is required by
this
Section
4.1
,
of a legend on any Shares, Preferred Stock, Warrants and Underlying Shares in the following form:
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE OR EXERCISABLE, AS APPLICABLE, HAS 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 THE COMPANY OR COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY UNLESS SOLD OR TRANSFERRED TO A "QUALIFIED INSTITUTIONAL BUYER" WITHIN THE MEANING OF RULE 144A UNDER THE 1933 ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE, AS APPLICABLE, OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an "accredited investor" as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser's expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders (as defined in the Registration Rights Agreement) thereunder.
(c)
Certificates evidencing the Shares and Underlying Shares shall not contain any legend (including the legend set forth in
Section
4.1(b)
hereof): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Shares or Underlying Shares pursuant to Rule 144, (iii) if such Shares or Underlying Shares, as the case may be, are eligible for sale under Rule 144 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly if required by the Transfer Agent to effect the removal of the legend hereunder. If all or any shares of Preferred Stock are converted or any portion of a Warrant is exercised or any Shares are sold at a time when there is an effective registration statement to cover the resale of the Underlying Shares, as the case may be, or if such Underlying Shares may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares, as the case may be, shall be issued free of all legends. The Company agrees that following such time as such legend is no longer required under this
Section
4.1(c)
, it will, no later than the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Shares or Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the "
Legend Removal Date
"), deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this
ARTICLE IV
. Certificates for Shares and Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser's broker with the Depository Trust Company System as directed by such Purchaser. As used herein, "
Standard Settlement
Period
" means the standard settlement period, expressed in a number of Trading Days, on the Company's primary Trading Market with respect to the Common Stock as in effect on the date of delivery of a certificate representing Shares or Underlying Shares, as applicable, issued with a restrictive legend.
(d)
In addition to such Purchaser's other available remedies, the Company shall pay to a Purchaser, in cash, (i) as partial liquidated damages and not as a penalty, for each $1,000 of Shares or Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day on fifth (5
th
) Trading Day after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser's right to pursue actual damages for the Company's failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.
(e)
Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this
Section
4.1
is
predicated upon the Company's reliance upon this understanding.
4.2
Furnishing of Information; Public Information, Failure of Registration
.
(a)
If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60th calendar day following the date hereof. Until the earliest of the time that (i) no Purchaser owns Securities or (ii) the Warrants have expired, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act.
(b)
At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144(i)(1)(i) or becomes an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a "
Public Information Failure
") then, in addition to such Purchaser's other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of the Securities then held by such Purchaser on the day of a Public Information Failure and on every thirtieth (30
th
) day (pro-rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the Shares and Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.2(b) are referred to herein as "
Public Information Failure Payments
." Public Information Failure
Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure
Payments are incurred and (ii) the third (3
rd
) Business Day after the event or failure giving rise to the Public Information Failure
Payments is cured. In the event the Company fails to make Public Information Failure
Payments in a timely manner, such Public Information Failure
Payments shall bear interest at the rate of 1.5% per month (pro-rated for partial months) until paid in full. Nothing herein shall limit such Purchaser's right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.
4.3
Integration
. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
4.4
Conversion and Exercise Procedures
. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Certificate of Designation set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Preferred Stock. Without limiting the preceding sentences, no ink-original Notice of Exercise or Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise or Notice of Conversion form be required in order to exercise the Warrants or convert the Preferred Stock. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their Preferred Stock. The Company shall honor exercises of the Warrants and conversions of the Preferred Stock and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.
4.5
Securities Laws Disclosure; Publicity
. The Company shall, by 9:00 a.m. (New York City time) on the Trading Day immediately following the date hereof, (i) issue a press release disclosing the material terms of the transactions contemplated hereby and (ii) file a Current Report on Form 8-K,
constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
4.8
Use of Proceeds
. The Company shall use the net proceeds from the sale of the Securities hereunder (a) to finance a portion of the Acquisition and (b) for working capital purposes.
4.9
Reservation and Listing of Securities
.
(a)
Company shall maintain a reserve of the Required Minimum from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.
(b)
If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company's certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.
(c)
The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. The Company agrees to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer. In addition, the Company shall hold a special meeting of shareholders at the earliest practical date following the date hereof, and in any event on or before the 90th calendar date after the date hereof for the purpose of obtaining Shareholder Approval, with the recommendation of the Company's Board of Directors that such proposals be approved, and the Company shall solicit proxies from its shareholders in connection therewith in the same manner as all other management proposals in such proxy statement and all management-appointed proxyholders shall vote their proxies in favor of such proposals. The Company shall use its reasonable best efforts to obtain such Shareholder Approval. If the Company does not obtain Shareholder Approval at the first meeting, the Company shall call a meeting every two months thereafter to seek Shareholder Approval until the earlier of the date Shareholder Approval is obtained or the Preferred Stock and Warrants are no longer outstanding.
4.10
Certain Transactions and Confidentiality
. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales, of any of the Company's securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release and Form 8‑K Filing as described in
Section
4.5
. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release and Form 8‑K Filing as described in
Section
4.5
, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release and Form 8‑K Filing as described in
Section
4.5
, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release and Form 8‑K Filing as described in
Section
4.5
and (iii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries after the initial press release and Form 8‑K Filing as described in
Section
4.5
. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser's assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.
4.11
Equal Treatment of Purchasers
. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to such Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.
4.12
Indemnification of Purchasers
. Subject to the provisions of this Section 4.12, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a "Purchaser Party") harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys' fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party's representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company's prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party's breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.12 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.
4.13
Subsequent Equity Sales
.
(a)
From the date hereof until ninety (90) days after the Effective Date, neither the Company nor any Subsidiary shall issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents.
(b)
From the date hereof until the third anniversary of the date hereof, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. "
Variable Rate Transaction
" means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into, or effects a transaction under, any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
(c)
Unless Shareholder Approval has been obtained and deemed effective, neither the Company nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common Stock Equivalents. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
(d)
Notwithstanding the foregoing, this
Section
4.13
shall
not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction entered into on or after the date hereof shall be an Exempt Issuance.
4.14
Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.
ARTICLE V.
MISCELLANEOUS
5.1
Termination
. This Agreement may be terminated by any Purchaser, as to such Purchaser's obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before June 15, 2017, provided that such failure to close is not solely and directly attributable to any actions or inactions of such Purchaser seeking to terminate its obligations under this Agreement;
provided
,
however
, that such termination will not affect the right of any party to sue for any breach by any other party (or parties).
5.2
Fees and Expenses
. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same day processing of any instruction letter delivered by the Company and any conversion or exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4
Notices
. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or e-mail attachment at the e-mail address set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or e-mail attachment at the e-mail address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
5.5
Amendments; Waivers
. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 75% in interest of the Securities purchased hereunder (based on initial Subscription Amounts) or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
5.6
Headings
. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.7
Successors and Assigns
. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the "Purchasers."
5.8
No Third-Party Beneficiaries
. The Placement Agent shall be third party beneficiary with respect to the representations and warranties of the Company in Section 3.1 hereof and with respect to the representations and warranties of the Purchasers in Section 3.2 hereof. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section
4.10
and
this
Section 5.8
.
5.9
Governing Law
. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.12, the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys' fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
5.10
Survival
. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.
5.11
Execution
. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a ".pdf" format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf" signature page were an original thereof.
5.12
Severability
. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13
Replacement of Securities
. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.14
Remedies
. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
5.15
Payment Set Aside
. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
5.16
Independent Nature of Purchasers' Obligations and Rights
. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each Purchaser and its respective counsel have chosen to communicate with the Company through EGS. EGS does not represent any of the Purchasers and only represents the Placement Agent. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.
5.17
Saturdays, Sundays, Holidays, etc.
If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
5.18
Construction
. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
5.20
Liquidated Damages
. The Company's obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.
WAIVER OF JURY TRIAL
. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
[signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
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DYNATRONICS CORPORATION
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Address for Notice
:
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Attn: Kelvyn Cullimore, Jr.
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7030 Park Centre Dr.
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Cottonwood Heights, UT 84121
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By:___________________________________
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Kelvyn@dynatronics.com
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Name: Kelvyn Cullimore, Jr.
