UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 6, 2019
PARALLAX HEALTH SCIENCES, INC.
(Exact name of Company as specified in its charter)
Nevada |
000-52534 |
46-4733512 |
(State or other jurisdiction |
(Commission File Number) |
(IRS Employer |
of Incorporation) |
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Identification Number) |
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1327 Ocean Avenue, Suite B Santa Monica, CA 90401 (Address of principal executive offices)
310-899-4442 (Registrant’s Telephone Number) |
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Copy of all Communications to : Peter V. Hogan Buchalter 1000 Wilshire Boulevard, Suite 1500 Los Angeles, CA 90017 (213) 891-0700
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Company under any of the following provisions: |
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
As used in this current report and unless otherwise indicated, the terms "we", "us", "our", “Company”, and “Parallax” mean Parallax Health Sciences, Inc., a Nevada corporation, and its subsidiaries, unless otherwise indicated.
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On May 6, 2019, Parallax Health Sciences, Inc., a Nevada corporation (the “Company”), executed an Equity Funding (the “Equity Funding”) for 12,000,000 shares of the Company’s restricted common stock (the “Shares) in exchange for cash proceeds of $1,000,000, of which $500,000 is funded immediately in exchange for 6,000,000 Shares at a price of $0.0833 per Share; and $500,000 is to be funded upon an effective S-1 registration statement under the same terms and price per Share, for an additional 6,000,000 Shares. The Equity Funding includes equal Warrants to purchase Shares at an exercise price of $0.25 per share (the “Warrants”). In the event the registration statement is not effective within ninety (90) days, the price per Share shall be reduced to $0.0625 per Share, providing an additional 2,000,000 Shares and an additional 2,000,000 Warrants, for a maximum of 14,000,000 Shares and 14,000,000 Warrants issuable under the Equity Funding for total proceeds of $1,000,000.
The Securities Purchase Agreement, Registration Rights Agreement, and Warrant are attached to this Current Report as exhibits 4.1 , 4.2 , and 4.3 , respectively, and incorporated herein by reference. The disclosures set forth in this Section 1.01 are intended to be a summary only and are qualified in their entirety by reference to the exhibits.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
The disclosures set forth in Item 1.01 are incorporated by into this Item 3.02 by reference. The issuance of the Shares and Warrants were made in reliance on exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, on the basis that the Registrant had a pre-existing relationship with the investor and there was no public offering.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits
Exhibit Number |
Description of Exhibit |
Filing Reference |
Filed herewith |
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Filed herewith |
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Filed herewith |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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PARALLAX HEALTH SCIENCES, INC. |
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Dated: May 7, 2019 |
/s/ Calli R. Bucci |
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Calli R. Bucci |
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Chief Financial Officer |
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this “ Agreement ” ) is dated as of May 6, 2019,
between Parallax Health Sciences, Inc., a Nevada corporation (the “ Company ” ), and each
purchaser identified on the signature pages hereto (each, including its successors and assigns, a
“ Purchaser ” and collectively, the “ Purchasers ” ).
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant
to Section 4(a)(2) of the Securities Act of 1933, as amended (the “ Securities Act ” ), and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company, securities of the
Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1
Definitions. In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:
“ Acquiring Person ” shall have the meaning ascribed to such term in Section 4.5.
“ Action ” shall have the meaning ascribed to such term in Section 3.1(j).
“ Affiliate ” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a Person, as
such terms are used in and construed under Rule 405 under the Securities Act.
“ Board of Directors ” means the board of directors of the Company.
“ Business Day ” means any day except any Saturday, any Sunday, any day which
is a federal legal holiday in the United States or any day on which banking institutions in
the State of New York are authorized or required by law or other governmental action to
close.
“ Closing Dates ” means the First Closing Date and the Second Closing Date.
“ Closings ” means the First Closing and the Second Closing of the purchase and
sale of the Securities pursuant to Section 2.1.
“ Commission ” means the United States Securities and Exchange Commission.
“ Common Stock ” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may hereafter be
reclassified or changed.
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“ Common Stock Equivalents ” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, right, option, warrant or other
instrument that is at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
“ Company Counsel ” means ____________, with offices located at
_____________.
“ Disclosure Schedules ” means the Disclosure Schedules of the Company delivered
concurrently herewith.
“ Disclosure Time ” means, (i) if this Agreement is signed on a day that is not a
Trading Day or after 9:00 a.m. (New York City time) and before midnight (New York City
time) on any Trading Day, 9:01 a.m. (New York City time) on the Trading Day
immediately following the date hereof, [unless otherwise instructed as to an earlier time by
the Placement Agent, and (ii) if this Agreement is signed between midnight (New York
City time) and 9:00 a.m. (New York City time) on any Trading Day, no later than 9:01 a.m.
(New York City time) on the date hereof[, unless otherwise instructed as to an earlier time
by the Placement Agent.
“ Effective Date ” means the earliest of the date that (a) the initial Registration
Statement has been declared effective by the Commission, (b) all of the Shares and Warrant
Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without
the requirement for the Company to be in compliance with the current public information
required under Rule 144 and without volume or manner-of-sale restrictions, (c) following
the one year anniversary of the last Closing Date provided that a holder of Shares or
Warrant Shares is not an Affiliate of the Company, or (d) all of the Shares and Warrant
Shares may be sold pursuant to an exemption from registration under Section 4(a)(1) of the
Securities Act without volume or manner-of-sale restrictions and Company Counsel has
delivered to such holders a standing written unqualified opinion that resales may then be
made by such holders of the Shares and Warrant Shares pursuant to such exemption which
opinion shall be in form and substance reasonably acceptable to such holders.
“ EGS ” means Ellenoff Grossman & Schole LLP, with offices located at 1345
Avenue of the Americas, New York, New York 10105-0302.
“ Evaluation Date ” shall have the meaning ascribed to such term in Section 3.1(s).
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
“ Exempt Issuance ” means the issuance of (a) shares of Common Stock or options
to employees, officers or directors of the Company pursuant to any stock or option plan
duly adopted for such purpose, by a majority of the non-employee members of the Board
of Directors or a majority of the members of a committee of non-employee directors
established for such purpose for services rendered to the Company, (b) securities upon the
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exercise or exchange of or conversion of any Securities issued hereunder and/or other
securities exercisable or exchangeable for or convertible into shares of Common Stock
issued and outstanding on the date of this Agreement, provided that such securities have
not been amended since the date of this Agreement to increase the number of such
securities or to decrease the exercise price, exchange price or conversion price of such
securities (other than in connection with stock splits or combinations) or to extend the term
of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions
approved by a majority of the disinterested directors of the Company, provided that such
securities are issued as “ restricted securities ” (as defined in Rule 144) and carry no
registration rights that require or permit the filing of any registration statement in
connection therewith during the prohibition period in Section 4.12(a) herein, and provided
that any such issuance shall only be to a Person (or to the equityholders of a Person) which
is, itself or through its subsidiaries, an operating company or an owner of an asset in a
business synergistic with the business of the Company and shall provide to the Company
additional benefits in addition to the investment of funds, but shall not include a transaction
in which the Company is issuing securities primarily for the purpose of raising capital or
to an entity whose primary business is investing in securities.
“ FCPA ” means the Foreign Corrupt Practices Act of 1977, as amended.
“ FDA ” shall have the meaning ascribed to such term in Section 3.1(kk).
“ FDCA ” shall have the meaning ascribed to such term in Section 3.1(kk).
“ First Closing ” shall have the meaning ascribed to such term in Section 2.1.
“ First Closing Date ” means the Trading Day on which all of the Transaction
Documents have been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers ’ obligations to pay the Subscription Amount for
the First Closing and (ii) the Company ’ s obligations to deliver the Securities for the First
Closing, in each case, have been satisfied or waived.
“ GAAP ” shall have the meaning ascribed to such term in Section 3.1(h).
“ Indebtedness ” shall have the meaning ascribed to such term in Section 3.1(bb).
“ Intellectual Property Rights ” shall have the meaning ascribed to such term in
Section 3.1(p).
“ Legend Removal Date ” shall have the meaning ascribed to such term in Section
4.1(c).
“ Liens ” means a lien, charge pledge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.
“ Lock-Up Agreement ” means the Lock-Up Agreement, dated as of the date hereof,
by and among the Company and the directors, officers, and 10% stockholders of the
Company, in the form of Exhibit D attached hereto.
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“ Material Adverse Effect ” shall have the meaning assigned to such term in Section
3.1(b).
“ Material Permits ” shall have the meaning ascribed to such term in Section 3.1(n).
“ Participation Maximum ” shall have the meaning ascribed to such term in Section
4.11(a).
“ Per Unit Purchase Price ” equals $0.125 per unit, subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement.
“ Person ” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
“ Pharmaceutical Product ” shall have the meaning ascribed to such term in Section
3.1(jj).
“ Proceeding ” means an action, claim, suit, investigation or proceeding (including,
without limitation, an informal investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“ Public Information Failure ” shall have the meaning ascribed to such term in
Section 4.2(b).
“ Public Information Failure Payments ” shall have the meaning ascribed to such
term in Section 4.2(b).
“ Purchaser Party ” shall have the meaning ascribed to such term in Section 4.8.
“ Registration Rights Agreement ” means the Registration Rights Agreement, dated
on or about the date hereof, among the Company and the Purchasers, in the form of Exhibit
A attached hereto.
“ Registration Statement ” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the Purchasers of
the Shares and the Warrant Shares.
“ Required Approvals ” shall have the meaning ascribed to such term in Section
3.1(e).
“ Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended or interpreted from time to time, or any
similar rule or regulation hereafter adopted by the Commission having substantially the
same purpose and effect as such Rule.
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“ Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended or interpreted from time to time, or any
similar rule or regulation hereafter adopted by the Commission having substantially the
same purpose and effect as such Rule.
“ SEC Reports ” shall have the meaning ascribed to such term in Section 3.1(h).
“ Second Closing ” shall have the meaning ascribed to such term in Section 2.1.
“ Second Closing Date ” means the Trading Day on which all of the Transaction
Documents have been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers ’ obligations to pay the Subscription Amount for
the Second Closing and (ii) the Company ’ s obligations to deliver the Securities for the
Second Closing, in each case, have been satisfied or waived.
“ Securities ” means the Shares, the Warrants and the Warrant Shares.
“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
“ Shares ” means the shares of Common Stock issued or issuable to each Purchaser
pursuant to this Agreement.
“ Subscription Amount ” means, as to each Purchaser, the aggregate amount to be
paid for units of Shares and Warrants purchased hereunder as specified below such
Purchaser ’ s name on the signature page of this Agreement and next to the heading
“ Subscription Amount, ” in United States dollars and in immediately available funds. The
Subscription Amounts at the First Closing and the Second Closing shall be the same.
“ Subsidiary ” means any subsidiary of the Company as set forth on Schedule 3.1(a)
and shall, where applicable, also include any direct or indirect subsidiary of the Company
formed or acquired after the date hereof.
“ Trading Day ” means a day on which the principal Trading Market is open for
trading.
“ Trading Market ” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE American,
the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the
foregoing).
“ Transaction Documents ” means this Agreement, the Warrants, the Registration
Rights Agreement, the Lock-Up Agreement, all exhibits and schedules thereto and hereto
and any other documents or agreements executed in connection with the transactions
contemplated hereunder.
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“ Transfer Agent ” means Action Stock Transfer Corp., the current transfer agent of
the Company, and any successor transfer agent of the Company.
“ Variable Rate Transaction ” shall have the meaning ascribed to such term in
Section 4.12(b).
“ VWAP ” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted
as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City
time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading
Market, the volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is
not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common
Stock are then reported in the “ Pink Sheets ” published by OTC Markets Group, Inc. (or a
similar organization or agency succeeding to its functions of reporting prices), the most
recent bid price per share of the Common Stock so reported, or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers of a majority in interest of the Securities then
outstanding and reasonably acceptable to the Company, the fees and expenses of which
shall be paid by the Company.
“ Warrants ” means, collectively, the Common Stock purchase warrants delivered to
the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants
shall be exercisable immediately and have a term of exercise equal to two (2) years, in the
form of Exhibit C attached hereto.
“ Warrant Shares ” means the shares of Common Stock issuable upon exercise of the
Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1
Closings. Upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement by the parties hereto,
the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase in two
Closings, up to an aggregate of $1,000,000 of units with each unit consisting of 1.5 Shares and
Warrants to purchase 1.5 Warrant Shares. Each Purchaser shall deliver to the Company, via wire
transfer or a certified check, immediately available funds equal to such Purchaser ’ s Subscription
Amount as set forth on the signature page hereto executed by such Purchaser, and the Company
shall deliver to each Purchaser its respective units of Shares and a Warrant, as determined pursuant
to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in
Section 2.2 deliverable at the Closing. The Closings shall take place in two stages as set forth
below (respectively, the “ First Closing ” and the “ Second Closing ” ). Upon satisfaction of the
covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of
EGS or such other location as the parties shall mutually agree.
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(a)
First Closing. The First Closing shall be for up to $500,000 of the aggregate
Subscription Amount subscribed for by all Purchasers hereunder and shall occur on, or as
soon as reasonably practicable following, the date hereof.
(b)
Second Closing. The Second Closing shall be for up to $500,000 of the
aggregate Subscription Amount subscribed for by all Purchasers hereunder and shall occur
within 5 Business Days following the Effective Date, subject to the terms hereunder.
2.2
Deliveries.
(a) On or prior to each Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i)
as to the First Closing, this Agreement duly executed by the
Company;
(ii)
as to the First Closing, a legal opinion of Company Counsel,
substantially in the form of Exhibit B attached hereto;
(iii) a copy of the irrevocable instructions to the Transfer Agent
instructing the Transfer Agent to deliver, on an expedited basis, a certificate
evidencing a number of Shares equal to (A) such Purchaser ’ s Subscription Amount
for the respective Closing divided (B) by the quotient obtained by dividing the Per
Unit Purchase Price by 1.5, registered in the name of such Purchaser;
(iv)
a Warrant registered in the name of such Purchaser to purchase up
to a number of shares of Common Stock equal to 100% of such Purchaser ’ s Shares,
with an exercise price equal to $0.25, subject to adjustment therein;
(v)
the Company shall have provided each Purchaser with the
Company ’ s wire instructions, on Company letterhead and executed by the Chief
Executive Officer or Chief Financial Officer;
(vi)
as to the First Closing, the Lock-Up Agreements; and
(vii) as to the First Closing, the Registration Rights Agreement duly
executed by the Company.
(b) On or prior to each Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company, as applicable, the following:
(i)
As to the First Closing, this Agreement duly executed by such
Purchaser;
(ii)
such Purchaser ’ s Subscription Amount as to the applicable Closing
by wire transfer to the account specified in writing by the Company;
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(iii) such Purchaser ’ s leak-out agreement in form and substance
reasonably acceptable to the Purchaser and the Company1; and
(iv)
as to the First Closing, the Registration Rights Agreement duly
executed by such Purchaser.
2.3
Closing Conditions.
(a)
The obligations of the Company hereunder in connection with the Closing
are subject to the following conditions being met:
(i)
the accuracy in all material respects (or, to the extent representations
or warranties are qualified by materiality or Material Adverse Effect, in all respects)
on the applicable Closing Date of the representations and warranties of the
Purchasers contained herein (unless as of a specific date therein in which case they
shall be accurate as of such date);
(ii)
all obligations, covenants and agreements of each Purchaser
required to be performed at or prior to the applicable Closing Date shall have been
performed; and
(iii) the delivery by each Purchaser of the items set forth in Section 2.2(b)
of this Agreement.
(b)
The respective obligations of the Purchasers hereunder in connection with
the Closing are subject to the following conditions being met:
(i)
the accuracy in all material respects (or, to the extent representations
or warranties are qualified by materiality or Material Adverse Effect, in all respects)
when made and on the applicable Closing Date of the representations and
warranties of the Company contained herein (unless as of a specific date therein in
which case they shall be accurate as of such date);
(ii)
all obligations, covenants and agreements of the Company required
to be performed at or prior to the applicable Closing Date shall have been
performed;
(iii) the delivery by the Company of the items set forth in Section 2.2(a)
of this Agreement;
(iv)
there shall have been no Material Adverse Effect with respect to the
Company since the date hereof;
(v)
as to the Second Closing, the Registration Statement shall have been
declared effective as to all of the Shares and Warrant Shares issued and issuable at
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If market price is less than exercise price purchaser will not sell greater than $15,000 and 15% of dollar
weighted average trading volume from prior 5 trading days.
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the First Closing and Second Closing (ignoring for such purposes an conversion or
exercise limitations thereunder) by the Commission on or before ______________,
2019; and
(vi)
from the date hereof to the applicable Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or the
Company ’ s principal Trading Market, and, at any time prior to the applicable
Closing Date, trading in securities generally as reported by Bloomberg L.P. shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of such Purchaser,
makes it impracticable or inadvisable to purchase the Securities at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1
Representations and Warranties of the Company. Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify
any representation or otherwise made herein to the extent of the disclosure contained in the
corresponding section of the Disclosure Schedules, the Company hereby makes the following
representations and warranties to each Purchaser:
(a)
Subsidiaries. All of the direct and indirect subsidiaries of the Company are
set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital
stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights to subscribe for or
purchase securities. If the Company has no subsidiaries, all other references to the
Subsidiaries or any of them in the Transaction Documents shall be disregarded.
