Exhibit 10.1

 

ENCISION INC.

 

 

SECURITIES PURCHASE AGREEMENT

 

 

 

ENCISION INC.

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (the “ Agreement ”) is entered into as of the 17th day of December, 2013 (the “ Effective Date ”) by and among ENCISION INC. , a Colorado corporation (the “ Company ”), and the persons and entities named on the executed counterpart signature pages attached hereto (individually, a “ Purchaser ” and collectively, the “ Purchasers ”) and who are listed on EXHIBIT A hereto.

 

RECITALS

 

WHEREAS, the Company has authorized the sale and issuance of up to an aggregate of 3,125,000 shares of its Common Stock (the “ Shares ”) and warrants to purchase Common Stock of the Company, substantially in the form attached hereto as EXHIBIT B (the “ Warrants ”);

 

WHEREAS, the shares of Common Stock issuable upon exercise of the Warrants are sometimes referred to as the “ Warrant Shares ”, and the Shares, the Warrants and the Warrant Shares are sometimes collectively referred to as the “ Securities ”; and

 

WHEREAS, the Company desires to issue and sell the Securities to Purchasers on the terms and conditions set forth herein.

 

AGREEMENT

 

NOW, THEREFORE , in consideration of the foregoing, and the representations, warranties, covenants and conditions set forth below, the Company and each Purchaser, intending to be legally bound, hereby agree as follows:

 

1.                                       AGREEMENT TO SELL AND PURCHASE.

 

1.1                                Authorization of Shares and Warrants.   The Company has authorized the sale and issuance to Purchasers of the Shares and Warrants.  The Shares have the rights, preferences, privileges and restrictions set forth in the Company’s Articles of Incorporation, as amended to date (the “ Charter ”).

 

1.2                                Sale and Purchase.   Subject to the terms and conditions hereof, at the Closing (as defined below), the Company hereby agrees to issue and sell to each Purchaser, severally and not jointly, and each Purchaser agrees to purchase from the Company, severally and not jointly, the number of Shares set forth opposite such Purchaser’s name on the executed counterpart signature pages attached hereto, at a purchase price of $0.80 per share (the “ Purchase Price ”).  As additional consideration for Purchaser’s obligations under this Agreement, at each Closing the Company shall issue to Purchaser a Warrant exercisable for such number of Warrant Shares equal to fifty percent (50%) of the number of Shares that Purchaser purchases at such Closing.  The exercise price of the Warrants shall be $1.20 per Warrant Share, subject to the other terms of the Warrants.

 

 

2.                                       THE CLOSING

 

2.1                                Closing Date.   The closing of the sale and purchase of the Shares (the “ Closing ”) shall be held on the Effective Date (the “ Closing Date ”).

 

2.2                                Delivery.   At the Closing, subject to the terms and conditions hereof, the Company will deliver to each Purchaser a stock certificate representing the number of Shares to be purchased at such Closing by such Purchaser and a Warrant, against payment of the purchase price therefor by check or wire transfer made in accordance with the Company’s instructions.

 

3.                                       REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

 

The Company hereby represents and warrants to, and covenants with, each Purchaser as follows:

 

3.1                                Organization, Good Standing and Qualification .  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado.  The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, to issue and sell the Securities, to carry out the provisions of this Agreement, and to carry on its business as presently conducted and as presently proposed to be conducted.  The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business.

 

3.2                                Authorization.   All corporate action on the part of the Company, its directors and its stockholders necessary for the authorization, execution, delivery and performance of this Agreement, the Warrants, and the Registration Rights Agreement by and among the Company and the Purchasers, substantially in the form attached hereto as EXHIBIT C (the “ Registration Rights Agreement ”, and together with this Agreement and the Warrants, the “ Transaction Documents ”) by the Company and the performance of the Company’s obligations hereunder and thereunder, including the issuance and delivery of the Shares and Warrants, has been taken or will be taken prior to the issuance of the Shares and Warrants.  The Transaction Documents, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency, the relief of debtors and, with respect to rights to indemnity, subject to federal and state securities laws.

 

3.3                                Capitalization.

 

(a) The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock.  As of November 30, 2013:

 

(i) (1) 8,210,100 shares of Common Stock were issued and outstanding, all of which were validly issued, fully paid, nonassessable and free of preemptive rights and (2) no shares of Common Stock were held in the treasury of the Company;

 

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(ii) 431,750 shares of Common Stock were issuable upon exercise of outstanding employee stock options granted pursuant to the Company’s 2007 Stock Option Plan, as amended; and

 

(iii) no shares of Preferred Stock have been designated and no shares are issued and outstanding.

 

Except as set forth in this Section 3.3 or the SEC Reports (as defined below), there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which the Company is a party or by which the Company is bound relating to the issued or unissued capital stock or other equity interests of the Company, or securities convertible into or exchangeable for such capital stock or other equity interests, or obligating the Company to issue or sell any shares of its capital stock or other equity interests, or securities convertible into or exchangeable for such capital stock of, or other equity interests in, the Company.

 

(b) The Shares, when issued, paid for and delivered in accordance with the terms of this Agreement, will be duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. The Warrant Shares have been duly reserved for issuance, and upon issuance in accordance with the terms of the Warrants, will be duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights.

 

3.4                                Governmental Consents .  Assuming the accuracy of the representations made by the Purchasers in Section 4 of this Agreement, all consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations, or filings with, any governmental authority, required on the part of the Company in connection with the valid execution and delivery of this Agreement, the offer, sale or issuance of the Shares and Warrants or the consummation of any other transaction contemplated hereby shall have been obtained and will be effective at the Closing, filings pursuant to Regulation D of the Securities Act of 1933, as amended (the “ Act ”), and applicable state securities laws, which have been made or will be made in a timely manner.

 

3.5                                Compliance with Laws .  To its knowledge, the Company is not in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties, which violation of which would materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company.

 

3.6                                Compliance with Other Instruments .  The Company is not in violation or default of any term of the Charter or its bylaws, or of any provision of any mortgage, indenture or contract to which it is a party and by which it is bound or of any judgment, decree, order or writ, other than such violation(s) that would not have a material adverse effect on the Company.  The execution, delivery and performance of the Transaction Documents, and the consummation of the transactions contemplated hereby or thereby will not result in any such violation or be in conflict with, or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, decree, order or writ or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license,

 

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authorization or approval applicable to the Company, its business or operations or any of its assets or properties.

 

3.7                                Offering.   Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 4 hereof, the offer, issue, and sale of the Securities are and will be exempt from the registration and prospectus delivery requirements of the Act, and have been registered or qualified (or are exempt from registration and qualification) under the registration, permit, or qualification requirements of all applicable state securities laws.

 

3.8                                SEC Filings; Financial Statements.

 

(a)  The Company has timely filed all forms, reports and documents (including all exhibits) required to be filed by it with the SEC since March 31, 2013 (the “ SEC Reports ”). The SEC Reports (i) were prepared in accordance with the requirements of the Act and the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules and regulations promulgated thereunder and (ii) did not at the time they were filed 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 made therein, in the light of the circumstances under which they were made, not misleading.

 

(b)  Each of the financial statements (including, in each case, any notes thereto) contained in the SEC Reports was prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto) and the Company’s books and records, and each fairly presented the financial position, results of operations and cash flows of the Company as at the respective dates thereof and for the respective periods indicated therein except as otherwise noted therein (subject, in the case of unaudited statements, to normal year-end adjustments which individually or in the aggregate did not have, and would not reasonably be expected to have, a material adverse effect on the business, operations, assets, liabilities, financial condition or results of operations of the Company).  The books and records of the Company have been, and are being, maintained in accordance with applicable legal and accounting requirements in all material respects.

 

(c)  Except as and to the extent set forth on the balance sheet of the Company as of September 30, 2013 included in the Company Form 10-Q for the quarterly period ended September 30, 2013, including the notes thereto, the Company has no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise), except for liabilities or obligations incurred since September 30, 2013 that would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, operations, assets, liabilities, financial condition or results of operations of the Company.

 

(d)  Except as expressly contemplated by this Agreement or as set forth in the SEC Reports, since September 30, 2013 through the date hereof, the Company has conducted its business in the ordinary course consistent with past practice and, since such date through the date hereof, there has not occurred any event or development that would, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, operations, assets, liabilities, financial condition or results of operations of the Company.

 

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4.                                       REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

 

Each Purchaser hereby represents and warrants to the Company, severally and not jointly, as follows (provided that such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement):

 

4.1                                Purchase for Own Account .  Purchaser represents that it is acquiring the Securities solely for its own account and beneficial interest for investment and not for sale or with a view to distribution of the Securities or any part thereof, has no present intention of selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention.

 

4.2                                Information and Sophistication .  Purchaser hereby: (i) acknowledges that it has received all the information it has requested from the Company and it considers necessary or appropriate for deciding whether to acquire the Securities, (ii) represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities and to obtain any additional information necessary to verify the accuracy of the information given the Purchaser and (iii) further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of this investment.

 

4.3                                Ability to Bear Economic Risk .  Purchaser acknowledges that investment in the Securities involves a high degree of risk, and represents that it is able, without materially impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

 

4.4                                Rule 144 .  Purchaser acknowledges and agrees that the Securities are “restricted securities” as defined in Rule 144 promulgated under the Act as in effect from time to time and must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available.  Purchaser has been advised or is aware of the provisions of Rule 144, which permits limited resale of Securities purchased in a private placement subject to the satisfaction of certain conditions.  Except as set forth in the Registration Rights Agreement, Purchaser acknowledges that the Company has no obligation to register or qualify the Securities for resale.

 

4.5                                Legends .  Purchaser acknowledges and agrees that the Securities may bear one or all of the following legends:

 

(a)                                  “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 AS AMENDED.”

 

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(b)                                  Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended.

 

4.6                                Accredited Investor Status.   Purchaser is an “accredited investor” as such term is defined in Rule 501 under the Act.

 

4.7                                Residence.   If Purchaser is an individual, then Purchaser resides in the state or province identified in the address of Purchaser set forth on the executed counterpart signature page attached hereto.  If Purchaser is a partnership, corporation, limited partnership, limited liability company or other entity, then the office or offices of Purchaser in which its investment decision was made is located at the address or addresses of Purchaser set forth on the executed counterpart signature page attached hereto.

 

4.8                                Further Assurances.   Each Purchaser agrees and covenants that at any time and from time to time it will promptly execute and deliver to the Company such further instruments and documents and take such further action as the Company may reasonably require in order to carry out the full intent and purpose of this Agreement and to comply with state or federal securities laws or other regulatory approvals.