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Fax: _________________
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Title: Chief Executive Officer
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With a copy to (which shall not constitute notice):
Kevin R. Pinegar and Wayne D. Swan
Durham Jones & Pinegar
East Broadway, Suite 900
Salt Lake City, Utah 84111
Phone: 801-415-3000
Fax: 801-415-3500
[COMPANY SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO DYNT SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: ____________________________________________________
Signature of Authorized Signatory of Purchaser: __________________________
Name of Authorized Signatory: ____________________________________
Title of Authorized Signatory: _____________________________________
Email Address of Authorized Signatory:__________________________________________
Facsimile Number of Authorized Signatory:________________________________________
Address for Notice to Purchaser:
Address for Delivery of Securities to Purchaser (if not same as address for notice):
Subscription Amount: $____________
Shares of Common Stock: ____________
Shares of Preferred Stock: ________
Warrant Shares: _________
EIN Number: ____________________
Check here if the above Purchaser does not want a Beneficial Ownership conversion/exercise limitation in its Preferred Stock and Warrants: ______
EXHIBIT A
CERTIFICATE OF DESIGNATION
(as attached)
EXHIBIT B
ESCROW AGREEMENT
(as attached)
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
(as attached)
EXHIBIT D
SUPPLEMENTAL DISCLOSURE
(as attached)
EXHIBIT E
FORM OF WARRANT
(as attached)
EXHIBIT F
FORM OF VOTING AGREEMENT
(as attached)
EXHIBIT G
FORM OF LEGAL OPINION
(as attached)
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
DYNATRONICS CORPORATION
AND
EACH PURCHASER IDENTIFIED ON THE SIGNATURE PAGES HERETO
[________________], 2017
TABLE OF CONTENTS
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "
Agreement
") is made and entered into as of March ______, 2017, between Dynatronics Corporation, a Utah corporation (the "
Company
"), and each of the several purchasers signatory hereto (each such purchaser, a "Purchaser" and, collectively, the "
Purchasers
").
This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the "
Purchase Agreement
").
The Company and each Purchaser hereby agrees as follows:
Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:
"
Advice
" shall have the meaning set forth in Section 6(c).
"
Effectiveness Date
" means, with respect to the Initial Registration Statement required to be filed hereunder, the 90th calendar day following the date hereof (or, in the event of a "full review" by the Commission, the 120th calendar day following the date hereof) and with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the 90th calendar day following the date on which an additional Registration Statement is required to be filed hereunder (or, in the event of a "full review" by the Commission, the 120th calendar day following the date such additional Registration Statement is required to be filed hereunder);
provided
, however, that in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, and the Company has provided or it is reasonably practicable for the Company to provide to the Commission any financial statements required of [________________ (acquisition target)] to be included in the effective Registration Statement, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates otherwise required above, provided, further, if such Effectiveness Date falls on a day that is not a Trading Day, then the Effectiveness Date shall be the next succeeding Trading Day.
"
Effectiveness Period
" shall have the meaning set forth in Section 2(a).
"
Event
" shall have the meaning set forth in Section 2(d).
"
Event Date
" shall have the meaning set forth in Section 2(d).
"
Filing Date
" means, with respect to the Initial Registration Statement required hereunder, the 45
th
calendar day following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.
"
Holder
" or "
Holders
" means the holder or holders, as the case may be, from time to time of Registrable Securities.
"
Indemnified Party
" shall have the meaning set forth in Section 5(c).
"
Indemnifying Party
" shall have the meaning set forth in Section 5(c).
"
Initial Registration Statement
" means the initial Registration Statement filed pursuant to this Agreement.
"
Losses
" shall have the meaning set forth in Section 5(a).
"
Plan of Distribution
" shall have the meaning set forth in Section 2(a).
"
Prospectus
" means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
"
Registrable Securities
" means, as of any date of determination, (a) all shares of Common Stock issuable pursuant to the Purchase Agreement, (b) all of the shares of Common Stock then issued and issuable upon conversion in full of the Preferred Stock (assuming on such date the shares of Preferred Stock are converted in full without regard to any conversion limitations therein), (c) all shares of Common Stock issued and issuable in lieu of cash dividends on the Preferred Stock assuming all dividend payments are made in shares of Common Stock and the Preferred Stock is held for at least 3 years, (d) all Warrant Shares then issued and issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein), and (e) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing;
provided
,
however
, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (i) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (ii) such Registrable Securities have been previously sold in accordance with Rule 144, or (iii) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercised by "cashless exercise" as provided in Section 2(c) of each of the Warrants), as reasonably determined by the Company, upon the advice of counsel to the Company.
"
Registration Statement
" means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.
"
Rule 415
" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
"
Rule 424
" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
"
Selling Shareholder Questionnaire
" shall have the meaning set forth in Section 3(a).
"
SEC Guidance
" means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.
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(a)
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On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed by at least 85% in interest of the Holders) substantially the "Plan of Distribution" attached hereto as Annex A and substantially the "Selling Shareholder" section attached hereto as Annex B; provided, however, that no Holder shall be required to be named as an "underwriter" without such Holder's express prior written consent. Subject to the terms of this Agreement, the Company shall use its best efforts to cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the "Effectiveness Period"). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. Eastern Time on a Trading Day. The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement. The Company shall, by 9:30 a.m. Eastern Time on the Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as may be required by Rule 424. Failure to so notify the Holder within one (1) Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d).
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(b)
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Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e) with respect to filing on Form S-3 or other appropriate form, and subject to the provisions of Section 2(d) with respect to the payment of liquidated damages; p
rovided
,
however
, that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.
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(c)
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Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows:
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(i)
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First, the Company shall reduce Registrable Securities represented by Warrant Shares, Conversion Shares and Shares issuable to Purchasers and their Affiliates that are or were Affiliates of the Company prior to the Closing or that are affiliated with any officers or directors of the Company;
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(ii)
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Second, the Company shall reduce Registrable Securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Warrant Shares held by such Holders);
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(iii)
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Third, the Company shall reduce Registrable Securities represented by Conversion Shares (applied, in the case that some Conversion Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Conversion Shares held by such Holders); and
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(iv)
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Fourth, the Company shall reduce Registrable Securities represented by Shares (applied, in the case that some Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Shares held by such Holders).
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In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder's allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended.
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(i)
|
the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall be deemed to have not satisfied this clause (i)), or
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(ii)
|
the Company is notified by the Commission that a Registration Statement will not be reviewed or is no longer subject to further review and comments, and the Company has provided or it is reasonably practicable for the Company to provide to the Commission the financial statements required of the [________________ (acquisition target)] in connection with the Registration Statement to be declared effective, and the Company then fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the Securities Act, within five (5) Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be "reviewed" or will not be subject to further review, or
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(iii)
|
prior to the effective date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within fifteen (15) calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declared effective, or
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(iv)
|
a Registration Statement registering for resale all of the Registrable Securities is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement or any additional Registration Statement that may be required to be filed hereunder; or
|
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(v)
|
after the effective date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than ten (10) consecutive calendar days or more than an aggregate of fifteen (15) calendar days (which need not be consecutive calendar days) during any 12-month period
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(any such failure or breach referred to in clauses (i) through (v) being referred to as an "
Event
", and for purposes of clauses (i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and for purpose of clause (iii) the date which such fifteen (15) calendar day period is exceeded, and for purpose of clause (v) the date on which such ten (10) or fifteen (15) calendar day period, as applicable, is exceeded being referred to as "
Event Date
"),
then
, in addition to any other rights the Holders may have hereunder or under applicable law (other than due to an Event caused by a cut-back due to Commission Guidance described in Section 2(c) above, in which case partial liquidated damages shall be the sole remedy), on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of one percent (1.0%) multiplied by the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement. The parties agree that the maximum aggregate liquidated damages payable to a Holder under this Agreement shall be six percent (6%) of the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement. If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven (7) days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event.
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(e)
|
If Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available,
provided
that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission.
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(f)
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Notwithstanding anything to the contrary contained herein, in no event shall the Company be permitted to name any Holder or affiliate of a Holder as any "underwriter" without the prior written consent of such Holder.
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(g)
|
Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to a Registration Statement.
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3.
Registration Procedures
.
In connection with the Company's registration obligations hereunder, the Company shall:
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(a)
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Not less than five (5) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than five (5) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as
Annex C
(a "
Selling Shareholder Questionnaire
") on a date that is not less than four (4) Trading Days prior to the Filing Date or by the end of the fourth (4th) Trading Day following the date on which such Holder receives draft materials in accordance with this Section.
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(b)
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(i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.
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(c)
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If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.
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(d)
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Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus, provided, however, in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.
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(e)
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Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.
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(f)
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Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form.
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(g)
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Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).