(b)
Organization and Qualification. The Company and each of the Subsidiaries
is an entity duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization, with the requisite
power and authority to own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is in violation nor default
of any of the provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the Subsidiaries is
duly qualified to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or property owned
by it makes such qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not have or reasonably be expected to result in:
(i) a material adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse effect on the results of operations, assets, business,
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prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken
as a whole, or (iii) a material adverse effect on the Company ’ s ability to perform in any
material respect on a timely basis its obligations under any Transaction Document (any of
(i), (ii) or (iii), a “ Material Adverse Effect ” ) and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
(c)
Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions contemplated by this
Agreement and each of the other Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of this Agreement and
each of the other Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by the
Company, the Board of Directors or the Company ’ s stockholders in connection herewith
or therewith other than in connection with the Required Approvals. This Agreement and
each other Transaction Document to which it is a party has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of creditors ’ rights
generally, (ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(d)
No Conflicts. The execution, delivery and performance by the Company of
this Agreement and the other Transaction Documents to which it is a party, the issuance
and sale of the Securities and the consummation by it of the transactions contemplated
hereby and thereby do not and will not (i) conflict with or violate any provision of the
Company ’ s or any Subsidiary ’ s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company or any Subsidiary,
or give to others any rights of termination, amendment, anti-dilution or similar adjustments,
acceleration or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material Adverse
Effect.
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(e)
Filings, Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other governmental authority or
other Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4
of this Agreement, (ii) the filing with the Commission pursuant to the Registration Rights
Agreement, (iii) the notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Shares and Warrant Shares for
trading thereon in the time and manner required thereby and (iv) the filing of Form D with
the Commission and such filings as are required to be made under applicable state
securities laws (collectively, the “ Required Approvals ” ).
(f)
Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction Documents.
The Warrant Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer provided for in the Transaction
Documents. The Company has reserved from its duly authorized capital stock the
maximum number of shares of Common Stock issuable pursuant to this Agreement and
the Warrants.
(g)
Capitalization. The capitalization of the Company as of the date hereof is
as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of
shares of Common Stock owned beneficially, and of record, by Affiliates of the Company
as of the date hereof. The Company has not issued any capital stock since its most recently
filed periodic report under the Exchange Act, other than pursuant to the exercise of
employee stock options under the Company ’ s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company ’ s employee stock purchase plans
and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding
as of the date of the most recently filed periodic report under the Exchange Act. No Person
has any right of first refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents. Except as a
result of the purchase and sale of the Securities, there are no outstanding options, warrants,
scrip rights to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common Stock or
the capital stock of any Subsidiary, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock or Common Stock Equivalents or capital stock of any
Subsidiary. The issuance and sale of the Securities will not obligate the Company or any
Subsidiary to issue shares of Common Stock or other securities to any Person (other than
the Purchasers). There are no outstanding securities or instruments of the Company or any
Subsidiary with any provision that adjusts the exercise, conversion, exchange or reset price
of such security or instrument upon an issuance of securities by the Company or any
Subsidiary. There are no outstanding securities or instruments of the Company or any
11
Subsidiary that contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any Subsidiary
is or may become bound to redeem a security of the Company or such Subsidiary. The
Company does not have any stock appreciation rights or “ phantom stock ” plans or
agreements or any similar plan or agreement. All of the outstanding shares of capital stock
of the Company are duly authorized, validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or other similar
agreements with respect to the Company ’ s capital stock to which the Company is a party
or, to the knowledge of the Company, between or among any of the Company ’ s
stockholders.
(h)
SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the Company
under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein, being collectively
referred to herein as the “ SEC Reports ” ) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the expiration of any
such extension. As of their respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange Act, as applicable,
and none of the SEC Reports, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were made, not
misleading. The Company has never been an issuer subject to Rule 144(i) under the
Securities Act. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods involved
( “ GAAP ” ), except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial position of the
Company and its consolidated Subsidiaries as of and for the dates thereof and the results
of operations and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
(i)
Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC Reports, except
as set forth on Schedule 3.1(i), (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business consistent with
12
past practice and (B) liabilities not required to be reflected in the Company ’ s financial
statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital stock
and (v) the Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans. The Company does not
have pending before the Commission any request for confidential treatment of information.
Except for the issuance of the Securities contemplated by this Agreement or as set forth on
Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has
occurred or exists or is reasonably expected to occur or exist with respect to the Company
or its Subsidiaries or their respective businesses, prospects, properties, operations, assets
or financial condition that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed made that has
not been publicly disclosed at least 1 Trading Day prior to the date that this representation
is made.
(j)
Litigation. Except as set forth in Item 3 of the Company ’ s Annual Report
on Form 10-K or as set forth on Schedule 3.1(j) attached hereto, there is no action, suit,
inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign) (collectively, an
“ Action ” ) which (i) adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
(k)
Labor Relations. No labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company, which could
reasonably be expected to result in a Material Adverse Effect. None of the Company ’ s or
its Subsidiaries ’ employees is a member of a union that relates to such employee ’ s
relationship with the Company or such Subsidiary, and neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company and its
Subsidiaries believe that their relationships with their employees are good. To the
knowledge of the Company, no executive officer of the Company or any Subsidiary is, or
is now expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or non-competition
agreement, or any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does not subject
13
the Company or any of its Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state,
local and foreign laws and regulations relating to employment and employment practices,
terms and conditions of employment and wages and hours, except where the failure to be
in compliance could not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
(l)
Compliance. Neither the Company nor any Subsidiary: (i) is in default
under or in violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in violation of any
judgment, decree, or order of any court, arbitrator or other governmental authority or (iii)
is or has been in violation of any statute, rule, ordinance or regulation of any governmental
authority, including without limitation all foreign, federal, state and local laws relating to
taxes, environmental protection, occupational health and safety, product quality and safety
and employment and labor matters, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.
(m)
Environmental Laws.
The Company and its Subsidiaries (i) are in
compliance with all federal, state, local and foreign laws relating to pollution or protection
of human health or the environment (including ambient air, surface water, groundwater,
land surface or subsurface strata), including laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous
substances or wastes (collectively, “ Hazardous Materials ” ) into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes,
decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice
letters, orders, permits, plans or regulations, issued, entered, promulgated or approved
thereunder ( “ Environmental Laws ” ); (ii) have received all permits licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses; and (iii) are in compliance with all terms and conditions of any such
permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply
could be reasonably expected to have, individually or in the aggregate, a Material Adverse
Effect.
(n)
Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses as described
in the SEC Reports, except where the failure to possess such permits could not reasonably
be expected to result in a Material Adverse Effect ( “ Material Permits ” ), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
14
(o)
Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and marketable
title in all personal property owned by them that is material to the business of the Company
and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not
materially affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the Subsidiaries and
(ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves
have been made therefor in accordance with GAAP and the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and enforceable
leases with which the Company and the Subsidiaries are in compliance.
(p)
Intellectual Property. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark applications, service
marks, trade names, trade secrets, inventions, copyrights, lice nses and other intellectual
property rights and similar rights necessary or required for use in connection with their
respective businesses as described in the SEC Reports and which the failure to so have
could have a Material Adverse Effect (collectively, the “ Intellectual Property Rights ” ).
None of, and neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of, the Intellectual Property Rights has expired, terminated or been
abandoned, or is expected to expire or terminate or be abandoned, within two (2) years
from the date of this Agreement. Neither the Company nor any Subsidiary has received,
since the date of the latest audited financial statements included within the SEC Reports, a
written notice of a claim or otherwise has any knowledge that the Intellectual Property
Rights violate or infringe upon the rights of any Person, except as could not have or
reasonably be expected to not have a Material Adverse Effect. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The Company
and its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where failure to do
so could not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(q)
Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance coverage at least
equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.
(r)
Transactions with Affiliates and Employees. Except as set forth on
Schedule 3.1(r), none of the officers or directors of the Company or any Subsidiary and, to
the knowledge of the Company, none of the employees of the Company or any Subsidiary
is presently a party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract, agreement or other
15
arrangement providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, providing for the borrowing of money from or lending of
money to or otherwise requiring payments to or from any officer, director or such employee
or, to the knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee, stockholder, member
or partner, in each case in excess of $120,000 other than for ( i) payment of salary or
consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) other employee benefits, including stock option agreements under
any stock option plan of the Company.
(s)
Sarbanes-Oxley; Internal Accounting Controls. The Company and the
Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-
Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules
and regulations promulgated by the Commission thereunder that are effective as of the date
hereof and as of the applicable Closing Date. The Company and the Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable assurance that: (i)
transactions are executed in accordance with management ’ s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management ’ s general or specific authorization,
and (iv) the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any differences. The
Company and the Subsidiaries have established disclosure contro ls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the
Subsidiaries and designed such disclosure controls and procedur es to ensure that
information required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission ’ s rules and forms. The Company ’ s certifying officers have
evaluated the effectiveness of the disclosure controls and procedures of the Company and
the Subsidiaries as of the end of the period covered by the most recently filed periodic
report under the Exchange Act (such date, the “ Evaluation Date ” ). The Company presented
in its most recently filed periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been
no changes in the internal control over financial reporting (as such term is defined in the
Exchange Act) of the Company and its Subsidiaries that have materially affected, or is
reasonably likely to materially affect, the internal control over financial reporting of the
Company and its Subsidiaries.
(t)
Certain Fees. No brokerage or finder ’ s fees or commissions are or will be
payable by the Company or any Subsidiary to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by the Transaction Documents. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by the Transaction Documents.
16
(u)
Private Placement. Assuming the accuracy of the Purchasers ’
representations and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
(v)
Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an
“ investment company ” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it will not become
an “ investment company ” subject to registration under the Investment Company Act of
1940, as amended.
(w)
Registration Rights. Other than each of the Purchasers, no Person has any
right to cause the Company or any Subsidiary to effect the registration under the Securities
Act of any securities of the Company or any Subsidiary that have not been satisfied either
through the filing of a resale registration statement or Rule 144 eligibility.
(x)
Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no
action designed to, or which to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the Company received
any notification that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and maintenance
requirements. The Common Stock is currently eligible for electronic transfer through the
Depository Trust Company or another established clearing corporation and the Company
is current in payment of the fees to the Depository Trust Company (or such other
established clearing corporation) in connection with such electronic transfer.
(y)
Application of Takeover Protections. Except as set forth on Schedule 3.1(y)
attached hereto, the Company and the Board of Directors have taken all necessary action,
if any, in order to render inapplicable any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company ’ s certificate of incorporation (or similar charter
documents) or the laws of its state of incorporation that is or could become applicable to
the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without limitation as a
result of the Company ’ s issuance of the Securities and the Purchasers ’ ownership of the
Securities.
(z)
Disclosure. Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms that
neither it nor any other Person acting on its behalf has provided any of the Purchasers or
17
their agents or counsel with any information that it believes constitutes or might constitute
material, non-public information.
The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting transactions in securities
of the Company. All of the disclosure furnished by or on behalf of the Company to the
Purchasers regarding the Company and its Subsidiaries, their respective businesses and the
transactions contemplated hereby, including the Disclosure Schedules to this Agreement,
is true and correct and does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The press releases
disseminated by the Company during the twelve months preceding the date of this
Agreement taken as a whole do not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were made and when
made, not misleading. The Company acknowledges and agrees that no Purchaser makes
or has made any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.
(aa) No Integrated Offering. Assuming the accuracy of the Purchasers ’
representations and warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of (i) the Securities Act which would require the
registration of any such securities under the Securities Act, or (ii) any applicable
shareholder approval provisions of any Trading Market on which any of the securities of
the Company are listed or designated.
(bb) Solvency. Based on the consolidated financial condition of the Company
as of the applicable Closing Date and the repayment of certain debt as set forth on Schedule
3.1(bb) out of the proceeds of this offering at Closing, after giving effect to the receipt by
the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable
value of the Company ’ s assets exceeds the amount that will be required to be paid on or in
respect of the Company ’ s existing debts and other liabilities (including known contingent
liabilities) as they mature, (ii) the Company ’ s assets do not constitute unreasonably small
capital to carry on its business as now conducted and as proposed to be conducted including
its capital needs taking into account the particular capital requirements of the business
conducted by the Company, consolidated and projected capital requirements and capital
availability thereof, and (iii) the current cash flow of the Company, together with the
proceeds the Company would receive, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The Company does not
intend to incur debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt). The Company
has no knowledge of any facts or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws of any
jurisdiction within one year from the applicable Closing Date. Schedule 3.1(bb) sets forth
as of the date hereof all outstanding secured and unsecured Indebtedness of the Company
18
or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, “ Indebtedness ” means (x) any liabilities for borrowed money
or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the
ordinary course of business), (y) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not the same are or should be
reflected in the Company ’ s consolidated balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (z) the present value of any lease
payments in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP. Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(cc) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse Effect, the
Company and its Subsidiaries each (i) has made or filed all United States federal, state and
local income and all foreign income and franchise tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or determined
to be due on such returns, reports and declarations and (iii) has set aside on its books
provision reasonably adequate for the payment of all material taxes for periods subsequent
to the periods to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company or of any Subsidiary know of no basis for any such claim.
(dd) No General Solicitation. Neither the Company nor any Person acting on
behalf of the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the Securities for sale only
to the Purchasers and certain other “ accredited investors ” within the meaning of Rule 501
under the Securities Act.
(ee) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to
the knowledge of the Company or any Subsidiary, any agent or other person acting on
behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign
or domestic political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political parties or
campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the
Company or any Subsidiary (or made by any person acting on its behalf of which the
Company is aware) which is in violation of law or (iv) violated in any material respect any
provision of FCPA.
(ff)
Accountants. The Company ’ s accounting firm is set forth on Schedule
3.1(ff) of the Disclosure Schedules. To the knowledge and belief of the Company, such
accounting firm (i) is a registered public accounting firm as required by the Exchange Act
and (ii) shall express its opinion with respect to the financial statements to be included in
the Company ’ s Annual Report for the fiscal year ending December 31, 2019.
19
(gg) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed to
its accountants and lawyers which could affect the Company ’ s ability to perform any of its
obligations under any of the Transaction Documents.
(hh)
Acknowledgment Regarding Purchasers ’ Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm ’ s length purchaser with respect to the Transaction Documents and the
transactions contemplated thereby. The Company further acknowledges that no Purchaser
is acting as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated thereby and
any advice given by any Purchaser or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers ’ purchase of the Securities. The Company further
represents to each Purchaser that the Company ’ s decision to enter into this Agreement and
the other Transaction Documents has been based solely on the independent evaluation of
the transactions contemplated hereby by the Company and its representatives.
(ii)
Acknowledgment Regarding Purchaser ’ s Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections
3.2[(g) and 4.14 hereof), it is understood and acknowledged by the Company that: (i) none
of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed,
to desist from purchasing or selling, securities of the Company, or “ derivative ” securities
based on securities issued by the Company or to hold the Securities for any specified term,
(ii) past or future open market or other transactions by any Purchaser before or after the
closing of this or future private placement transactions, may negatively impact the market
price of the Company ’ s publicly-traded securities, and (iii) ea ch Purchaser shall not be
deemed to have any affiliation with or control over any arm ’ s length counter-party in any
“ derivative ” transaction. The Company further understands and acknowledges that (y) one
or more Purchasers may engage in hedging activities at various times during the period that
the Securities are outstanding, including, without limitation, during the periods that the
value of the Warrant Shares deliverable with respect to Securities are being determined,
and (z) such hedging activities (if any) could reduce the value of the existing stockholders'
equity interests in the Company at and after the time that the hedging activities are being
conducted. The Company acknowledges that such aforementioned hedging activities do
not constitute a breach of any of the Transaction Documents.
(jj)
Regulation M Compliance. The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause
or to result in the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid
any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed
to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company ’ s placement agent in connection with the placement of the Securities.
20
(kk) FDA. As to each product subject to the jurisdiction of the U.S. Food and
Drug Administration ( “ FDA ” ) under the Federal Food, Drug and Cosmetic Act, as
amended, and the regulations thereunder ( “ FDCA ” ) that is manufactured, packaged,
labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries
(each such product, a “ Pharmaceutical Product ” ), such Pharmaceutical Product is being
manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company
in compliance with all applicable requirements under FDCA and similar laws, rules and
regulations relating to registration, investigational use, premarket clearance, licensure, or
application approval, good manufacturing practices, good laboratory practices, good
clinical practices, product listing, quotas, labeling, advertising, record keeping and filing
of reports, except where the failure to be in compliance would not have a Material Adverse
Effect. There is no pending, completed or, to the Company's knowledge, threatened, action
(including any lawsuit, arbitration, or legal or administrative or regulatory proceeding,
charge, complaint, or investigation) against the Company or any of its Subsidiaries, and
none of the Company or any of its Subsidiaries has received any notice, warning letter or
other communication from the FDA or any other governmental entity, which (i) contests
the premarket clearance, licensure, registration, or approval of, the uses of, the distribution
of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and
promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the
recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or
sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical
hold on any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins
production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes
to enter into a consent decree of permanent injunction with the Company or any of its
Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations by the
Company or any of its Subsidiaries, and which, either individually or in the aggregate,
would have a Material Adverse Effect. The properties, business and operations of the
Company have been and are being conducted in all material respects in accordance with all
applicable laws, rules and regulations of the FDA. The Company has not been informed by
the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of
any product proposed to be developed, produced or marketed by the Company nor has the
FDA expressed any concern as to approving or clearing for marketing any product being
developed or proposed to be developed by the Company.