 

5.                                       CONDITIONS TO CLOSING

 

5.1                                Conditions to Purchasers’ Obligations at the Closing.   Purchasers’ obligations to purchase the Shares and Warrants at the Closing are subject to the satisfaction, at or prior to the Closing Date, of the following conditions:

 

(a)                                  Representations and Warranties True; Performance of Obligations.   The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing with the same force and effect as if they had been made as of the Closing, and the Company shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to the Closing.

 

(b)                                  Consents, Permits, and Waivers.   The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement, except for such as may be properly obtained subsequent to the Closing.

 

(c)                                   Registration Rights Agreement .  The Company shall have executed and delivered the Registration Rights Agreement.

 

(d)                                  Closing Amount .  The Company shall have sold at least 1,875,000 Shares at the Closing.

 

(e)                                   Proceedings and Documents .  All corporate and other proceedings in connection with the transactions contemplated at the Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to Purchasers, and Purchasers shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request.

 

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5.2                                Conditions to Obligations of the Company.   The Company’s obligation to issue and sell the Shares and Warrants at the Closing is subject to the satisfaction, on or prior to the Closing Date, of the following conditions:

 

(a)                                  Representations and Warranties True .  The representations and warranties in Section 4 made by those Purchasers acquiring Shares hereof shall be true and correct in all material respects at the date of the Closing, with the same force and effect as if they had been made on and as of said date.

 

(b)                                  Closing Amount .  The Company shall have sold at least 1,875,000 Shares at the Closing.

 

(c)                                   Consents, Permits, and Waivers .  The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement, except for such as may be properly obtained subsequent to the Closing.

 

6.                                       MISCELLANEOUS

 

6.1                                Binding Agreement .  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.  Nothing in this Agreement, expressed or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

6.2                                Governing Law.   This Agreement shall be governed by and construed under the laws of the State of Colorado as applied to agreements among Colorado residents, made and to be performed entirely within the State of Colorado, without giving effect to conflicts of laws principles.

 

6.3                                Counterparts.   This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

6.4                                Titles and Subtitles .  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

6.5                                Notices .  All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex, electronic mail or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent to the Company at 6797 Winchester Circle, Boulder, CO 80301, and to the Purchasers at the address(es) set forth on the executed counterpart signature pages attached hereto or at such other address(es) as the Company or a Purchaser may designate by ten (10) days advance written notice to the other parties hereto.

 

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6.6                                Modification; Waiver .  No modification or waiver of any provision of this Agreement or consent to departure therefrom shall be effective unless in writing and approved by the Company and the holders of at least a majority of the then outstanding Shares issued pursuant to this Agreement.  Any such amendment or modification shall be binding on all parties hereto.

 

6.7                                Expenses.   The Company and each Purchaser shall each bear its respective expenses and legal fees incurred with respect to this Agreement and the transactions contemplated herein .

 

6.8                                Delays or Omissions.   It is agreed that no delay or omission to exercise any right, power or remedy accruing to each Purchaser, upon any breach or default of the Company under this Agreement shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.  It is further agreed that any waiver, permit, consent or approval of any kind or character by Purchaser of any breach or default under this Agreement, or any waiver by any Purchaser of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Purchaser, shall be cumulative and not alternative.

 

6.9                                Entire Agreement.   This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein.

 

[The remainder of this page is intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties have executed this SECURITIES PURCHASE AGREEMENT as of the date first written above.

 

 

ENCISION INC.
By:	/s/ Patrick Pace, MD
Name: Patrick Pace, MD
Title: Executive Chairman

 

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ENCISION INC.

 

COUNTERPART SIGNATURE PAGE TO

SECURITIES PURCHASE AGREEMENT

 

The undersigned hereby acknowledges receipt of a copy of the Securities Purchase Agreement dated December 17, 2013 (the “ Purchase Agreement ”), by and among ENCISION INC. , a Colorado corporation, and the persons and entities named on the executed counterpart signature pages attached thereto.  Pursuant to the Purchase Agreement, the undersigned is hereby purchasing the number of Shares set forth below and agrees to be bound by the provisions of the Purchase Agreement as a “Purchaser” with the same rights and obligations as a “Purchaser” thereunder.

 

Purchaser’s Aggregate Purchase Price:	$
Number of Shares Purchased:
Warrant Shares:

 

Dafna Lifescience Select LTD
By:	/s/ Nathan Fischel
Title: CEO
Dafna Lifescience LTD
By:	/s/ Nathan Fischel
Title: CEO
Dafna Lifescience Market Neutral LTD
By:	/s/ Nathan Fischel
Title: CEO

 

COUNTERPART SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT

 

 

CMED Partners LLLP
By:	/s/ Vern D. Kornelsen
Title: General Partner
/s/ Charles E. Sheedy
TOM JUDA AND NANCY JUDA LIVING TRUST
By:	/s/ Tom Juda
Title: Trustee
/s/ Raul P. Esquivel
Paul J. McCormick Charles Schwab & Co Inc. Cust IRA Rollover
By:	/s/ Paul McCormick
Title: Owner
/s/ Alan Budd Zuckerman
/s/ Jordan Barrow
/s/ Nicholas Sarchese
/s/ Kathleen Bette Newton
/s/ Gregory J. Trudel
/s/ John Halt
/s/ Thomas Whitley

 

COUNTERPART SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT

 

 

Purchaser		Shares		Warrant Shares		Purchase Price
Kathleen Bette Newton 8099 N. 63 rd  Street Longmont, CO 80503		12,500		6,250		10,000
Gregory J. Trudel 3327 Alexander Way Broomfield, CO 80023		5,625		2,813		4,500
John Halt 11840 Homewood Road Ellicott City, MD 21042		3,750		1,875		3,000
Thomas Whitley 9 Allaire Ave. Middletown, NJ 07748		3,750		1,875		3,000
Total:		2,463,125		1,231,563		$	1,970,500

 

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EXHIBIT B

 

FORM OF WARRANT

 

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THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

ENCISION, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.:
Date of Issuance: December 17, 2013 (“ Issuance Date ”)

 

Encision, Inc., a Colorado corporation, located at 6797 Winchester Circle, Boulder, CO 80301 (the “ Company ”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [NAME OF PURCHASER], the registered holder hereof or its permitted assigns (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “ Warrant ”), at any time or times on or after the Issuance Date but not after 11:59 p.m., ET, on the Expiration Date (as defined below), [            ](1) (subject to adjustment as provided herein) fully paid and non-assessable shares of Common Stock (as defined below) (the “ Warrant Shares ”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 13. This Warrant is one of several similar warrants issued pursuant to that certain Securities Purchase Agreement, dated as of December 17, 2013, by and among the Company, the Holder and the other purchasers named therein (the “ Securities Purchase Agreement ”).

 

1.                                       EXERCISE OF WARRANT.

 

(a)                                  Mechanics of Exercise.   Subject to the other terms of this Warrant, Holder may elect to exercise this Warrant for the Warrant Shares for the Exercise Price during the Exercise Period.  The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder):

 

(i)                                      An executed Exercise Notice in the form attached hereto as EXHIBIT A (the “ Exercise Notice ”); and

 

(ii)                                   Payment of the Exercise Price in cash or by check, or in certain circumstances, pursuant to the terms of Section 1(b) below

 

The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to

 

(1)  50% warrant coverage.

 

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purchase the remaining number of Warrant Shares.  Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder, shall be issued and delivered to the Holder after the rights represented by this Warrant shall have been so exercised.  The Company shall issue such shares to Holder within three trading days after receiving a properly delivered Exercise Notice.  In the event that this Warrant is being exercised for less than all of the then-current number of Exercise Shares purchasable hereunder, the Company shall, concurrently with the issuance by the Company of the number of Exercise Shares for which this Warrant is then being exercised, issue a new Warrant exercisable for the remaining number of Exercise Shares purchasable hereunder.

 

The Holder shall be deemed to become the holder of record of the Exercise Shares on the date on which this Warrant is surrendered or an Exercise Notice is delivered and payment of the Exercise Price is made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, Holder shall be deemed to become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.

 

(b)                                  Net Exercise.   Beginning six (6) months after the Issuance Date, if at any time the Company is unable to maintain the continuous effectiveness of the Registration Statement applicable to the Warrant Shares pursuant to the terms of the Registration Rights Agreement (other than pursuant to the permitted exceptions contained in the Registration Rights Agreement), and only for the duration of such unavailability, Holder shall have the following right to exercise this Warrant on a “net exercise” basis.  Subject to the foregoing, in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election (a “ Net Exercise ”).  A Holder who Net Exercises shall have the rights described in Section 1(a) hereof, and the Company shall issue to such Holder a number of Exercise Shares computed using the following formula:

 

 

Where

 

X =                              The number of Exercise Shares to be issued to the Holder.

 

Y =                              The number of Exercise Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation).

 

A =                              The fair market value of one (1) Exercise Share (at the date of such calculation).

 

B =                              The Exercise Price (as adjusted to the date of such calculation).

 

For purposes of this Section 1(b), the fair market value of an Exercise Share shall mean the average of the closing prices of the Exercise Shares (or equivalent shares of common stock

 

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issuable upon conversion of the Exercise Shares) quoted in the over-the-counter market in which the Exercise Shares (or equivalent shares of common stock issuable upon conversion of the Exercise Shares) are traded or the closing price quoted on any exchange or electronic securities market on which the Exercise Shares (or equivalent shares of common stock issuable upon conversion of the Exercise Shares) are listed, whichever is applicable, as published in The Wall Street Journal for the five (5) trading days prior to the date of determination of fair market value (or such shorter period of time during which such Exercise Shares were traded over-the-counter or on such exchange).

 

(c)                                   Exercise Price.   For purposes of this Warrant, “ Exercise Price ” means $1.20 per Warrant Share, subject to adjustment as provided herein.

 

(d)                                  Limitations on Exercise.  Notwithstanding anything to the contrary contained herein, the number of Warrant Shares that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to ensure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by the Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice by the Holder will constitute a representation by the Holder that it has evaluated the limitation set forth in this Section and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this Section.  The Company’s obligation to issue shares of Common Stock in excess of the limitation referred to in this Section shall be suspended (and, except as provided below, shall not terminate or expire notwithstanding any contrary provisions hereof) until such time, if any, as such shares of Common Stock may be issued in compliance with such limitation; provided, that, if, as of 5:30 p.m. ET on the Expiration Date, the Company has not received written notice that the shares of Common Stock may be issued in compliance with such limitation, the Company’s obligation to issue such shares shall terminate.  This provision shall not restrict the number of shares of Common Stock which a Holder may receive or beneficially own in order to determine the amount of securities or other consideration that such Holder may receive in accordance with Section 2 of this Warrant.  By written notice to the Company, the Holder may waive the provisions of this Section.  Any such waiver will not affect any other Holder.