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(h)
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Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that, the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.
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(i)
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If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.
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(j)
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Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company's good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(j) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period.
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(k)
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Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus as may be required, including any supplement or amendment thereof, with the Commission pursuant to Rule 424 under the Securities Act, promptly inform the Holders in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Holders are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder.
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(l)
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The Company shall use its best efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.
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(m)
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The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company's request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.
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4.
Registration Expenses
. All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company's counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, and (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.
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(a)
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Indemnification by the Company
. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(c). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(g).
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(b)
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Indemnification by Holders
. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder's failure to comply with any applicable prospectus delivery requirements of the Securities Act through no fault of the Company or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus; (ii) to the extent, but only to the extent, that such information relates to such Holder's information provided in the Selling Shareholder Questionnaire or the proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto; or (iii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), to the extent, but only to the extent, related to the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(c). In no event shall the liability of a selling Holder under this Section 5(b) be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue statement or omission) received by such Holder upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.
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(c)
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Conduct of Indemnification Proceedings
. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "
Indemnified Party
"), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the "
Indemnifying Party
") in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that, the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.
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An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that, the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.
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(d)
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Contribution
. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys' or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.
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The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. In no event shall the contribution obligation of a Holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.
The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.
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(a)
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Remedies
. In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.
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(b)
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No Piggyback on Registrations; Prohibition on Filing Other Registration Statements
. Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statements other than the Registrable Securities. The Company shall not file any other registration statements until all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement.
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(c)
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Discontinued Disposition
. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the "
Advice
") by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(d).
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(d)
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Piggy-Back Registrations
. If, at any time during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company's stock option or other employee benefit plans, then the Company shall deliver to each Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 6(d) that are eligible for resale pursuant to Rule 144 (without volume restrictions or current public information requirements) promulgated by the Commission pursuant to the Securities Act or that are the subject of a then effective Registration Statement that is available for resales or other dispositions by such Holder.
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(e)
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Amendments and Waivers
. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of seventy-five percent (75%) or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security), provided that, if any amendment, modification or waiver disproportionately and adversely impacts a Holder (or group of Holders), the consent of such disproportionately impacted Holder (or group of Holders) shall be required. If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates;
provided
,
however
, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(e). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.
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(f)
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Notices
. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.
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(g)
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Successors and Assigns
. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase Agreement.
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(h)
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No Inconsistent Agreements
. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as set forth on Schedule 6(h), neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.
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(i)
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Execution and Counterparts
. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a ".pdf" format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf" signature page were an original thereof.
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(j)
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Governing Law
. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.
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(k)
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Cumulative Remedies
. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.
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(l)
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Severability
. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
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(m)
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Headings
. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.
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(n)
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Independent Nature of Holders' Obligations and Rights
. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.
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(
SIGNATURE PAGES FOLLOW
)
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.
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DYNATRONICS CORPORATION
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By:__________________________________________
Name: Kelvyn Cullimore, Jr.
Title: Chief Executive Officer
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[
SIGNATURE PAGE OF HOLDERS FOLLOWS
]
[SIGNATURE PAGE OF HOLDERS TO DYNT RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder
: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
Annex A
Plan of Distribution
Each Selling Shareholder (the "
Selling Shareholders
") of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the Nasdaq Stock Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Shareholder may use any one or more of the following methods when selling securities:
|
·
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ordinary brokerage transactions and transactions in which the broker‑dealer solicits purchasers;
|
|
·
|
block trades in which the broker‑dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
|
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·
|
purchases by a broker‑dealer as principal and resale by the broker‑dealer for its account;
|
|
·
|
an exchange distribution in accordance with the rules of the applicable exchange;
|
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·
|
privately negotiated transactions;
|
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·
|
settlement of short sales;
|
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·
|
in transactions through broker‑dealers that agree with the Selling Shareholders to sell a specified number of such securities at a stipulated price per security;
|
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·
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
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·
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a combination of any such methods of sale; or
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·
|
any other method permitted pursuant to applicable law.
|
The Selling Shareholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the "
Securities Act
"), if available, rather than under this prospectus.
Broker‑dealers engaged by the Selling Shareholders may arrange for other brokers‑dealers to participate in sales. Broker‑dealers may receive commissions or discounts from the Selling Shareholders (or, if any broker‑dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests therein, the Selling Shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Shareholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Shareholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Shareholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Selling Shareholders may be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Shareholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Shareholders.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Shareholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Shareholders or any other person. We will make copies of this prospectus available to the Selling Shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
Annex B
SELLING SHAREHOLDERS
The common stock being offered by the selling shareholders are those previously issued to the selling shareholders, and those issuable to the selling shareholders, upon exercise of the warrants. For additional information regarding the issuances of those shares of common stock and warrants, see "Private Placement of Common Shares and Warrants" above. We are registering the shares of common stock in order to permit the selling shareholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock and the warrants, the selling shareholders have not had any material relationship with us within the past three years, except as otherwise noted herein.
The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling shareholders. The second column lists the number of shares of common stock beneficially owned by each selling shareholder, based on its ownership of the shares of common stock and warrants, as of ________, 2017, assuming exercise of the warrants held by the selling shareholders on that date, without regard to any limitations on exercises.
The third column lists the shares of common stock being offered by this prospectus by the selling shareholders.
In accordance with the terms of a registration rights agreement with the selling shareholders, this prospectus generally covers the resale of the sum of (i) the number of shares of common stock issued to the selling shareholders in the __________________ and (ii) the maximum number of shares of common stock issuable upon exercise of the related warrants, determined as if the outstanding warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration right agreement, without regard to any limitations on the exercise of the warrants.
The fourth column assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus.
Under the terms of the warrants and the preferred stock, unless a selling shareholder has elected not to be bound by such limitations, a selling shareholder may not exercise the warrants or convert the preferred stock to the extent such exercise would cause such selling shareholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% of our then outstanding common stock following such exercise or conversion, excluding for purposes of such determination shares of common stock issuable upon exercise of the warrants which have not been exercised. The number of shares in the second column does not reflect this limitation. The selling shareholders may sell all, some or none of their shares in this offering. See "Plan of Distribution."
|
Name of Selling Shareholder
|
Number of
shares of
Common Stock
Owned Prior to
Offering
|
Maximum Number
of shares of
Common Stock
to be Sold
Pursuant to
this Prospectus
|
Number of
shares of
Common Stock
Owned After
Offering
|
Annex C
DYNATRONICS CORPORATION
Selling Shareholder Notice and Questionnaire
The undersigned beneficial owner of common stock (the "
Registrable Securities
") of Dynatronics Corporation, a Utah corporation (the "
Company
"), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the "
Commission
") a registration statement (the "
Registration Statement
") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "
Securities Act
"), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the "
Registration Rights Agreement
") to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.
Certain legal consequences arise from being named as a selling shareholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling shareholder in the Registration Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "
Selling Shareholder
") of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.
The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:
QUESTIONNAIRE
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(a)
|
Full Legal Name of Selling Shareholder
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(b)
|
Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
|
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(c)
|
Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
|
2. Address for Notices to Selling Shareholder:
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Telephone:
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Fax:
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Contact Person:
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3. Broker-Dealer Status:
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(a)
|
Are you a broker-dealer?
|
Yes
No
|
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(b)
|
If "yes" to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?
|
Yes
No
|
|
Note:
|
If "no" to Section 3(b), the Commission's staff has indicated that you should be identified as an underwriter in the Registration Statement.
|
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(c)
|
Are you an affiliate of a broker-dealer?
|
Yes
No
|
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(d)
|
If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?
|
Yes
No
|
|
Note:
|
If "no" to Section 3(d), the Commission's staff has indicated that you should be identified as an underwriter in the Registration Statement.
|
4. Beneficial Ownership of Securities of the Company Owned by the Selling Shareholder.
Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement.
|
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(a)
|
Type and Amount of other securities beneficially owned by the Selling Shareholder:
|
5. Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
The undersigned agrees to promptly notify the Company of any material inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective; provided, that the undersigned shall not be required to notify the Company of any changes to the number of securities held or owned by the undersigned or its affiliates.
By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus
and any amendments or supplements thereto
. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.