(ll)
Stock Option Plans. Each stock option granted by the Company under the
Company ’ s stock option plan was granted (i) in accordance with the terms of the
Company ’ s stock option plan and (ii) with an exercise price at least equal to the fair market
value of the Common Stock on the date such stock option would be considered granted
under GAAP and applicable law. No stock option granted under the Company ’ s stock
option plan has been backdated. The Company has not knowingly granted, and there is no
and has been no Company policy or practice to knowingly grant, stock options prior to, or
otherwise knowingly coordinate the grant of stock options with, the release or other public
announcement of material information regarding the Company or its Subsidiaries or their
financial results or prospects.
(mm) Office of Foreign Assets Control. Neither the Company nor any Subsidiary
nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the
21
Company or any Subsidiary is currently subject to any U.S. sanctions administered by the
Office of Foreign Assets Control of the U.S. Treasury Department ( “ OFAC ” ).
(nn) U.S. Real Property Holding Corporation. The Company is not and has
never been a U.S. real property holding corporation within the meaning of Section 897 of
the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon
Purchaser ’ s request.
(oo) Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended
(the “ BHCA ” ) and to regulation by the Board of Governors of the Federal Reserve System
(the “ Federal Reserve ” ). Neither the Company nor any of its Subsidiaries or Affiliates
owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares
of any class of voting securities or twenty-five percent or more of the total equity of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over
the management or policies of a bank or any entity that is subject to the BHCA and to
regulation by the Federal Reserve.
(pp) Money Laundering. The operations of the Company and its Subsidiaries
are and have been conducted at all times in compliance with applicable financial record-
keeping and reporting requirements of the Currency and Foreign Transactions Reporting
Act of 1970, as amended, applicable money laundering statutes and applicable rules and
regulations thereunder (collectively, the “ Money Laundering Laws ” ), and no Action or
Proceeding by or before any court or governmental agency, authority or body or any
arbitrator involving the Company or any Subsidiary with respect to the Money Laundering
Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
(qq) No Disqualification Events. With respect to the Securities to be offered and
sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any
of its predecessors, any affiliated issuer, any director, executive officer, other officer of the
Company participating in the offering hereunder, any beneficial owner of 20% or more of
the Company ’ s outstanding voting equity securities, calculated on the basis of voting
power, nor any promoter (as that term is defined in Rule 405 under the Securities Act)
connected with the Company in any capacity at the time of sale (each, an “ Issuer Covered
Person ” and, together, “ Issuer Covered Persons ” ) is subject to any of the "Bad Actor"
disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a
“ Disqualification Event ” ), except for a Disqualification Event covered by Rule 506(d)(2)
or (d)(3). The Company has exercised reasonable care to determine whether any Issuer
Covered Person is subject to a Disqualification Event. The Company has complied, to the
extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to
the Purchasers a copy of any disclosures provided thereunder.
(rr)
Other Covered Persons. The Company is not aware of any person (other
than any Issuer Covered Person) that has been or will be paid (directly or indirectly)
remuneration for solicitation of purchasers in connection with the sale of any Securities.
22
(ss)
Notice of Disqualification Events. The Company will notify the Purchasers
in writing, prior to the applicable Closing Date of (i) any Disqualification Event relating to
any Issuer Covered Person and (ii) any event that would, with the passage of time, become
a Disqualification Event relating to any Issuer Covered Person.
3.2
Representations and Warranties of the Purchasers. Each Purchaser, for itself and
for no other Purchaser, hereby represents and warrants as of the date hereof and as of the applicable
Closing Date to the Company as follows (unless as of a specific date therein, in which case they
shall be accurate as of such date):
(a)
Organization; Authority. Such Purchaser is either an individual or an entity
duly incorporated or formed, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation with full right, corporate, partnership, limited
liability company or similar power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of the Transaction
Documents and performance by such Purchaser of the transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate, partnership,
limited liability company or similar action, as applicable, on the part of such Purchaser.
Each Transaction Document to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser, enforceable against
it in accordance with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors ’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be limited
by applicable law.
(b)
Own Account. Such Purchaser understands that the Securities are
“ restricted securities ” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for its own
account and not with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of the Securities Act or
any applicable state securities law and has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding the distribution of such
Securities in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting such Purchaser ’ s right to sell the Securities
pursuant to the Registration Statement or otherwise in compliance with applicable federal
and state securities laws). Such Purchaser is acquiring the Securities hereunder in the
ordinary course of its business.
(c)
Purchaser Status. At the time such Purchaser was offered the Securities, it
was, and as of the date hereof it is, and on each date on which it exercises any Warrants, it
will be either: (i) an “ accredited investor ” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7)
23
or (a)(8) under the Securities Act or (ii) a “ qualified institutional buyer ” as defined in Rule
144A(a) under the Securities Act.
(d)
Experience of Such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the Securities and, at
the present time, is able to afford a complete loss of such investment.
(e)
General Solicitation. Such Purchaser is not, to such Purchaser ’ s knowledge,
purchasing the Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or similar
media or broadcast over television or radio or presented at any seminar or, to the knowledge
of such Purchaser, any other general solicitation or general advertisement.
(f)
Access to Information. Such Purchaser acknowledges that it has had the
opportunity to review the Transaction Documents (including all exhibits and schedules
thereto) and the SEC Reports and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from, representatives of
the Company concerning the terms and conditions of the offering of the Securities and the
merits and risks of investing in the Securities; (ii) access to information about the Company
and its financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain
such additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment decision
with respect to the investment. Such Purchaser acknowledges and agrees that neither the
Placement Agent nor any Affiliate of the Placement Agent has provided such Purchaser
with any information or advice with respect to the Securities nor is such information or
advice necessary or desired. Neither the Placement Agent nor any Affiliate has made or
makes any representation as to the Company or the quality of the Securities and the
Placement Agent and any Affiliate may have acquired non-public information with respect
to the Company which such Purchaser agrees need not be provided to it. In connection
with the issuance of the Securities to such Purchaser, neither the Placement Agent nor any
of its Affiliates has acted as a financial advisor or fiduciary to such Purchaser.
(g)
Certain Transactions and Confidentiality. Other than consummating the
transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on
behalf of or pursuant to any understanding with such Purchaser, directly or indirectly
executed any purchases or sales of the securities of the Company during the period
commencing as of the time that such Purchaser first received a term sheet (written or oral)
from the Company or any other Person representing the Company setting forth the material
terms of the transactions contemplated hereunder and ending immediately prior to the
execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-
managed investment vehicle whereby separate portfolio managers manage separate
portions of such Purchaser ’ s assets and the portfolio managers have no direct knowledge
of the investment decisions made by the portfolio managers managing other portions of
24
such Purchaser ’ s assets, the representation set forth above shall only apply with respect to
the portion of assets managed by the portfolio manager that made the investment decision
to purchase the Securities covered by this Agreement. Other than to other Persons party to
this Agreement or to such Purchaser ’ s representatives, including, without limitation, its
officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such
Purchaser has maintained the confidentiality of all disclosures made to it in connection
with this transaction (including the existence and terms of this transaction).
The Company acknowledges and agrees that the representations contained in this Section
3.2 shall not modify, amend or affect such Purchaser ’ s right to rely on the Company ’ s
representations and warranties contained in this Agreement or any representations and warranties
contained in any other Transaction Document or any other document or instrument executed and/or
delivered in connection with this Agreement or the consummation of the transactions contemplated
hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1
Transfer Restrictions.
(a)
The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than pursuant to an
effective registration statement or Rule 144, to the Company or to an Affiliate of a
Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion of counsel selected
by the transferor and reasonably acceptable to the Company, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the Securities Act.
As a condition of transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and the Registration Rights Agreement and shall have the rights
and obligations of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b)
The Purchasers agree to the imprinting, so long as is required by this Section
4.1, of a legend on any of the Securities in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ” ), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN
25
WITH A FINANCIAL INSTITUTION THAT IS AN “ ACCREDITED INVESTOR ” AS
DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN
SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a
security interest in some or all of the Securities to a financial institution that is an
“ accredited investor ” as defined in Rule 501(a) under the Securities Act and, if required
under the terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject
to approval of the Company and no legal opinion of legal counsel of the pledgee, secured
party or pledgor shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the appropriate Purchaser ’ s expense, the Company will execute
and deliver such reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities, including, if
the Securities are subject to registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule 424(b)(3) under
the Securities Act or other applicable provision of the Securities Act to appropriately
amend the list of Selling Stockholders (as defined in the Registration Rights Agreement)
thereunder.
(c)
Certificates evidencing the Shares and Warrant Shares shall not contain any
legend (including the legend set forth in Section 4.1(b) hereof ), (i) while a registration
statement (including the Registration Statement) covering the resale of such security is
effective under the Securities Act, (ii) following any sale of such Shares or Warrant Shares
pursuant to Rule 144 (assuming cashless exercise of the Warrants), (iii) if such Shares or
Warrant Shares are eligible for sale under Rule 144 (assuming cashless exercise of the
Warrants), without the requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Shares and Warrant Shares and
without volume or manner-of-sale restrictions], or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause its
counsel to issue a legal opinion to the Transfer Agent or the Purchaser promptly after the
Effective Date if required by the Transfer Agent to effect the removal of the legend
hereunder, or if requested by a Purchaser, respectively. If all or any portion of a Warrant
is exercised at a time when there is an effective registration statement to cover the resale
of the Warrant Shares, or if such Shares or Warrant Shares may be sold under Rule 144
and the Company is then in compliance with the current public information required under
Rule 144 (assuming cashless exercise of the Warrants), or if the Shares or Warrant Shares
may be sold under Rule 144 without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to such Shares or Warrant
Shares or if such legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by the staff
of the Commission) then such Warrant Shares shall be issued free of all legends. The
Company agrees that following the Effective Date or at such time as such legend is no
longer required under this Section 4.1(c), it will, no later th an the earlier of (i) two (2)
Trading Days and (ii) the number of Trading Days comprising the Standard Settlement
26
Period (as defined below) following the delivery by a Purchaser to the Company or the
Transfer Agent of a certificate representing Shares or Warrant Shares, as the case may be,
issued with a restrictive legend (such date, the “ Legend Removal Date ” ), deliver or cause
to be delivered to such Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation on its records or
give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in
this Section 4. Certificates for Securities subject to legend removal hereunder shall be
transmitted by the Transfer Agent to the Purchaser by crediting the account of the
Purchaser ’ s prime broker with the Depository Trust Company System as directed by such
Purchaser. As used herein, “ Standard Settlement Period ” means the standard settlement
period, expressed in a number of Trading Days, on the Company ’ s primary Trading Market
with respect to the Common Stock as in effect on the date of delivery of a certificate
representing Shares or Warrants Shares, as the case may be, issued with a restrictive legend.
(d)
In addition to such Purchaser ’ s other available remedies, the Company shall
pay to a Purchaser, in cash, (i) as partial liquidated damages and not as a penalty, for each
$1,000 of Shares or Warrant Shares (based on the VWAP of the Common Stock on the
date such Securities are submitted to the Transfer Agent) delivered for removal of the
restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per
Trading Day five (5) Trading Days after such damages have begun to accrue) for each
Trading Day after the Legend Removal Date until such certificate is delivered without a
legend and (ii) if the Company fails to (a) issue and deliver (or cause to be delivered) to a
Purchaser by the Legend Removal Date a certificate representing the Securities so
delivered to the Company by such Purchaser that is free from all restrictive and other
legends and (b) if after the Legend Removal Date such Purchaser purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by such Purchaser of all or any portion of the number of shares of Common Stock, or
a sale of a number of shares of Common Stock equal to all or any portion of the number of
shares of Common Stock that such Purchaser anticipated receiving from the Company
without any restrictive legend, then, an amount equal to the excess of such Purchaser ’ s
total purchase price (including brokerage commissions and other out-of-pocket expenses,
if any) for the shares of Common Stock so purchased (including brokerage commissions
and other out-of-pocket expenses, if any) (the “ Buy-In Price ” ) over the product of (A) such
number of Shares or Warrant Shares that the Company was required to deliver to such
Purchaser by the Legend Removal Date multiplied by (B) the lowest closing sale price of
the Common Stock on any Trading Day during the period commencing on the date of the
delivery by such Purchaser to the Company of the applicable Shares or Warrant Shares (as
the case may be) and ending on the date of such delivery and payment under this clause
(ii).
(e)
Each Purchaser, severally and not jointly with the other Purchasers, agrees
with the Company that such Purchaser will sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant
to a Registration Statement, they will be sold in compliance with the plan of distribution
set forth therein, and acknowledges that the removal of the restrictive legend from
27
certificates representing Securities as set forth in this Section 4.1 is predicated upon the
Company ’ s reliance upon this understanding.
4.2
Furnishing of Information; Public Information.
(a)
If the Common Stock is not registered under Section 12(b) or 12(g) of the
Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be
registered under Section 12(g) of the Exchange Act on or before the 60 th calendar day
following the date hereof. Until the earliest of the time that (i) no Purchaser owns Securities
or (ii) the Warrants have expired, the Company covenants to maintain the registration of
the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or
obtain extensions in respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the Exchange Act
even if the Company is not then subject to the reporting requirements of the Exchange Act.
(b)
At any time during the period commencing from the six (6) month
anniversary of the date hereof and ending at such time that all of the Securities may be sold
without the requirement for the Company to be in compliance with Rule 144(c)(1) and
otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) shall
fail for any reason to satisfy the current public information requirement under Rule 144(c)
or (ii) has ever been an issuer described in Rule 144(i)(1)(i) or becomes an issuer in the
future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a
“ Public Information Failure ” ) then, in addition to such Purchaser ’ s other available
remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and
not as a penalty, by reason of any such delay in or reduction of its ability to sell the
Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription
Amount of such Purchaser ’ s Securities on the day of a Public Information Failure and on
every thirtieth (30 th ) day (pro rated for periods totaling less than thirty days) thereafter until
the earlier of (a) the date such Public Information Failure is cured and (b) such time that
such public information is no longer required for the Purchasers to transfer the Shares and
Warrant Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled
pursuant to this Section 4.2(b) are referred to herein as “ Public Information Failure
Payments. ” Public Information Failure Payments shall be paid on the earlier of (i) the last
day of the calendar month during which such Public Information Failure Payments are
incurred and (ii) the third (3 rd ) Business Day after the event or failure giving rise to the
Public Information Failure Payments is cured. In the event the Company fails to make
Public Information Failure Payments in a timely manner, such Public Information Failure
Payments shall bear interest at the rate of 1.5% per month (prorated for partial months)
until paid in full. Nothing herein shall limit such Purchaser ’ s right to pursue actual damages
for the Public Information Failure, and such Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
4.3
Integration. The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities or that would be integrated with
28
the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market
such that it would require shareholder approval prior to the closing of such other transaction unless
shareholder approval is obtained before the closing of such subsequent transaction.
4.4
Securities Laws Disclosure; Publicity. The Company shall (a) by the Disclosure
Time, issue a press release disclosing the material terms of the transactions contemplated hereby,
and (b) file a Current Report on Form 8-K, including the Transaction Documents as exhibits
thereto, with the Commission within the time required by the Exchange Act. From and after the
issuance of such press release, the Company represents to the Purchasers that it shall have publicly
disclosed all material, non-public information delivered to any of the Purchasers by the Company
or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in
connection with the transactions contemplated by the Transaction Documents. In addition,
effective upon the issuance of such press release, the Company acknowledges and agrees that any
and all confidentiality or similar obligations under any agreement, whether written or oral, between
the Company, any of its Subsidiaries or any of their respective officers, directors, agents,
employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the
other hand, shall terminate. The Company and each Purchaser shall consult with each other in
issuing any other press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release nor otherwise make any such
public statement without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of
the Company, which consent shall not unreasonably be withheld or delayed, except if such
disclosure is required by law, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (a) as required by federal securities law in
connection with (i) any registration statement contemplated by the Registration Rights Agreement
and (ii) the filing of final Transaction Documents with the Commission and (b) to the extent such
disclosure is required by law or Trading Market regulations, in which case the Company shall
provide the Purchasers with prior notice of such disclosure permitted under this clause (b).
4.5
Shareholder Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an “ Acquiring Person ”
under any control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any
such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or
under any other agreement between the Company and the Purchasers.
4.6
Non-Public Information. Except with respect to the material terms and conditions
of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant
to Section 4.4, the Company covenants and agrees that neither it, nor any other Person acting on
its behalf will provide any Purchaser or its agents or counsel with any information that constitutes,
or the Company reasonably believes constitutes, material non-public information, unless prior
thereto such Purchaser shall have consented to the receipt of such information and agreed with the
Company to keep such information confidential. The Company understands and confirms that
29
each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of
the Company. To the extent that the Company delivers any material, non-public information to a
Purchaser without such Purchaser ’ s consent, the Company hereby covenants and agrees that such
Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or
any of their respective officers, directors, agents, employees or Affiliates, or a duty to the
Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees
or Affiliates not to trade on the basis of, such material, non-public information, provided that the
Purchaser shall remain subject to applicable law. To the extent that any notice provided pursuant
to any Transaction Document constitutes, or contains, material, non-public information regarding
the Company or any Subsidiaries, the Company shall simultaneously file such notice with the
Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms
that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities
of the Company.
4.7
Use of Proceeds. The Company shall use $__________ of the net proceeds from
the sale of the Securities hereunder for working capital purposes and the balance shall be used for
the satisfaction of the Company ’ s debt as set forth on Schedule 4.7.