 

2.                                       ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES .   The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.

 

(a)                                  Stock Dividends and Splits.   If the Company, at any time on or after the date of the Issuance Date, (i) pays a stock dividend on one or more classes of its then outstanding shares of Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more

 

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classes of its then outstanding shares of Common Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes of its then outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be proportionately adjusted. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

(b)                                  Number of Warrant Shares.   Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) of this Section 2, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein).

 

(c)                                   Dilutive Issuances.

 

(i)                                      If and whenever the Company sells or issues, or is deemed to have issued pursuant to Section 2(c)(ii), Additional Shares of Common Stock in a Material Financing after the Issuance Date for consideration per share less than the Exercise Price in effect immediately prior to the time of such issue or sale, then and in each such case (a “ Trigger Issuance ”) the then-existing Exercise Price shall be reduced to the consideration per share received by the Company in such Trigger Issuance.  In no event, however, will the Exercise Price be adjusted pursuant to this Section 2(c) to less than $0.40 (as such amount may be ratably adjusted pursuant to any stock split, reverse stock split or similar transaction, the “ Floor Price ”).

 

(ii)                                   If the Company at any time or from time to time after the Issuance Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.  Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Exercise Price pursuant to the terms of Section 2(c)(i), the Exercise Price shall be readjusted to such Exercise as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.

 

(d)                                  Certain Definitions.   For the purposes of this Section 2, the following defined terms have the following meanings:

 

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(i)                                      “ Additional Shares of Common Stock ” means all shares of Common Stock issued (or, pursuant to Section 2(c)(ii) above, deemed to be issued by the Company) after the Issuance Date in a Qualifying Financing, other than the following “ Exempted Securities ”:

 

(1)                                  shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Section 2(a) or 2(b) ;

 

(2)                                  shares of Common Stock, Options or Convertible Securities issued in an equity financing transaction that does not constitute a Material Financing;

 

(3)                                  shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Company or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Company;

 

(4)                                  shares of Common Stock or Convertible Securities issued upon the exercise of Options outstanding immediately prior to the Issuance Date or shares of Common Stock issued upon the conversion or exchange of Convertible Securities outstanding immediately prior to the Issuance Date, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security; or

 

(5)                                  shares of Common Stock, Options or Convertible Securities issued to equipment lessors or to real property lessors, pursuant to an equipment leasing or real property leasing transaction approved by the Board of Directors of the Company.

 

(ii)                                   “ Convertible Securities ” means any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

 

(iii)                                “ Material Financing ” means a bona fide equity financing resulting in gross cash proceeds to the Company of $300,000.00 or more.

 

(iv)                               “ Option ” means rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

 

3.                                       CHANGE OF CONTROL TRANSACTIONS .

 

(a)                                  Change of Control Offer .  Within 30 days following the public disclosure by the Company of any transaction that would consitute a Change of Control, the Company will provide notice to Holder, which notice will:

 

(i)                                      describe the circumstances and relevant facts regarding the transaction that would consitute a Change of Control; and

 

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(ii)                                   offer to repurchase this Warrant effective as of the closing date (and conditioned upon the closing) of such Change of Control (the “ Change of Control Payment Date ”), which offer will constitute the “ Change of Control Offer ”.

 

(b)                                  Change of Control Payment .  On the Change of Control Payment Date, the Company will be required, if so elected by Holder and to the extent lawful, to:

 

(i)                                      accept for payment the Warrant tendered pursuant to the Change of Control Offer; and

 

(ii)                                   pay to Holder, or to a paying agent for the benefit of Holder, the Change of Control Payment with respect to the Warrant properly tendered.

 

(c)                                   Certain Limitations .  To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Warrant, the Company will be required to comply with the applicable securities laws and regulations. The Company will not be deemed to have breached its obligations under this Warrant by virtue of such compliance.

 

(d)                                  Certain Definitions .  For the purposes of this Section 3, the following defined terms have the following meanings:

 

(i)                                      “ Change of Control ” means the occurrence of any of the following:

 

(1)                                  the consummation of any transaction (including any merger or consolidation) the result of which is that any person becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (1) such person shall be deemed to have “beneficial ownership” of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time) of shares representing more than 50% of the voting power of the then outstanding Voting Stock of the Company or other Voting Stock into which the Voting Stock of the Company is reclassified, consolidated, exchanged or changed;

 

(2)                                  the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries taken as a whole to any person other than the Company or one of its subsidiaries; or

 

(3)                                  the merger or consolidation of the Company with or into any person or the merger or consolidation of any person with or into the Company, in any such event pursuant to a transaction in which any of the outstanding shares of the Voting Stock of the Company or the Voting Stock of such other person is converted into or exchanged for cash, securities or other property, other than any such transaction in which the shares of Voting Stock of the

 

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Company outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, shares representing more than 50% of the voting power of the Voting Stock of the resulting or surviving person or any direct or indirect parent company of the resulting or surviving person immediately after giving effect to such transaction.

 

(ii)                                   “ Change of Control Payment ” means the value of the unexercised portion of this Warrant remaining on the closing date of the Change of Control, which value is calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (A) an underlying price per share equal to the greater of (1) the highest Closing Sale Price of the Common Stock during the period beginning on the trading day immediately preceding the public disclosure by the Company of a transaction that could constitute a Change of Control and ending on the trading day of the consummation of such Change of Control and (2) the sum of the price per share being offered in cash in the applicable Change of Control (if any) plus the value of the non-cash consideration being offered in the applicable Change of Control (if any), (B) a strike price equal to the Exercise Price in effect on the date of the Change of Control Offer, (C) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the greater of (1) the remaining term of this Warrant as of the date of the Change of Control Offer and (2) the remaining term of this Warrant as of the date of consummation of the applicable Change of Control, (D) a zero cost of borrow and (E) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the trading day immediately following the earliest to occur of (1) the public disclosure by the Company of the applicable Change of Control and (2) the consummation of the applicable Change of Control.

 

(iii)                                “ Closing Sale Price ” means closing price of the Common Stock quoted in the over-the-counter market in which the Common Stock is traded or the closing price quoted on any exchange or electronic securities market on which the Common Stock is listed as published in The Wall Street Journal .

 

(iv)                               “ Voting Stock ” means, with respect to any specified “person” (as that term is used in Section 13(d)(3) of the Exchange Act) as of any date, stock, partnership interests or any other participations, rights, warrants, options or other interests in the nature of an equity interest that ordinarily (without regard to the occurrence of any contingency) has voting power for the election of directors, managers or trustees of such person, whether at all times or only so long as no senior class of stock has that voting power by reason of any contingency.

 

4.                                       NONCIRCUMVENTION.   The Company hereby covenants and agrees that the Company will not, by amendment of its articles or certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, 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, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (a) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (b) shall take all such actions as may be necessary or appropriate in

 

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order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant (or such other securities, cash, assets or other property then deliverable on exercise of this Warrant), and (c) shall, so long as any of the Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the Warrants, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the Warrants then outstanding (without regard to any limitations on exercise).

 

5.                                       WARRANT HOLDER NOT DEEMED A STOCKHOLDER.   Except as otherwise specifically provided herein, the Holder, solely in its capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in its capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which it is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

 

6.                                       REISSUANCE OF WARRANTS.

 

(a)                                  Transfer of Warrant.   Subject to Section 12, if this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 6(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 6(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred. Prior to transferring this Warrant, the Holder shall inform the transferee of the total number of Warrant Shares then underlying this Warrant.

 

(b)                                  Lost, Stolen or Mutilated Warrant.   Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 6(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

(c)                                   Exchangeable for Multiple Warrants.   This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 6(d)) representing in the aggregate the right to purchase

 

13

 

the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, no warrants for fractional shares of Common Stock shall be given.

 

(d)                                  Issuance of New Warrants.   Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 6(a) or Section 6(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

 

7.                                       NOTICES.   Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder as soon as practicable upon each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s). If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock (other than a dividend payable solely in shares of Common Stock) or (ii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to each Holder a notice describing the material terms and conditions of such dividend, distribution or transaction. Notwithstanding anything to the contrary in this Section 7, the failure to deliver any notice under this Section 7 or any defect therein shall not affect the validity of the corporate action required to be described in such notice. Until the exercise of its, his or her Warrant or any portion of such Warrant, a Holder shall not have nor exercise any rights by virtue of ownership of a Warrant as a shareholder of the Company (including without limitation the right to notification of shareholder meetings or the right to receive any notice or other communication concerning the business and affairs of the Company other than as provided in this Section 7.

 

8.                                       AMENDMENT AND WAIVER.   This Warrant may be amended, and any provision waived, only by the written consent of the Purchasers (as defined in the Securities Purchase Agreement) holding a majority-in-interest of the Warrants issued pursuant to the Securities Purchase Agreement and the Company.  Any amendment or waiver so approved shall be binding on Holder.

 

9.                                       SEVERABILITY.   If any provision of this Warrant 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 Warrant so long

 

14

 

as this Warrant 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(s) 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(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

10.                                GOVERNING LAW.   This Warrant shall be governed by and construed under the laws of the State of Colorado as applied to agreements among Colorado residents, made and to be performed entirely within the State of Colorado, without giving effect to conflicts of laws principles.

 

11.                                CONSTRUCTION; HEADINGS.   This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. Terms used in this Warrant but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date (as defined in the Securities Purchase Agreement) in such other Transaction Documents unless otherwise consented to in writing by the Holder.

 

12.                                TRANSFER.   Subject to compliance with the terms and conditions of this Section 12 and any other agreements to which the Holder is a party, this Warrant is transferable, in whole or in part, without charge to the Holder (except for transfer taxes), upon surrender of this Warrant properly endorsed or accompanied by written instructions of transfer. With respect to any offer, sale or other disposition of this Warrant, the Holder agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of the Holder’s counsel, or other evidence, if requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant and indicating whether or not under the Act certificates for this Warrant to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Upon receiving such written notice and reasonably satisfactory opinion or other evidence, if so requested, the Company, as promptly as practicable, shall notify the Holder that the Holder may sell or otherwise dispose of this Warrant, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 12 that the opinion of counsel for the Holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the Holder promptly with details thereof after such determination has been made. Each certificate representing this Warrant transferred in accordance with this Section 12 shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the Holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

 

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13.                                CERTAIN DEFINITIONS.   Defined terms used but not otherwise defined herein shall have the meaning ascribed to such terms in the Securities Purchase Agreement.  For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)                                  “ Common Stock ” means (i) the Company’s shares of common stock and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

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

 

(c)                                   “ Expiration Date ” means the date that is the fifth (5th) anniversary of the Issuance Date.