Date:
Beneficial Owner:
By:
Name:
Title:
PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE (WHICH SHALL CONSTITUTE DELIVERY TO COMPANY FOR PURPOSES OF THE REGISTRATION RIGHTS AGREEMENT), AND RETURN THE ORIGINAL BY MAIL, TO:
6
Exhibit 99.1
NEWS RELEASE
Contact: Jim Ogilvie, 800-874-6251 or 801-568-7000
Dynatronics Announces Agreement to Acquire
Hausmann Industries
Dynatronics Enhances Presence in Physical Therapy and Athletic Training Markets
COTTONWOOD HEIGHTS, UT (March 22, 2017) – Dynatronics Corporation (NASDAQ: DYNT), today announced an agreement to acquire substantially all of the assets of Hausmann Industries, Inc., a manufacturer of branded, high quality physical therapy and athletic training products. The purchase price is approximately $10.0 million in cash, subject to adjustments, which represents a multiple of 0.6x Hausmann's calendar year 2016 unaudited revenues of $14.8 million and 8.4x its unaudited adjusted EBITDA of $1.2 million.
Pro forma combined sales for Dynatronics and Hausmann for the twelve month period ended December 31, 2015 were approximately $45 million, with Hausmann products accounting for approximately 32% of combined revenues. Hausmann's unaudited revenues for the twelve months ended December 31, 2015 were approximately $15.5 million, with gross margin of approximately 30.2%, and operating income of approximately $1.1 million. Adjusted EBITDA for Hausmann during the twelve months ended December 31, 2015 was $1.5 million.
Hausmann Industries, based in New Jersey, manufactures laminated treatment tables and wood products which complement Dynatronics' existing line of solid wood and custom design treatment tables. Hausmann also adds the market leading ProTeam
TM
line of specialty products that serves sports teams of all levels from professional to high school.
"Hausmann is an excellent strategic fit for Dynatronics, as it reinforces our commitment to and presence in the physical therapy and athletic training space," said Kelvyn Cullimore, Jr., Dynatronics' Chairman and CEO. "We have respected Hausmann's success as an industry participant over the years and look forward to welcoming David Hausmann and his company's employees to the Dynatronics family," Cullimore said.
"We are very excited to become a part of the Dynatronics family," said David Hausmann, CEO of Hausmann Industries. "Hausmann has been a family owned and operated company for six decades and there is a good fit with Dynatronics. The combined businesses will provide more opportunities, and we believe Dynatronics has the scale to fuel growth and enhance our leadership role in our many markets. I look forward to continuing to lead Hausmann as division President for the long term."
The combination of Hausmann and Dynatronics is expected to bring numerous benefits, including:
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·
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Complementary electronic modality products to sell into Hausmann's existing base of customers
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·
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Increased access to large national accounts and buying groups, a particular strength of Hausmann
|
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·
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Dynatronics will have increased revenues without significant additional selling costs
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·
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The transaction will be immediately accretive to Dynatronics' adjusted earnings and operating cash flow
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·
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Post-transaction, Dynatronics expects the combined company to be cash flow positive
|
"We are delighted to welcome the Hausmann organization, distributors and customers to our company," said Jeff Gephart, Dynatronics Senior Vice President of Sales and Marketing. "Through this combination, we will be able to provide a broader array of solutions to our customer base, particularly within the athletic training segment of the business."
Dynatronics expects that there may be certain additional revenue and cost synergies from the combination of the two businesses, but plans to reinvest any such synergies into the combined business. Dynatronics also expects certain one-time costs from the integration.
Dynatronics plans to fund the acquisition of Hausmann through an asset-based lending facility with Bank of the West and through the issuance of $7.8 million of equity securities in a private placement to a group of investors led by Prettybrook Partners LLC and its affiliates. The equity investors include owners of Dynatronics' Series A convertible preferred stock, members of the Hausmann family, as well as new institutional investors. Ladenburg Thalmann & Co. Inc., a subsidiary of Ladenburg Thalmann Financial Services Inc
. is acting as the sole private placement agent for the equity portion of this transaction.
The equity securities will be in the form of a unit of one share of Common Stock priced at $2.50, and one share of Series B Preferred Stock priced at $2.50 with an annual dividend of 8%, payable in stock or cash at Dynatronics' option, and warrant coverage of 150% with an exercise price of $2.75 per share. The equity securities will have certain voting restrictions pending the approval of the equity transaction by the Dynatronics shareholders. Additionally, the Company granted the investors certain registration rights in connection with the shares of common stock in the units, and underlying the conversion of the preferred stock and exercise of the warrants.
The acquisition transaction is subject to customary closing conditions and is expected to close in April 2017.
Certain Operational and Financial Performance Measures:
This press release includes information relating to adjusted EBITDA which is a financial measure that has not been prepared in accordance with GAAP. We define EBITDA as net income (loss) adjusted to exclude depreciation and amortization, interest income or expense, other income or expense, and provision (benefit) for income taxes. Adjusted EBITDA includes adjustments for excess executive compensation, transaction costs, and negotiated lease payments.
About Dynatronics
Dynatronics manufactures, markets and sells advanced-technology medical devices, orthopedic soft goods and supplies, treatment tables and rehabilitation equipment for the physical therapy, sports medicine, chiropractic and podiatry markets. More information is available at
www.dynatronics.com
.
About Hausmann
Hausmann manufactures a full range of laminate treatment tables, stools, benches and cabinets to the physical therapy and athletic training markets. The company offers its products exclusively to third-party dealers, primarily in the U.S. More information is available at
www.hausmann.com
.
Cautionary Note on Forward-Looking Statements
This press release contains forward-looking statements. Those statements include references to the company's expectations and similar statements. Actual results may vary from the views expressed in the forward-looking statements contained in this release. The development and sale of the company's products are subject to a number of risks and uncertainties, including, but not limited to, changes in the regulatory environment, competitive factors, inventory risks due to shifts in market demand, market demand for the company's products, availability of financing at cost-effective rates, and the risk factors listed from time to time in the company's SEC reports.
Exhibit 99.2
SUPPLEMENTAL DISCLOSURE
TO
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
DYNATRONICS CORPORATION
AND
EACH PURCHASER IDENTIFIED ON THE SIGNATURE PAGES THERETO
REGARDING THE
ASSET PURCHASE AGREEMENT
BETWEEN
DYNATRONICS CORPORATION
AND
HAUSMANN INDUSTRIES, INC.
March 21, 2017
This Supplemental Disclosure (this "
Supplemental Disclosure
") is provided in connection with that certain Securities Purchase Agreement, dated March 21, 2017 (the "
Securities Purchase Agreement
"), by and among the Company and the purchasers identified on the signature pages thereto (each a "
Purchaser
" and collectively, the "
Purchasers
"). This Supplemental Disclosure is being provided to the Purchasers to furnish certain additional information to the Purchasers regarding Hausmann Industries, Inc., a New Jersey corporation ("
Hausmann
"), and the contemplated purchase by Dynatronics Corporation (the "
Company
", "
Dynatronics
", "
we
", or "
us
") of substantially all the assets of Hausmann (the "
Acquisition
"). The terms of the Acquisition are set forth in that certain Asset Purchase Agreement dated March 21, 2017, by and between the Company and Hausmann (the "
Asset Purchase Agreement
").
DISCLAIMERS
THE SECURITIES BEING OFFERED FOR SALE UNDER THE SECURITIES PURCHASE AGREEMENT TO WHICH THIS SUPPLEMENTAL DISCLOSURE RELATES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER THE SECURITIES LAWS OF ANY STATE, AND WILL BE OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF DYNATRONICS' INTENDED COMPLIANCE WITH SECTION 4(a)(2) OF THE SECURITIES ACT, THE PROVISIONS OF REGULATION D UNDER SUCH ACT, AND SIMILAR EXEMPTIONS UNDER STATE LAWS. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THESE AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON OTHER THAN AS PROVIDED HEREIN HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS REGARDING THE SUBJECT MATTER HEREOF OTHER THAN THOSE CONTAINED IN THIS SUPPLEMENTAL DISCLOSURE, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY DYNATRONICS.
THE CONTENTS OF THIS SUPPLEMENTAL DISCLOSURE SHOULD NOT BE CONSTRUED AS LEGAL, INVESTMENT OR TAX ADVICE. YOU SHOULD CONSULT WITH YOUR OWN ADVISORS AS TO LEGAL, INVESTMENT, TAX AND RELATED MATTERS CONCERNING THE MATTERS SET FORTH HEREIN.