4.8
Indemnification of Purchasers. Subject to the provisions of this Section 4.8, the
Company will indemnify and hold each Purchaser and its directors, officers, shareholders,
members, partners, employees and agents (and any other Persons with a functionally equivalent
role of a Person holding such titles notwithstanding a lack of such title or any other title), each
Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members,
partners or employees (and any other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any other title) of such controlling persons
(each, a “ Purchaser Party ” ) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements,
court costs and reasonable attorneys ’ fees and costs of investigation that any such Purchaser Party
may suffer or incur as a result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity,
or any of them or their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is solely based upon a material breach of such
Purchaser Party ’ s representations, warranties or covenants under the Transaction Documents or
any agreements or understandings such Purchaser Party may have with any such stockholder or
any violations by such Purchaser Party of state or federal securities laws or any conduct by such
Purchaser Party which is finally judicially determined to constitute fraud, gross negligence or
willful misconduct). If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party
shall have the right to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel* 々 怄 뀄 䀄 〄 倄 耀 〄 䀅 瀀 Mthe expense of such Purchaser Party
except to the extent that (i) the employment thereof has been specifically authorized by the
Company in writing, (ii) the Company has failed after a reasonable period of time to assume such
30
defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel,
a material conflict on any material issue between the position of the Company and the position of
such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and
expenses of no more than one such separate counsel. The Company will not be liable to any
Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without
the Company ’ s prior written consent, which shall not be unreasonably withheld or delayed; or (z)
to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party ’ s breach of any of the representations, warranties, covenants or agreements made
by such Purchaser Party in this Agreement or in the other Transaction Documents. The
indemnification required by this Section 4.8 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are received or are
incurred. The indemnity agreements contained herein shall be in addition to any cause of action or
similar right of any Purchaser Party against the Company or others and any liabilities the Company
may be subject to pursuant to law.
4.9
Reservation of Common Stock. As of the date hereof, the Company has reserved
and the Company shall continue to reserve and keep available at all times, free of preemptive
rights, 300% of the number of shares of Common Stock for the purpose of enabling the Company
to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any exercise of the
Warrants.
4.10 Listing of Common Stock. The Company hereby agrees to use best efforts to
maintain the listing or quotation of the Common Stock on the Trading Market on which it is
currently listed, and concurrently with the Closing, the Company shall apply to list or quote all of
the Shares and Warrant Shares on such Trading Market and promptly secure the listing of all of
the Shares and Warrant Shares on such Trading Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Trading Market, it will then
include in such application all of the Shares and Warrant Shares, and will take such other action
as is necessary to cause all of the Shares and Warrant Shares to be listed or quoted on such other
Trading Market as promptly as possible. The Company will then take all action reasonably
necessary to continue the listing and trading of its Common Stock on a Trading Market and will
comply in all respects with the Company ’ s reporting, filing and other obligations under the bylaws
or rules of the Trading Market. The Company agrees to maintain the eligibility of the Common
Stock for electronic transfer through the Depository Trust Company or another established clearing
corporation, including, without limitation, by timely payment of fees to the Depository Trust
Company or such other established clearing corporation in connection with such electronic
transfer.
4.11 Participation in Future Financing.
(a)
From the date hereof until the date that is the 12-month anniversary of the
Effective Date, upon any issuance by the Company or any of its Subsidiaries of Common
Stock or Common Stock Equivalents for cash consideration, Indebtedness or a combination
of units thereof (a “ Subsequent Financing ” ), each Purchaser shall have the right to
participate in up to an amount of the Subsequent Financing equal to 20% of the Subsequent
Financing (the “ Participation Maximum ” ) on the same terms, conditions and price
provided for in the Subsequent Financing.
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(b)
At least five (5) Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing ( “ Pre-Notice ” ), which Pre-Notice shall ask such Purchaser
if it wants to review the details of such financing (such additional notice, a “ Subsequent
Financing Notice ” ). Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later
than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the
proposed terms of such Subsequent Financing, the amount of proceeds intended to be
raised thereunder and the Person or Persons through or with whom such Subsequent
Financing is proposed to be effected and shall include a term sheet or similar document
relating thereto as an attachment.
(c)
Any Purchaser desiring to participate in such Subsequent Financing must
provide written notice to the Company by not later than 5:30 p.m. (New York City time)
on the fifth (5 th ) Trading Day after all of the Purchasers have received the Pre-Notice that
such Purchaser is willing to participate in the Subsequent Financing, the amount of such
Purchaser ’ s participation, and representing and warranting that such Purchaser has such
funds ready, willing, and available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no such notice from a Purchaser as of such
fifth (5 th ) Trading Day, such Purchaser shall be deemed to have notified the Company that
it does not elect to participate.
(d)
If by 5:30 p.m. (New York City time) on the fifth (5 th ) Trading Day after all
of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their
willingness to participate in the Subsequent Financing (or to c ause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent Financing,
then the Company may effect the remaining portion of such Subsequent Financing on the
terms and with the Persons set forth in the Subsequent Financing Notice.
(e)
If by 5:30 p.m. (New York City time) on the fifth (5 th ) Trading Day after all
of the Purchasers have received the Pre-Notice, the Company receives responses to a
Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate
amount of the Participation Maximum, each such Purchaser shall have the right to purchase
its Pro Rata Portion (as defined below) of the Participation Maximum. “ Pro Rata Portion ”
means the ratio of (x) the Subscription Amount of Securities purchased on each Closing
Date by a Purchaser participating under this Section 4.11 and (y) the sum of the aggregate
Subscription Amounts of Securities purchased on such Closing Dates by all Purchasers
participating under this Section 4.11.
(f)
The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation set forth
above in this Section 4.11, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in such
Subsequent Financing Notice within thirty (30) Trading Days after the date of the initial
Subsequent Financing Notice.
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(g)
The Company and each Purchaser agree that if any Purchaser elects to
participate in the Subsequent Financing, the transaction documents related to the
Subsequent Financing shall not include any term or provision that, directly or indirectly,
will, or is intended to, exclude one or more of the Purchasers from participating in a
Subsequent Financing, including, but not limited to, provisions whereby such Purchaser
shall be required to agree to any restrictions on trading as to any of the Securities purchased
hereunder or be required to consent to any amendment to or termination of, or grant any
waiver, release or the like under or in connection with, this Agreement, without the prior
written consent of such Purchaser.
(h)
Notwithstanding anything to the contrary in this Section 4.11 and unless
otherwise agreed to by such Purchaser, the Company shall either confirm in writing to such
Purchaser that the transaction with respect to the Subsequent Financing has been
abandoned or shall publicly disclose its intention to issue the securities in the Subsequent
Financing, in either case in such a manner such that such Purchaser will not be in
possession of any material, non-public information, by the tenth (10 th ) Business Day
following delivery of the Subsequent Financing Notice. If by such tenth (10 th ) Business
Day, no public disclosure regarding a transaction with respect to the Subsequent Financing
has been made, and no notice regarding the abandonment of such transaction has been
received by such Purchaser, such transaction shall be deemed to have been abandoned and
such Purchaser shall not be deemed to be in possession of any material, non-public
information with respect to the Company or any of its Subsidiaries.
(i)
Notwithstanding the foregoing, this Section 4.11 shall not apply in respect
of an Exempt Issuance and, as to the contemplated Maxim Offering, the Participation
Maximum shall be $1,000,000 rather than 20% of the aggregate offering amount.
4.12 Subsequent Equity Sales.
(a)
From the date hereof until 180 days after the Effective Date, neither the
Company nor any Subsidiary shall issue, enter into any agreement to issue or announce the
issuance or proposed issuance of any shares of Common Stock or Common Stock
Equivalents.
(b)
From the date hereof until such time as no Purchaser holds any of the
Warrants, the Company shall be prohibited from effecting or entering into an agreement to
effect any issuance by the Company or any of its Subsidiaries of Common Stock or
Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate
Transaction or are registered or include registration rights. “ Variable Rate Transaction ”
means a transaction in which the Company (i) issues or sells any debt or equity securities
that are convertible into, exchangeable or exercisable for, or include the right to receive,
additional shares of Common Stock either (A) at a conversion price, exercise price or
exchange rate or other price that is based upon, and/or varies with, the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance of such
debt or equity securities or (B) with a conversion, exercise or exchange price that is subject
to being reset at some future date after the initial issuance of such debt or equity security
or upon the occurrence of specified or contingent events directly or indirectly related to the
33
business of the Company or the market for the Common Stock or (ii) enters into, or effects
a transaction under, any agreement, including, but not limited to, an equity line of credit,
whereby the Company may issue securities at a future determined price. Any Purchaser
shall be entitled to obtain injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect damages.
(c)
Notwithstanding the foregoing, Section 4.12(a) shall not apply in respect of
(i) an Exempt Issuance, (ii) an issuance of Common Stock or Common Stock Equivalents
for a fixed price of at least $0.50 per share, subject to adjustment for reverse and forward
stock splits and the like or (iii) and underwritten fully marketed public offering of the
Company ’ s securities at a fixed price that raises gross proceeds of at least $10 million or
(iv) a contemplated offering of securities of the Company at a fixed price of up to $6 million
with customary registration rights through Maxim Group LLC as sole placement agent
( “ Maxim Offering ” ); provided, however, such placement must close and release funds
from escrow upon receipt of $1,000,000 into escrow or interest from investors.
Notwithstanding anything herein to the contrary, in no event shall any of the
aforementioned exceptions allow for a Variable Rate Transaction.
4.13 Equal Treatment of Purchasers. No consideration (including any modification of
any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver
or modification of any provision of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class
and shall not in any way be construed as the Purchasers acting in concert or as a group with respect
to the purchase, disposition or voting of Securities or otherwise.
4.14 Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly
with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or
pursuant to any understanding with it will execute any purchases or sales of any of the Company ’ s
securities during the period commencing with the execution of this Agreement and ending at such
time that the transactions contemplated by this Agreement are first publicly announced pursuant
to the initial press release as described in Section 4.4. Each Purchaser, severally and not jointly
with the other Purchasers, covenants that until such time as the transactions contemplated by this
Agreement are publicly disclosed by the Company pursuant to the initial press release as described
in Section 4.4, such Purchaser will maintain the confidentiality of the existence and terms of this
transaction and the information included in the Disclosure Schedules. Notwithstanding the
foregoing and notwithstanding anything contained in this Agreement to the contrary, the Company
expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or
covenant hereby that it will not engage in effecting transactions in any securities of the Company
after the time that the transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.4, (ii) no Purchaser shall be restricted
or prohibited from effecting any transactions in any securities of the Company in accordance with
applicable securities laws from and after the time that the transactions contemplated by this
Agreement are first publicly announced pursuant to the initial press release as described in Section
4.4 and (iii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities
of the Company to the Company or its Subsidiaries after the issuance of the initial press release as
34
described in Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-
managed investment vehicle whereby separate portfolio managers manage separate portions of
such Purchaser ’ s assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such Purchaser ’ s assets, the
covenant set forth above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities covered by this
Agreement.
4.15 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy thereof, promptly
upon request of any Purchaser. The Company shall take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities
for, sale to the Purchasers at the Closing under applicable securities or “ Blue Sky ” laws of the
states of the United States, and shall provide evidence of such actions promptly upon request of
any Purchaser.
4.16 Capital Changes. Until the one-year anniversary of the Effective Date, the
Company shall not undertake a reverse or forward stock split or reclassification of the Common
Stock without the prior written consent of the Purchasers holding a majority in interest of the
Shares.
4.17 Acknowledgment of Dilution. The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of Common Stock, which dilution
may be substantial under certain market conditions. The Company further acknowledges that its
obligations under the Transaction Documents, including, without limitation, its obligation to issue
the Shares and Warrant Shares pursuant to the Transaction Documents, are unconditional and
absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the
effect of any such dilution or any claim the Company may have against any Purchaser and
regardless of the dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
4.18 Most Favored Nation Provision. From the date hereof until the date when such
Purchaser no longer holds any of the Shares, if the Company effects a Subsequent Financing, each
Purchaser may elect, in its sole discretion, to exchange all or some of the Shares (but not the
Warrants) then held by such Purchaser for any securities or units issued in a Subsequent Financing
on a $1.00 for $1.00 basis based on the Subscription Amount paid for such Shares, along with any
accrued but unpaid interest, liquidated damages and other amounts owing thereon, and the
effective price at which such securities were sold in such Subsequent Financing. Any Purchaser
shall be entitled to obtain injunctive relief against the Company to enforce the provisions
hereunder, which remedy shall be in addition to any right to collect damages.
ARTICLE V.
MISCELLANEOUS
5.1
Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser ’ s obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other parties, if the Closing
35
has not been consummated on or before the fifth (5 th ) Trading Day following the date hereof;
provided, however, that no such termination will affect the right of any party to sue for any breach
by any other party (or parties).
5.2
Fees and Expenses. At the Closing, the Company has agreed to reimburse Ionic
Ventures LLC ( “ Ionic ” ) for its legal fees and expenses, otherwise pursuant to the term sheet
entered into between Ionic and the Company prior to the date hereof. Accordingly, in lieu of the
foregoing payments, the aggregate amount that Ionic is to pay for the Securities at the Closing
shall be reduced by such reimbursement amount in lieu thereof. Except as expressly set forth in
the Transaction Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any
fees required for same-day processing of any instruction letter delivered by the Company and any
exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in
connection with the delivery of any Securities to the Purchasers.
5.3
Entire Agreement. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect to the subject matter
hereof and thereof and supersede all prior agreements and understandings, oral or written, with
respect to such matters, which the parties acknowledge have been merged into such documents,
exhibits and schedules.
5.4
Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of: (a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number or email attachment at the email address as set forth on the
signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day,
(b) the next Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number or email attachment at the email address as set forth
on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m.
(New York City time) on any Trading Day, (c) the second (2 nd ) Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt
by the party to whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto. To the extent that any
notice provided pursuant to any Transaction Document constitutes, or contains material, non-
public information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.
5.5
Amendments; Waivers. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an amendment, by
the Company and Purchasers which purchased at least 67% in interest of the Shares based on the
initial Subscription Amounts hereunder or, in the case of a waiver, by the party against whom
enforcement of any such waived provision is sought, provided that if any amendment, modification
or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the
consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be
required. No waiver of any default with respect to any provision, condition or requirement of this
36
Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the exercise of any
such right. Any proposed amendment or waiver that disproportionately, materially and adversely
affects the rights and obligations of any Purchaser relative to the comparable rights and obligations
of the other Purchasers shall require the prior written consent of such adversely affected Purchaser.
Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser
and holder of Securities and the Company.
5.6
Headings. The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.7
Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign
this Agreement or any rights or obligations hereunder without the prior written consent of each
Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this
Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided
that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the “ Purchasers. ”
5.8
No Third-Party Beneficiaries. [The Placement Agent shall be the third party
beneficiary of the representations and warranties of the Company in Section 3.1 and the
representations and warranties of the Purchasers in Section 3.2. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted assigns and is not for
the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise
set forth in Section 4.8 [and this Section 5.8.
5.9
Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal Proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed herein (including
with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an
inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such Action or Proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other manner permitted by
37
law. If any party shall commence an Action or Proceeding to enforce any provisions of the
Transaction Documents, then, in addition to the obligations of the Company under Section 4.8, the
prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for
its reasonable attorneys ’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Action or Proceeding.
5.10 Survival. The representations and warranties contained herein shall survive the
Closing and the delivery of the Securities.
5.11 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to each other party, it
being understood that the parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission or by e-mail delivery of a “ .pdf ” format data file, such
signature shall create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile or “ .pdf ” signature
page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their
commercially reasonable efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision, covenant or restriction.
It is hereby stipulated and declared to be the intention of the parties that they would have executed
the remaining terms, provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related obligations within the
periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from
time to time upon written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided, however, that, in the case of
a rescission of an exercise of a Warrant, the applicable Purchaser shall be required to return any
shares of Common Stock subject to any such rescinded exercise notice concurrently with the return
to such Purchaser of the aggregate exercise price paid to the Company for such shares and the
restoration of such Purchaser ’ s right to acquire such shares pursuant to such Purchaser ’ s Warrant
(including, issuance of a replacement warrant certificate evidencing such restored right).
5.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu
of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new
38
certificate or instrument under such circumstances shall also pay any reasonable third-party costs
(including customary indemnity) associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the Purchasers and the Company will be
entitled to specific performance under the Transaction Documents. The parties agree that
monetary damages may not be adequate compensation for any loss incurred by reason of any
breach of obligations contained in the Transaction Documents and hereby agree to waive and not
to assert in any Action for specific performance of any such obligation the defense that a remedy
at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or payments
to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its
rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise
or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent
of any such restoration the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
5.17 Independent Nature of Purchasers ’ Obligations and Rights. The obligations of each
Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-
performance of the obligations of any other Purchaser under any Transaction Document. Nothing
contained herein or in any other Transaction Document, and no action taken by any Purchaser
pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a presumption that the Purchasers
are in any way acting in concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights including, without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser
to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been
represented by its own separate legal counsel in its review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, each Purchaser and its respective
counsel have chosen to communicate with the Company through EGS. EGS does not represent
any of the Purchasers and only represents Ionic. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by any of the Purchasers. It is expressly
understood and agreed that each provision contained in this Agreement and in each other
Transaction Document is between the Company and a Purchaser, solely, and not between the
Company and the Purchasers collectively and not between and among the Purchasers.
5.18 Liquidated Damages. The Company ’ s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing obligation of
the Company and shall not terminate until all unpaid partial liquidated damages and other amounts
39
have been paid notwithstanding the fact that the instrument or security pursuant to which such
partial liquidated damages or other amounts are due and payable shall have been canceled.