 

(d)                                  “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

 

(e)                                   “ Registration Rights Agreement ” has the meaning set forth in the Securities Purchase Agreement”.

 

(f)                                    “ Registration Statement ” has the meaning set forth in the Registration Rights Agreement.

 

 [The remainder of this page is intentionally left blank.]

 

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IN WITNESS WHEREOF, the Company and Holder have caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

 

 

	Company:
	ENCISION, INC.
	By:	/s/ Patrick Pace
	Name:	Patrick Pace, MD
	Title:	Executive Chairman

 

SIGNATURE PAGE TO WARRANT TO PURCHASE COMMON STOCK

 

 

IN WITNESS WHEREOF, the Company and Holder have caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

 

 

	Holder:

 

SIGNATURE PAGE TO WARRANT TO PURCHASE COMMON STOCK

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK

 

ENCISION, INC.

 

The undersigned holder hereby exercises the right to purchase of the shares of Common Stock (“ Warrant Shares ”) of Encision, Inc., a Colorado corporation (the “ Company ”), evidenced by Warrant to Purchase Common Stock No. [    ] (the “ Warrant ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1.  Form of Exercise Price .  The Holder intends that payment of the Exercise Price shall be made as with respect to                    Warrant Shares;

 

2.  Payment of Exercise Price .  [ Check one ]

 

[    ] The Holder shall pay the Exercise Price in the sum of $[      ] to the Company in accordance with the terms of the Warrant.

 

[    ] The Holder is exercising this Warrant on a “net exercise” basis pursuant to Section 1(b) of the Warrant.

 

3.  Delivery of Warrant Shares .  The Company shall deliver to Holder, or its designee or agent as specified below, shares of Common Stock in respect of the exercise contemplated hereby. Delivery shall be made to Holder, or for its benefit, to the following address:

 

 

Date:
Name of Registered Holder
By:
	Name:
	Title:
	Account Number:
	(if electronic book entry transfer)
	Transaction Code Number:
	(if electronic book entry transfer)

 

 

EXHIBIT C

 

REGISTRATION RIGHTS AGREEMENT

 

Exhibit 10.2

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “ Agreement ”) is made and entered into as of December 17, 2013 , between Encision Inc., a Colorado corporation (the “ Company ”), and the persons and entities named on the executed counterpart signature pages attached hereto (individually, a “ Purchaser ” and collectively, the “ Purchasers ”).

 

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof between Company and Purchasers (the “ Purchase Agreement ”).

 

Company and Purchaser hereby agree as follows:

 

1.                                       Definitions .  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(e).

 

“ Effectiveness Period ” shall have the meaning set forth in Section 2(a).

 

“ Filing Date ” means, with respect to the Registration Statement required hereunder, on or before February 17, 2014.

 

“ 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).

 

“ 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 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 all of (i) the Shares issued pursuant to the terms of the Purchase Agreement, (ii) the Warrant Shares, and (iii) any shares of Common Stock issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

 

 

“ Registration Statement ” means the registration statement required to be filed hereunder and any additional registrations statements contemplated in Section 3(c), including (in each case) the Prospectus, amendments and supplements to 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 such registration statement.

 

“ Rule 415 ” means Rule 415 promulgated by the Commission pursuant to the 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 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 Stockholder Questionnaire ” shall have the meaning set forth in Section 3(a).

 

“ SEC Guidance ” means (i) any publicly-available written or oral guidance, comments, requirements or requests of the Commission staff and (ii) the Act.

 

2.                                       Resale Registration .  On or prior to the Filing Date, Company shall prepare and file with the Commission a Registration Statement covering the resale of the Registrable Securities for an offering to be made by the Holder(s) on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-1, or if Company is eligible, Form S-3, and shall contain substantially the “ Plan of Distribution ” attached hereto as Annex A . Subject to the terms of this Agreement, Company shall use its reasonable best efforts to cause a Registration Statement to be declared effective under the Act as promptly as reasonably possible after the filing thereof, and shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Act until all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) (A) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and (B) (I) may be sold without the requirement for Company to be in compliance with the current public information requirement under Rule 144 or (II) Company is in compliance with the current public information requirement under Rule 144, or (iii) no Registrable Securities are then outstanding, as determined by the counsel to Company pursuant to a written opinion letter to such effect, addressed and acceptable to Company’s transfer agent and the affected Holders (the “ Effectiveness Period ”). Company shall promptly notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that Company telephonically confirms effectiveness with the Commission. Company shall file a final Prospectus with the Commission as required by Rule 424. Notwithstanding any other provision of this Agreement, if the Staff of the Commission (the “ Staff ”) or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement (and notwithstanding that Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), then

 

2

 

Company shall reduce the number of Registrable Securities to be included in such Registration Statement (with the prior consent of the Holders as to the specific Registrable Securities to be removed therefrom) until such time as the Staff and the Commission shall so permit such Registration Statement to become effective.

 

3.                                       Registration Procedures .

 

In connection with Company’s registration obligations hereunder, Company shall:

 

(a)                                  Not less than five Trading Days prior to the filing of the 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), Company shall, (i) furnish to Holders 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 reasonable and prompt review of 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 Holders to conduct a reasonable investigation within the meaning of the Act. Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders shall reasonably object in good faith, provided that 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 Company a completed questionnaire in the form attached to this Agreement as Annex B (a “ Selling Stockholder Questionnaire ”) on a date that is not less than two (2) Trading Days prior to the Filing Date.

 

(b)                                  (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the 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 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 the Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement (provided that Company may excise any information contained therein which would constitute material non-public information as to Holders); and (iv) comply in all material respects with the applicable provisions of the 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 set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

 

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(c)                                   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 Company shall file as soon as reasonably practicable, an additional Registration Statement covering the resale by the Holders of not less than 100% of the number of such Registrable Securities.

 

(d)                                  Notify the Holder 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 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 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 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) the occurrence or existence of any pending corporate development with respect to Company that Company believes may be material and that, in the determination of Company, makes it not in the best interest of Company to allow continued availability of a Registration Statement or Prospectus; provided that any and all of such information shall remain confidential to Holder until such information otherwise becomes public, unless disclosure by Holder is required by law; provided , further , notwithstanding Holder’s agreement to keep such information confidential, the Holder makes no acknowledgement that any such information is material, non-public information.

 

(e)                                   Use its commercially reasonable 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.

 

(f)                                    Furnish to Holders, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and

 

4

 

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.

 

(g)                                   Subject to the terms of this Agreement, Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by the 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).

 

(h)                                  Company shall cooperate with any broker-dealer through which a Holder proposes to resell its Registrable Securities in effecting a filing with the FINRA Corporate Financing Department pursuant to FINRA Rule 5110, as requested by the Holder, and Company shall pay the filing fee required by such filing within two (2) Trading Days of request therefor.

 

(i)                                      Prior to any resale of Registrable Securities by Holder, use its commercially reasonable efforts to register or qualify or cooperate with the Holder 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 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 the Registration Statement; provided that Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject 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.

 

(j)                                     If requested by the Holder, cooperate with the Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the 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 Holder may request.

 

(k)                                  Upon the occurrence of any event contemplated by this Section 3, as promptly as reasonably possible under the circumstances taking into account Company’s good faith assessment of any adverse consequences to Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to the 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 the 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 Company notifies the Holder 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 Holder shall

 

5

 

suspend use of such Prospectus. Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is reasonably practicable.

 

(l)                                      Comply with all applicable rules and regulations of the Commission.

 

(m)                              Company may require the Holder to furnish to Company a certified statement as to the number of shares of Common Stock beneficially owned by the Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the Shares.

 

4.                                       Registration Expenses .  All fees and expenses incident to the performance of or compliance with this Agreement by Company shall be borne by Company whether or not any Registrable Securities are sold pursuant to the 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 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, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by Company in writing (including, without limitation, fees and disbursements of counsel for Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) if not previously paid by Company in connection with an Issuer Filing, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (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 Company, (v) Act liability insurance, if Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, 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 Company be responsible for any broker or similar commissions of Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holder.

 

5.                                       Indemnification .

 

(a)                                  Indemnification by Company .  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 Holder, each Person who controls each Holder (within the meaning of Section 15 of the Act or

 

6

 

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 form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, or (2) any violation or alleged violation by Company of the Act, 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 a Holder furnished in writing to Company by a Holder expressly for use therein, or to the extent that such information relates to a Holder or a 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 such form of 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 Holder of an outdated, defective or otherwise unavailable Prospectus after Company has notified Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by the Holder and prior to the receipt by Holder of the Advice contemplated in Section 6(e). Company shall notify the Holder promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which Company is aware.

 

(b)                                  Indemnification by Holders .  In no event shall the liability of any Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

(c)                                   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 prejudiced the Indemnifying Party.

 

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

 

7

 

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 judicially determined not to be entitled to indemnification hereunder.

 

(d)                                  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.

 

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

 

8

 

paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall not be required to contribute pursuant to this Section 5(d), in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by such Holder.

 

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.

 

6.                                       Miscellaneous .

 

(a)                                  Covenant Regarding Rule 144 .  Six months following the Closing Date, the Company shall cause its counsel to deliver a customary and typical Rule 144 letter which covers all Purchasers at such Closing, subject to applicable laws and regulations.

 

(b)                                  Remedies .  In the event of a breach by Company or by any Holder, of any of their respective obligations under this Agreement, the Holders or 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, will be entitled to specific performance of its rights under this Agreement. Company and the Holders agree 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.

 

(c)                                   No Piggyback on Registrations .  Neither Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of Company in the Registration Statement other than the Registrable Securities.

 

(d)                                  Compliance .  Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement.

 

(e)                                   Discontinued Disposition .  Each Holder agrees by its acquisition of Registrable Securities that, upon receipt of a notice from Company of the occurrence of any event of the kind described in Section 3(d), Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “ Advice ”) by Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. Company will use its reasonable best efforts to ensure that the use of the Prospectus may be resumed as promptly as it is reasonably practicable.