THIS SUPPLEMENTAL DISCLOSURE CONTAINS REFERENCES TO AND SUMMARIES OF CERTAIN PROVISIONS OF DOCUMENTS RELATING TO DYNATRONICS, HAUSMANN, THE OFFERING OF THE SECURITIES, THE ACQUISITION AND RELATED TRANSACTIONS. SUCH REFERENCES AND SUMMARIES DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE TEXT OF THE ORIGINAL DOCUMENTS.
THE DELIVERY OF THIS SUPPLEMENTAL DISCLOSURE SHALL NOT UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF. DYNATRONICS DOES NOT UNDERTAKE ANY OBLIGATION TO UPDATE OR SUPPLEMENT ANY OF THE INFORMATION CONTAINED IN THIS SUPPLEMENTAL DISCLOSURE OR THE APPENDICES OR ENCLOSURES DELIVERED HEREWITH AS OF ANY DATE.
HOW TO OBTAIN ADDITIONAL INFORMATION
PROSPECTIVE INVESTORS MAY ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, DYNATRONICS CONCERNING DYNATRONICS, THE OFFERING OF THE SECURITIES, HAUSMANN AND THE ACQUISITION. PROSPECTIVE INVESTORS MAY ALSO OBTAIN ANY ADDITIONAL INFORMATION TO THE EXTENT DYNATRONICS POSSESSES SUCH INFORMATION. INQUIRIES AND REQUESTS FOR ADDITIONAL INFORMATION SHOULD BE DIRECTED TO DYNATRONICS AT:
Dynatronics Corporation.
Attn: Jim Ogilvie, V.P. Business Development
7030 Park Centre Drive
Cottonwood Heights, UT 84121
(801) 568-7000
FORWARD-LOOKING STATEMENTS; CONFIDENTIALITY
This Supplemental Disclosure contains, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements relate to future events or the future performance of the Company and involve known and unknown risks and other uncertainties or factors that may cause actual results, performance, or achievements of the Company and/or Hausmann to be materially different from any future results, performance, or achievements expressed or implied by the forward‑looking statements. In addition to statements which explicitly describe such risks and uncertainties, investors are urged to consider statements and projections which use the terms "believe," "belief," "expect," "intend," "plan," "goal," "seek," "project," "estimate," "strategy," "future," "likely," "may," "should," "will," "anticipate," or similar references to future periods to be uncertain and forward looking. Examples of forward-looking statements include, among others, statements we make regarding the sales of Hausmann-branded products and profitability in future periods following our acquisition of Hausmann, as well as:
|
·
|
Expected operating results, such as revenue growth and earnings;
|
|
·
|
Current or future volatility in the credit markets and future market conditions;
|
|
·
|
Expectations of the effect on our financial condition of claims, litigation, and environmental costs;
|
|
·
|
Regulatory uncertainty and risks related to development, marketing, sale and use of the Hausmann products; and
|
|
·
|
Strategy for marketing and distributing the Hausmann products, customer retention, growth, product development, market position, financial results and reserves.
|
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
|
·
|
Economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets;
|
|
·
|
Volatility in the capital or credit markets;
|
|
·
|
The impact of health care reform and other aspects of the health care market generally;
|
|
·
|
Our success in assimilating and integrating the Hausmann acquisition;
|
|
·
|
The occurrence of hostilities, political instability or catastrophic events;
|
|
·
|
Acceptance of or changes in customer demand for the Hausmann-branded products; and
|
|
·
|
Developments and changes in laws and regulations, including increased regulations.
|
Until such time as Dynatronics discloses to the general public the information contained herein, these documents, any accompanying financial information, and any related annexes/exhibits, contain confidential and proprietary information and have been prepared solely for the benefit of potential investors in the Company's securities. Any reproduction or distribution of the information contained herein, in whole or in part, or the divulgence of any of its contents, without the prior written consent of Dynatronics, is prohibited. Unless otherwise agreed with the Company, the existence and nature of all conversations regarding the matters set forth herein must be kept strictly confidential.
By accepting delivery of these documents, you agree that the Company may enforce the foregoing confidentiality obligation against you or anyone to whom you give this document by court action for an injunction or damages. In addition, you agree to return the documents to the Company upon request if you elect not to invest in securities of the Company.
Estimates, forecasts or other forward looking statements contained in this Supplemental Disclosure have been prepared by the management of the Company and/or Hausmann in good faith on a basis they believe is reasonable. Such estimates, forecasts and other forward-looking statements, however, involve significant elements of subjective judgment and analysis and no representation can be made as to their attainability. No representation or warranty (express or implied) is made or is to be relied upon as a promise or representation as to the future performance of the Company or Hausmann. Any forward-looking statement made herein is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
TABLE OF CONTENTS
|
FORWARD-LOOKING STATEMENTS; CONFIDENTIALITY
|
|
|
|
|
|
INTRODUCTION
|
iii
|
|
|
|
|
ACQUISITION
|
1
|
|
|
|
|
General
|
1
|
|
|
|
|
The Proposed Acquisition
|
1
|
|
|
|
|
The Parties to the Asset Purchase Agreement
|
1
|
|
|
|
|
Dynatronics' Reasons for the Acquisition
|
2
|
|
|
|
|
Required Shareholder Vote of Dynatronics
|
2
|
|
|
|
|
Background of the Acquisition
|
3
|
|
|
|
|
Material Terms of the Asset Purchase Agreement
|
3
|
|
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|
HAUSMANN'S BUSINESS
|
3
|
|
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Company Description and Overview
|
6
|
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Business Overview and Objectives
|
6
|
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Employees
|
6
|
|
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Products
|
7
|
|
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|
RISK FACTORS
|
7
|
|
|
|
|
Risks Relating to the Acquisition
|
8
|
|
|
|
|
Risks Related to the Operation of the Hausmann Business Following the Acquisition
|
9
|
|
|
|
|
ADDITIONAL INFORMATION
|
12
|
|
|
|
|
Historical Financial Information
|
14
|
This Supplemental Disclosure is being delivered to provide certain additional information to the Purchasers regarding Hausmann, and the contemplated Acquisition. The full terms of the Acquisition are set forth in the Asset Purchase Agreement.
Capitalized terms used but not defined in this Supplemental Disclosure have the meaning assigned to such terms in the Securities Purchase Agreement.
The following is a brief summary of certain aspects of the contemplated Acquisition and certain terms of the Asset Purchase Agreement as negotiated to date, which may include immaterial variances to the final Asset Purchase Agreement. It should be read by Purchasers in conjunction with all information and documents disclosed or referenced in the Securities Purchase Agreement, including without limitation, the Transaction Documents, the SEC Reports, and all exhibits and appendices thereto. This summary is also qualified in its entirety by reference to the Asset Purchase Agreement which will be filed as an attachment to a Current Report on Form 8-K filed with the Securities and Exchange Commission promptly after the execution of the Asset Purchase Agreement.
Additionally, representations, warranties and covenants described in this section and contained in the Asset Purchase Agreement have been made only for the purpose of the Asset Purchase Agreement and, as such, are intended solely for the benefit of the Company and Hausmann. In many cases, these representations, warranties and covenants are subject to limitations agreed upon by the parties and are qualified by certain disclosures exchanged by the parties in connection with the execution of the Asset Purchase Agreement. Furthermore, the representations and warranties in the Asset Purchase Agreement are the result of a negotiated allocation of contractual risk among the parties and, taken in isolation, do not necessarily reflect facts about the Company or Hausmann, their respective subsidiaries and affiliates or any other party. Likewise, any references to materiality contained in the representations and warranties may not correspond to concepts of materiality applicable to investors or shareholders. Finally, information concerning the subject matter of the representations and warranties may have changed since the date of the Asset Purchase Agreement or may change in the future and these changes may not be fully reflected in the public disclosures made by the Company and/or Hausmann.
On or about the date of this Supplemental Disclosure, Dynatronics has entered into or will enter, the Asset Purchase Agreement which sets forth the terms on which Dynatronics will acquire substantially all of the assets of Hausmann. Upon the Closing (as defined below), we will operate the business acquired from Hausmann as a wholly-owned subsidiary or specific division of the Company. The business conducted by Hausmann prior to the Closing will continue to be conducted by the Company at the facility presently used by Hausmann, which will be leased to the Company. As part of the Acquisition transaction, we will assume certain liabilities of Hausmann related to its ongoing business (primarily trade accounts and similar obligations in the ordinary course). In addition, we will offer to employ the employees of Hausmann as Dynatronics employees effective as of the Closing. David Hausmann, the Chief Executive Officer and founder of Hausmann, will enter into an employment agreement with Dynatronics to manage the Hausmann Industries division of the Company following the Closing. Mr. Hausmann will also be investing his personal funds under the terms of the Securities Purchase Agreement.