5.19 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not be a Business Day,
then such action may be taken or such right may be exercised on the next succeeding Business
Day.
5.20 Construction. The parties agree that each of them and/or their respective counsel
have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the Transaction Documents or any amendments
thereto. In addition, each and every reference to share prices and shares of Common Stock in any
Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.
5.21 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING
IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY,
THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST
EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY,
UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.
(Signature Pages Follow)
40
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of the date first
indicated above.
PARALLAX HEALTH SCIENCES, INC.
Address for Notice:
By: /s/ Paul R. Arena
Email: paul@parallaxcare.com
Name: Paul R. Arena
Fax: (888) 899-3966
Title: Chief Executive Officer
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
41
[PURCHASER SIGNATURE PAGES TO PRLX SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of the date first
indicated above.
Name of Purchaser: ________________________________________________________
Signature of Authorized Signatory of Purchaser : __________________________________
Name of Authorized Signatory: ____________________________________________________
Title of Authorized Signatory: _____________________________________________________
Email Address of Authorized Signatory: ______________________________________________
Facsimile Number of Authorized Signatory: _____________________________________________
Address for Notice to Purchaser:
Address for Delivery of Securities to Purchaser (if not same as address for notice):
First Closing Subscription Amount: $_________________
Second Closing Subscription Amount: $_________________
First Closing Shares: _________________
Second Closing Shares: __________________
First Closing Warrant Shares: __________________
Second Closing Warrant Shares: _____________________
[SIGNATURE PAGES CONTINUE]
42
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this “ Agreement ” ) is made and entered into
as of May 6, 2019, between Parallax Health Sciences, a Nevada corporation (the
“ Company ” ), and each of the several purchasers signatory hereto (each such purchaser, a
“ Purchaser ” and, collectively, the “ Purchasers ” ).
This Agreement is made pursuant to the Securities Purchase Agreement, dated
as of the date hereof, between the Company and each Purchaser (the “ Purchase
Agreement ” ).
The Company and each Purchaser hereby agrees as follows:
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(d).
“ Effectiveness Date ” means, with respect to the Initial Registration
Statement required to be filed hereunder, the 90 th calendar day following the date
hereof and with respect to any additional Registration Statemen ts which may be
required pursuant to Section 2(c) or Section 3(c), the 60 th calendar day following
the date on which an additional Registration Statement is required to be filed
hereunder; provided, however, that in the event the Company is notified by the
Commission that one or more of the above Registration Statements will not be
reviewed or is no longer subject to further review and comments, the
Effectiveness Date as to such Registration Statement shall be the fifth Trading
Day following the date on which the Company is so notified if such date precedes
the dates otherwise required above, provided, further, if such Effectiveness Date
falls on a day that is not a Trading Day, then the Effectiveness Date shall be the
next succeeding Trading Day.
“ Effectiveness Period ” shall have the meaning set forth in Section 2(a).
“ Event ” shall have the meaning set forth in Section 2(d).
“ Event Date ” shall have the meaning set forth in Section 2(d).
“ Filing Date ” means, with respect to the Initial Registration Statement
required hereunder, the 60 th calendar day following the date hereof and, with
respect to any additional Registration Statements which may be required pursuant
to Section 2(c) or Section 3(c), the earliest practical date on which the Company
is permitted by SEC Guidance to file such additional Registration Statement
related to the Registrable Securities.
“ Holder ” or “ Holders ” means the holder or holders, as the case may be,
from time to time of Registrable Securities.
“ Indemnified Party ” shall have the meaning set forth in Section 5(c).
“ Indemnifying Party ” shall have the meaning set forth in Section 5(c).
“ Initial Registration Statement ” means the initial Registration Statement
filed pursuant to this Agreement.
“ Losses ” shall have the meaning set forth in Section 5(a).
“ Plan of Distribution ” shall have the meaning set forth in Section 2(a).
“ Prospectus ” means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated by the Commission pursuant
to the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
“ Registrable Securities ” means, as of any date of determination, (a) all
Shares, (b) all Warrant Shares then issued and issuable upon exercise of the
Warrants (assuming on such date the Warrants are exercised in full without regard
to any exercise limitations therein), (c) any additional shares of Common Stock
issued and issuable in connection with any anti-dilution or cashless exercise
provisions in the Warrants (in each case, without giving effect to any limitations
on exercise set forth in the Warrants) and (d) any securities issued or then issuable
upon any stock split, dividend or other distribution, recapitalization or similar
event with respect to the foregoing; provided, however, that any such Registrable
Securities shall cease to be Registrable Securities (and the Company shall not be
required to maintain the effectiveness of any, or file another, Registration
Statement hereunder with respect thereto) for so long as (a) a Registration
Statement with respect to the sale of such Registrable Securities is declared
effective by the Commission under the Securities Act and such Registrable
Securities have been disposed of by the Holder in accordance with such effective
Registration Statement, (b) such Registrable Securities have been previously sold
in accordance with Rule 144, or (c) such securities become elig ible for resale
2
without volume or manner-of-sale restrictions and without current public
information pursuant to Rule 144 as set forth in a written opinion letter to such
effect, addressed, delivered and acceptable to the Transfer Agent and the affected
Holders (assuming that such securities and any securities issuable upon exercise,
conversion or exchange of which, or as a dividend upon which, such securities
were issued or are issuable, were at no time held by any Affiliate of the Company,
and all Warrants are exercised by “ cashless exercise ” as provided in Section 2(c)
of each of the Warrants), as reasonably determined by the Company, upon the
advice of counsel to the Company.
“ Registration Statement ” means any registration statement required to be
filed hereunder pursuant to Section 2(a) and any additional registration statements
contemplated by Section 2(c) or Section 3(c), including (in each case) the
Prospectus, amendments and supplements to any such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in any such registration statement.
“ Rule 415 ” means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended or interpreted from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.
“ Rule 424 ” means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended or interpreted from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.
“ Selling Stockholder Questionnaire ” shall have the meaning set forth in
Section 3(a).
“ SEC Guidance ” means (i) any publicly-available written or oral guidance
of the Commission staff, or any comments, requirements or requests of the
Commission staff and (ii) the Securities Act.
2.
Shelf Registration.
(a)
On or prior to each Filing Date, the Company shall prepare and file
with the Commission a Registration Statement covering the resal e of all of the
Registrable Securities that are not then registered on an effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415.
Each Registration Statement filed hereunder shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities on
Form S-3, in which case such registration shall be on another appropriate form in
accordance herewith, subject to the provisions of Section 2(e)) and shall contain
(unless otherwise directed by at least 85% in interest of the Holders) substantially
3
the “ Plan of Distribution ” attached hereto as Annex A and substantially the
“ Selling Stockholder ” section attached hereto as Annex B; provided, however,
that no Holder shall be required to be named as an “ underwriter ” without such
Holder ’ s express prior written consent. Subject to the terms of this Agreement,
the Company shall use its best efforts to cause a Registration Statement filed
under this Agreement (including, without limitation, under Section 3(c)) to be
declared effective under the Securities Act as promptly as possible after the filing
thereof, but in any event no later than the applicable Effectiveness Date, and shall
use its best efforts to keep such Registration Statement continuously effective
under the Securities Act until the date that all Registrable Securities covered by
such Registration Statement (i) have been sold, thereunder or pursuant to Rule
144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to
Rule 144 and without the requirement for the Company to be in compliance with
the current public information requirement under Rule 144, as determined by the
counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Transfer Agent and the affected Holders (the
“ Effectiveness Period ” ). The Company shall telephonically request effectiveness
of a Registration Statement as of 5:00 p.m. (New York City time) on a Trading
Day. The Company shall immediately notify the Holders via facsimile or by e-
mail of the effectiveness of a Registration Statement on the same Trading Day
that the Company telephonically confirms effectiveness with the Commission,
which shall be the date requested for effectiveness of such Registration Statement.
The Company shall, by 9:30 a.m. (New York City time) on the Trading Day after
the effective date of such Registration Statement, file a final Prospectus with the
Commission as required by Rule 424. Failure to so notify the Holder within one
(1) Trading Day of such notification of effectiveness or failur e to file a final
Prospectus as foresaid shall be deemed an Event under Section 2(d).
(b)
Notwithstanding the registration obligations set forth in Section
2(a), if the Commission informs the Company that all of the Registrable
Securities cannot, as a result of the application of Rule 415, be registered for
resale as a secondary offering on a single registration statement, the Company
agrees to promptly inform each of the Holders thereof and use its commercially
reasonable efforts to file amendments to the Initial Registration Statement as
required by the Commission, covering the maximum number of Registrable
Securities permitted to be registered by the Commission, on Form S-3 or such
other form available to register for resale the Registrable Securities as a secondary
offering, subject to the provisions of Section 2(e); with respect to filing on Form
S-3 or other appropriate form, and subject to the provisions of Section 2(d) with
respect to the payment of liquidated damages; provided, however, that prior to
filing such amendment, the Company shall be obligated to use diligent efforts to
advocate with the Commission for the registration of all of the Registrable
Securities in accordance with the SEC Guidance, including without limitation,
Compliance and Disclosure Interpretation 612.09.
4
(c)
Notwithstanding any other provision of this Agreement and subject
to the payment of liquidated damages pursuant to Section 2(d), if the Commission
or any SEC Guidance sets forth a limitation on the number of Registrable
Securities permitted to be registered on a particular Registration Statement as a
secondary offering (and notwithstanding that the Company used diligent efforts to
advocate with the Commission for the registration of all or a greater portion of
Registrable Securities), unless otherwise directed in writing by a Holder as to its
Registrable Securities, the number of Registrable Securities to be registered on
such Registration Statement will be reduced as follows:
a. First, the Company shall reduce or eliminate any securities to be included
other than Registrable Securities;
b. Second, the Company shall reduce Registrable Securities represented by
Warrant Shares (applied, in the case that some Warrant Shares may be
registered, to the Holders on a pro rata basis based on the total number of
unregistered Warrant Shares held by such Holders); and
c. Third, the Company shall reduce Registrable Securities represented by
Shares (applied, in the case that some Shares may be registered, to the
Holders on a pro rata basis based on the total number of unregistered
Shares held by such Holders).
In the event of a cutback hereunder, the Company shall give the Holder at least
five (5) Trading Days prior written notice along with the calculations as to such
Holder ’ s allotment. In the event the Company amends the Initial Registration
Statement in accordance with the foregoing, the Company will use its best efforts
to file with the Commission, as promptly as allowed by Commission or SEC
Guidance provided to the Company or to registrants of securities in general, one
or more registration statements on Form S-3 or such other form available to
register for resale those Registrable Securities that were not registered for resale
on the Initial Registration Statement, as amended.
(d)
If: (i) the Initial Registration Statement is not filed on or prior to its
Filing Date (if the Company files the Initial Registration Statement without
affording the Holders the opportunity to review and comment on the same as
required by Section 3(a) herein, the Company shall be deemed to have not
satisfied this clause (i)), or (ii) the Company fails to file with the Commission a
request for acceleration of a Registration Statement in accordance with Rule 461
promulgated by the Commission pursuant to the Securities Act, within five
Trading Days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that such Registration Statement will not
be “ reviewed ” or will not be subject to further review, or (iii) prior to the effective
date of a Registration Statement, the Company fails to file a pre-effective
amendment and otherwise respond in writing to comments made by the
Commission in respect of such Registration Statement within ten (10) calendar
5
days after the receipt of comments by or notice from the Commission that such
amendment is required in order for such Registration Statement to be declared
effective, or (iv) a Registration Statement registering for resale all of the
Registrable Securities is not declared effective by the Commission by the
Effectiveness Date of the Initial Registration Statement, or (v) after the effective
date of a Registration Statement, such Registration Statement ceases for any
reason to remain continuously effective as to all Registrable Securities included in
such Registration Statement, or the Holders are otherwise not permitted to utilize
the Prospectus therein to resell such Registrable Securities, for more than ten (10)
consecutive calendar days or more than an aggregate of fifteen (15) calendar days
(which need not be consecutive calendar days) during any 12-month period (any
such failure or breach being referred to as an “ Event ” , and for purposes of clauses
(i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the
date on which such five (5) Trading Day period is exceeded, and for purpose of
clause (iii) the date which such ten (10) calendar day period is exceeded, and for
purpose of clause (v) the date on which such ten (10) or fifteen (15) calendar day
period, as applicable, is exceeded being referred to as “ Event Date ” ), then, in
addition to any other rights the Holders may have hereunder or under applicable
law, on each such Event Date and on each monthly anniversary of each such
Event Date (if the applicable Event shall not have been cured by such date) until
the applicable Event is cured, the Company shall pay to each Holder an amount in
cash, as partial liquidated damages and not as a penalty, equal to the product of
2.0% multiplied by the aggregate Subscription Amount paid by such Holder
pursuant to the Purchase Agreement. If the Company fails to pay any partial
liquidated damages pursuant to this Section in full within seven days after the date
payable, the Company will pay interest thereon at a rate of 18% per annum (or
such lesser maximum amount that is permitted to be paid by applicable law) to the
Holder, accruing daily from the date such partial liquidated damages are due until
such amounts, plus all such interest thereon, are paid in full. The partial liquidated
damages pursuant to the terms hereof shall apply on a daily pro rata basis for any
portion of a month prior to the cure of an Event.
(e)
If Form S-3 is not available for the registration of the resale of
Registrable Securities hereunder, the Company shall (i) register the resale of the
Registrable Securities on another appropriate form and (ii) undertake to register
the Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the Commission.
(f)
Notwithstanding anything to the contrary contained herein, in no
event shall the Company be permitted to name any Holder or affiliate of a Holder
as any Underwriter without the prior written consent of such Holder.
3.
Registration Procedures.
6
In connection with the Company ’ s registration obligations hereunder, the
Company shall:
(a)
Not less than five (5) Trading Days prior to the filing of each
Registration Statement and not less than one (1) Trading Day prior to the filing of
any related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to each Holder copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, and (ii) cause its officers and directors, counsel and independent
registered public accountants to respond to such inquiries as shall be necessary, in
the reasonable opinion of respective counsel to each Holder, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file a Registration Statement or any such Prospectus or any amendments
or supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that, the Company is
notified of such objection in writing no later than five (5) Trading Days after the
Holders have been so furnished copies of a Registration Statement or one (1)
Trading Day after the Holders have been so furnished copies of any related
Prospectus or amendments or supplements thereto. Each Holder agrees to furnish
to the Company a completed questionnaire in the form attached to this Agreement
as Annex B (a “ Selling Stockholder Questionnaire ” ) on a date that is not less than
two (2) Trading Days prior to the Filing Date or by the end of the fourth (4 th )
Trading Day following the date on which such Holder receives draft materials in
accordance with this Section.
(b)
(i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep a
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to
be amended or supplemented by any required Prospectus supplement (subject to
the terms of this Agreement), and, as so supplemented or amended, to be filed
pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any
comments received from the Commission with respect to a Registration Statement
or any amendment thereto and provide as promptly as reasonably possible to the
Holders true and complete copies of all correspondence from and to the
Commission relating to a Registration Statement (provided that, the Company
shall excise any information contained therein which would constitute material
non-public information regarding the Company or any of its Subsidiaries), and
(iv) comply in all material respects with the applicable provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by a Registration Statement during the applicable period in
7
accordance (subject to the terms of this Agreement) with the intended methods of
disposition by the Holders thereof set forth in such Registration Statement as so
amended or in such Prospectus as so supplemented.
(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 the Company shall file as soon as
reasonably practicable, but in any case prior to the applicable Filing Date, an
additional Registration Statement covering the resale by the Holders of not less
than the number of such Registrable Securities.
(d)
Notify the Holders of Registrable Securities to be sold (which
notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an
instruction to suspend the use of the Prospectus until the requisite changes have
been made) as promptly as reasonably possible (and, in the case of (i)(A) below,
not less than one (1) Trading Day prior to such filing) and (if requested by any
such Person) confirm such notice in writing no later than one (1) Trading Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or post-
effective amendment to a Registration Statement is proposed to be filed, (B) when
the Commission notifies the Company whether there will be a “ review ” of such
Registration Statement and whenever the Commission comments in writing on
such Registration Statement, and (C) with respect to a Registration Statement or
any post-effective amendment, when the same has become effective, (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements to a Registration Statement or Prospectus or for
additional information, (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt
by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable Securities
for sale in any jurisdiction, or the initiation or threatening of any Proceeding for
such purpose, (v) of the occurrence of any event or passage of time that makes the
financial statements included in a Registration Statement ineligible for inclusion
therein or any statement made in a Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires any revisions to a Registration Statement,
Prospectus or other documents so that, in the case of a Registration Statement or
the Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (vi) of the occurrence or existence of
any pending corporate development with respect to the Company that the
Company believes may be material and that, in the determination of the
Company, makes it not in the best interest of the Company to allow continued
availability of a Registration Statement or Prospectus; provided, however, that in
8
no event shall any such notice contain any information which would constitute
material, non-public information regarding the Company or any of its
Subsidiaries.
(e)
Use its best efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any order stopping or suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any jurisdiction,
at the earliest practicable moment.
(f)
Furnish to each Holder, without charge, at least one conformed
copy of each such Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and all
exhibits to the extent requested by such Person (including those previously
furnished or incorporated by refe rence) 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, the Company hereby
consents to the use of such Prospectus and each amendment or supplement thereto
by each of the selling Holders in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto, except after the giving of any notice pursuant to Section 3(d).