 

(f)                                    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 Company and the Holders of at least a majority of the then-outstanding Registrable Securities.

 

9

 

(g)                                   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.

 

(h)                                  Successors and Assigns .  This Agreement shall be binding upon and inure to the benefit of the parties and their successors. Neither party may assign this Agreement or any rights or obligations hereunder (other than by merger).

 

(i)                                      No Inconsistent Agreements .  Neither Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall 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 have been properly waived prior to the date hereof, neither Company nor any of the 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.

 

(j)                                     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.

 

(k)                                  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.

 

(l)                                      Cumulative Remedies .  The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

 

(m)                              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.

 

(n)                                  Headings . The headings in this Agreement 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.

 

[Signature page follows]

 

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

 

Company:

 

ENCISION INC.

 

By:	/s/ Patrick Pace
Name:	Patrick Pace, MD
Title:	Executive Chairman

 

[Signature Page to Registration Rights Agreement]

 

 

ENCISION INC.

 

COUNTERPART SIGNATURE PAGE TO

REGISTRATION RIGHTS AGREEMENT

 

The undersigned hereby acknowledges receipt of a copy of the Registration Rights Agreement dated December 17, 2013 (the “ Purchase Agreement ”), by and among ENCISION INC. , a Colorado corporation, and the persons and entities named on the executed counterpart signature pages attached thereto.

 

 

Dafna Lifescience Select LTD
By:	/s/ Nathan Fischel
Title:	CEO
Dafna Lifescience LTD
By:	/s/ Nathan Fischel
Title:	CEO
Dafna Lifescience Market Neutral LTD
By:	/s/ Nathan Fischel
Title:	CEO

 

[Counterpart Signature Page to Registration Rights Agreement]

 

 

CMED Partners LLLP
By:	/s/ Vern D. Kornelsen
Title:	General Partner
/s/ Charles E. Sheedy
TOM JUDA AND NANCY JUDA LIVING TRUST
By:	/s/ Tom Juda
Title:	Trustee
/s/ Raul P. Esquivel
Paul J. McCormick Charles Schwab & Co Inc. Cust IRA Rollover
By:	/s/ Paul McCormick
Title:	Owner
/s/ Alan Budd Zuckerman
/s/ Jordan Barrow
/s/ Nicholas Sarchese
/s/ Kathleen Bette Newton
/s/ Gregory J. Trudel
/s/ John Halt
/s/ Thomas Whitley

 

[Counterpart Signature Page to Registration Rights Agreement]

 

 

ANNEX A

 

Plan of Distribution

 

The Selling Stockholder (the “ Selling Stockholder ”) of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholder may use any one or more of the following methods when selling shares:

 

·                   ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

·                   block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

·                   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;

 

·                   privately negotiated transactions;

 

·                   settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

 

·                   broker-dealers may agree with the Selling Stockholder to sell a specified number of such shares at a stipulated price per share;

 

·                   through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

·                   a combination of any such methods of sale; or

 

·                   any other method permitted pursuant to applicable law.

 

Broker-dealers engaged by the Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholder (or, if any broker-dealer acts as agent for Purchaser of shares, from 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.

 

The Selling Stockholder may be deemed underwriter within the meaning of the Act and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the 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 shares

 

 

purchased by them may be deemed to be underwriting commissions or discounts under the Act. The Selling Stockholder has informed Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed five percent (5%).

 

Company is required to pay certain fees and expenses incurred by Company incident to the registration of the shares. Company has agreed to indemnify the Selling Stockholder against certain losses, claims, damages and liabilities, including liabilities under the Act.

 

Because the Selling Stockholder may be deemed an “underwriter” within the meaning of the Act, it will be subject to the prospectus delivery requirements of the Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholder.

 

We have agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholder without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for Company to be in compliance with the current public information under Rule 144 under the Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Act or any other rule of similar effect. The resale shares 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 shares 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 shares 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 Stockholder 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 shares of the common stock by the Selling Stockholder or any other person. We will make copies of this prospectus available to the Selling Stockholder 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.

 

 

ANNEX B

 

Encision Inc.

 

Selling Securityholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “ Common Stock ”), of Encision Inc., a Colorado corporation (the “ Company ”), (the “ Registrable Securities ”) understands that Company has filed or intends to file with the Securities and Exchange Commission (the “ Commission ”) a registration statement on Form S-1 (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, dated as of December 17, 2013 (the “ Registration Rights Agreement ”), among Company and Purchasers named therein. A copy of the Registration Rights Agreement is available from 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 securityholder 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 securityholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “ Selling Securityholder ”) of Registrable Securities hereby elects to include the Registrable Securities owned by it and listed below in Item 3 (unless otherwise specified under such Item 3) in the Registration Statement.

 

The undersigned hereby provides the following information to Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1.  Name.

 

(a)                                  Full Legal Name of Selling Securityholder

 

 

b)                                      Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities Listed in Item 3 below are held:

 

 

 

(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 the questionnaire):

 

 

2.  Address for Notices to Selling Securityholder:

 

 

Telephone:

Fax:

Contact Person:

 

3.  Beneficial Ownership of Registrable Securities:

 

(a)                                  Type and Number of Registrable Securities beneficially owned (not including the Registrable Securities that are issuable pursuant to the Purchase Agreement):

 

 

4.  Broker-Dealer Status:

 

(a)                                  Are you a registered broker-dealer?

 

Yes o No o

 

(b)                                  If “yes” to Section 4(a), did you receive your Registrable Securities as compensation for investment banking services to Company.

 

Yes o No o

 

Note:      If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c)                                   Are you an affiliate of a registered broker-dealer?

 

Yes o No o

 

(d)                                  If you are an affiliate of a broker-dealer, do you certify that you bought 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 o No o

 

 

Note:      If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

5.               Beneficial Ownership of Other Securities of Company Owned by the Selling Securityholder.

 

Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of Company other than the Registrable Securities listed above in Item 3.

 

(a)                                  Type and Amount of Other Securities beneficially owned by the Selling Securityholder:

 

 

6.  Relationships with 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 Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:

 

 

The undersigned agrees to promptly notify Company of any 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.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 6 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 Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.

 

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.

 

PURCHASER:

 

Name:
Title:

 

Exhibit 10.3

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is made and effective December 17, 2013.

 

BETWEEN:	Gregory J. Trudel (the “Executive”), an individual with his main address at: 3327 Alexander Way, Broomfield, CO 80023.
AND:	Encision Inc. (the “Company”), an entity organized and existing under the laws of Colorado, with its head office located at: 6797 Winchester Circle, Boulder, CO 80301.

 

RECITALS

 

In consideration of the covenants and agreements herein contained and the moneys to be paid hereunder, the Company hereby employs the Executive and the Executive hereby agrees to perform services as an Executive of the Company, upon the following terms and conditions:

 

1.               TERM

 

Commencing December 23, 2013, (the “Start Date”) the Company employs Executive to serve as President and Chief Executive Officer and to serve in such additional position or positions as the Company may determine in its sole discretion. The term of employment shall be for a period of three (3) years (“Employment Period”) to commence on the Start Date, unless earlier terminated as set forth herein.

 

This Agreement shall continue in effect until the earliest of:

 

A.             The effective date of any subsequent employment agreement between the Company and the Executive;

 

B.             The effective date of any termination of employment as provided elsewhere herein; or

 

C.             Three years from the Start Date, provided, that this Employment Agreement shall automatically renew for successive periods of one year each unless either party gives written notice to the other that it does not wish to automatically renew this Agreement, which written notice must be received by the other party no less than ninety days prior to the expiration of the applicable term.

 

2.               DUTIES AND RESPONSIBILITIES

 

Within the limitations established by the By-laws of the Company, the Executive shall preside at all meetings of the shareholders, shall have general supervision of the affairs of the Company, and such other or different duties on behalf of the Company, as may be assigned from time to time by the Board of Directors. Particular emphasis is placed upon growing sales and earnings, and upon keeping in mind such items as required product developments, quality, and overall risk management.

 

3.               LOCATION

 

The initial principal location at which Executive shall perform services for the Company shall initially be 6797 Winchester Circle, Boulder, CO 80301.  The Company may move its offices to another location in the Denver-Boulder metro area without being in violation of this Agreement.

 

Employment Agreement — Mr. Trudel

 

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4.               ACCEPTANCE OF EMPLOYMENT

 

Executive accepts employment with the Company upon the terms set forth above and agrees to devote all Executive’s time, energy and ability to the interests of the Company, and to perform Executive’s duties in an efficient, trustworthy and business-like manner.

 

5.               DEVOTION OF TIME TO EMPLOYMENT

 

The Executive shall devote the Executive’s best efforts and substantially all of the Executive’s working time to performing the duties on behalf of the Company. The Executive shall provide services during the normal business hours of the Company as determined by the Company. Reasonable amounts of time may be allotted to personal or outside business, charitable and professional activities and shall not constitute a violation of this Agreement provided such activities do not materially interfere with the services required to be rendered hereunder or violate another provision of this Agreement.

 

6.               COMPENSATION

 

6.1.          Base Salary

 

Executive shall be paid a base salary (“Base Salary”) at the annual rate of $210,000, payable in bi-weekly installments consistent with Company’s payroll practices. In consideration of the services under this Agreement, Executive shall be paid the aggregate of basic compensation, bonus and benefits as hereinafter set forth.

 

6.2.          Payment

 

Payment of all compensation to Executive hereunder shall be made in accordance with the relevant Company policies in effect from time to time, including normal payroll practices.  However, severance payments are payable as provided below.

 

6.3.          Bonus

 

From time to time, the Company may pay to Executive a bonus.

 

Payment of any bonus compensation shall be at the sole discretion of the Board of Directors or the compensation committee of the Board of Directors and the Executive shall have no entitlement to such amount absent a decision by the Company as aforesaid to make such bonus compensation.

 

Executive shall also be entitled to a bonus determined as follows:

 

a.                    An annual bonus pool for each year starting with the fiscal year ending 3/31/15 and continuing through the Employment Period, will be established in an amount that is equal to 10% of the increase in pre-tax GAAP income in each fiscal year compared to the preceding fiscal year. When comparing a fiscal year over a prior fiscal year, losses in any fiscal year will be considered for the bonus computation. For this Article 6.3, for the fiscal year ending 3/31/14, any pre-tax GAAP loss shall not exceed $500,000. In addition, in any fiscal year ending after 3/31/14, and as determined by the Board of Directors or the compensation committee of the Board of Directors, any incremental expense, or reduced expense, that occurs as a result of raising capital for such purpose shall be excluded as an expense, or as income, from the pre-tax GAAP income calculation,

 

b.                    50% of the bonus pool will be allocated to the CEO,

 

c.                     50% of the bonus pool will be allocated to executives (presently defined to include 5 executives, excluding the CEO) in ratio to their base pay.