The parties expect the Acquisition to be consummated on or about April 1, 2017 (the "
Closing
"). The Closing is conditioned upon, among other things, the consummation of the transactions set forth in the Securities Purchase Agreement (the "
Unit Offering
") and the closing of an asset‑based lending credit facility between the Company and Bank of the West (the "
Loan Agreement
"). The proceeds from the Unit Offering and the Loan Agreement will be used to finance the Acquisition and to pay related transaction expenses.
The Parties to the Asset Purchase Agreement
Dynatronics Corporation
.
Dynatronics was incorporated in Utah on April 29, 1983. Dynatronics manufactures, markets and distributes advanced-technology medical devices, orthopedic soft goods and supplies, treatment tables and rehabilitation equipment for the physical therapy, sports medicine, chiropractic, podiatry, and other related medical markets. The executive offices of Dynatronics are located at 7030 Park Center Dr., Cottonwood Heights, Utah 84121, and its telephone number is (801) 568-7000.
Hausmann Industries, Inc.
Hausmann is a privately owned New Jersey corporation founded in 1955. Hausmann designs and manufactures medical, therapy, and athletic training equipment to customers in the United States and internationally. Hausmann operates a 65,000 square-foot manufacturing and headquarters facility located at 130 Union Street, Northvale, New Jersey.
Dynatronics' Reasons for the Acquisition
The Dynatronics board of directors (the "
Board
") believes that the acquisition of Hausmann pursuant to the Asset Purchase Agreement is in the best interests of both Dynatronics and the Dynatronics shareholders. The Board has unanimously approved the Asset Purchase Agreement and the transactions contemplated thereby.
In evaluating all material, relevant factors, the Board determined that the Acquisition presents an important strategic growth opportunity for Dynatronics. In particular, the Board believes that the Acquisition presents an opportunity to acquire an operation with complementary products and sales channels to those of Dynatronics, and to gain access to certain large national accounts and buying groups. Additionally, the Board believes that the combined (post‑acquisition) company will have positive cash flow and increased revenues. Further, the Board sees the Acquisition as an opportunity to increase the Company's portion of self‑manufactured products and provide the ability to cross‑sell to customers and attract new employees and dealers. Finally, the Board sees Hausmann's conservative culture with proven results as a strong fit with Dynatronics.
Required Shareholder Vote of Dynatronics
Dynatronics
.
The Asset Purchase Agreement and the transactions contemplated thereby have been unanimously approved by the Board. Under Utah law, the approval of the Asset Purchase Agreement by the shareholders of Dynatronics is not required.
Background of the Acquisition
Discussions between Dynatronics and Hausmann commenced in May, 2016. On August 9, 2016, the Company and Hausmann executed a non-binding letter of intent for the purchase by the Company of substantially all of the assets and certain of the liabilities of Hausmann. The non-binding offer was conditioned upon, among other conditions, the completion of financial, legal and technical due diligence. On March 6, 2017, the Board met and discussed fully the potential Acquisition. At that meeting, Dynatronics' executive officers were authorized and instructed to pursue activities related to the Acquisition.
Material Terms of the Asset Purchase Agreement
Consideration
. As consideration for the Acquisition we will pay cash in the amount of $10 million (the "
Purchase Price
"). The Purchase Price is subject to adjustment under circumstances described in the Asset Purchase Agreement, provided that the total cash consideration will in no event exceed $10 million.
Conditions to Closing of the Acquisition
.
The closing of the Acquisition and the obligations of the parties to the Asset Purchase Agreement are conditioned upon the satisfaction, deferral or, if permitted, waiver of certain conditions by the Closing Date. Either party may terminate the transaction if the Closing has not occurred on or before September 30, 2017. In addition to the financing described above, the conditions to closing include, but are not limited to:
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approval of Hausmann's shareholders;
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receipt of certain third-party consents;
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there being no Material Adverse Effect (as defined in the Asset Purchase Agreement) from the date of the Asset Purchase Agreement through the date of Closing;
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receipt of audited financial statements for Hausmann for the fiscal years ended December 31, 2015 and December 31, 2016, and for interim periods as determined by the Company; and
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closing of the Unit Offering pursuant to the Securities Purchase Agreement and the credit facility under the Loan Agreement.
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The foregoing list of conditions is not an exhaustive list of all of the conditions contained in the Asset Purchase Agreement. For a complete list of each condition to the Acquisition, you should refer to the Asset Purchase Agreement.
Representations and Warranties
. The Asset Purchase Agreement contains limited representations and warranties of each of the Company and Hausmann which relate to, among other things, the authorization to enter into and carry out the obligations in the Asset Purchase Agreement and the enforceability of the Asset Purchase Agreement.
The Asset Purchase Agreement contains additional representations and warranties of Hausmann which relate to, among other things, the following subject matters:
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Hausmann's organization and qualifications to do business;
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Power and authorization to enter into the Asset Purchase Agreement and to consummate the transaction;
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The absence of conflicts or violations of Hausmann's governing documents, contracts, applicable law or regulations;
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The accuracy of financial statements and their preparation in accordance with Hausmann's historical accounting methodologies;
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Compliance with laws and statutes;
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Good and transferable title to the assets, free of encumbrances;
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The absence of legal proceedings and claims;
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The condition of the assets to be acquired;
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Customers and suppliers;
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The absence of certain changes or events; and
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For purposes of the Asset Purchase Agreement, the term "Material Adverse Effect" means "any event, change, occurrence, development or effect that is (a) individually or in the aggregate, materially adverse to the business, properties, results of operations, financial condition, products, assets, services or prospects of" Hausmann or "(b) that constitutes or would result in a material adverse effect on the ability of" Hausmann or any affiliate of Hausmann to consummate the Acquisition or any of the related transactions contemplated by the Asset Purchase Agreement or any transaction agreement to which Hausmann or its affiliate is a party.
All of the representations and warranties survive the Closing and remain in full force and effect following the Closing until September 30, 2018 (other than with respect to the certain fundamental representations, which shall survive the Closing and remain in full force and effect until 60 days after the expiration of the applicable statute of limitations).
Certain Covenants of the Parties
Affirmative Covenants
During the period between the signing of the Asset Purchase Agreement and the Closing, Hausmann has agreed to:
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afford the Company and its representatives full and free access to its employees, the assets, its books and records and contracts;
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furnish the Company and its representatives with copies of such materials and also with additional information to aid the Company in its due diligence;
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conduct its operations in the ordinary course of business, except as specifically disclosed prior to signing or as approved by the Company;
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maintain relations with customers and suppliers;
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correct and maintain quality control issues;
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confer with Dynatronics on implementing material operational decisions;
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comply with all laws and obligations under contracts;
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make all filings required to be made by it and cooperate with us with respect to filings we may elect or be required to make in connection with the Acquisition;
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obtain all necessary consents; and
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deliver to the Company copies of the monthly financial summary statements prepared for Hausmann's management.
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Negative Covenants
Hausmann has agreed not to, among other things:
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without the prior written consent of Dynatronics, take any affirmative action, or fail to take any reasonable action within its control, as a result of which certain changes or events enumerated in the Asset Purchase Agreement would be likely to occur; or
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directly or indirectly solicit, initiate, encourage or entertain any inquiries or proposals from, discuss or negotiate with, provide any nonpublic information to or consider the merits of any inquiries or proposals from any person other than the Company relating to a competing transaction involving the sale of Hausmann.
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Hausmann has agreed that within 24 hours after receipt of a competing proposal which Hausmann deems to be realistic, it will notify the Company of the details of such proposal.
Termination of the Asset Purchase Agreement
The Asset Purchase Agreement will terminate with immediate effect upon the occurrence of any of the following:
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written consent of both the Company and Hausmann;
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by the Company in the event of a material breach by Hausmann of any covenant to be performed by Hausmann which has not been waived by us or if any of the conditions to the obligations of the Company under the Asset Purchase Agreement have not been satisfied as of September 30, 2017 and has not been waived by us, or satisfaction of such a condition has become impossible (other than through a breach of a covenant contained in the Asset Purchase Agreement by the Company) and we have not waived such condition;
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by Hausmann if there is a material breach by the Company of any covenant to be performed by the Company which has not been waived by us or if any of the conditions to the obligations of Hausmann under the Asset Purchase Agreement have not been satisfied as of September 30, 2017 and has not been waived by Hausmann, or satisfaction of such a condition has become impossible (other than through a breach of a covenant contained in the Asset Purchase Agreement by Hausmann) and Hausmann has not waived such condition; or
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by Hausmann if the Company is unable to obtain financing for the transaction by October 15, 2017.