(h)
Prior to any resale of Registrable Securities by a Holder, use its
commercially reasonable efforts to register or qualify or cooperate with the selling
Holders in connection with the registration or qualification (or exemption from
the Registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by each Registration Statement, provided that the Company
shall not be required to qualify generally to do business in any jurisdiction where
it is not then so qualified, subject the Company to any material tax in any such
jurisdiction where it is not then so subject or file a general consent to service of
process in any such jurisdiction.
(i)
If requested by a Holder, cooperate with such Holder to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to a Registration Statement,
which certificates shall be free, to the extent permitted by the Purchase
Agreement, of all restrictive legends, and to enable such Registrable Securities to
9
be in such denominations and registered in such names as any such Holder may
request.
(j)
Upon the occurrence of any event contemplated by Section 3(d), as
promptly as reasonably possible under the circumstances taking into account the
Company ’ s good faith assessment of any adverse consequences to the Company
and its stockholders of the premature disclosure of such event, prepare a
supplement or amendment, including a post-effective amendment, to a
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file any other
required document so that, as thereafter delivered, neither a Registration
Statement nor such Prospectus will contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were made,
not misleading. If the Company notifies the Holders in accordance with clauses
(iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until
the requisite changes to such Prospectus have been made, then the Holders shall
suspend use of such Prospectus. The Company will use its best efforts to ensure
that the use of the Prospectus may be resumed as promptly as is practicable. The
Company shall be entitled to exercise its right under this Section 3(j) to suspend
the availability of a Registration Statement and Prospectus, subject to the payment
of partial liquidated damages otherwise required pursuant to Section 2(d), for a
period not to exceed 60 calendar days (which need not be consecutive days) in
any 12-month period.
(k)
Otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the Commission under the Securities Act and
the Exchange Act, including, without limitation, Rule 172 under the Securities
Act, file any final Prospectus, including any supplement or amendment thereof,
with the Commission pursuant to Rule 424 under the Securities Act, promptly
inform the Holders in writing if, at any time during the Effectiveness Period, the
Company does not satisfy the conditions specified in Rule 172 and, as a result
thereof, the Holders are required to deliver a Prospectus in connection with any
disposition of Registrable Securities and take such other actions as may be
reasonably necessary to facilitate the registration of the Registrable Securities
hereunder.
(l)
The Company shall use its best efforts to maintain eligibility for
use of Form S-3 (or any successor form thereto) for the registration of the resale
of Registrable Securities.
(m)
The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if required by the Commission, the
natural persons thereof that have voting and dispositive control over the shares.
During any periods that the Company is unable to meet its obligations hereunder
10
with respect to the registration of the Registrable Securities solely because any
Holder fails to furnish such information within three Trading Days of the
Company ’ s request, any liquidated damages that are accruing at such time as to
such Holder only shall be tolled and any Event that may otherwi se occur solely
because of such delay shall be suspended as to such Holder only, until such
information is delivered to the Company.
4.
Registration Expenses. All fees and expenses incident to the performance
of or compliance with, this Agreement by the Company shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to a Registration Statement.
The fees and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation, fees and
expenses of the Company ’ s counsel and independent registered public accountants) (A)
with respect to filings made with the Commission, (B) with respect to filings required to
be made with any Trading Market on which the Common Stock is then listed for trading,
and (C) in compliance with applicable state securities or Blue Sky laws reasonably
agreed to by the Company in writing (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky qualifications or
exemptions of the Registrable Securities), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company, (v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this Agreement.
In addition, the Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be responsible
for any broker or similar commissions of any Holder or, except to the extent provided for
in the Transaction Documents, any legal fees or other costs of the Holders.
5.
Indemnification.
(a)
Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, members, partners, agents, brokers (including
brokers who offer and sell Registrable Securities as principal as a result of a
pledge or any failure to perform under a margin call of Common Stock),
investment advisors and employees (and any other Persons with a functionally
equivalent role of a Person holding such titles, notwithstanding a lack of such title
or any other title) of each of them, each Person who controls any such Holder
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, members, stockholders, partners, agents
and employees (and any other Persons with a functionally equivalent role of a
11
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 there in or necessary to
make the statements therein (in the case of any Prospectus or supplement thereto,
in light of the circumstances under which they were made) not misleading or (2)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act or any state securities law, or any rule or regulation thereunder, in
connection with the performance of its obligations under this Agreement, except
to the extent, but only to the extent, that (i) such untrue statements or omissions
are based solely upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder ’ s proposed method of
distribution of Registrable Securities and was reviewed and expressly approved in
writing by such Holder expressly for use in a Registration Statement, such
Prospectus or in any amendment or supplement thereto (it being understood that
the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an
occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by
such Holder of an outdated, defective or otherwise unavailable Prospectus after
the Company has notified such Holder in writing that the Prospectus is outdated,
defective or otherwise unavailable for use by such Holder and prior to the receipt
by such Holder of the Advice contemplated in Section 6(d). The Company shall
notify the Holders promptly of the institution, threat or assertion of any
Proceeding arising from or in connection with the transactions contemplated by
this Agreement of which the Company is aware. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of such
indemnified person and shall survive the transfer of any Registrable Securities by
any of the Holders in accordance with Section 6(h).
(b)
Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers, agents
and employees, each Person who controls the Company (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the fullest
extent permitted by applicable law, from and against all Losses, as incurred, to the
extent arising out of or based solely upon: any untrue or alleged untrue statement
of a material fact contained in any Registration Statement, any Prospectus, or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case of any
Prospectus or supplement thereto, in light of the circumstances under which they
12
were made) not misleading (i) to the extent, but only to the extent, that such
untrue statement or omission is contained in any information so furnished in
writing by such Holder to the Company expressly for inclusion in such
Registration Statement or such Prospectus or (ii) to the extent, but only to the
extent, that such information relates to such Holder ’ s information provided in the
Selling Stockholder Questionnaire or the proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in a Registration Statement (it being understood
that the Holder has approved Annex A hereto for this purpose), such Prospectus
or in any amendment or supplement thereto. In no event shall the liability of a
selling Holder be greater in amount than the dollar amount of the proceeds (net of
all expenses paid by such Holder in connection with any claim relating to this
Section 5 and the amount of any damages such Holder has otherwise been
required to pay by reason of such untrue statement or omission) received by such
Holder upon the sale of the Registrable Securities included in the Registration
Statement giving rise to such indemnification obligation.
(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 materially and adversely 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 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
13
the expense of the Indemnifying Party). The Indemnifying Party shall not be
liable for any settlement of any such Proceeding effected witho ut 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 expense s to the extent
incurred in connection with investigating or preparing to defend such Proceeding
in a manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party, provided that the Indemnified Party shall promptly reimburse
the Indemnifying Party for that portion of such fees and expenses applicable to
such actions for which such Indemnified Party is finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or further
review) not to be entitled to indemnification hereunder.
(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 limita tions 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 paragraph. In no event
shall the contribution obligation of a Holder of Registrable Securities be greater in
amount than the dollar amount of the proceeds (net of all expenses paid by such
14
Holder in connection with any claim relating to this Section 5 and the amount of
any damages such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission) received by it
upon the sale of the Registrable Securities giving rise to such contribution
obligation.
The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6.
Miscellaneous.
(a)
Remedies. In the event of a breach by the Company or by a Holder of any
of their respective obligations under this Agreement, each Holder or the Company, as the
case may be, in addition to being entitled to exercise all rights granted by law and under
this Agreement, including recovery of damages, shall be entitled to specific performance
of its rights under this Agreement. Each of the Company and each Holder agrees that
monetary damages would not provide adequate compensation for any losses incurred by
reason of a breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect of such breach,
it shall not assert or shall waive the defense that a remedy at law would be adequate.
(b)
No Piggyback on Registrations; Prohibition on Filing Other Registration
Statements. Except as set forth on Schedule 6(b) attached hereto, neither the Company
nor any of its security holders (other than the Holders in such capacity pursuant hereto)
may include securities of the Company in any Registration Statements other than the
Registrable Securities. The Company shall not file any other registration statements until
all Registrable Securities are registered pursuant to a Registration Statement that is
declared effective by the Commission, provided that this Section 6(b) shall not prohibit
the Company from filing amendments to registration statements filed prior to the date of
this Agreement.
(c)
[RESERVED]
(d)
Discontinued Disposition. By its acquisition of Registrable Securities,
each Holder agrees that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(d)(iii) through (vi), such Holder will
forthwith discontinue disposition of such Registrable Securities under a Registration
Statement until it is advised in writing (the “ Advice ” ) by the Company that the use of the
applicable Prospectus (as it may have been supplemented or amended) may be resumed.
The Company will use its best efforts to ensure that the use of the Prospectus may be
resumed as promptly as is practicable. The Company agrees and acknowledges that any
periods during which the Holder is required to discontinue the disposition of the
Registrable Securities hereunder shall be subject to the provisions of Section 2(d).
15
(e)
Piggy-Back Registrations. If, at any time during the Effectiveness Period,
there is not an effective Registration Statement covering all of the Registrable Securities
and the Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with the Company ’ s stock option or other
employee benefit plans, then the Company shall deliver to each Holder a written notice of
such determination and, if within fifteen days after the date of the delivery of such notice,
any such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such Holder requests
to be registered; provided, however, that the Company shall not be required to register
any Registrable Securities pursuant to this Section 6(e) that are eligible for resale
pursuant to Rule 144 (without volume restrictions or current public information
requirements) promulgated by the Commission pursuant to the Securities Act or that are
the subject of a then effective Registration Statement that is available for resales or other
dispositions by such Holder.
(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 the Company and the Holders of 50.1% or more of
the then outstanding Registrable Securities (for purposes of clarification, this includes
any Registrable Securities issuable upon exercise or conversion of any Security),
provided that, if any amendment, modification or waiver disproportionately and
adversely impacts a Holder (or group of Holders), the consent of such disproportionately
impacted Holder (or group of Holders) shall be required. If a Registration Statement
does not register all of the Registrable Securities pursuant to a waiver or amendment done
in compliance with the previous sentence, then the number of Registrable Securities to be
registered for each Holder shall be reduced pro rata among all Holders and each Holder
shall have the right to designate which of its Registrable Securities shall be omitted from
such Registration Statement. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates exclusively to the
rights of a Holder or some Holders and that does not directly or indirectly affect the rights
of other Holders may be given only by such Holder or Holders of all of the Registrable
Securities to which such waiver or consent relates; provided, however, that the provisions
of this sentence may not be amended, modified, or supplemented except in accordance
with the provisions of the first sentence of this Section 6(f). No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of any
provision of this Agreement unless the same consideration also is offered to all of the
parties to this Agreement.
(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.
16
(h)
Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the successors and permitted assigns of each of the parties and shall
inure to the benefit of each Holder. The Company may not assign (except by merger) its
rights or obligations hereunder without the prior written consent of all of the Holders of
the then outstanding Registrable Securities. Each Holder may assign their respective
rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the
Purchase Agreement.
(i)
No Inconsistent Agreements. Neither the Company nor any of its
Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its
Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect
to its securities, that would have the effect of impairing the rights granted to the Holders
in this Agreement or otherwise conflicts with the provisions hereof. Except as set forth
on Schedule 6(i), neither the Company nor any of its Subsidiaries has previously entered
into any agreement granting any registration rights with respect to any of its securities to
any Person that have not been satisfied in full.
(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.
17
(n)
Headings. The headings in this Agreement are for convenience only, do
not constitute a part of the Agreement and shall not be deemed to limit or affect any of
the provisions hereof.
(o)
Independent Nature of Holders ’ Obligations and Rights. The obligations
of each Holder hereunder are several and not joint with the obligations of any other
Holder hereunder, and no Holder shall be responsible in any way for the performance of
the obligations of any other Holder hereunder. Nothing contained herein or in any other
agreement or document delivered at any closing, and no action taken by any Holder
pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an
association, a joint venture or any other kind of group or entity, or create a presumption
that the Holders are in any way acting in concert or as a group or entity with respect to
such obligations or the transactions contemplated by this Agreement or any other matters,
and the Company acknowledges that the Holders are not acting in concert or as a group,
and the Company shall not assert any such claim, with respect to such obligations or
transactions. Each Holder shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be necessary
for any other Holder to be joined as an additional party in any proceeding for such
purpose. The use of a single agreement with respect to the obligations of the Company
contained was solely in the control of the Company, not the action or decision of any
Holder, and was done solely for the convenience of the Company and not because it was
required or requested to do so by any Holder. It is expressly understood and agreed that
each provision contained in this Agreement is between the Company and a Holder,
solely, and not between the Company and the Holders collectively and not between and
among Holders.
********************
(Signature Pages Follow)
18
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
PARALLAX HEALTH SCIENCES, INC.
By:__________________________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
[SIGNATURE PAGE OF HOLDERS TO PRLX RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder : __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
Annex A
Plan of Distribution
Each Selling Stockholder (the “ Selling Stockholders ” ) of the securities and any of
their pledgees, assignees and successors-in-interest may, from time to time, sell any or all
of their securities covered hereby on the principal Trading Market or any other stock
exchange, market or trading facility on which the securities are traded or in private
transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder
may use any one or more of the following methods when selling securities:
• ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
• block trades in which the broker-dealer will attempt to sell the securities as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
• 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;
• in transactions through broker-dealers that agree with the Selling
Stockholders to sell a specified number of such securities at a stipulated
price per security;
• 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.
The Selling Stockholders may also sell securities under Rule 144 or any other
exemption from registration under the Securities Act of 1933, as amended (the
“ Securities Act ” ), if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions or
discounts from the Selling Stockholders (or, if any broker-deal er acts as agent for the
purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as
set forth in a supplement to this Prospectus, in the case of an agency transaction not in
excess of a customary brokerage commission in compliance with FINRA Rule 2440; and
in the case of a principal transaction a markup or markdown in compliance with FINRA
IM-2440.
In connection with the sale of the securities or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the securities in the course of
hedging the positions they assume. The Selling Stockholders may also sell securities
short and deliver these securities to close out their short positions, or loan or pledge the
securities to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with broker-dealers or other
financial institutions or create one or more derivative securities which require the
delivery to such broker-dealer or other financial institution of securities offered by this
prospectus, which securities such broker-dealer or other financial institution may resell
pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in
selling the securities may be deemed to be “ underwriters ” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions received by
such broker-dealers or agents and any profit on the resale of the securities purchased by
them may be deemed to be underwriting commissions or discounts under the Securities
Act. Each Selling Stockholder has informed the Company that it does not have any
written or oral agreement or understanding, directly or indirectly, with any person to
distribute the securities.
The Company is required to pay certain fees and expenses incurred by the
Company incident to the registration of the securities. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
We agreed to keep this prospectus effective until the earlier of (i) the date on
which the securities may be resold by the Selling Stockholders without registration and
without regard to any volume or manner-of-sale limitations by reason of Rule 144,
without the requirement for the Company to be in compliance with the current public
information under Rule 144 under the Securities Act or any other rule of similar effect or
(ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale securities will be sold only
through registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale securities covered hereby may not
be sold unless they have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available and is complied
with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale securities may not simultaneously engage in
market making activities with respect to the common stock for the applicable restricted
2
period, as defined in Regulation M, prior to the commencement of the distribution. In
addition, the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M, which
may limit the timing of purchases and sales of the common stock by the Selling
Stockholders or any other person. We will make copies of this prospectus available to
the Selling Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by compliance
with Rule 172 under the Securities Act).
3
SELLING SHAREHOLDERS
The common stock being offered by the selling shareholders are those previously
issued to the selling shareholders, and those issuable to the selling shareholders, upon
exercise of the warrants. For additional information regarding the issuances of those
shares of common stock and warrants, see “ Private Placement of Shares of Common
Stock and Warrants ” above. We are registering the shares of common stock in order to
permit the selling shareholders to offer the shares for resale from time to time. Except for
the ownership of the shares of common stock and the warrants, the selling shareholders
have not had any material relationship with us within the past three years.
The table below lists the selling shareholders and other information regarding the
beneficial ownership of the shares of common stock by each of the selling shareholders.
The second column lists the number of shares of common stock beneficially owned by
each selling shareholder, based on its ownership of the shares of common stock and
warrants, as of ________, 2019, assuming exercise of the warrants held by the selling
shareholders on that date, without regard to any limitations on exercises.
The third column lists the shares of common stock being offered by this
prospectus by the selling shareholders.
In accordance with the terms of a registration rights agreement with the selling
shareholders, this prospectus generally covers the resale of the sum of (i) the number of
shares of common stock issued to the selling shareholders in the “ Private Placement of
Shares of Common Stock and Warrants ” described above and (ii) the maximum number
of shares of common stock issuable upon exercise of the related warrants, determined as
if the outstanding warrants were exercised in full as of the trading day immediately
preceding the date this registration statement was initially filed with the SEC, each as of
the trading day immediately preceding the applicable date of determination and all
subject to adjustment as provided in the registration right agreement, without regard to
any limitations on the exercise of the warrants. The fourth column assumes the sale of all
of the shares offered by the selling shareholders pursuant to this prospectus.
Under the terms of the warrants, a selling shareholder may not exercise the
warrants to the extent such exercise would cause such selling shareholder, together with
its affiliates and attribution parties, to beneficially own a number of shares of common
stock which would exceed 4.99% of our then outstanding common stock following such
exercise, excluding for purposes of such determination shares of common stock issuable
upon exercise of the warrants which have not been exercised. The number of shares in the
second column does not reflect this limitation. The selling shareholders may sell all,
some or none of their shares in this offering. See "Plan of Distribution."