 

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Eligibility for participation in the bonus pool for a year includes a requirement that the person must be employed during the 2-½ months following the end of such fiscal year.  A payment will not be made under the bonus pool if the Executive has been terminated for Cause before the payment is received.  The bonus pool rules and interpretation will favor the Company, as opposed to participants, and will be subject to interpretation and oversight by the Board of Directors.  A bonus will not be paid under this bonus pool in respect to any income resulting from a Corporate Transaction as defined in the Company’s 2007 Stock Option Plan. The term “pre-tax GAAP income” means GAAP net income before taxes and excluding extraordinary items as defined by GAAP. This bonus will be paid by June 15 of the following fiscal year.  There are no third party beneficiaries of this provision, and no executive or non-executive has a claim to a bonus payment due to this provision nor is the consent of any such person required to modify this bonus provision.

 

Acquisition bonus .  In the event that during the term of the Executive’s employment the Company is acquired within 5 years of the Start Date, at a net cash price of $7.50 per common share or more (net cash price means the net amount received by the selling shareholders either in cash or in stock which is of a class regularly traded on a U.S. exchange or U.S. trading system (including the OTCBB), or a combination thereof), then Executive will receive an acquisition bonus which is computed as the difference between the per share stock price of the Company on the Start Date and the per share price paid in the acquisition, multiplied by 40,000. The per share stock price on the Start Date and the 40,000 multiplier will be appropriately adjusted for stock splits, stock dividends, and the like, and cash dividends paid between the date of this Agreement and the date of closing of the acquisition will be counted towards that $7.50 per share price.  The Company is considered “acquired” if a Corporate Transaction, as defined in the Company’s 2007 Stock Option Plan, occurs. If any of the acquisition price is payable by an earn out or other contingent payment, then the Board shall in good faith determine the present fair market value of that earn out or contingent payment at the time of closing of the acquisition for purposes of determining whether a payment is owing hereunder and the amount of the payment.  If any of the acquisition price is payable in the form of stock which is of a class regularly traded on a U.S. exchange or U.S. trading system, but either it is not readily tradable under the securities laws or by contractual restriction, or if it is stock which is not as a practical matter immediately saleable into a liquid market, then the Board shall in good faith determine the present fair market value of that stock taking into account that limitation on the ability to immediately trade that stock,  at the time of closing of the acquisition for purposes of determining whether a payment is owing hereunder and the amount of the payment The acquisition bonus will be paid within thirty (30) days after closing of the acquisition.

 

6.4.          Benefits

 

The Company shall provide Executive with such benefits as are provided to other senior management of the Company. Benefits shall include at a minimum (i) paid vacation of twenty days per year of full employment, exclusive of legal holidays, as long as the scheduling of Executive’s vacation does not interfere with the Company’s normal business operations, (ii) medical and dental coverage, and life and disability insurance plans under the same terms as offered to other executives of the Company, (iii) retirement and profit sharing programs as offered to other executives of the Company, (iv) paid holidays as per the Company’s policies, and (v) such other benefits and perquisites as are approved by the Board of Directors. The Company has the right to modify conditions of participation, terminate any benefit, or change insurance plans and other providers of such benefits in its sole discretion.

 

6.5.          Withholding

 

All sums payable to Executive under this Agreement will be reduced by all federal, state, local, and other withholdings and similar taxes and payments required by applicable law.

 

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7.               OTHER EMPLOYMENT BENEFITS

 

7.1.          Business Expenses

 

Upon submission of itemized expense statements in the manner specified by the Company, Executive shall be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred by Executive in the performance of his duties under this Agreement.

 

7.2.          Stock Options

 

Executive shall be entitled to 200,000 options to acquire shares of the Common Stock of the Company, as follows:

 

a.                    60,000 incentive stock options under the 2007 Stock Option Plan with normal vesting in accordance with Company’s standard option agreements (5 years, with 20% vesting after one year and the balance monthly thereafter); and,

 

b.                    140,000 stock options outside of the Company’s existing plan, with normal vesting in accordance with the Company’s standard option agreements (5 years with 20% vesting after one year and the balance monthly thereafter). Such options are to mirror the terms of the 2007 Stock Option Plan, except that the options will be non-qualified stock options (Executive recognizes that the options and shares issued upon exercise are issued pursuant to a private placement exemption from the registration requirements of the Securities Act of 1933 and will constitute restricted securities unless subsequently registered pursuant to the Securities Act of 1933).

 

The initial exercise price for the options shall be at the fair market value of the Company’s stock at the Start Date.

 

The Company will use reasonable diligence to register the shares underlying the options granted outside of the Company’s existing plan on Form S-8 on or before the date of exercise of those options, so long as such registration would not require the premature disclosure of any Company information.

 

The vesting of all options will accelerate immediately prior to a Corporate Transaction (but not a Change in Control unless the Board of Directors elects to allow acceleration on a Change in Control), as defined in the Company’s 2007 Stock Option Plan.

 

The vested options shall be exercisable for thirty days after termination of Executive’s employment with the Company, or three months in the case of death or disability (as provided in the Company’s 2007 Stock Option Plan), unless termination is for Cause in which case the options will terminate at the time of termination of employment. No additional vesting of options shall occur after Executive’s death, disability, or cessation of employment with the Company for any reason or no reason.

 

Issuance of the options shall be in accordance with all applicable securities laws and the other terms and conditions of the Company’s 2007 Stock Option Plan and form of the Stock Option Agreement.

 

8.               POLICIES AND PROCEDURES

 

The Company shall have the authority to establish from time to time the policies and procedures not inconsistent with this Agreement to be followed by the Executive in performing services for the Company. Executive shall abide by the provisions of any contract entered into by the Company under which the Executive provides services.

 

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9.               TERMINATION OF EMPLOYMENT

 

9.1.          For Cause

 

Notwithstanding anything herein to the contrary, the Company may terminate Executive’s employment hereunder for cause for any one of the following reasons: 1) conviction of a felony, any crime involving moral turpitude, or a misdemeanor where imprisonment is imposed, 2) commission of any act of theft, fraud, dishonesty, or falsification of any employment or Company records, 3) improper disclosure of the Company’s confidential or proprietary information, 4) any action by the Executive which has a material detrimental effect on the Company’s reputation or business, 5) Executive’s failure or inability to perform any reasonable assigned duties after written notice from the Company of, and a reasonable opportunity to cure, such failure or inability, 6) any breach of this Agreement, which breach is not cured within thirty days following written notice of such breach,  or repeated breaches of a similar nature even if cured after notice, 7) a course of conduct amounting to gross incompetence, 8) chronic and unexcused absenteeism, 9) unlawful appropriation of a corporate opportunity, or 10) material misconduct in connection with the performance of any of Executive’s duties, including, without limitation, misappropriation of funds or property of the Company, securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of the Company, misrepresentation to the Company, or any violation of law or regulations on Company premises or to which the Company is subject. Upon termination of Executive’s employment with the Company for cause or lack of financial performance (as defined below), the Company shall be under no further obligation to Executive, except to pay all accrued but unpaid base salary, accrued bonuses, and accrued vacation, to the date of termination thereof, and provide such benefits as Executive is entitled to as a matter of law.

 

9.2.          Without Cause

 

The Company may terminate Executive’s employment hereunder at any time without cause, provided, however, that Executive shall be entitled to severance pay, as discussed below, in addition to accrued but unpaid Base Salary, accrued bonuses, and accrued vacation, but if, and only if, Executive executes a valid and comprehensive release of any and all claims that the Executive may have against the Company, its officers, directors and employees,  in a form provided by the Company and Executive executes such form within ten days of tender or such longer period as the Company may specify.  Such release need not release (i) rights under directors and officers and insurance policies; (ii) rights to indemnification to Executive under the Company’s certificate of incorporation or bylaws;(iii) vested rights to purchase stock from the Company that are not contingent on the reason for termination of employment; and (iv) rights under this Agreement. No severance payments will be paid until such release is received from Executive and all rescission periods under the release have expired.  The severance payments are the sole rights to payment upon termination.

 

Severance for termination without cause will be in an amount equal to:

 

X × (60-Y) ÷ 60.

 

X is Base Salary

 

Y is the number of whole months elapsed between the Start Date and the date of termination of employment.

 

So, for example, if the termination without cause occurred one month after the Start Date the payment would be 59/60 th  of $210,000 and if it were 25 months after the Start Date the payment would be 35/60 th  of $210,000.

 

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The severance payments will be paid in equal installments over the twelve month period after termination, with each payment being on the first banking day of the month.  Notwithstanding the prior sentence, if termination is without cause and occurs upon the closing of a Corporate Transaction, as defined in the Company’s 2007 Stock Option Plan, then severance equal to one year’s Base Salary will be paid in one payment within twenty days after the later of the closing of the Corporate Transaction and such release is received from Executive and all rescission periods under the release have expired.

 

A failure to renew or extend the term of this Agreement is not a termination without cause.

 

9.3.          Resignation

 

Upon termination of employment, Executive shall have automatically resigned from the Board of Directors of the Company and any subsidiary or parent, from all employment positions with the Company, a subsidiary or parent, and from each position as a trustee or administrator of any benefit plan of the Company or any subsidiary or parent.  Employee is not entitled to any severance if he resigns from the Company other than upon a resignation for Good Reason (as defined below).

 

9.4.          Resignation for Good Reason

 

If the Company has breached a material term of this Agreement and has not cured such breach within thirty (30) days after written notice of the breach from Executive to the Chairman of the Board of Directors and the Chief Financial Officer, then Executive may resign his employment and such resignation will be deemed a resignation for “Good Reason”.  Upon a resignation for Good Reason Executive will be entitled to the payments and benefits he would receive upon a termination by the Company without cause, so long as Executive has complied with the provisions hereof regarding payments and benefits, including delivering the release provided for in Section 9.2, and subject to the right of the Company to terminate payments under Section 9.6.  If Executive does not comply with this Section 9.4 he is only entitled to the payments and benefits he is entitled to if he resigned without Good Reason and Executive has no further claim or right to damages against any person or entity for breach of this Agreement by the Company.

 

9.5.          Cooperation

 

After notice of termination, Executive shall cooperate with the Company, as reasonably requested by the Company, to effect a transition of Executive’s responsibilities and to ensure that the Company is aware of all matters being handled by Executive.