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Termination Fees
The Asset Purchase Agreement provides that we must pay Hausmann a termination fee of $150,000 if the Asset Purchase Agreement is terminated by the Company or Hausmann due to the Company's failure to obtain financing for the consummation of the transaction.
Governing Law
The Asset Purchase Agreement is governed by the laws of the state of Delaware, without giving effect to any conflict of law principles which would result in the application of the laws of any other jurisdiction.
Company Description and Overview
Hausmann is a family-owned New Jersey corporation founded in 1955. Hausmann designs and manufactures medical, therapy, and athletic training equipment to customers in the United States and internationally. Hausmann designs, manufactures and sells medical tables and equipment, including those items described under "Products," below. Over 90% of Hausmann's products are made in Hausmann's 65,000 square-foot manufacturing facility located at 130 Union Street, Northvale, New Jersey.
Business Overview and Objectives
Hausmann has been family owned and operated for over 60 years and is committed to maintaining its reputation and position of leadership in the industry through ongoing improvement and advancement. Hausmann's mission includes making the finest quality products and delivering the best possible customer service.
Hausmann has a predominantly catalogue-driven business, selling products through its vast dealer network. Additionally, Hausmann is a GSA (General Services Administration) certified company, allowing it to sell its products on the federal government's premier online shopping superstore, GSA Advantage!®
Gross sales for the years ended December 31, 2015 and December 31, 2016 were $15.5 million and $14.8 million, respectively. Net income for the years ended December 31, 2015 and December 31, 2016 were approximately $1.2 million and $950,000, respectively.
Hausmann currently has 86 employees. Hausmann believes that the skills and dedication of its employees separate its products from those of its competitors.
One key employee is David Hausmann, Chief Executive Officer.
In connection with the Acquisition, Mr. Hausmann will enter into a written employment agreement (the "
Employment Agreement
") with Dynatronics. The Employment Agreement will become effective automatically upon Closing. Under the Employment Agreement, Mr. Hausmann will manage and operate the Hausmann Industries Division of Dynatronics, using the assets acquired from Hausmann. The key terms of the Employment Agreement include, but are not limited to, the following:
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Mr. Hausmann will be the president of the Hausmann Industries Division, paid an annual salary of $150,000;
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If Mr. Hausmann remains employed on December 31, 2017, then he shall be entitled to a one-time cash bonus in an amount between $25,000 to $35,000, with the exact amount to be determined by Kelvyn Cullimore Jr., as CEO and President of Dynatronics;
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The Employment Agreement may be terminated (i) by either party, for any reason other than cause, by giving 30 days' notice to the other party; or (ii) by the Company for cause;
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If the Company terminates the employment without cause prior to the one year anniversary date, Mr. Hausmann will be entitled to certain severance payments; and
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Mr. Hausmann will enter into confidentiality and non‑compete covenants with the Company.
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Approximately 80% of Hausmann's revenues are generated from self‑manufactured products, with the remaining 20% generated from third party distributed products.
Hausmann's products consist of green-line tables, H-brace and treatment tables, lounges and couches, mechanical/digital and pediatric tables, manual and power exam tables, echo-scan tables, power treatment tables, carts/lights and auxiliary equipment, stools/seating/blood chairs, and bariatric tables/chairs and footstools. Hausmann also offers therapy and rehabilitation equipment, including sectional and tilt tables, mat platforms/mats/pillows, weight racks and mirrors/pulleys, rehabilitation aids and testing products, work hardening and conditioning equipment, stand-in tables, work tables/OT cabinets, parallel bars, and stairs and balances. It also manufactures and sells cabinetry and storage products, furnishings and caseworks.
A full listing of Hausmann's products can be found in its online catalog located at:
http://www.hausmann.com/
.
Reference to Hausmann's website is not intended to incorporate by reference any of the material or information contained on such website in this Supplemental Disclosure.
PROTEAM
TM
Hausmann's PROTEAM
TM
product line features durable, maintenance‑free, laminate surfaces for years of heavy‑duty use. These products also feature rugged high‑density foam tops and optional nylon reinforced vinyl to ensure extra durability. The PROTEAM
TM
line includes modular taping stations, treatment and taping tables, cabinet tables, split leg tables, specialty treatment tables, power treatment and exam tables, mat platforms, weight racks, storage systems, stools, carts, cabinets and lockers.
Institutional Division
Hausmann's Institutional Division features custom‑built high pressure laminated wardrobes and casework.
Green‑Line
Hausmann's Green‑Line division features "eco‑friendly" products.
An investment in Dynatronics pursuant to the Securities Purchase Agreement involves a high degree of risk and should not be made by persons who cannot afford the loss of their entire investment. Each of the following factors should be carefully considered by Purchasers prior to making an investment decision. If any of these risks were to occur, Dynatronics' business, financial condition or results of operations would likely suffer. In that event, the value of Dynatronics' securities could decline, and you could lose all or part of your investment. Dynatronics' subsequent filings with the Commission may contain amended and updated discussions of significant risks. Dynatronics cannot predict future risks or estimate the extent to which they may affect financial performance. Please also read carefully the section above entitled "Forward-Looking Statements."
Certain risk factors relating to the business and industry of Dynatronics and its securities can be found in Part I, Item 1A —"Risk Factors" in Dynatronics Annual Report on Form 10-K for the fiscal year ended June 30, 2016. In addition, prospective Purchasers should carefully consider additional risks that relate to the Acquisition and the business of Hausmann, including but not limited to, the risks set forth below.
Risks Relating to the Acquisition
Failure to complete, or delays in completing the proposed Acquisition, could materially and adversely affect our results of operations and our stock price.
Consummation of the Acquisition is subject to many contingencies. We cannot assure you that we will be able to successfully consummate the Acquisition as currently contemplated, or at all. Risks related to the failure of the Acquisition to be consummated include, but are not limited to, the following:
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we would not realize any of the potential benefits of the transaction, including any synergies that could result from combining our financial and proprietary resources with the assets of Hausmann, which could have a negative effect on our stock price;
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we may remain liable for significant costs, including legal, accounting and other costs relating to the transaction, regardless of whether the transaction is consummated;
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the trading price of our Common Stock may decline if the current market price for our stock reflects a market assumption that the Acquisition will be completed; and
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the attention of our management may have been diverted to the Acquisition rather than to our own operations and the pursuit of other opportunities that could have been beneficial to us.
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The occurrence of any of these events individually or in combination could materially and adversely affect our results of operations and our stock price.
Uncertainty about the proposed Acquisition may adversely affect relationships with our customers, suppliers and employees, whether or not the transaction is completed.
In response to the announcement of the proposed Acquisition, Dynatronics' and/or Hausmann's existing or prospective customers or suppliers may:
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delay, defer or cease purchasing products or services from us or the combined company, or providing products or services to us or the combined company;
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delay or defer other decisions concerning us or the combined company; or
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otherwise seek to change the terms on which they do business with us or the combined company.
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Any such delays or changes to terms could materially harm our business or, if the Acquisition is completed, the combined business. In addition, as a result of the proposed Acquisition, our prospective employees (the current employees of Hausmann) could experience uncertainty about their future with us following the Closing. As a result, key employees may depart because of issues relating to such uncertainties, or a desire not to remain with us following the Acquisition. Losses of customers, employees or other important strategic relationships could have a material adverse effect on our business, operating results, and financial condition. Such adverse effects could also be exacerbated by a delay in the completion of the Acquisition for any reason.
We expect to incur substantial expenses related to the integration of Hausmann.
We expect to incur substantial expenses in connection with the integration of the business, policies, procedures, operations, technologies and systems of Hausmann. There are a large number of systems and functions that must be integrated, including, but not limited to, management information, accounting and finance, billing, payroll and benefits and regulatory compliance. Acquisitions of privately held entities, such as Hausmann, are particularly challenging because their prior practices may not meet the requirements of the Sarbanes-Oxley Act and/or generally accepted public accounting standards. While we have assumed that a certain level of expenses would be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of all of the expected integration expenses. Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses, the realization of economies of scale and cost savings, and other synergies related to the integration of the businesses following completion of the Acquisition.
We may be unable to successfully integrate our business with the business of Hausmann and realize the anticipated benefits of the Acquisition.
The Acquisition involves the combination of the businesses of two companies that currently operate as independent companies. Our management has limited integration experience and will be required to devote significant attention and resources to integrating our business practices and operations with those of Hausmann. Potential difficulties we may encounter as part of the integration process include, but are not limited to, the following:
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inability to successfully combine our business with the business of Hausmann in a manner that permits us to achieve the full synergies anticipated from the Acquisition;
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complexities associated with managing our business and the business of Hausmann following the Acquisition, including the challenge of integrating complex systems, technology, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;
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integrating the workforces of the two companies while maintaining focus on providing consistent, high quality customer service; and
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potential unknown liabilities and unforeseen increased expenses or delays associated with the Acquisition, including costs to integrate the two companies that may exceed anticipated costs.
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Any of the potential difficulties listed above could adversely affect our ability to maintain relationships with customers, suppliers, employees, lenders and other constituencies or our ability to achieve the anticipated benefits of the Acquisition or otherwise adversely affect our business and financial results following completion of the Acquisition.
Our actual financial and operating results after the Acquisition could differ materially from any expectations or guidance provided by us concerning future results, including (without limitation) expectations or guidance with respect to the financial impact of any cost savings and other potential synergies.
We currently expect to realize an increase in sales and other synergies as a result of the proposed Acquisition. These expectations are subject to numerous assumptions, however, including assumptions derived from our diligence efforts concerning the status of and prospects for Hausmann's business, which we do not currently control, and assumptions relating to the near-term prospects for our industry generally and the markets for Hausmann's products in particular. Additional assumptions that we have made, include, without limitation, the following:
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projections of Hausmann's future revenues;
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anticipated financial performance of Hausmann's products and products currently in development;
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anticipated cost savings and other synergies associated with the Acquisition, including potential revenue synergies;
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our expected capital structure after the Acquisition;
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amount of goodwill and intangibles that will result from the Acquisition;
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certain other purchase accounting adjustments that we expect to record in our financial statements in connection with the Acquisition;
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acquisition costs, including restructuring charges and transaction costs payable to our financial, legal and accounting advisors;
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our ability to maintain, develop and deepen relationships with Hausmann's customers; and
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other financial and strategic risks of the Acquisition.
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We cannot provide any assurances with respect to the accuracy of our assumptions, including our assumptions with respect to future revenues or revenue growth rates, if any, of Hausmann, and we cannot provide assurances with respect to our ability to realize any cost savings that we currently anticipate. Risks and uncertainties that could cause our actual results to differ materially from currently anticipated results include, but are not limited to, risks relating to our ability to integrate Hausmann successfully; currently unanticipated incremental costs that we may incur in connection with integrating the two companies; risks relating to our ability to realize incremental revenues from the Acquisition in the amounts that we currently anticipate; risks relating to the willingness of Hausmann's customers and other partners to continue to conduct business with us following the Acquisition; and numerous risks and uncertainties that affect our industry generally and the markets for our products and those of Hausmann, specifically. Any failure to integrate Hausmann successfully and to realize the financial benefits we currently anticipate from the Acquisition would have a material adverse impact on our future operating results and financial condition and could materially and adversely affect the trading price or trading volume of our Common Stock.
The combined businesses may not perform as we expect, or as the market expects, which could have an adverse effect on the price of our Common Stock.
Risks associated with the combined company following the Acquisition include:
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integrating businesses is a difficult, expensive, and time-consuming process, and the failure to integrate successfully our business with the businesses of Hausmann in the expected time frame would adversely affect our financial condition and results of operations;
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the Acquisition will significantly increase the size of our operations, and if we are not able to effectively manage our expanded operations, our stock price may be adversely affected;
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it is possible that key employees of Hausmann might decide not to remain with us after the Acquisition, and the loss of such personnel could have a material adverse effect on the financial condition, results of operations and growth prospects of the Company;
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the current sales rates of Hausmann as combined with the Company may dilute the observed growth rates of the Company;
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the success of the Company following the Closing will also depend upon relationships with third parties and pre-existing customers of us and Hausmann, which relationships may be affected by customer preferences or public attitudes about the Acquisition. Any adverse changes in these relationships could adversely affect our business, financial condition and results of operations; and
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the price of our Common Stock after the Acquisition may be affected by factors different from those currently affecting the price of our Common Stock.
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If any of these events were to occur, the price of our Common Stock could be adversely affected.
Risks Related to the Operation of the Hausmann Business Following the Acquisition
Uncertain or weakened global economic conditions may adversely affect Hausmann's industry, business and results of operations.
The overall performance of the Hausmann division will depend on domestic and worldwide economic conditions, which may remain challenging for the foreseeable future. Financial developments seemingly unrelated to Hausmann or its industry may adversely affect it. The U.S. economy and other key international economies have been impacted by threatened sovereign defaults and ratings downgrades, falling demand for a variety of goods and services, restricted credit, threats to major multinational companies, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, acts of terrorism and overall uncertainty. Healthcare reform in the United States has created a great deal of confusion and reduced capital expenditures for medical equipment and products such as those manufactured and distributed by Hausmann. These conditions affect the rate of medical or therapeutic equipment spending and could adversely affect our ability to sell Hausmann's products, or delay prospective purchasing decisions, any of which could adversely affect our operating results. We cannot predict the timing, strength or duration of the economic recovery or any subsequent economic slowdown worldwide, in the United States, or in Hausmann's industry.
Hausmann's failure or inability to enforce its trademarks or other proprietary rights could adversely affect its competitive position or the value of its brand.
Hausmann owns certain
federal trademark registrations but also relies on unregistered proprietary rights, including common law trademark protection. Third parties may oppose Hausmann's trademark applications, or otherwise challenge its use of the trademarks, and may be able to use its trademarks in jurisdictions where they are not registered or otherwise protected by law. If Hausmann's trademarks are successfully challenged or if a third party is using confusingly similar or identical trademarks in particular jurisdictions before Hausmann, Hausmann could be forced to rebrand its products, which could result in loss of brand recognition, and could require additional resources for marketing new brands. If others are able to use Haussmann's trademarks, its ability to distinguish its products may be impaired, which could adversely affect its business. Further, we cannot assure you that competitors will not infringe upon Hausmann's trademarks, or that we will have adequate resources to enforce its trademarks.
Hausmann may be unable to effectively develop and market products against the products of its competitors in a highly competitive industry.
The present or future products of Hausmann could be rendered obsolete or uneconomical by technological advances by its competitors. Competitive factors include price, customer service, technology, innovation, quality, reputation and reliability. Hausmann's competition may respond more quickly to new or emerging technologies, undertake more extensive marketing campaigns, have greater financial, marketing and other resources than Hausmann or be more successful in attracting potential customers, employees and strategic partners. Given these factors, we cannot guarantee that we will be able to continue the current level of success of Hausmann in the industry.
The cost of complying with complex governmental regulations applicable to the Hausmann business, sanctions resulting from non-compliance or reduced demand resulting from increased regulations could affect our operating results.
Hausmann's operations and facilities are subject to the requirements of the Occupational Safety and Health Act ("
OSHA
") and comparable state statutes that regulate the protection of the health and safety of workers, and the proper design, operation and maintenance of equipment. Additionally, certain products of Hausmann are subject to the requirements of the Food, Drug, and Cosmetic Act and the oversight of the Food and Drug Administration ("
FDA
").
Failure to comply with these requirements, including general industry standards, record keeping requirements and monitoring and control requirements, may result in significant fines or compliance costs, which could have a material adverse effect on our results of operations, financial condition and cash flows.
The Hausmann business and financial performance may be harmed by future labor disruptions.
Approximately 60% of Hausmann's employees are represented by unions under collective bargaining agreements. As these agreements expire, we may not be able to negotiate extensions or replacement agreements on terms acceptable to us.
Any failure to reach an agreement with one of the unions may result in strikes, lockouts, work slowdowns, stoppages or other labor actions, any of which could have a material adverse effect on our operations and financial results.
Historical Financial Information
This Supplemental Disclosure should be read in conjunction with the historical financial information prepared by the management of Hausmann as set forth below, consisting of Hausmann's unaudited Balance Sheets and Income Statements as of December 31, 2016 and December 31, 2015. (Note: audited Balance Sheets and Income Statements as of December 31, 2016 and December 31, 2015 will be provided to the Purchasers prior to the closing under the Securities Purchase Agreement).
UNAUDITED HISTORICAL FINANCIAL INFORMATION OF HAUSMANN