4
Number of shares of
Maximum Number of
Number of shares of
Common Stock Owned
shares of Common Stock
Common Stock Owned
Name of Selling Shareholder
Prior to Offering
to be Sold Pursuant to this
After Offering
Prospectus
5
Annex C
PARALLAX HEALTH SCIENCES, INC.
Selling Stockholder Notice and Questionnaire
The undersigned beneficial owner of common stock (the “ Registrable Securities ” )
of Parallax Health Sciences, Inc., a Nevada corporation (the “ Company ” ), understands
that the Company has filed or intends to file with the Securities and Exchange
Commission (the “ Commission ” ) a registration statement (the “ Registration Statement ” )
for the registration and resale under Rule 415 of the Securities Act of 1933, as amended
(the “ Securities Act ” ), of the Registrable Securities, in accordance with the terms of the
Registration Rights Agreement (the “ Registration Rights Agreement ” ) to which this
document is annexed. A copy of the Registration Rights Agreement is available from the
Company upon request at the address set forth below. All capitalized terms not otherwise
defined herein shall have the meanings ascribed thereto in the Registration Rights
Agreement.
Certain legal consequences arise from being named as a selling stockholder 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 stockholder
in the Registration Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the “ Selling Stockholder ” ) of Registrable
Securities hereby elects to include the Registrable Securities owned by it in the
Registration Statement.
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1.
Name.
(a)
Full Legal Name of Selling Stockholder
(b)
Full Legal Name of Registered Holder (if not the same as (a) above)
through which Registrable Securities 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 this Questionnaire):
2. Address for Notices to Selling Stockholder:
Telephone:
Fax:
Contact Person:
3. Broker-Dealer Status:
(a)
Are you a broker-dealer?
Yes
No
(b)
If “ yes ” to Section 3(a), did you receive your Registrable Securities as
compensation for investment banking services to the Company?
Yes
No
Note: If “ no ” to Section 3(b), the Commission ’ s staff has indicated that you
should be identified as an underwriter in the Registration Statement.
2
(c)
Are you an affiliate of a broker-dealer?
Yes
No
(d)
If you are an affiliate of a broker-dealer, do you certify that you purchased
the Registrable Securities in the ordinary course of business, and at the
time of the purchase of the Registrable Securities to be resold, you had no
agreements or understandings, directly or indirectly, with any person to
distribute the Registrable Securities?
Yes
No
Note: If “ no ” to Section 3(d), the Commission ’ s staff has indicated that you
should be identified as an underwriter in the Registration Statement.
4. Beneficial Ownership of Securities of the Company Owned by the Selling
Stockholder.
Except as set forth below in this Item 4, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the securities
issuable pursuant to the Purchase Agreement.
(a)
Type and Amount of other securities beneficially owned by the Selling
Stockholder:
3
5. Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had any other
material relationship with the Company (or its predecessors or affiliates) during
the past three years.
State any exceptions here:
The undersigned agrees to promptly notify the Company of any material
inaccuracies or changes in the information provided herein that may occur subsequent to
the date hereof at any time while the Registration Statement remains effective; provided,
that the undersigned shall not be required to notify the Company of any changes to the
number of securities held or owned by the undersigned or its affiliates.
By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 5 and the inclusion of such information
in the Registration Statement and the related prospectus and any amendments or
supplements thereto . The undersigned understands that such information will be relied
upon by the Company in connection with the preparation or amendment of the
Registration Statement and the related prospectus and any amendments or supplements
thereto.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or by its duly
authorized agent.
Date:
Beneficial Owner:
By:
Name:
Title:
PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND
EXECUTED NOTICE AND QUESTIONNAIRE TO:
4
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ SECURITIES ACT ” ), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
COMMON STOCK PURCHASE WARRANT
PARALLAX HEALTH SCIENCES, INC.
Warrant Shares: 6,000,000
Initial Exercise Date: May 3, 2019
THIS COMMON STOCK PURCHASE WARRANT (the “ Warrant ” ) certifies
that, for value received, Ionic Ventures, LLC or its assigns (the “ Holder ” ) is entitled, upon the
terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any
time on or after the date hereof (the “ Initial Exercise Date ” ) and on or prior to 5:00 p.m. (New
York City time) on May 3, 2021 1 (the “ Termination Date ” ) but not thereafter, to subscribe for
and purchase from Parallax Health Sciences, Inc., a Nevada corporation (the “ Company ” ), up to
6,000,000 shares (as subject to adjustment hereunder, the “ Warrant Shares ” ) of Common Stock.
The purchase price of one share of Common Stock under this Warrant shall be equal to the
Exercise Price, as defined in Section 2(b).
Section 1.
Definitions. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in that certain Securities Purchase Agreement (the “ Purchase
Agreement ” ), dated May 3, 2019, among the Company and the purchasers signatory thereto.
Section 2.
Exercise.
a)
Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the Company of a
duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of
the Notice of Exercise in the form annexed hereto (the “ Notice of Exercise ” ). Within the
1 Insert the date that is the two year anniversary of the Initial Exercise Date, provided that, if such date is not a
Trading Day, insert the immediately following Trading Day.
1
earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the
Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of
exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares
specified in the applicable Notice of Exercise by wire transfer or cashier ’ s check drawn
on a United States bank unless the cashless exercise procedure specified in Section 2(c)
below is specified in the applicable Notice of Exercise. No ink-original Notice of
Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee
or notarization) of any Notice of Exercise be required. Notwithstanding anything herein
to the contrary, the Holder shall not be required to physically surrender this Warrant to
the Company until the Holder has purchased all of the Warrant Shares available
hereunder and the Warrant has been exercised in full, in which case, the Holder shall
surrender this Warrant to the Company for cancellation within three (3) Trading Days of
the date on which the final Notice of Exercise is delivered to the Company. Partial
exercises of this Warrant resulting in purchases of a portion of the total number of
Warrant Shares available hereunder shall have the effect of lowering the outstanding
number of Warrant Shares purchasable hereunder in an amount equal to the applicable
number of Warrant Shares purchased. The Holder and the Company shall maintain
records showing the number of Warrant Shares purchased and the date of such purchases.
The Company shall deliver any objection to any Notice of Exercise within one (1)
Business Day of receipt of such notice. The Holder and any assignee, by acceptance
of this Warrant, acknowledge and agree that, by reason of the provisions of this
paragraph, following the purchase of a portion of the Warrant Shares hereunder,
the number of Warrant Shares available for purchase hereunder at any given time
may be less than the amount stated on the face hereof.
b)
Exercise Price. The exercise price per share of Common Stock under this
Warrant shall be $0.25 , subject to adjustment hereunder (the “ Exercise Price ” ).
c)
Cashless Exercise(s).
i. No Registration Cashless Exercise. If at any time during the pendency of
any Event under Section 2(d) of the Registration Rights Agreement, this
Warrant may also be exercised, in whole or in part, at such time by means
of a “ cashless exercise ” in which the Holder shall be entitled to receive a
number of Warrant Shares equal to the quotient obtained by dividing [(A-
B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately
preceding the date of the applicable Notice of Exercise if such Notice of
Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof
on a day that is not a Trading Day or (2) both executed and delivered
pursuant to Section 2(a) hereof on a Trading Day prior to the opening of
“ regular trading hours ” (as defined in Rule 600(b)(64) of Regulation NMS
promulgated under the federal securities laws) on such Trading Day, (ii) at
the option of the Holder, either (y) the VWAP on the Trading Day
immediately preceding the date of the applicable Notice of Exercise or (z)
the Bid Price of the Common Stock on the principal Trading Market as
2
reported by Bloomberg L.P. as of the time of the Holder ’ s execution of the
applicable Notice of Exercise if such Notice of Exercise is executed
during “ regular trading hours ” on a Trading Day and is delivered within
two (2) hours thereafter (including until two (2) hours after the close of
“ regular trading hours ” on a Trading Day) pursuant to Section 2(a) hereof
or (iii) the VWAP on the date of the applicable Notice of Exercise if the
date of such Notice of Exercise is a Trading Day and such Notice of
Exercise is both executed and delivered pursuant to Section 2(a) hereof
after the close of “ regular trading hours ” on such Trading Day;
(B) = The Exercise Price of this Warrant, provided however, during the
pendency of any Event under Section 2(d) of the Registration Rights
Agreement, this variable shall be 40% of Exercise Price.
(X) = the number of Warrant Shares that would be issuable upon exercise
of this Warrant in accordance with the terms of this Warrant if such
exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge
and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant
Shares shall take on the characteristics of the Warrants being exercised, and the holding
period of the Warrant Shares being issued may be tacked on to the holding period of this
Warrant. The Company agrees not to take any position contrary to this Section 2(c)(i).
ii. Alternate Cashless Exercise. In addition to Section 2(c)(i) above, at the
option of the Holder, a cashless exercise may also occur, in whole or in
part (i) after May [ ● ], 2019 and (ii) on any Trading Day after the Initial
Exercise Date if the VWAP for the Trading Day immediately prior to such
date is equal to or less than $0.25 (subject to adjustment for forward and
reverse stock splits, stock dividends and the like that occur after the Initial
Exercise Date), in which the Holder shall be entitled to receive a number
of Warrant Shares equal to the product obtained by multiplying X by [(A-
B)/B], where:
(A) = the Exercise Price as in effect on the Initial Exercise Date (as
adjusted for stock splits, stock dividends, stock recapitalizations or other
similar events that occur after the Initial Exercise Date);
(B) = 85% of the “ Market Price ” ; provided, however, during the pendency
of any Event under Section 2(d) of the Registration Rights Agreement, this
variable (B) shall be 62.5% of the Market Price at the time of exercise
during the occurrence of any Event (as defined in the Registration Rights
Agreement; and
3
(X) = the number of Warrant Shares that would be issuable upon exercise
of this Warrant in accordance with the terms of this Warrant if such
exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge
and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant
Shares shall take on the characteristics of the Warrants being exercised, and the holding
period of the Warrant Shares being issued may be tacked on to the holding period of this
Warrant. The Company agrees not to take any position contrary to this Section 2(c)(ii).
As used herein, the following definitions have the following meanings:
“ Market Price ” means the average of the two lowest VWAPs during the
20 Trading Days immediately prior to and ending on and including the date the
applicable Notice of Exercise less $0.005, not subject to adjustment for reverse
and forward stock splits and the like.
“ VWAP ” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted on
a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed
or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock
are then reported in the “ Pink Sheets ” published by OTC Markets Group, Inc. (or
a similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported, or (d) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Purchasers of a majority in
interest of the Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the Company.
“ Bid Price ” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted on
a Trading Market, the bid price of the Common Stock for the time in question (or
the nearest preceding date) on the Trading Market on which the Common Stock is
then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if
OTCQB or OTCQX is not a Trading Market, the volume weighted average price
of the Common Stock for such date (or the nearest preceding date) on OTCQB or
OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for
trading on OTCQB or OTCQX and if prices for the Common Stock are then
reported in the “ Pink Sheets ” published by OTC Markets Group, Inc. (or a similar
4
organization or agency succeeding to its functions of reporting prices), the most
recent bid price per share of the Common Stock so reported, or (d) in all other
cases, the fair market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Purchasers of a majority in
interest of the Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the Company.
Notwithstanding anything herein to the contrary, on the Termination Date, this
Warrant shall be automatically exercised via cashless exercise pursuant to the formula in
either Section 2(c)(i) or 2(c)(ii), whichever would yield a higher number of Warrant
Shares.
d)
Mechanics of Exercise.
i.
Delivery of Warrant Shares Upon Exercise. The Company
shall cause the Warrant Shares purchased hereunder to be transmitted by
the Transfer Agent to the Holder by crediting the account of the
Holder ’ s or its designee ’ s balance account with The Depository Trust
Company through its Deposit or Withdrawal at Custodian system
( “ DWAC ” ) if the Company is then a participant in such system and
either (A) there is an effective registration statement permitting the
issuance of the Warrant Shares to or resale of the Warrant Shares by the
Holder or (B) the Warrant Shares are eligible for resale by the Holder
pursuant to Rule 144 (assuming cashless exercise of the Warrants), and
otherwise by physical delivery of a certificate, registered in the
Company ’ s share register in the name of the Holder or its designee, for
the number of Warrant Shares to which the Holder is entitled pursuant to
such exercise to the address specified by the Holder in the Notice of
Exercise by the date that is the earliest of (i) two (2) Trading Days after
the delivery to the Company of the Notice of Exercise, (ii) one (1)
Trading Day after delivery of the aggregate Exercise Price to the
Company and (iii) the number of Trading Days comprising the Standard
Settlement Period after the delivery to the Company of the Notice of
Exercise (such date, the “ Warrant Share Delivery Date ” ).
Upon
delivery of the Notice of Exercise, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant
Shares with respect to which this Warrant has been exercised,
irrespective of the date of delivery of the Warrant Shares, provided that
payment of the aggregate Exercise Price (other than in the case of a
cashless exercise) is received within the earlier of (i) two (2) Trading
Days and (ii) the number of Trading Days comprising the Standard
Settlement Period following delivery of the Notice of Exercise. If the
Company fails for any reason to deliver to the Holder the Warrant
Shares subject to a Notice of Exercise by the Warrant Share Delivery
Date, the Company shall pay to the Holder, in cash, as liquidated
damages and not as a penalty, for each $1,000 of Warrant Shares subject
to such exercise (based on the VWAP of the Common Stock on the date
5
of the applicable Notice of Exercise), $10 per Trading Day (increasing
to $20 per Trading Day on the fifth Trading Day after such liquidated
damages begin to accrue) for each Trading Day after such Warrant Share
Delivery Date until such Warrant Shares are delivered or Holder
rescinds such exercise. The Company agrees to maintain a transfer agent
that is a participant in the FAST program so long as this Warrant
remains outstanding and exercisable. As used herein, “ Standard
Settlement Period ” means the standard settlement period, expressed in a
number of Trading Days, on the Company ’ s primary Trading Market
with respect to the Common Stock as in effect on the date of delivery of
the Notice of Exercise.
ii.
Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the request of a
Holder and upon surrender of this Warrant certificate, at the time of
delivery of the Warrant Shares, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased Warrant
Shares called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant.
iii.
Rescission Rights. If the Company fails to cause the
Transfer Agent to transmit to the Holder the Warrant Shares pursuant to
Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will
have the right to rescind such exercise.
iv.
Compensation for Buy-In on Failure to Timely Deliver
Warrant Shares Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause the Transfer Agent to
transmit to the Holder the Warrant Shares in accordance with the
provisions of Section 2(d)(i) above pursuant to an exercise on or before
the Warrant Share Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or
otherwise) or the Holder ’ s brokerage firm otherwise purchases, shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such
exercise (a “ Buy-In ” ), then the Company shall (A) pay in cash to the
Holder the amount, if any, by which (x) the Holder ’ s total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (1)
the number of Warrant Shares that the Company was required to deliver
to the Holder in connection with the exercise at issue times (2) the price
at which the sell order giving rise to such purchase obligation was
executed, and (B) at the option of the Holder, either reinstate the portion
of the Warrant and equivalent number of Warrant Shares for which such
exercise was not honored (in which case such exercise shall be deemed
rescinded) or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Company timely complied
6
with its exercise and delivery obligations hereunder plus any other fees
or expenses charged by the Holders brokerage firm in addition to the
foregoing. For example, if the Holder purchases Common Stock having
a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000, under clause
(A) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of the
amount of such loss. Nothing herein shall limit a Holder ’ s right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company ’ s failure to timely deliver
shares of Common Stock upon exercise of the Warrant as required
pursuant to the terms hereof.
v.
No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which the Holder would
otherwise be entitled to purchase upon such exercise, the Company
shall, at its election, either pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise
Price or round up to the next whole share.
vi.
Charges, Taxes and Expenses. Issuance of Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such Warrant
Shares, all of which taxes and expenses shall be paid by the Company,
and such Warrant Shares shall be issued in the name of the Holder or in
such name or names as may be directed by the Holder; provided,
however, that in the event that Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto
duly executed by the Holder and the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto. The Company shall pay all Transfer
Agent fees required for same-day processing of any Notice of Exercise
and all fees to the Depository Trust Company (or another established
clearing corporation performing similar functions) required for same-day
electronic delivery of the Warrant Shares.
vii.
Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.
7
e)
Holder ’ s Exercise Limitations. The Company shall not effect any
exercise of this Warrant, and a Holder shall not have the right to exercise any
portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable Notice
of Exercise, the Holder (together with the Holder ’ s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder ’ s
Affiliates (such Persons, “ Attribution Parties ” )), would beneficially own in excess
of the Beneficial Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned
by the Holder and its Affiliates and Attribution Parties shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which such determination is being made, but shall exclude the number of shares
of Common Stock which would be issuable upon (i) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or any of
its Affiliates or Attribution Parties and (ii) exercise or conversion of the
unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any other Common Stock Equivalents) subject to a
limitation on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its Affiliates or Attribution Parties.
Except as set forth in the preceding sentence, for purposes of this Section 2(e),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder, it being
acknowledged by the Holder that the Company is not representing to the Holder
that such calculation is in compliance with Section 13(d) of the Exchange Act and
the Holder is solely responsible for any schedules required to be filed in
accordance therewith. To the extent that the limitation contained in this Section
2(e) applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder together with any Affiliates and
Attribution Parties) and of which portion of this Warrant is exercisable shall be in
the sole discretion of the Holder, and the submission of a Notice of Exercise shall
be deemed to be the Holder ’ s determination of whether this Warrant is exercisable
(in relation to other securities owned by the Holder together with any Affiliates
and Attribution Parties) and of which portion of this Warrant is exercisable, in
each case subject to the Beneficial Ownership Limitation, and the Company shall
have no obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 2(e), in
determining the number of outstanding shares of Common Stock, a Holder may
rely on the number of outstanding shares of Common Stock as reflected in (A) the
Company ’ s most recent periodic or annual report filed with the Commission, as
the case may be, (B) a more recent public announcement by the Company or (C) a
more recent written notice by the Company or the Transfer Agent setting forth the
number of shares of Common Stock outstanding. Upon the written or oral request
of a Holder, the Company shall within one Trading Day confirm orally and in
writing to the Holder the number of shares of Common Stock then outstanding.