 

9.6.          Compensation After Notice of Termination

 

After notice of termination has been given by either Company or Executive, as provided in this Article, Executive shall be entitled to receive the compensation provided for in this Agreement until the notice period has expired. It is understood that after the written notice is given by either Company or Executive, Executive shall continue to devote substantially all of the Executive’s time to the Executive’s normal services for the Company during the notice period.

 

9.7.          Effect of Breach

 

Without limiting any other rights of the Company, it has no obligation to make any further severance payments if Executive violates Articles 11, 12 or 13.

 

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10.        DISABILITY OF EXECUTIVE

 

The Company may terminate this Agreement without liability if Executive shall be permanently prevented from properly performing his essential duties hereunder with reasonable accommodation by reason of illness or other physical or mental incapacity for a period of more than sixty consecutive days. Upon such termination, Executive shall be entitled to all accrued but unpaid Base Salary and vacation, such benefits as Executive is entitled to as a matter of law, and the other payments described in this Article 10.

 

10.1.                                         Definitions

 

For purposes of this Agreement, whenever used in this Article 10:

 

“Total disability” shall mean that the Executive is unable, mentally or physically, whether it is due to sickness, accident, age or other infirmity, to engage in more than fifty percent (50%) of any aspect of the Executive’s normal duties as set forth in this Agreement.

 

“Partial disability” shall mean that the Executive is not subject to total disability and is able to engage in more than fifty percent (50%) of every aspect of the Executive’s normal duties as set forth in this Agreement, but that the Executive is unable, mentally or physically, to devote the same amount of time and ability to such services as was devoted prior to the occurrence of such sickness or accident.

 

10.2.                                         Total Disability

 

During a single period of total disability of the Executive, the Executive shall be entitled to receive from the Company, the Executive’s Base Salary for the shorter of first three (3) months of disability or until any disability insurance policy available through the Executive’s employment begins to pay benefits. If the single period of disability should continue beyond three (3) months, the Executive shall receive only such amount as the Executive shall be entitled to receive under disability insurance coverage on the Executive, if any.

 

10.3.                                         Partial Disability

 

During a period of partial disability of the Executive, the Executive shall receive an amount of compensation computed as follows:

 

That portion of the Executive’s Base Salary which bears the same ratio to the Executive’s Base Salary as the amount of time which the Executive is able to devote to the usual performance of services on behalf of the Company during such period bears to the total time the Executive devoted to performing such services prior to the commencement date of the single period of partial disability, and

 

Such amount shall be calculated by multiplying the Executive’s Base Salary by a fraction, the numerator of which shall be the percentage of normal services that the Executive is able to perform and the denominator which shall be the total services that the Executive is able to perform absent the partial disability.

 

10.4.                                         Combination of Total and Partial Disability

 

If a single period of disability of the Executive consists of a combination of total disability and partial disability, the maximum total disability compensation to which the Executive shall be entitled from the Company under this disability provision shall not exceed an amount equal to one (1) times the Executive’s Base Salary.

 

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10.5.                                         Broken Periods of Disability

 

A period of disability may be continuous or broken. If broken into partial periods of disability which are separated by intervening periods of work, there shall be aggregated together all of such successive partial periods of disability except any period prior to the time when any single period of work extends for six months or longer; and such aggregated periods of disability shall be treated as a single period in determining the amount of disability compensation to which Executive shall be entitled under any provision of this Section.

 

10.6.             Termination Due to Disability

 

If and when the period of total or partial disability of the Executive totals six months, Executive’s employment with the Company shall automatically terminate. Upon such termination, Executive is entitled to all accrued but unpaid Base Salary, accrued bonuses, and accrued vacation, to the date of termination, and such benefits as the spouse or estate is entitled to as a matter of law.  Notwithstanding the foregoing, if the disabled Executive and the Company agree, the disabled Executive may thereafter be employed by the Company upon such terms as may be mutually agreeable.

 

10.7.                                         Commencement Date of Disability

 

The commencement date of a period of disability, whether it is a continuous period or the aggregate of successive partial periods, shall be the first day on which the Executive is disabled.

 

10.8.                                         Dispute Regarding Existence of Disability

 

Any dispute regarding the existence, extent or continuance of the disability shall be resolved by the determination of a majority of three (3) competent physicians, one (1) of whom shall be selected by the Company, one (1) of whom shall be selected by the Executive and the third (3rd) of whom shall be selected by the other two (2) physicians so selected.

 

10.9.                                         Death of Executive

 

In the event the Executive shall die during the term hereof, the Company shall pay to the Executive’s surviving spouse, or if the Executive shall leave no surviving spouse, then to the Executive’s estate, all accrued but unpaid Base Salary, accrued bonuses, and accrued vacation, to the date of termination thereof, and such benefits as the spouse or estate is entitled to as a matter of law, as well as an amount equal to the payment upon a termination by the Company without cause.

 

11.        CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENTS

 

Executive recognizes and acknowledges that all records and information with respect to clients, business associates, vendors, customer or referral lists, contracting parties and referral sources of the Company, and all personal, financial and business and proprietary information of the Company, its employees, officers, directors and shareholders obtained by the Executive during the term of this Agreement and not generally known in the public (the “Confidential Information”) are valuable, special, unique and proprietary assets of the Company. The Executive hereby agrees that during the term of this Agreement and following the termination of this Agreement, whether the termination shall be voluntary or involuntary, or with or without cause, or whether the termination is solely due to the expiration of the term of this Agreement, the Executive will not at any time, directly or indirectly, disclose any Confidential Information, in full or in part, in written or other form, to any person, firm, Company, association or other entity, or utilize the same for any reason or purpose whatsoever other than for the benefit of and pursuant to authorization granted by the Company. “Confidential Information” shall also include any information (including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, an idea, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers) that: (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by,

 

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other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. In the case of Company’s business, Company’s Trade Secrets include (without limitation) information regarding names and addresses of any customers, sales personnel, account invoices, training and educational manuals, administrative manuals, prospective customer leads, in whatever form, whether or not computer or electronically accessible “on-line.”  For the avoidance of doubt, Confidential Information does not include the names and addresses of customers or any other information, if the fact the person is a customer or such other information is publically known in the public domain or already known to Executive prior to the signing of this Agreement unless the information was conveyed to Executive by the Company.

 

Executive agrees that all Intellectual Property (as hereinafter defined) conceived or made by him while he is employed by the Company belongs to the Company. Executive will promptly disclose all Intellectual Property to the other officers of the Company. Executive hereby assigns, and will further assign, Executive’s full right, title and interest to all Intellectual Property and will execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights (including without limitation the execution and delivery of instruments of further assurance or confirmation) reasonably requested by the Company to assign such Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights and other proprietary rights to such Intellectual Property. All copyrightable works that Executive creates that constitute Intellectual Property shall be considered “work made for hire.” For purposes of this Agreement, “ Intellectual Property ” means inventions, innovations, improvements, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by Executive (whether alone or with others, whether or not during normal business hours or on or off Company premises) during Executive’s employment with the Company that relate to any business, venture or activity being conducted or, to Executive’s knowledge, proposed to be conducted by the Company at any time during Executive’s employment with the Company.

 

Upon request, Executive will return any Company property to the Company.

 

The term “Company” in this Article includes any subsidiary of the Company.  This Article will survive termination of this Agreement.

 

12.        EXCLUSIVE EMPLOYMENT; NON-COMPETE

 

During employment with the Company, Executive will not do anything to compete with the Company’s present or contemplated business, nor will he or she plan or organize any competitive business activity. Executive will not enter into any agreement which conflicts with his duties or obligations to the Company. Executive will not during his employment or within one year after it ends, without the Company’s express written consent, directly or indirectly, solicit or encourage any employee, agent, independent contractor, supplier, customer, consultant or any other person or company to terminate or alter a relationship with the Company.

 

Should Executive wish to serve on other boards of directors or have other minor non-company activities, the Executive will supply a list of all such activities, and to update the list quarterly, including the amount of time spent on each. The Company requests that such activities be held to a reasonable minimum.

 

The term “Company” in this Article includes any subsidiary of the Company.  This Article will survive termination of this Agreement.

 

If, at the time of enforcement of Articles 12 or 13 of this Agreement, a court or arbitrator holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum duration, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law. By action of its Board the Company may also unilaterally reduce the duration, type of activity, geographic area, or other scope, of Articles 12 or 13.

 

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13.        HIRING

 

The Executive agrees that during the Executive’s employment with the Company and for a period of one year following the termination of this Agreement, whether the termination shall be voluntary or involuntary, or with or without cause, or whether the termination is solely due to the expiration of the term of this Agreement, the Executive will not attempt to hire any employee or independent contractor of the Company or otherwise encourage or attempt to encourage any other Executive or independent contractor of the Company to leave the Company’s employ.

 

The term “Company” in this Article includes any subsidiary of the Company.  This Article will survive termination of this Agreement.

 

14.        ASSIGNMENT AND TRANSFER

 

Executive’s rights and obligations under this Agreement shall not be transferable by assignment or otherwise, and any purported assignment, transfer or delegation thereof shall be void. This Agreement may be assumed (but need not be) by any purchaser of substantially all of Company’s assets, any corporate successor to Company or any assignee thereof. The Company may assign its rights under Articles 12 and 13 of this Agreement in whole or in part to, a person or entity who buys the assets of the Company, a person or entity who buys the business of the Company related to Executive’s line of work with the Company, or a person or entity who buys or is licensed inventions or other proprietary work product with which Executive was involved.  Among other things, this means that Executive could be subject to Article 12 and 13 of this Agreement as to more than one person or entity.

 

15.        NO INCONSISTENT OBLIGATIONS

 

Executive is aware of no obligations, legal or otherwise, inconsistent with the terms of this Agreement or with his undertaking employment with the Company. Executive will not disclose to the Company, or use, or induce the Company to use, any proprietary information or trade secrets of others. Executive represents and warrants that he has returned all property and confidential information belonging to all prior employers.

 

16.        INJUNCTIVE RELIEF; ATTORNEYS’ FEES

 

The parties hereto agree that, in the event of breach or threatened breach of any covenants of Executive, the damage or imminent damage to the value and the goodwill of the Company’s business shall be inestimable, and that therefore any remedy at law or in damages shall be inadequate. Accordingly, the parties hereto agree that the Company shall be entitled to injunctive relief against Executive in the event of any breach or threatened breach of any of such provisions by Executive, in addition to any other relief (including damages) available to the Company under this Agreement or under law. The prevailing party in any action instituted pursuant to this Agreement shall be entitled to recover from the other party its reasonable attorneys’ fees and other expenses incurred in such action.

 

In the event that either party is required to engage the services of legal counsel to enforce the terms and conditions of this Agreement against the other party, regardless of whether such action results in litigation or arbitration, the prevailing party shall be entitled to reasonable attorneys’ fees, costs of legal assistants, and other costs from the other party, which shall include any fees or costs incurred at trial or in any appellate proceeding, and expenses and other costs, including any accounting expenses incurred.

 

17.        GOVERNING LAW

 

This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado without regard to conflict of law principles that would result in the application of another law.

 

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18.        AMENDMENT

 

This Agreement may be amended only by a writing signed by Executive and by a duly authorized representative of the Company.

 

19.        SEVERABILITY

 

If any term, provision, covenant or condition of this Agreement, or the application thereof to any person, place or circumstance, shall be held to be invalid, unenforceable or void, the remainder of this Agreement and such term, provision, covenant or condition as applied to other persons, places and circumstances shall remain in full force and effect.

 

20.        CONSTRUCTION

 

The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement. The language in all parts of this Agreement shall be in all cases construed according to its fair meaning and not strictly for or against the Company or Executive.

 

21.        RIGHTS CUMULATIVE; EXCLUSIVE RIGHTS TO PAYMENTS AND BENEFITS

 

The rights and remedies provided by this Agreement are cumulative, and the exercise of any right or remedy by either party hereto (or by its successor), whether pursuant to this Agreement, to any other agreement, or to law, shall not preclude or waive its right to exercise any or all other rights and remedies. The rights to payments and benefits herein are Executive’s exclusive rights to payment and benefits from the Company in the event of termination of this Agreement or employment except for amounts which the Company is required to pay under applicable law, and payments under insurance policies (if any) which are not duplicative of payments provided for herein.

 

22.        NONWAIVER

 

No failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party hereto must be contained in a written instrument signed by the party to be charged and, in the case of the Company, by an officer of the Company (other than Executive) or other person duly authorized by the Company.

 

23.        NOTICES

 

Any and all notices or other communication provided for herein, shall be given by registered or certified mail, return receipt requested, in case of the Company to its principal office, and in the case of the Executive to the Executive’s residence address set forth on the first page of this Agreement or to such other address as may be designated by the Executive.

 

24.        ASSISTANCE IN LITIGATION

 

Executive shall, during and after termination of employment, upon reasonable notice, furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it or any of its parent, subsidiaries or affiliates is, or may become a party; provided, however, that such assistance following termination shall be furnished at mutually agreeable times and for mutually agreeable compensation. This Article will survive termination of this Agreement.

 

25.        ARBITRATION

 

Any controversy, claim or dispute arising out of or relating to this Agreement or the employment relationship, either during the existence of the employment relationship or afterwards, between the parties

 

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hereto, their assignees, their affiliates, their attorneys, or agents, shall be resolved by arbitration in Boulder or Denver, Colorado, such site to be determined by the Company. Such arbitration shall be conducted by the Judicial Arbiters Group (JAG) in accordance with the rules of the American Arbitration Association for commercial arbitration.  The following provisions will govern the arbitration. (a) one arbitrator shall be chosen; (b) each party to the arbitration will pay its pro rata share of the expenses and fees of the arbitrator(s), together with other expenses of the arbitration incurred or approved by the arbitrator(s); and (c) arbitration may proceed in the absence of any party if written notice of the proceedings has been given to such party. The parties agree to abide by all decisions and awards rendered in such proceedings. Such decisions and awards rendered by the arbitrator shall be binding, final and conclusive and may be entered in any court having jurisdiction thereof as a basis of judgment and of the issuance of execution for its collection. All such controversies, claims or disputes shall be settled in this manner in lieu of any action at law or equity; provided however, that nothing in this subsection shall be construed as precluding the Company from bringing an action for injunctive relief or other equitable relief or relief under the confidentiality, return of property, no hire, non-solicitation, and invention assignment provisions. The arbitrator shall not have the right to award punitive damages, consequential damages, or speculative damages to either party, but may award lost profits even if they are consequential damages. The parties shall keep confidential the existence of the claim, controversy or disputes from third parties (other than the arbitrator), and the determination thereof, unless otherwise required by law or necessary for the business of the Company. The arbitrator(s) shall be required to follow applicable law.

 

IF FOR ANY REASON THIS ARBITRATION CLAUSE BECOMES NOT APPLICABLE, AND AS TO ANY MATTER FOR WHICH LITIGATION IS PERMITTED HEREUNDER, THEN EACH PARTY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER MATTER INVOLVING THE PARTIES HERETO, AND SUBMITS TO THE VENUE AND JURISDICTION OF THE FEDERAL AND STATE COURTS LOCATED IN DENVER AND BOULDER COUNTY COLORADO.

 

26.        COVENANTS INDEPENDENT

 

Each restrictive covenant on the part of the Executive set forth in this Agreement shall be construed as a covenant independent of any other covenant or provisions of this Agreement or any other agreement which the Company and the Executive may have, fully performed and not executory, and the existence of any claim or cause of action by the Executive against the Company whether predicated upon another covenant or provision of this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any other covenant.

 

27.        INJUNCTIVE AND EQUITABLE RELIEF

 

Executive and Company recognize and expressly agree that the extent of damages to Company in the event of a breach by Executive of any restrictive covenant set forth herein would be difficult to ascertain, that the irreparable harm arising out of any breach shall be irrefutably presumed, and that the remedy at law for any breach may be inadequate to compensate the Company. Consequently, the Executive agrees that in the event of a breach of any such covenant, in addition to any other relief to which Company may be entitled, Company shall be entitled to enforce the covenant by injunctive or other equitable relief ordered by a court of competent jurisdiction.

 

28.        INDEMNIFICATION

 

The Executive hereby agrees to indemnify and hold the Company and its officers, directors, shareholders and Executives harmless from and against any loss, claim, damage or expense, and/or all costs of prosecution or defense of their rights hereunder, whether in judicial proceedings, including appellate proceedings, or whether out of court, including without limiting the generality of the foregoing, attorneys’ fees, and all costs and expenses of litigation, arising from or growing out of the Executive’s breach or threatened breach of any representation, warranty or covenant contained herein.

 

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The Company hereby agrees to indemnify and hold Executive harmless from and against any loss, claim, damage or expense, and/or all costs of prosecution or defense of his rights hereunder, whether in judicial proceedings, including appellate proceedings, or whether out of court, including without limiting the generality of the foregoing, attorneys’ fees, and all costs and expenses of litigation, arising from or growing out of the Company’s breach or threatened breach of any representation, warranty or covenant contained herein.

 

29.        ACKNOWLEDGMENT

 

The Executive acknowledges that when this Agreement is concluded, the Executive will be able to earn a living without violating the foregoing restrictions and that the Executive’s recognition and representation of this fact is a material inducement to the execution of this Agreement and to Executive’s continued relationship with the Company.

 

30.        SURVIVAL OF COVENANTS

 

All restrictive covenants contained in this Agreement shall survive the termination of this Agreement.

 

31.        REPRESENTATION AND WARRANTY OF EXECUTIVE

 

The Executive acknowledges and understands that the Company has extended employment opportunities to Executive based upon Executive’s representation and warranty that Executive is able to perform the work contemplated by this Agreement for the term hereof.

 

32.        INVALID PROVISION; SEVERABILITY

 

The invalidity or unenforceability of a particular provision of this Agreement shall not affect the other provisions hereof, and the Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.

 

33.        MODIFICATION

 

No change or modification of this Agreement shall be valid unless the same is in writing and signed by the parties hereto.

 

34.        409A

 

This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”) and shall be construed accordingly. It is the intention of the parties that payments or benefits payable under this Agreement not be subject to the additional tax or interest imposed pursuant to Section 409A. To the extent such potential payments or benefits are or could become subject to Section 409A, the parties shall amend this Agreement with the goal of giving Executive the economic benefits described herein in a manner that does not result in such tax or interest being imposed, so long as such amendment does not adversely affect the Company. Executive shall, at the request of the Company, take any reasonable action (or refrain from taking any action), required to comply with any correction procedure promulgated pursuant to Section 409A.

 

If a payment that could be made under this Agreement would be subject to additional taxes and interest under Section 409A, the Company in its sole discretion may accelerate some or all of a payment otherwise payable under the Agreement to the time at which such amount is includible in the income of Executive, provided that such acceleration shall only be permitted to the extent permitted under Treasury Regulation § 1.409A-3(j)(4)(vii) and the amount of such acceleration does not exceed the amount permitted under Treasury Regulation § 1.409A-3(j)(vii).

 

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No payment to be made under this Agreement shall be made at a time earlier than that provided for in this Agreement unless such payment is (i) an acceleration of payment permitted to be made under Treasury Regulation § 1.409A-3(j)(4) or (ii) a payment that would otherwise not be subject to additional taxes and interest under Section 409A.

 

The right to each payment described in this Agreement shall be treated as a right to a series of separate payments and a separately identifiable payment for purposes of Section 409A.

 

The definition of Good Reason is intended to constitute “good reason” as such term is used in Treas. Reg. §1.409A-1(n)(2) and shall be interpreted and construed accordingly, and to the maximum extent permitted by Section 409A and guidance thereunder, a termination for Good Reason shall be an “involuntary separation from service” as such term is used in Treas. Reg. §1.409A-1(n).

 

For purposes of Article 9 of this Agreement, “termination” (or any similar term) when used in reference to Executive’s employment shall mean “separation from service” with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code and applicable administrative guidance issued thereunder, and Executive shall be considered to have terminated employment with the Company when, and only when, Executive incurs a “separation from service” with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code and applicable administrative guidance issued thereunder.

 

35.        ENTIRE AGREEMENT

 

This Agreement and the related option agreements contain the entire agreement and supersede all prior agreements and understandings, oral or written, with respect to the subject matter hereof. This Agreement may be changed only by an agreement in writing signed by the party against whom any waiver, change, amendment, modification, or discharge is sought.

 

IN WITNESS HEREOF, each party to this Agreement has caused it to be executed on December 17, 2013.

 

EXECUTIVE		COMPANY
/s/Gregory J. Trudel		By:	/s/Patrick W. Pace
Gregory J. Trudel			Patrick W. Pace, Executive Chairman
Print Name			Print Name and Title

 

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