8
In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of the
Company, including this Warrant, by the Holder or its Affiliates or Attribution
Parties since the date as of which such number of outstanding shares of Common
Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of
the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon exercise of this
Warrant. The Holder, upon notice to the Company, may increase or decrease the
Beneficial Ownership Limitation provisions of this Section 2(e), provided that the
Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of this Warrant held by the
Holder and the provisions of this Section 2(e) shall continue to apply. Any
increase in the Beneficial Ownership Limitation will not be effective until the 61 st
day after such notice is delivered to the Company. The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 2(e) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation. The
limitations contained in this paragraph shall apply to a successor holder of this
Warrant.
f)
Call Provision. Subject to the provisions of Section 2(e) and this
Section 2(f), if, after the Effective Date, (i) the VWAP for each of 10 consecutive
Trading Days (the “ Measurement Period, ” which 10 consecutive Trading Day
period shall not have commenced until after the Effective Date) exceeds $0.75
(subject to adjustment for forward and reverse stock splits, recapitalizations, stock
dividends and the like after the Initial Exercise Date), (ii) the average daily
volume for such Measurement Period exceeds $100,000 per Trading Day and
(iii) the Holder is not in possession of any information that constitutes, or might
constitute, material non-public information which was provided by the Company,
any of its Subsidiaries, or any of their officers, directors, employees, agents or
Affiliates, then the Company may, within 1 Trading Day of the end of such
Measurement Period, call for cancellation of all or any portion of this Warrant for
which a Notice of Exercise has not yet been delivered (such right, a “ Call ” ) for
consideration equal to $.001 per Warrant Share. To exercise this right, the
Company must deliver to the Holder an irrevocable written notice (a “ Call
Notice ” ), indicating therein the portion of unexercised portion of this Warrant to
which such notice applies. If the conditions set forth below for such Call are
satisfied from the period from the date of the Call Notice through and including
the Call Date (as defined below), then any portion of this Warrant subject to such
Call Notice for which a Notice of Exercise shall not have been received by the
Call Date will be cancelled at 6:30 p.m. (New York City time) on the tenth
Trading Day after the date the Call Notice is received by the Holder (such date
and time, the “ Call Date ” ). Any unexercised portion of this Warrant to which the
Call Notice does not pertain will be unaffected by such Call Notice. In
9
furtherance thereof, the Company covenants and agrees that it will honor all
Notices of Exercise with respect to Warrant Shares subject to a Call Notice that
are tendered through 6:30 p.m. (New York City time) on the Call Date. The
parties agree that any Notice of Exercise delivered following a Call Notice which
calls less than all of the Warrants shall first reduce to zero the number of Warrant
Shares subject to such Call Notice prior to reducing the remaining Warrant Shares
available for purchase under this Warrant. For example, if (A) this Warrant then
permits the Holder to acquire 100 Warrant Shares, (B) a Call Notice pertains to 75
Warrant Shares, and (C) prior to 6:30 p.m. (New York City time) on the Call Date
the Holder tenders a Notice of Exercise in respect of 50 Warrant Shares, then (x)
on the Call Date the right under this Warrant to acquire 25 Warrant Shares will be
automatically cancelled, (y) the Company, in the time and manner required under
this Warrant, will have issued and delivered to the Holder 50 Warrant Shares in
respect of the exercises following receipt of the Call Notice, and (z) the Holder
may, until the Termination Date, exercise this Warrant for 25 Warrant Shares
(subject to adjustment as herein provided and subject to subsequent Call Notices).
Subject again to the provisions of this Section 2(f), the Company may deliver
subsequent Call Notices for any portion of this Warrant for which the Holder shall
not have delivered a Notice of Exercise. Notwithstanding anything to the
contrary set forth in this Warrant, the Company may not deliver a Call Notice or
require the cancellation of this Warrant (and any such Call Notice shall be void),
unless, from the beginning of the Measurement Period through the Call Date, (1)
the Company shall have honored in accordance with the terms of this Warrant all
Notices of Exercise delivered by 6:30 p.m. (New York City time) on the Call
Date, and (2) the Registration Statement shall be effective as to all Warrant Shares
and the prospectus thereunder available for use by the Holder for the resale of all
such Warrant Shares, and (3) the Common Stock shall be listed or quoted for
trading on the Trading Market, and (4) there is a sufficient number of authorized
shares of Common Stock for issuance of all Securities under the Transaction
Documents, and (5) the issuance of all Warrant Shares subject to a Call Notice
shall not cause a breach of any provision of Section 2(e) herein. The Company ’ s
right to call the Warrants under this Section 2(f) shall be exercised ratably among
the Holders based on each Holder ’ s initial purchase of Warrants.
Section 3.
Certain Adjustments.
a)
Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of
shares, (iii) combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares or (iv) issues by reclassification of shares
of the Common Stock any shares of capital stock of the Company, then in each case the
Exercise Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
10
immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event, and the number of
shares issuable upon exercise of this Warrant shall be proportionately adjusted such that
the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment
made pursuant to this Section 3(a) shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b)
[RESERVED].
c)
Subsequent Rights Offerings. In addition to any adjustments pursuant to
Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock
Equivalents or rights to purchase stock, warrants, securities or other property pro rata to
the record holders of any class of shares of Common Stock (the “ Purchase Rights ” ), then
the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder had
held the number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on exercise hereof, including without
limitation, the Beneficial Ownership Limitation) immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights (provided, however,
that, to the extent that the Holder ’ s right to participate in any such Purchase Right would
result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall
not be entitled to participate in such Purchase Right to such extent (or beneficial
ownership of such shares of Common Stock as a result of such Purchase Right to such
extent) and such Purchase Right to such extent shall be held in abeyance for the Holder
until such time, if ever, as its right thereto would not result in the Holder exceeding the
Beneficial Ownership Limitation).
d)
Pro Rata Distributions. During such time as this Warrant is outstanding, if
the Company shall declare or make any dividend or other distribution of its assets (or
rights to acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ” ), at
any time after the issuance of this Warrant, then, in each such case, the Holder shall be
entitled to participate in such Distribution to the same extent that the Holder would have
participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any limitations on
exercise hereof, including without limitation, the Beneficial Ownership Limitation)
immediately before the date of which a record is taken for such Distribution, or, if no
such record is taken, the date as of which the record holders of shares of Common Stock
are to be determined for the participation in such Distribution (provided, however, that, to
the extent that the Holder's right to participate in any such Distribution would result in the
Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be
11
entitled to participate in such Distribution to such extent (or in the beneficial ownership
of any shares of Common Stock as a result of such Distribution to such extent) and the
portion of such Distribution shall be held in abeyance for the benefit of the Holder until
such time, if ever, as its right thereto would not result in the Holder exceeding the
Beneficial Ownership Limitation).
e)
Fundamental Transaction. If, at any time while this Warrant is
outstanding, (i) the Company, directly or indirectly, in one or more related transactions
effects any merger or consolidation of the Company with or into another Person, (ii) the
Company, directly or indirectly, effects any sale, lease, license, assignment, transfer,
conveyance or other disposition of all or substantially all of its assets in one or a series of
related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares for other
securities, cash or property and has been accepted by the holders of 50% or more of the
outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more
related transactions effects any reclassification, reorganization or recapitalization of the
Common Stock or any compulsory share exchange pursuant to which the Common Stock
is effectively converted into or exchanged for other securities, cash or property, or (v) the
Company, directly or indirectly, in one or more related transactions consummates a stock
or share purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with
another Person or group of Persons whereby such other Person or group acquires more
than 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “ Fundamental Transaction ” ),
then, upon any subsequent exercise of this Warrant, the Holder shall have the right to
receive, for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, at the option of the
Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant),
the number of shares of Common Stock of the successor or acquiring corporation or of
the Company, if it is the surviving corporation, and any additional consideration (the
“ Alternate Consideration ” ) receivable as a result of such Fundamental Transaction by a
holder of the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such Fundamental Transaction (without regard to any limitation in
Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of the
Alternate Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction. Notwithstanding
anything to the contrary, in the event of a Fundamental Transaction, the Company or any
12
Successor Entity (as defined below) shall, at the Holder ’ s option, exercisable at any time
concurrently with, or within 30 days after, the consummation of the Fundamental
Transaction (or, if later, the date of the public announcement of the applicable
Fundamental Transaction), purchase this Warrant from the Holder by paying to the
Holder an amount of cash equal to the Black Scholes Value (as defined below) of the
remaining unexercised portion of this Warrant on the date of the consummation of such
Fundamental Transaction. “ Black Scholes Value ” means the value of this Warrant based
on the Black-Scholes Option Pricing Model obtained from the “ OV ” function on
Bloomberg, L.P. ( “ Bloomberg ” ) determined as of the day of consummation of the
applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the time
between the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date, (B) an expected volatility equal to the greater of 100% and the
100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day
immediately following the public announcement of the applicable Fundamental
Transaction, (C) the underlying price per share used in such calculation shall be the
greater of (i) the sum of the price per share being offered in cash, if any, plus the value of
any non-cash consideration, if any, being offered in such Fundamental Transaction and
(ii) the greater of (x) the last VWAP immediately prior to the public announcement of
such Fundamental Transaction and (y) the last VWAP immediately prior to the
consummation of such Fundamental Transaction and (D) a remaining option time equal
to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date. The payment of the Black Scholes Value will be
made by wire transfer of immediately available funds within five Business Days of the
Holder ’ s election (or, if later, on the effective date of the Fundamental Transaction). The
Company shall cause any successor entity in a Fundamental Transaction in which the
Company is not the survivor (the “ Successor Entity ” ) to assume in writing all of the
obligations of the Company under this Warrant and the other Transaction Documents in
accordance with the provisions of this Section 3(e) pursuant to written agreements in
form and substance reasonably satisfactory to the Holder and approved by the Holder
(without unreasonable delay) prior to such Fundamental Transaction and shall, at the
option of the Holder, deliver to the Holder in exchange for this Warrant a security of the
Successor Entity evidenced by a written instrument substantially similar in form and
substance to this Warrant which is exercisable for a corresponding number of shares of
capital stock of such Successor Entity (or its parent entity) equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant (without regard
to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction,
and with an exercise price which applies the exercise price hereunder to such shares of
capital stock (but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of capital stock,
such number of shares of capital stock and such exercise price being for the purpose of
protecting the economic value of this Warrant immediately prior to the consummation of
such Fundamental Transaction), and which is reasonably satisfactory in form and
substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the
Successor Entity shall succeed to, and be substituted for (so that from and after the date
of such Fundamental Transaction, the provisions of this Warrant and the other
13
Transaction Documents referring to the “ Company ” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume all of
the obligations of the Company under this Warrant and the other Transaction Documents
with the same effect as if such Successor Entity had been named as the Company herein.
f)
Calculations. All calculations under this Section 3 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this
Section 3, the number of shares of Common Stock deemed to be issued and outstanding
as of a given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
g)
Notice to Holder.
i.
Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company shall
promptly deliver to the Holder by facsimile or email a notice setting forth
the Exercise Price after such adjustment and any resulting adjustment to
the number of Warrant Shares and setting forth a brief statement of the
facts requiring such adjustment.
ii.
Notice to Allow Exercise by Holder. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock, (C) the Company
shall authorize the granting to all holders of the Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the
Common Stock, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets of the
Company, or any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property, or (E) the Company
shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company, then, in each case, the Company
shall cause to be delivered by facsimile or email to the Holder at its last
facsimile number or email address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date
on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property
14
deliverable upon such reclassification, consolidation, merger, sale, transfer
or share exchange; provided that the failure to deliver such notice or any
defect therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. To the extent that
any notice provided in this Warrant constitutes, or contains, material, non-
public information regarding the Company or any of the Subsidiaries, the
Company shall simultaneously file such notice with the Commission
pursuant to a Current Report on Form 8-K. The Holder shall remain
entitled to exercise this Warrant during the period commencing on the date
of such notice to the effective date of the event triggering such notice
except as may otherwise be expressly set forth herein.
Section 4.
Transfer of Warrant.
a)
Transferability. Subject to compliance with any applicable securities laws
and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of
the Purchase Agreement, this Warrant and all rights hereunder (including, without
limitation, any registration rights) are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company or its designated agent, together with
a written assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer. Upon such surrender and, if required,
such payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall issue to the assignor
a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant
shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder
shall not be required to physically surrender this Warrant to the Company unless the
Holder has assigned this Warrant in full, in which case, the Holder shall surrender this
Warrant to the Company within three (3) Trading Days of the date on which the Holder
delivers an assignment form to the Company assigning this Warrant in full. The Warrant,
if properly assigned in accordance herewith, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.
b)
New Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are to be
issued, signed by the Holder or its agent or attorney. Subject to compliance with Section
4(a), as to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice. All
Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and
shall be identical with this Warrant except as to the number of Warrant Shares issuable
pursuant thereto.
c)
Warrant Register. The Company shall register this Warrant, upon records
to be maintained by the Company for that purpose (the “ Warrant Register ” ), in the name
15
of the record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.
d)
Transfer Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall not be
either (i) registered pursuant to an effective registration statement under the Securities
Act and under applicable state securities or blue sky laws or (ii) eligible for resale
without volume or manner-of-sale restrictions or current public information requirements
pursuant to Rule 144, the Company may require, as a condition of allowing such transfer,
that the Holder or transferee of this Warrant, as the case may be, comply with the
provisions of the Purchase Agreement.
e)
Representation by the Holder. The Holder, by the acceptance hereof,
represents and warrants that it is acquiring this Warrant and, upon any exercise hereof,
will acquire the Warrant Shares issuable upon such exercise, for its own account and not
with a view to or for distributing or reselling such Warrant Shares or any part thereof in
violation of the Securities Act or any applicable state securities law, except pursuant to
sales registered or exempted under the Securities Act.
Section 5.
Miscellaneous.
a)
No Rights as Stockholder Until Exercise; No Settlement in Cash. This
Warrant does not entitle the Holder to any voting rights, dividends or other rights as a
stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i),
except as expressly set forth in Section 3. Without limiting any rights of a Holder to
receive Warrant Shares on a “ cashless exercise ” pursuant to Section 2(c) or to receive
cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall
the Company be required to net cash settle an exercise of this Warrant.
b)
Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
c)
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein shall not be a
Business Day, then, such action may be taken or such right may be exercised on the next
succeeding Business Day.
d)
Authorized Shares.
16
The Company covenants that, during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of issuing the necessary Warrant Shares
upon the exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed. The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights represented by this Warrant
and payment for such Warrant Shares in accordance herewith, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges created by the Company in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the Company will
(i) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (ii)
take all such action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable Warrant Shares upon
the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain
all such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof, as may be, necessary to enable the Company to
perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the
number of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory body or bodies
having jurisdiction thereof.
e)
Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.
17
f)
Restrictions. The Holder acknowledges that the Warrant Shares acquired
upon the exercise of this Warrant, if not registered and the Holder does not utilize
cashless exercise, will have restrictions upon resale imposed by state and federal
securities laws.
g)
Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of such right
or otherwise prejudice the Holder ’ s rights, powers or remedies. Without limiting any
other provision of this Warrant or the Purchase Agreement, if the Company willfully and
knowingly fails to comply with any provision of this Warrant, which results in any
material damages to the Holder, the Company shall pay to the Holder such amounts as
shall be sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys ’ fees, including those of appellate proceedings, incurred by the
Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
h)
Notices. Any notice, request or other document required or permitted to
be given or delivered to the Holder by the Company shall be delivered in accordance with
the notice provisions of the Purchase Agreement.
i)
Limitation of Liability. No provision hereof, in the absence of any
affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and
no enumeration herein of the rights or privileges of the Holder, shall give rise to any
liability of the Holder for the purchase price of any Common Stock or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors of the
Company.
j)
Remedies. The Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific performance
of its rights under this Warrant. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive and not to assert the defense in any
action for specific performance that a remedy at law would be adequate.
k)
Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and
be binding upon the successors and permitted assigns of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to be for
the benefit of any Holder from time to time of this Warrant and shall be enforceable by
the Holder or holder of Warrant Shares.
l)
Amendment. This Warrant may be modified or amended or the provisions
hereof waived with the written consent of the Company and the Holder.
m)
Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable law, such
18
provision shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n)
Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
19
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized as of the date first above indicated.
PARRALAX HEALTH SCIENCES, INC.
By:__________________________________________
Name: Paul R. Arena
Title: Chief Executive Officer
20
NOTICE OF EXERCISE
TO: P ARRALAX HEALTH SCIENCES, INC.
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the
exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] [if permitted the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 2(c), to exercise this Warrant with
respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as
is specified below:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
(4) Accredited Investor. The undersigned is an “ accredited investor ” as defined in
Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing Entity : _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this
form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
Name:
(Please Print)
Address:
(Please Print)
Phone Number:
______________________________________
Email Address:
______________________________________
Dated: _______________ __, ______
Holder ’ s Signature:
Holder ’ s Address: