As filed with the Securities and Exchange Commission
November 20, 2015
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Registration Statement No. 333-______
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UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
REGISTRATION
STATEMENT
ON FORM S-1
UNDER
THE SECURITIES
ACT OF 1933
AXION POWER
INTERNATIONAL, INC.
(Exact name
of registrant as specified in its charter)
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Delaware
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65-0774638
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3690
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(State or other jurisdiction of
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(I.R.S. Identification Number)
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(Primary Standard Industrial
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incorporation or organization)
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Classification Code Number)
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3601
Clover Lane
New
Castle, Pennsylvania 16105
Telephone
(724) 654-9300
(Address,
including zip code, and telephone number, including
area
code, of registrant’s principal executive offices)
Donald
Farley
3601
Clover Lane
New
Castle, Pennsylvania 16105
Telephone
(724) 654-9300
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copy
to:
Jolie
Kahn, Esq.
2
Liberty Place, Suite 3401
Philadelphia,
PA 19102
Telephone
(215) 253-6645
Approximate Date of Commencement
of Proposed Sale to the Public:
At such time or times after the effective date of this registration statement as the selling
stockholders shall determine.
If any of the securities being registered on this form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
x
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
¨
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company”
in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities
to be Registered
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Amount to be
Registered
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Proposed Maximum
Offering Price
per Unit(2)
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Proposed
Maximum Aggregate
Offering Price
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Amount of
Registration Fee
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Common Stock, par value $0.005 per share (1)
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31,647,293
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$
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1.26
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$
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39,875,590
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$
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4,664
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(1)
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Pursuant to Rule 416 under the Securities Act of 1933, the securities being registered hereunder
as to include such indeterminate number of additional shares of common stock as may be issuable as a result of stock splits,
stock dividends, and similar transactions.
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(2)
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Estimated for the purpose of determining the registration fee pursuant to Rule 457(c), based
on the average of the bid and asked price as of November 19, 2015.
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The Registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.
Subject to Completion,
dated November 20, 2015
PROSPECTUS
The
information in the prospectus is not complete and may be changed. The selling stockholders may not sell these securities until
the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to
sell and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
31,647,293 Shares
of Common Stock
This prospectus
relates to the offer and sale of up to 31,647,293 shares of common stock of Axion Power International, Inc., a Delaware corporation,
issued to certain selling stockholders, which are signatories on the below listed securities purchase agreement dated November
4, 2015, between the selling stockholders and us, upon the conversion of convertible notes due January 5, 2017 and exercise of
warrants issued thereunder, and that may be offered and sold from time to time by the selling stockholders.
This prospectus
covers any additional shares of common stock that may become issuable upon any anti-dilution adjustment pursuant to the terms
of the convertible notes due January 5, 2017 and accompanying warrants and also by reason of stock splits, stock dividends, and
other events described therein. $9,000,000 of the principal amount of the convertible notes due on January 5, 2017 were acquired
by the selling stockholders in a private placement with us that closed on November 5, 2015, and $363,530 of the principal amount
of the notes were issued to one of the selling stockholders as a result of the “roll over” of principal and accrued
interest of August 2015 bridge notes in the same amount as of the date of this prospectus.
Under the registration
rights agreement entered into by us and the selling shareholders in connection with the issuance of the convertible notes due
January 5, 2017, and the warrants issued in conjunction therewith (“warrants”), we are required to register for resale
200% of the number of shares of our common stock issuable pursuant to the convertible notes and 125% of the number of shares of
our common stock issuable pursuant to the warrants, both as of the trading day immediately preceding the applicable date of determination
(which was November 5, 2015). This amount represents a good faith estimate of the maximum number of shares issuable pursuant to
the convertible notes and warrants.
Unless otherwise
noted, the terms “the Company,” “our Company,” “Axion,” “we,” “us”
and “our” refer to Axion Power International, Inc. and its subsidiaries.
The selling
stockholders may offer their shares from time to time directly or through one or more underwriters, broker-dealers or agents,
in the over-the-counter market at market prices prevailing at the time of sale, in one or more privately negotiated transactions
at prices acceptable to the selling stockholders, or otherwise, so long as our common stock is trading on the Nasdaq Capital Market,
and if it is not trading on the OTCQB, OTCQX or a listed exchange, sales may only take place at fixed prices.
We are registering
these shares of our common stock for resale by the selling stockholders named in this prospectus, or their transferees, pledgees,
donees or assigns or other successors-in-interest that receive any of the shares as a gift, distribution, or other non-sale related
transfer. We will not receive any proceeds from the sale of shares by the selling stockholders. These shares are being registered
to permit the selling stockholders to sell shares from time to time, in amounts, at prices and on terms determined at the time
of offering. The selling stockholders may sell this common stock through ordinary brokerage transactions, directly to market makers
of our shares or through any other means described in the section entitled “PLAN OF
DISTRIBUTION” beginning
of page 45. In connection with any sales of the common stock offered hereunder, the selling stockholders, any underwriters, agents,
brokers or dealers participating in such sales may be deemed to be “underwriters” within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”).
We will pay
the expenses related to the registration of the shares covered by this prospectus. The selling stockholders will pay any commissions
and selling expenses they may incur.
Our common
stock trades on the Nasdaq Capital Market under the symbol “AXPW”. The closing sale price on the Nasdaq Capital Market
on November 19, 2015, was $1.26 per share.
Our principal
executive offices are located at 3601 Clover Lane, New Castle PA 16105. Our telephone number at that address is (724) 654-9300.
Investing
in the common stock offered by this prospectus is speculative and involves a high degree of risk. See “Risk Factors”
beginning on page 7.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of
this prospectus is November 20, 2015.
TABLE OF
CONTENTS
ABOUT THIS
PROSPECTUS
This prospectus is part of a registration
statement that we filed with the Securities and Exchange Commission using the Securities and Exchange Commission’s registration
rules for a delayed or continuous offering and sale of securities. Under the registration rules, using this prospectus and, if
required, one or more prospectus supplements, the selling stockholders named herein may distribute the shares of common stock
covered by this prospectus. This prospectus also covers any shares of common stock that may become issuable as a result of stock
splits, stock dividends or similar transactions.
A prospectus supplement may add,
update or change information contained in this prospectus. We recommend that you read carefully this entire prospectus, especially
the section entitled “Risk Factors” beginning on page 7, and any supplements before making a decision to invest in
our common stock.
You should rely only on the information
contained in this prospectus. We have not authorized anyone to provide you with information different from the information contained
in this prospectus. The common stock is not being offered in any jurisdiction where offers and sales are not permitted. The information
contained in this prospectus is accurate only as of the date of this prospectus, regardless of when this prospectus is delivered
or when any sale of our securities occurs.
Cautionary
Note Regarding Forward-Looking Information
This prospectus, in particular the
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing herein, contains
certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended ,
and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations,
beliefs, intentions or strategies concerning future events, including, but not limited to, any statements regarding our assumptions
about financial performance; the continuation of historical trends; the sufficiency of our cash balances for future liquidity
and capital resource needs; the expected impact of changes in accounting policies on our results of operations, financial condition
or cash flows; anticipated problems and our plans for future operations; and the economy in general or the future of the electrical
storage device industry, all of which are subject to various risks and uncertainties.
When used in this prospectus as
well as in reports, statements, and information we have filed with the Securities and Exchange Commission, in our press releases,
presentations to securities analysts or investors, in oral statements made by or with the approval of an executive officer, the
words or phrases “believes,” “may,” “will,” “expects,” “should,” “continue,”
“anticipates,” “intends,” “will likely result,” “estimates,” “projects”
or similar expressions and variations thereof are intended to identify such forward-looking statements. However, any statements
contained in this prospectus that are not statements of historical fact may be deemed to be forward-looking statements. We caution
that these statements by their nature involve risks and uncertainties, certain of which are beyond our control, and actual results
may differ materially depending on a variety of important factors.
PROSPECTUS
SUMMARY
This summary highlights important
information about this offering and our business. It does not include all information you should consider before investing in
our common stock. Please review this prospectus in its entirety, including the risk factors and our financial statements and the
related notes, before you decide to invest.
Our Company
The cornerstone of our PbC technology
is our proprietary PbC lead carbon battery, which substitutes an activated carbon negative electrode for the standard lead negative
electrode in a lead-acid battery construct. All other components of the PbC battery (such as case, cover, separator material,
positive plate, electrolyte and other components) are identical to those used in a conventional lead-acid battery. The PbC product
is part battery with energy storage capabilities and part asymmetric hybrid supercapacitor with a fast recharge rate, charge acceptance
and long cycle life. The construct design results in a relatively low cost device that can be manufactured in iterations that
deliver maximum power, or deliver maximum energy, or provide a range of balances between the two. Our PbC battery can be used
in applications that service the energy storage needs of several markets including transportation, renewable power, frequency
regulation and backup power.
We have devoted more than ten years
to research and development on our PbC technology. Our work has focused on developing our intellectual property, characterizing
baseline performance, developing proprietary treatment processes for the activated carbon we use in our electrodes, developing
proprietary designs, manufacturing techniques for electrode assemblies and fabricating a series of material and design evaluation
prototypes that range from single cell to multi-cell batteries for use in energy storage devices and systems.
Our PbC technology is protected
by thirteen issued U.S. patents and other proprietary features and structures, and we typically have a number of additional patent
applications in process at any point in time. The resulting devices are technically sophisticated yet simple in design. The carbon
negative electrode assemblies are fabricated from readily available raw materials using, for the most part, standard industrial
processes and techniques. The PbC negative electrodes that are then assembled into PbC batteries can be used with the same case
cover, positive plate, separators and electrolyte that are used in conventional lead-acid batteries. Our PbC batteries can be
assembled with the same equipment and methodology commonly used for manufacturing conventional lead-acid batteries. PbC batteries
use significantly less lead than standard lead-acid batteries with a comparable footprint. Moreover, the lead, plastics and acid
employed, just like lead-acid batteries, can be routinely and profitably recycled at existing recycling facilities around the
world. A 2007 United States EPA report indicated that in the United States lead-acid batteries are fully recycled 99.2% of the
time.
We believe our advanced battery
technologies are uniquely situated to answer the current challenges facing both the historic lead-acid battery industry and the
challenges facing newer battery chemistries such as lithium-ion, nickel metal hydride, etc. While we further commercialize and
continue to explore various potential applications for our PbC technology in the future, these two facilities in New Castle, Pennsylvania
will continue to provide us with both an important research and development facility and a production plant in which to produce
our lead-free activated carbon negative electrodes. We will also accelerate our development of strategic partners for energy storage
manufacture.
In our current strategy, we have
moved away from specialty and contract manufacture of standard lead acid batteries. We will instead focus on consolidating our
operations into one facility for the production of our finished lead-free carbon negative electrode. The facility also provides
space for battery string testing and additional storage.
Our objective has consistently been
to become an industry leader in the development, production and sourcing of components for cost competitive high performance energy
storage systems. We are currently actively pursuing this strategy in the following core areas:
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Platform technology business model.
We are implementing a platform technology business
model that will focus on developing and manufacturing carbon electrode assemblies that we can offer for sale to established
battery manufacturers who want to use our PbC carbon electrode products in their batteries.
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Leverage relationships with battery manufacturers.
Our business model is based on the
premise that, as we continue forward, we can most effectively address the needs of the market by selling PbC negative electrode
assemblies to established lead-acid battery manufacturers who want to add advanced battery technology to their existing product
lines. We believe this business model should allow us to leverage the business abilities, manufacturing facilities and distribution
networks of established manufacturers in order to reduce our time to market and increase our potential market penetration.
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Build a recognized brand.
We believe strong brand name recognition is important in order
to increase product awareness and to effectively penetrate the mass market. We intend to differentiate our brand by emphasizing
our combination of high performance and low total cost of ownership per storage cycle.
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Targeted marketing strategy.
Markets for motive power, utility grid connected power;
renewable energy and standby power (UPS) are becoming increasingly attractive. We are actively pursuing the use of our lead
carbon technology products in these markets.
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Maintain our technical advantage and reduce manufacturing costs.
We intend to maintain
our technical advantage by continuing to invest in research and development. Our research and development focus will now be
working with prospective customers on the commercial application of our PbC technology to fit their unique requirements.
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Our commercial market applications
focus is:
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Utility applications e.g. frequency regulation
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Buffering, smoothing and micro grid for renewable energy sources (solar and wind)
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Hybrid medium and heavy duty trucks
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Residential and small community energy storage
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Hybrid vehicles incorporating stop/start technology
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Recent Developments
Board
Appointments
In January
2015, Richard Bogan and Donald Farley were appointed as Directors and Mr. Farley was appointed as Chairman.
Binding Letter of Intent with
LCB International, Inc.
On June 13, 2015, we entered into
a Binding Letter of Intent with LCB International, Inc., a British Virgin Islands corporation, regarding an exclusive license
of our intellectual property portfolio of PbC technology for various applications (including, but not limited to related e-energy
solutions for motive and stationary applications, including, but not limited to e-scooter, commercial, light and off road vehicles
and grid storage of our PbC technology in the People’s Republic of China, Taiwan, Macao and Hong Kong. Despite negotiations
between the parties during the third quarter of 2015, they were unable to reach agreement on definitive documentation, and the
parties are currently exploring the possibility of a revised transaction structure revolving around a technology license structure.
Sharon
PA Project
On June 12, 2015, we entered into
a 30 month and 18 day option to enter into an energy frequency regulation lease for the subject property. The option fee is $4,000
per month for months 1 thru 18 and $6,000 per month thereafter, and we can extend the option for an additional six months upon
notice at least 30 days prior to the initial lease term. The option agreement permits us to exercise the option at any time during
the option term.
We are also preparing filings seeking
regulatory approval for a 2.5MW frequency regulation project at Sharon PA that is enabled by a lease option for the site including
possible expansion to a 12.5MW project at a later date, subject to regulatory approval. Carbon electrodes were prepared for PbC
battery manufacturing trials with select U.S. based battery companies, a key goal of our strategy. Commercial development progress
was made on applications for less complicated drop-in uses of PbC batteries. Activities to engage licensing and development partners
for key markets are also ongoing in keeping with our strategy.
On June 26, 2015, we executed an
amendment pursuant to which it extended the lease option for an additional six months upon the same terms and conditions.
Reverse
Stock Split
On July 14,
2015, we effected a 1-for-35 reverse split of our common stock and Series A warrants. The number of Series B warrants was not
impacted by the 1-for -35 reverse split. All share related and per share information has been adjusted to give effect to the reverse
stock split from the beginning of the earliest periods presented.
Bridge
Notes
On August 7,
2015, we entered into a securities purchase agreement with several accredited investors, including one of our directors pursuant
to which it is selling $600,000 principal amount of convertible notes to these investors. The transaction was approved by our
Board of Directors on August 5, 2015. The notes carry an original issue discount of 15% so that the gross amount of proceeds to
us (before expenses) is $510,000. The notes bear interest at the rate of 12% per annum, and the interest is payable in cash upon
repayment of the notes or in shares of our common stock upon conversion of the notes. The notes have a term of 90 days from the
date of issuance, which may be extended at the option of the holder with respect to all or any portion of a note (i) in the event
that and for so long as an event of default is occurring under a note, (ii) through the date that all shares issued upon conversion
of the Note may be resold under Rule 144 without restriction and/or (iii) through the date that is 10 business days after the
consummation of a change in control transaction, all as specified in the notes. The conversion price for the notes is $1.75 per
share. The holders of the notes will be issued one five year warrant for each $1.00 of principal amount of the note invested (510,000
Warrants in total). Each warrant has an exercise price of $1.75 per share. The agreement, notes and warrants contain other terms
and provisions which are customary for a transaction of this nature, including standard representations and warranties and events
of default. The transaction is exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation
D, as promulgated thereunder, and closed on August 7, 2015. All monies were received on August 11, 2015. As of the date of this
prospectus, all but $11,765 of the principal amount of these bridge notes has been satisfied.
Nasdaq
Notification
On August 25, 2015, we received
a written notification from the Nasdaq Stock Market LLC that it did not meet the minimum of $2,500,000 in stockholders’
equity for continued listing (as set forth in Listing Rule 5550(b)(1)) as a result of the report of shareholders equity of $570,824
in our Form 10-Q for the period ended June 30, 2015, which was largely as a result of the valuation of our Series B Warrants for
the quarter ended June 30, 2015. The notification does not result in the immediate delisting of our common stock, and its common
stock will continue to trade uninterrupted on the Nasdaq Capital Market.
We submitted
a plan to regain compliance on October 9, 2015. If the plan is accepted, we can be granted an extension of up to 180 calendar
days to evidence compliance. Nasdaq is continuing to review the plan, and we have submitted additional information at the request
of Nasdaq.
Management
Changes
On October
2, 2015, Charles Trego resigned as Chief Financial Officer, and Danielle Baker was appointed as the Chief Accounting Officer.
$9 Million Financing Transaction
On November 4, 2015, we entered
into a financing transaction for the sale of convertible notes and warrants issued by us with gross proceeds of $9 million to
us. Upon closing of the sale of the notes and warrants, we received cash proceeds of $1.85 million and deposit of an additional
$7.15 million into a series of control accounts in our name. We are permitted to withdraw funds from our control accounts (i)
in connection with certain conversions of the notes or (ii) otherwise, as follows: $1,000,000 on each 30 day anniversary of the
commencing on the 30
th
day after the effective date of a registration statement being filed in connection with the
transaction until there are no more funds in the control accounts, subject in each instance to equity conditions set forth in
the convertible notes.
We received approximately $1.7 million
in net proceeds at closing, which occurred on November 5, 2015, after deducting our placement agent’s fee of $138,750. Offering
expenses, other than our placement agent’s fee, were approximately $100,000, which were paid out of the proceeds at Closing.
At each release of funds, we will receive approximately $925,000 in net proceeds, after deducting our placement agent’s
fee of $75,000.
The initial conversion price of
the notes is $1.23 per share, and the initial exercise price of the 10,975,608 warrants is $1.29 per share.
As a result of “rollover”
of $363,530 of principal amount and accrued and unpaid interest of our August 2015 bridge notes, an additional note in the principal
amount of $363,530 with the same terms as the convertible notes, and an additional 443,328 warrants were issued effective as of
November 19, 2015. The terms of the notes and warrants are further described in “DESCRIPTION OF PRIVATE PLACEMENT AND CONVERTIBLE
NOTES” in this prospectus.
The Offering
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Common stock offered by the selling stockholders:
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Up to 31,647,293 shares of our common stock, par value $0.005 per share,
are being offered by the selling stockholders. These shares are issuable upon the conversion of our convertible
notes due on January 5, 2017 at a conversion price of $1.23 per share and warrants at an exercise price of $1.29 (both subject
to adjustment as described below under “
DESCRIPTION OF PRIVATE PLACEMENT AND CONVERTIBLE NOTES
” beginning
on p. 40 of this prospectus), of which $9,000,000 principal amount of convertible notes and 10,975,608 warrants were issued
by us to various selling stockholders in a private placement on November 5, 2015, and $363,530 principal amount of convertible
note and 443,328 warrants were issued effective as of the date of this prospectus.
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Offering prices:
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The shares offered by this prospectus may be offered and sold at prevailing market prices or
such other prices as the selling stockholders may determine.
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Common stock outstanding:
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3,934,728 shares as of November 19, 2015.
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Dividend policy:
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Dividends on our common stock may be declared and paid when and as determined
by our board of directors. We have not paid and do not expect to pay dividends on our common stock.
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Nasdaq Capital Market:
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AXPW for common stock and AXPWW for Series A warrants
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Use of proceeds:
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We are not selling any of the shares of common stock being offered by this prospectus and will
receive no proceeds from the sale of the shares by the selling stockholders. All of the proceeds from the sale of common stock
offered by this prospectus will go to the selling stockholders at the time they sell their shares.
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Risk Factors
See
“Risk Factors” beginning on page 7 for a discussion of factors you should carefully consider before deciding to
invest in our common stock.
Our Address
Our principal
executive offices are located at 3601 Clover Lane, New Castle, Pennsylvania 16105, and our telephone number is (724) 654-9300.
We are
registering the shares being offered under this prospectus pursuant to the registration rights agreement that we entered into
with the selling stockholders described below under “
DESCRIPTION OF PRIVATE PLACEMENT AND CONVERTIBLE
NOTES
” beginning on p. 40 of this prospectus) together with common stock purchase warrants to purchase up to
10,975,608 shares of our common stock from the November 5, 2015 closing plus 443,328 shares of our common stock as a result
of the rollover of the $363,530 principal amount and accrued and unpaid interest thereon of the bridge notes at an exercise
price of $1.29 per share (subject to adjustment as described below under “
DESCRIPTION OF PRIVATE PLACEMENT AND
CONVERTIBLE NOTES
”.)
The
number of shares of common stock that will be outstanding immediately after this offering is based on the 3,934,728 shares of
our common stock outstanding as of November 19, 2015 and assumes full conversion of the convertible notes identified above. There
is no guarantee that the convertible notes will be converted into common stock. The number of shares of common stock that will
be outstanding immediately after this offering does not include:
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510,000
shares of common stock issuable upon exercise of the Senior Convertible Bridge Note Warrants
outstanding as of November 5, 2015, at a conversion price of $1.75 per share;
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1,099
shares of common stock issuable upon exercise of the Junior Warrants outstanding as of
November 5, 2015, at a conversion price of $528.50 per share;
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141
shares of common stock issuable upon conversion of the Junior Convertible Notes outstanding
as of November 5, 2015, at an exercise price of $462.00 per share;
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7,408 shares of common
stock issuable upon the exercise of warrants (other than the warrants issued in conjunction with the November 2015 offering)
outstanding
as of
November
5,
2015, at a
weighted average exercise price of $186.51 per share;
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15,252
shares of common stock issuable upon the exercise of options outstanding as of November
5, 2015, at a weighted average exercise price of $288.51 per share;
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748
shares of common stock reserved for future grant or issuance as of September 24, 2014
under all of our 2004 Outside Directors Stock Option Plan and our 2010 Employees and
Officers Stock Option Plan;
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61,608
Series A warrants outstanding as of November 5, 2015, at an exercise price of $17.50
per share; and
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34,521
Series B warrants outstanding as of November 5, 2015 converting into 38,837 shares of
stock on a cashless basis.
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RISK FACTORS
Investing in our common stock
is very speculative and involves a high degree of risk and uncertainty. You should carefully consider all of the information in
this prospectus before making an investment decision. The following are among the risks we face related to our business, assets
and operations. They are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently
believe to be immaterial may also arise. Any of these risks could materially and adversely affect our business, results of operations
and financial condition, which in turn could materially and adversely affect the trading price of our common stock. You should
not purchase our shares unless you can afford to lose your entire investment.
RISKS RELATED
TO OUR FINANCIAL POSITION
We have
a history of operating losses. We expect to incur operating losses and negative cash flow in the future and we may never achieve
or sustain an operating profit or positive cash flow.
We have historically
incurred substantial operating losses of $11.4 million and $8.2 million for the years ended December 31, 2014 and 2013, respectively
.
At December 31, 2014, we had retained earnings deficit of $115.3 million. These operating losses have had, and will continue
to have, an adverse effect on our balance sheet, statement of operations and comprehensive loss, and statements of cash flows.
Because of the numerous risks and uncertainties associated with our business, we are unable to predict when we will become profitable,
and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis. Our inability to achieve and then sustain profitability would have a material adverse effect on
our results of operations and business.
Our independent
registered public accounting firm’s report for the fiscal year ended December 31, 2014 includes an explanatory paragraph
regarding substantial doubt about our ability to continue as a going concern
.
Due to the
uncertainty of our ability to meet our cash requirements to fund our current operations, working capital, and non-current liabilities,
in their report on our audited annual financial statements as of and for the year ended December 31, 2014, our independent registered
public accounting firm included an explanatory paragraph regarding concerns about our ability to continue as a going concern.
Recurring losses from operations raise substantial doubt about our ability to continue as a going concern. If we are unable to
continue as a going concern, we might have to liquidate our assets and the values we receive for our assets in liquidation or
dissolution could be significantly lower than the values reflected in our financial statements. In addition, the inclusion of
an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern and our lack of cash resources
may materially adversely affect our share price and our ability to raise new capital or to meet existing contractual obligations
with third parties (including product warranties) or to enter into new critical contractual relations with third parties.
We are
in the early stages of commercialization and our PbC products may never achieve significant commercial market acceptance.
Our success
depends on our ability to develop and market PbC products that are recognized as superior to those currently existing in the marketplace.
Most of our potential customers currently use other products using different technology and may be reluctant to change those methods
to a new technology. Market acceptance will depend on many factors, including our ability to convince potential customers that
our PbC battery solution is an attractive alternative to existing products. We will need to demonstrate that our products provide
reliable and cost-effective alternatives to existing products. Compared to most competing technologies, our technology is relatively
new, and most potential customers have limited knowledge of, or experience with, our products. Prior to adopting our technology,
potential customers may be required to devote significant time and effort to testing and validating our products. Many factors
influence the perception of a new technology, including its use by leaders in the industry. If we are unable to continue to induce
these leaders to adopt our technology, acceptance and adoption of our products could be slowed. In addition, if our products fail
to gain significant acceptance in the marketplace and we are unable to expand our customer base, we may never generate sufficient
revenue to achieve or sustain profitability.
Our sales
cycle is lengthy and variable, which makes it difficult for us to forecast revenue and other operating results.
The sales cycle
for our products is lengthy, which makes it difficult for us to accurately forecast revenue in a given period, and may cause revenue
and operating results to vary significantly from period to period. Some potential customers for our products typically need to
commit significant time and resources to evaluate the technology used in our products and their decision to purchase our products
may be further limited by budgetary constraints, lack of funding and numerous layers of internal review and approval, which are
beyond our control. We spend substantial time and effort assisting potential customers in evaluating our products, including providing
demonstrations and validation. Even after initial approval by appropriate decision makers, the negotiation and documentation processes
for the actual adoption of our products can be lengthy. As a result of these factors, based on our experience to date, our sales
cycle, the time from initial contact with a prospective customer to routine commercial utilization of our products, has varied
and can sometimes be several months or longer, which has made it difficult for us to accurately project revenues and other operating
results. In addition, the revenue generated from sales of our products may fluctuate from time to time due to market and general
economic conditions. As a result, our financial results may fluctuate on a quarterly basis which may adversely affect the price
of our common stock.
We will
need to raise additional funds through debt or equity financings in the future to achieve our business objectives and to satisfy
our cash obligations, which would dilute the ownership of our existing shareholders and possibly subordinate certain of their
rights to the rights of new investors.
We will need
to raise additional funds through debt or equity financings in order to complete our ultimate business objectives, including funding
working capital to support fulfillment of future orders for our products to pay-off our subordinated notes. We also may choose
to raise additional funds in debt or equity financings if they are available to us on reasonable terms to increase our working
capital, strengthen our financial position or to make acquisitions. Any sales of additional equity or convertible debt securities
would result in dilution of the equity interests of our existing shareholders, which could be substantial. Additionally, if we
issue shares of preferred stock or convertible debt to raise funds, the holders of those securities might be entitled to various
preferential rights over the holders of our common stock, including repayment of their investment, and possibly additional amounts,
before any payments could be made to holders of our common stock in connection with an acquisition of us. Such preferred shares,
if authorized, might be granted rights and preferences that would be senior to, or otherwise adversely affect, the rights and
the value of our common stock. Also, new investors may require that we and certain of our shareholders enter into voting arrangements
that give them additional voting control or representation on our board of directors.
RISKS RELATED
TO OUR BUSINESS OPERATIONS
We depend
on key personnel, and our business may be severely disrupted if we cannot recruit a new CEO/President or we lose the services
of our key executives, employees, and consultants.
Our business
is dependent upon the leadership of a seasoned CEO/President and knowledge and experience of our senior management. Given the
competitive nature of our industry and the current commercial stage of our company, there is the risk we may not be able to successfully
recruit a President, that one or more of our key personnel will resign their positions, which could have a disruptive impact on
our operations. If any of our key personnel do not continue in their present positions, we may not be able to easily replace them
and our business may be severely disrupted. We face competition for such personnel. If any of these individuals joins a competitor
or forms a competing company, we could lose important know-how and experience and incur substantial expense to recruit and train
suitable replacements. Our Compensation Committee remains committed to keeping our key personnel in place as we move further into
our commercialization stage of our PbC product. Currently, all of our key personnel have employment contracts that include non-compete
provisions.
We may
be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.
Our ability
to manage our potential growth properly will require us to continue to improve our business processes, as well as our reporting
systems and procedures. If our current infrastructure is unable to handle our growth, we may need to expand our infrastructure
and staff and implement new decision making and reporting systems. The time and resources required to implement such expansion
and systems could adversely affect our decision making and operations. Our expected future growth will impose significant added
responsibilities on members of management, including the need to identify, recruit, maintain, and integrate additional employees.
Our future financial performance and our ability to commercialize our products and to compete effectively will depend, in part,
on our ability to manage this potential future growth effectively, without compromising quality and customer satisfaction.
Our
operations expose us to litigation, tax, environmental and other legal compliance risks.
We are subject
to a variety of litigation, tax, environmental, health and safety and other legal compliance risks. These risks include, among
other things, possible liability relating to product liability matters, personal injuries, intellectual property rights, contract-related
claims, government contracts, taxes, health and safety liabilities, environmental matters and compliance with U.S. and foreign
laws, competition laws and laws governing improper business practices. We or one of our business units could be charged with wrongdoing
as a result of such matters. If convicted or found liable, we could be subject to significant fines, penalties, repayments or
other damages (in certain cases, treble damages). As a business with potential international reach, we are subject to complex
laws and regulations in the U.S. and other countries in which we choose to operate. Those laws and regulations may be interpreted
in different ways. They may also change from time to time, as may related interpretations and other guidance. Changes in laws
or regulations could result in higher expenses and payments, and uncertainty relating to laws or regulations may also affect how
we conduct our operations and structure our investments and could limit our ability to enforce our rights.
In the area
of taxes, changes in tax laws and regulations, as well as changes in related interpretations and other tax guidance in the countries
and jurisdictions that we choose to operate could materially impact our tax receivables and liabilities and our deferred tax assets
and tax liabilities. Additionally, in the ordinary course of business, we are subject to examinations by various authorities,
including tax authorities. There could be investigations launched in the future by governmental authorities in various jurisdictions.
The potentially future global and diverse nature of our operations means that these risks will continue to exist and additional
legal proceedings and contingencies will arise from time to time. Our results may be affected by the outcome of legal proceedings
and other contingencies that cannot be predicted with certainty.
In the sourcing
of our products throughout the world, we process, store, dispose of and otherwise use large amounts of hazardous materials, especially
lead and acid. As a result, we are subject to extensive and changing environmental, health and safety laws and regulations governing,
among other things: the generation, handling, storage, use, transportation and disposal of hazardous materials; remediation of
polluted ground or water; emissions or discharges of hazardous materials into the ground, air or water; and the health and safety
of our employees. Compliance with these laws and regulations results in ongoing costs. Failure to comply with these laws or regulations,
or to obtain or comply with required environmental permits, could result in fines, criminal charges or other sanctions by regulators.
From time to time we have had instances of alleged or actual noncompliance that have resulted in the imposition of fines, penalties
and required corrective actions. Our ongoing compliance with environmental, health and safety laws, regulations and permits could
require us to incur significant expenses, limit our ability to modify or expand our facilities or continue production and require
us to install additional pollution control equipment and make other capital improvements. In addition, private parties, including
current or former employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous
substances used, stored or disposed of by us or contained in our products.
Changes in
environmental and climate laws or regulations, including laws relating to greenhouse gas emissions, could lead to new or additional
investment in production designs and could increase environmental compliance expenditures. Changes in climate change concerns,
or in the regulation of such concerns, including greenhouse gas emissions, could subject us to additional costs and restrictions,
including increased energy and raw materials costs. Additionally, we cannot assure you that we have been or at all times will
be in compliance with environmental laws and regulations or that we will not be required to expend significant funds to comply
with, or discharge liabilities arising under, environmental laws, regulations and permits, or that we will not be exposed to material
environmental, health or safety litigation.
We are
subject to stringent federal and state environmental and safety regulation, and we do not carry environmental impairment insurance,
so we may suffer material adverse effects if any fines are ever imposed.
We use or generate
certain hazardous substances in our research and manufacturing facilities. We are subject to varying regulations including OSHA
and CERCLA and state equivalents. We do not carry environmental impairment insurance. We believe that all permits and licenses
required for our current business activities are in place. Although we do not know of any material environmental, safety or health
problems in our property or processes, there can be no assurance that problems will not develop in the future which could have
a material adverse effect on our business, results of operation, or financial condition.
Our products
contain hazardous materials including lead, and any discharge could lead to monetary damages and fines.
Lead is a toxic
material that is an important raw material in our batteries. We also use, generate and discharge other toxic, volatile and hazardous
chemicals and wastes in our research, development and manufacturing activities. We are required to comply with federal, state
and local laws and regulations regarding pollution control and environmental protection. Under some statutes and regulations,
a government agency, or other parties, may seek to recover response costs from operators of property where releases of hazardous
substances have occurred or are ongoing, even if the operator was not responsible for such release or otherwise at fault. In addition,
more stringent laws and regulations may be adopted in the future, and the costs of complying with those laws and regulations could
be substantial. If we fail to control the use of, or inadequately restrict the discharge of, hazardous substances, we could be
subject to significant monetary damages and fines, or be forced to suspend certain operations
As we
sell our products, we may become the subject of product liability claims, and we could face substantial fines which exceed our
resources.
Due to the
hazardous nature of many of the key materials used in the manufacturing of our batteries, the producers of such products may be
exposed to a greater number of product liability claims, including possible environmental claims. We currently have domestic general
liability insurance up to $1,000,000 per occurrence and $2,000,000 in the aggregate to protect us against the risk that in the
future a product liability claim or product recall could materially and adversely affect our business operations. Inability to
obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims
could prevent or inhibit the commercialization of our product. We cannot assure you that as we continue distribution of our products
that we will be able to obtain or maintain adequate coverage on acceptable terms, or that such insurance will provide adequate
coverage against all potential claims. Even if we maintain adequate insurance, any successful claim could materially and adversely
affect our reputation and prospects, and divert management’s time and attention. If we are sued for any injury allegedly
caused by our future products our liability could exceed our total assets and our ability to pay such liability.
We have
limited manufacturing experience with respect to our PbC technology, which may translate into cost overruns in manufacturing our
products.
We have limited
manufacturing experience with respect to production of our commercial PbC negative electrodes in quantities required to achieve
our operational goals, and we may not be able to retain a qualified manufacturing staff or effectively manage the manufacturing
of our proposed products when we are ready to do so. We began the commercial production of our energy storage devices in the fourth
quarter of 2012. As production levels increase, we may experience cost overruns in manufacturing our PbC products, and we may
not have sufficient capital in the future to successfully complete such tasks. In addition, we may not be able to manufacture
our products because of industry conditions, general economic conditions, and/or competition from potential manufacturers and
distributors. These inabilities could cause us to abandon our current business plan and may cause our operations to eventually
fail.
We need
to continue to improve the performance of our commercial PbC products to meet future requirements and competitive pressures
We need to
continue to improve various aspects of our PbC technology as we move forward with larger scale production and new applications
of our products. Future developments and competition may reveal additional technical issues that are not currently recognized
as obstacles. If we cannot continue to improve the performance of our products in a timely manner, we may be forced to redesign
or delay large scale production or possibly abandon our product development efforts altogether.
We do
not have any long-term supplier contracts.
We currently
purchase the raw materials for our carbon electrodes and a variety of other components from third parties. We also intend to outsource
manufacture of batteries using our carbon electrodes (which we will continue to manufacture in house). We do not have any long-term
contracts with suppliers of raw materials and components, and our current suppliers may be unable to satisfy our future requirements
on a timely basis. We have not yet secured an outsourced manufacturer for our batteries and we cannot assure that such a manufacturer
will be able to satisfy our future requirements on a timely basis. Moreover, the price of purchased raw materials, components
and assembled batteries could fluctuate significantly due to circumstances beyond our control. If our current suppliers and outsourced
manufactures are unable to satisfy our long-term requirements on a timely basis, we may be required to seek alternative sources
for necessary materials and components or redesign our proposed products to accommodate available substitutes. However, given
our current state of business, we may not be able to enter into the required manufacturing supply agreements with the battery
manufacturers and component suppliers.
We are
a small player in an intensely competitive international market and may be unable to compete.
The lead-acid
battery industry is large, intensely competitive and resistant to technological change. We may need to compete or enter into further
strategic relationships with well-established companies that are much larger and have greater financial capital and other resources
than we do. We may be unable to convince end users that products based on our PbC technology are superior to available alternatives.
Moreover, if competitors introduce similar products, they may have a greater ability to withstand price competition and finance
their marketing programs. There is no assurance that we will be able to compete effectively.
Our failure
to introduce new products and product enhancements and broad market acceptance of new technologies introduced by our competitors
could adversely affect our business.
Many new energy
storage technologies have been introduced over the past several years. For certain important and growing international energy
storage markets, lithium-based battery technologies have a large and growing market share. Our ability to achieve significant
and sustained penetration of key developing markets will depend upon our success in competing with these other technologies, either
independently, through joint ventures, partnerships or through acquisitions. If we fail to develop or acquire, and manufacture
and sell, products that satisfy our customers’ demands, or we fail to respond effectively to new product announcements by
our competitors by quickly introducing competitive products, then market acceptance of our products could be reduced and our business
could be adversely affected. We cannot assure you that our products will remain competitive with products based on new technologies.
To the
extent we enter into strategic relationships, we will be dependent upon our partners.
Some of our
products are not intended for direct sale to end users and our business may require us to enter into strategic relationships with
manufacturers of other power industry equipment that use batteries and other energy storage devices as important components of
their finished products. The agreements governing any future strategic relationships may not provide us with control over the
activities of any strategic relationship we negotiate and our future partners, if any, could retain the right to terminate the
strategic relationship at their option. Our future partners will have significant discretion in determining the efforts and level
of resources that they dedicate to our products and may be unwilling or unable to fulfill their obligations to us. In addition,
our future partners may develop and commercialize, either alone or with others, products that are similar to or competitive with
the products that we intend to produce.
RISKS RELATED
TO OUR INTELLECTUAL PROPERTY
We may
rely on licenses for our PbC technology, which may affect our continued operations with respect thereto.
As we develop
our PbC technology, we may need to license additional technologies to optimize the performance of our products. We may not be
able to license these technologies on commercially reasonable terms or at all. In addition, we may fail to successfully integrate
any licensed technology into our proposed products. Our inability to obtain any necessary licenses could delay our product development
and testing until alternative technologies can be identified, licensed and integrated. The inability to obtain any necessary third-party
licenses could cause us to abandon a particular development path, which could seriously harm our business, financial position
and results of our operations.
New technology
may lead to our competitors developing superior products which would reduce demand for our products.
Research into
the electrochemical applications for carbon nanotechnology and other storage technologies is proceeding at a rapid pace, and many
private and public companies and research institutions are actively engaged in the development of new battery technologies based
on carbon nanotubes, nanostructured carbon materials and other non-carbon materials. These new technologies may, if successfully
developed, offer significant performance or price advantages when compared with our technologies. There is no assurance that our
existing patents or our pending and proposed patent applications will offer meaningful protection if a competitor develops a novel
product based on a new technology.
If we
are unable to protect our proprietary technology and preserve our trade secrets, we will increase our vulnerability to competitors
which could materially adversely impact our ability to remain in business.
Our ability
to successfully commercialize our products will depend on our ability to protect those products and our technology with domestic
and foreign patents. We will also need to continue to preserve our trade secrets. The issuance of a patent is not conclusive as
to its validity or as to the enforceable scope of the claims of the patent. The patent positions of technology companies, including
us, are uncertain and involve complex legal and factual issues.
We
cannot assure you that our patents will prevent other companies from developing similar products or products which produce benefits
substantially the same as our products, or that other companies will not be issued patents that may prevent the sale of our products
or require us to pay significant licensing fees in order to market our products.
From time to
time, we may need to obtain licenses to patents and other proprietary rights held by third parties in order to develop, manufacture
and market our products. If we are unable to timely obtain these licenses on commercially reasonable terms, our ability to commercially
exploit such products may be inhibited or prevented. Additionally, we cannot assure investors that any of our products or technology
will be patentable or that any future patents we obtain will give us an exclusive position in the subject matter claimed by those
patents. Furthermore, we cannot assure investors that our pending patent applications will result in issued patents, that patent
protection will be secured for any particular technology, or that our issued patents will be valid or enforceable or provide us
with meaningful protection.
If we
are required to engage in expensive and lengthy litigation to enforce our intellectual property rights, the costs of such litigation
could be material to our results of operations, financial condition and liquidity and, if we are unsuccessful, the results of
such litigation could materially adversely impact our entire business.
Although we
have entered into invention assignment agreements with our employees and with certain advisors, if those employees or advisors
develop inventions or processes independently which may relate to products or technology under development by us, disputes may
also arise about the ownership of those inventions or processes. Time-consuming and costly litigation could be necessary to enforce
and determine the scope of our rights under these agreements.
We also rely
on confidentiality agreements with our strategic partners, customers, suppliers, employees and consultants to protect our trade
secrets and proprietary know-how. We may be required to commence litigation to enforce such agreements, and it is certainly possible
that we will not have adequate remedies for breaches of our confidentiality agreements.
Other
companies may claim that our technology infringes on their intellectual property or proprietary rights and commence legal proceedings
against us which could be time-consuming and expensive and could result in our being prohibited from developing, marketing, selling
or distributing our products.
Because of
the complex and difficult legal and factual questions that relate to patent positions in our industry, we cannot assure you that
our products or technology will not be found to infringe upon the intellectual property or proprietary rights of others. Third
parties may claim that our products or technology infringe on their patents, copyrights, trademarks or other proprietary rights
and demand that we cease development or marketing of those products or technology or pay license fees. We may not be able to avoid
costly patent infringement litigation, which will divert the attention of management away from the development of new products
and the operation of our business. We cannot assure investors that we would prevail in any such litigation. If we are found to
have infringed on a third party’s intellectual property rights, we may be liable for money damages, encounter significant
delays in bringing products to market or be precluded from manufacturing particular products or using particular technology.
Other parties
may challenge certain of our foreign patent applications. If such parties are successful in opposing our foreign patent applications,
we may not gain the protection afforded by those patent applications in particular jurisdictions and may face additional proceedings
with respect to similar patents in other jurisdictions, as well as related patents. The loss of patent protection in one jurisdiction
may influence our ability to maintain patent protection for the same technology in other jurisdictions.
RISKS RELATED
TO OUR COMMON STOCK
We have
issued a large number of warrants and options, which if exercised would substantially increase the number of common shares outstanding.
On November
19, 2015, we had 3,934,728 shares of common stock outstanding, and (a) we have 61,608 Series A warrants outstanding that, if fully
exercised, would generate proceeds of $1,078,140 and cause us to issue up to an additional 61,608 shares of common stock, (b)
we have 34,521 Series B warrants that remain outstanding at November 19, 2015 and when exercised will cause us to issue 38,837
additional shares of common stock, (c) we have 518,507 other warrants outstanding that, if fully exercised would generate proceeds
of $2,854,990, and cause us to issue up to an additional 518,507 shares of common stock, (d) have 15,252 options outstanding to
purchase common stock that, if fully exercised would generate proceeds of $4,400,461 and result in the issuance of an additional
15,252 shares of common stock, and (e) we have subordinated convertible notes outstanding that if fully converted would result
in the issuance of 141 shares of common stock.
As a key component
of our growth strategy we have provided and intend to continue offering compensation packages to our management and employees
that emphasize equity-based compensation and would thus cause further dilution.
Historically,
we have not paid dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never
paid cash dividends on our common stock. We intend to retain our future earnings, if any, to fund operational and capital expenditure
needs of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Furthermore, future financing
instruments may do the same. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for
our common stockholders in the foreseeable future.
Our
stock price is speculative and there is a risk of litigation.
The
trading price of our common stock has in the past and may in the future be subject to wide fluctuations in response to factors
such as the following:
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revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community;
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reduced investor confidence in equity markets, due in part to corporate collapses in recent years;
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speculation in the press or analyst community;
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wide fluctuations in stock prices, particularly with respect to the stock prices for other technology companies;
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announcements of technological innovations by us or our competitors;
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new products or the acquisition of significant customers by us or our competitors;
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changes in investors’ beliefs as to the appropriate price-earnings ratios for us and our competitors;
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changes in recommendations or financial estimates by securities analysts who track our common stock or the stock of other battery companies;
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sales of common stock by directors and executive officers;
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rumors or dissemination of false or misleading information, particularly through Internet chat rooms, instant messaging, and other rapid-dissemination methods;
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conditions and trends in the battery industry generally;
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the announcement of acquisitions or other significant transactions by us or our competitors;
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adoption of new accounting standards affecting our industry;
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the other factors described in this section.
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Fluctuations
in the price of our common stock may expose us to the risk of securities class action lawsuits. Although no such lawsuits are
currently pending against us and we are not aware that any such lawsuit is threatened to be filed in the future, there is no assurance
that we will not be sued based on fluctuations in the price of our common stock. Defending against such suits could result in
substantial cost and divert management’s attention and resources. In addition, any settlement or adverse determination of
such lawsuits could subject us to significant liability.
Future
sales of our common stock could depress our stock price.
Sales of a
large number of shares of our common stock, or the availability of a large number for sale, could materially adversely affect
the per share market price of our common stock and could impair our ability to raise funds in addition offering of our debt or
equity securities. In the event that we propose to register shares of common stock under the Securities Act for our own account,
certain shareholders are entitled to receive notice of that registration to include their shares in the registration, subject
to limitations described in the agreements granting these rights.
Our common
stock and Series A warrants are currently traded on the Nasdaq Capital Market. If we fail to comply with the continuing listing
standards of The Nasdaq Capital Market, our securities could be delisted.
As a result
of our October 2014 public offering, our common stock and Series A warrants are currently eligible to be quoted on the Nasdaq
Capital Market. For our common stock and warrants to maintain listing on the Nasdaq Capital Market, we must maintain Nasdaq Capital
Market continued listing requirements including but not limited to requirements to obtain shareholder approval of a transaction
other than a public offering involving the sale or issuance equal to 20% or more of our common stock, our common stock could be
delisted from the Nasdaq Capital Market. We are also required to maintain a minimum stockholders equity of $2,500,000.
If our common
stock were to be delisted from the Nasdaq Capital Market, our common stock could continue to trade on the over-the-counter bulletin
board following any delisting from the Nasdaq Capital Market, or on the Pink Sheets, as the case may be. Any such delisting of
our common stock could have an adverse effect on the market price of, and the efficiency of the trading market for, our common
stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the
timing of transactions and less coverage of us by securities analysts, if any. Also, if in the future we were to determine that
we need to seek additional equity capital, it could have an adverse effect on our ability to raise capital in the public or private
equity markets.
As a result
of not meeting the minimum stockholders’ equity requirement for our common stock, we risk our common stock and Series A
warrants being delisted from Nasdaq Capital Market.
On August 25, 2015, we received
a written notification from the Nasdaq Stock Market LLC that it did not meet the minimum of $2,500,000 in stockholders’
equity for continued listing (as set forth in Listing Rule 5550(b)(1)) as a result of the report of shareholders equity of $570,824
in our Form 10-Q for the period ended June 30, 2015, which was largely as a result of the valuation of our Series B Warrants for
the quarter ended June 30, 2015. The notification does not result in the immediate delisting of our common stock, and its common
stock will continue to trade uninterrupted on the Nasdaq Capital Market.
We submitted
a plan to regain compliance on October 9, 2015. If the plan is accepted, we can be granted an extension of up to 180 calendar
days to evidence compliance. Nasdaq is continuing to review the plan, and we have submitted additional information at the request
of Nasdaq.
We are currently
executing our best efforts to remain on The Nasdaq Capital Market and are looking at all of the options available with respect
to regaining such compliance. However, if it does not achieve this goal, its stock and warrants could be delisted from The Nasdaq
Capital Market.
Risks relating
to our recent financing
Our recently
acquired indebtedness reduces our financial flexibility and could impede our ability to operate.
We consummated
a private placement on November 5, 2015 in which we issued an aggregate $9 million principal amount of convertible notes. The
notes are payable in 12 equal monthly installments starting no later than January 20, 2016. Although the notes are payable through
the issuance of shares of our common stock to the noteholders, our ability to issue stock, instead of paying cash, to satisfy
our payment obligations under the notes, is limited and subject to various conditions (including trading volume and stock price
conditions for these notes) that we may not be able to meet. If we cannot meet these conditions, we could be required to repay
some or all of the amounts due under the notes in cash, and we may not have the funds available to make one or more of such payments
when due. Even if we do have funds so available, the use of cash to make such payments could adversely affect our ability to fund
operations due to the diversion of necessary cash flow to fund operations to utilization for note payments. Furthermore, the notes
impose certain restrictive covenants on us which may impede our ability to operate our business or raise further funds in the
capital markets. For example, there are restrictions on incurring additional indebtedness, with exceptions, while the notes are
outstanding.
We intend
to make payments on our convertible notes in shares of our common stock, which could be highly dilutive to our shareholders.
As of the date of this prospectus,
we do not believe that we will have the financial ability, nor would it be in the best interests of our shareholders, to make
all payments on the notes in cash when due. Thus, we intend, as of the date hereof, to make such payments in shares of our common
stock, to the greatest extent possible. Such payments are based upon a formula which uses as a conversion price a discount to
market formula which has no minimum price, thus the amount of shares issued is virtually unlimited and can be very dilutive to
our shareholders.
USE OF PROCEEDS
We are not selling
any of the shares of common stock being offered by this prospectus and will receive no proceeds from the sale of the shares by
the selling stockholders. All of the proceeds from the sale of common stock offered by this prospectus will go to the selling
stockholders at the time they offer and sell such shares. We will bear all costs associated with registering the shares of common
stock offered by this prospectus.
MARKET FOR
REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market information
Our common
stock trades on Nasdaq under the symbol “AXPW”, and our Series A warrants trade on Nasdaq under the symbol “AXPWW”. Trading
in our common stock has historically lacked consistent volume, and the market price has been volatile.
The following
table shows the range of high and low bid prices for our common stock as reported by the Nasdaq Composite. The quotations reflect
inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.
|
Period
|
|
High
|
|
|
Low
|
|
|
First Quarter 2013
|
|
$
|
19.00
|
|
|
$
|
13.50
|
|
|
Second Quarter 2013
|
|
$
|
14.50
|
|
|
$
|
7.00
|
|
|
Third Quarter 2013
|
|
$
|
10.00
|
|
|
$
|
6.00
|
|
|
Fourth Quarter 2013
|
|
$
|
7.00
|
|
|
$
|
5.00
|
|
|
First Quarter 2014
|
|
$
|
11.50
|
|
|
$
|
4.00
|
|
|
Second Quarter 2014
|
|
$
|
9.50
|
|
|
$
|
6.00
|
|
|
Third Quarter 2014
|
|
$
|
8.00
|
|
|
$
|
3.11
|
|
|
Fourth Quarter 2014
|
|
$
|
4.12
|
|
|
$
|
0.93
|
|
|
First Quarter 2015
|
|
$
|
37.46
|
|
|
$
|
1.23
|
|
|
Second Quarter 2015
|
|
$
|
12.60
|
|
|
$
|
0.92
|
|
|
Third Quarter 2015
|
|
$
|
4.20
|
|
|
$
|
1.02
|
|
On November
19, 2015, the sale price for our common stock as reported on Nasdaq was $1.26
per share.
Securities
outstanding and holders of record
On
November 19, 2015, there were 391 holders of record for our common stock and 3,934,728 shares of our common stock
outstanding.
Dividends
We have never
paid dividends.
Information
respecting equity compensation plans
The following
table provides summary information on our equity compensation plans as of December 31, 2014:
|
|
|
Number of
shares
Issuable on
exercise of
Outstanding
options
|
|
|
Weighted
average
exercise price
of
outstanding
options
|
|
|
Number of
shares
available for
future
issuance
under equity
compensation
plans
|
|
|
Compensation plans
approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Directors’ Option Plan
|
|
|
3,429
|
|
|
$
|
349.99
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation not approved
by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Employees and Officers Stock Option Plan
|
|
|
12,571
|
|
|
$
|
35.00
|
|
|
|
748
|
|
|
Total equity awards
|
|
|
16,000
|
|
|
$
|
98.76
|
|
|
|
|
|
The 2004 Directors’
Option Plan is an equity compensation plan and the 2010 Employees and Officers Stock Option Plan are unqualified plans. On December
18, 2013, the board of directors amended both plans and ratified the changes on March 19, 2014, to increase the authorized shares
for each plan to 3,429 shares and 12,571 shares, respectively. For certain positions, we enter into employment and other contracts
that provide for equity compensation arrangements other than those contemplated by the stockholder approved plans.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS
OF OPERATIONS
The
Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended December 31, 2014
and 2013 and the three and nine months ended September 30, 2015 and 2014 are hereby incorporated by reference in their entirety
from our Form 10-K for the year ended December 31, 2014, filed with the SEC on April 15, 2015 and its Form 10-Q for the three
and nine months ended September 30, 2015 and 2014,
1
.
1
We are eligible to incorporate by reference
under General Instruction VII of Form S-1. Specifically, we note that we have met the requirements of paragraphs A. – D.
of General Instruction VII, and that we have not been, during the past three years, a registrant for an offering of “penny
stock” as defined in Rule 3a51-1 as under Rule 3a51-1.g.1., we have had net tangible assets (Stockholders Equity) of at
least $2 million in all three of our last fiscal years as set forth in our balance sheets for the years ended December 31, 2014,
2013 and 2012 (as reported in the Forms 10-K for the years ended December 31, 2014 and 2013, respectively), of $2.9 million, $9.5
million and $11.2 million, respectively.
CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013, RESPECTIVELY, AND THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2015, AND 2014, RESPECTIVELY
Our audited
financial statements for the years ended December 31, 2014 and 2013, respectively, and the reviewed consolidated financial statements
for the three months and nine months ended September 30, 2015 and 2014, respectively, are hereby incorporated by reference in
their entirety from our Form 10-K for the years ended December 31, 2014 and 2013, filed with the SEC on April 15, 2015 and our
Form 10-Q for the three and nine months ended September 30, 2015 and 2014, filed with the SEC on November 16, 2015, respectively.
BUSINESS
Business
Our primary
business is to develop, design, manufacture and sell advanced energy storage devices, components and systems that are based on
our patented PbC technology. In 2014 we began the execution of our strategy to transition out of the manufacture of standard and
specialty lead-acid batteries. Our PbC batteries and battery components, which are manufactured primarily through the use of activated
carbon for the battery’s negative electrode, have application in a variety of energy system storage functions. Axion Power
Corporation, our wholly owned subsidiary, was formed in September 2003 to acquire and develop certain innovative battery technology.
Since inception, Axion Power Corporation has been engaged in research and development of new technology for the production of
our PbC (lead carbon) batteries. On December 31, 2003, Axion Power Corporation engaged in a reverse acquisition with Tamboril
Cigar Company, a public shell company whereby Axion Power Corporation became a wholly owned subsidiary of Tamboril. Tamboril was
originally incorporated in Delaware in January 1997 and operated a wholesale cigar business until December 1998, after which date
it was an inactive public shell until the reverse acquisition and subsequent name change to Axion Power International, Inc.
On December
31, 2003, Axion Power Corporation engaged in a reverse acquisition with Tamboril Cigar Company, a public shell company whereby
Axion Power Corporation became a wholly owned subsidiary of Tamboril, which subsequently changed its name to Axion Power International,
Inc.
Our principal
executive office is located at 3601 Clover Lane, New Castle, PA 16105. Our telephone number is (724) 654-9300. Our website is
www.axionpower.com.
Our website and the information contained on, or that can be accessed through, our website will not
be deemed to be incorporated by reference in, and are not considered part of, this prospectus. You should not rely on our website
or any such information in making your decision whether to purchase our common stock.
We own
various U.S. federal trademark registrations and applications, and unregistered trademarks and servicemarks, including
PbC
R
, our corporate logo and PowerCube
TM
. All other trademarks or trade names referred to in this
prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this
prospectus are referred to without the
R
and
TM
symbols, but such references should not be construed as
any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or
endorsement or sponsorship of us by, any other companies.
Axion Power
Corporation, our wholly owned subsidiary, was formed in September 2003 to acquire and develop certain innovative battery technology.
Since inception, Axion Power Corporation has been engaged in research and development of new technology for the production of
our PbC (lead carbon) batteries.
In February
2006, we commenced operations at our Clover Lane facility in New Castle, PA. We have utilized this space to manufacture our PbC
and specialty lead-acid battery products and to continue to produce and test prototypes which incorporate our PbC technology.
Through the third quarter of 2014, our Clover Lane plant has allowed us to manufacture lead-acid batteries for sale under the
Axion brand name; to manufacture for third parties under specific contract arrangements; or to manufacture prototypes of PbC batteries
for testing by our customers.
In November
2010, we expanded into our Green Ridge facility, which is less than ½ mile from our Clover Lane facility in New Castle,
PA, to house offices, research & development, carbon electrode manufacturing and warehousing.
As further
described below in “Our Business and Our Technology,” we continue to develop our PbC technology to achieve commercial
viability, and have commenced marketing and commercial sales in the United States. In addition to marketing our PbC batteries
as stand-alone products, we have also developed other products, including our Axion PowerCube which is a system utilizing our
PbC batteries provide power storage and backup power.
Our Business
and Our Technology
The cornerstone
of our PbC technology is our proprietary PbC lead carbon battery, which substitutes an activated carbon negative electrode for
the standard lead negative electrode in a lead-acid battery construct. All other components of the PbC battery (such as case,
cover, separator material, positive plate, electrolyte and other components) are identical to those used in a conventional lead-acid
battery. The PbC product is part battery with energy storage capabilities and part asymmetric hybrid supercapacitor with a fast
recharge rate, charge acceptance and long cycle life. The construct design results in a relatively low cost device that can be
manufactured in iterations that deliver maximum power, or deliver maximum energy, or provide a range of balances between the two.
Our PbC battery can be used in applications that service the energy storage needs of several markets including transportation,
renewable power, frequency regulation and backup power.
We have devoted
more than ten years to research and development on our PbC technology. Our work has focused on developing our intellectual property,
characterizing baseline performance, developing proprietary treatment processes for the activated carbon we use in our electrodes,
developing proprietary designs, manufacturing techniques for electrode assemblies and fabricating a series of material and design
evaluation prototypes that range from single cell to multi-cell batteries for use in energy storage devices and systems. Research
continues to improve the PbC battery performance and lower the cost to manufacture PbC carbon electrodes.
Our PbC technology
is protected by thirteen issued U.S. patents and other proprietary features and structures, and we typically have a number of
additional patent applications in process at any point in time. The resulting devices are technically sophisticated yet simple
in design. The carbon negative electrode assemblies are fabricated from readily available raw materials using, both knowhow based
proprietary processes along with standard industrial processes and techniques. The PbC negative electrodes that are then assembled
into PbC batteries with the same case cover, positive plate, separators and electrolyte that are used in conventional lead-acid
batteries. Our PbC batteries can be assembled with the same equipment and methodology commonly used for manufacturing conventional
lead-acid batteries. PbC batteries use significantly less lead than standard lead-acid batteries with a comparable footprint.
Moreover, the lead, plastics and acid employed, just like lead-acid batteries, can be routinely recycled at existing recycling
facilities.
We believe
our advanced battery technologies are uniquely situated to answer many of the current challenges facing both the historic lead-acid
battery industry and the challenges facing newer battery chemistries such as lithium-ion, nickel metal hydride, etc. While we
begin to commercialize we also continue to explore many potential applications for our PbC technology.
In our current
strategy, we will be moving away from specialty and contract manufacturing of standard lead acid batteries. We will instead focus
on our Green Ridge facility for the production of our finished lead-free carbon negative electrode. The facility also provides
space for battery string testing and assembly of battery systems and associated electrical and electronic components.
Our objective
has consistently been to become an industry leader in the development, production and sourcing of components for cost competitive
high performance energy storage systems. Effective as of the fourth quarter of 2014, we began actively pursuing this strategy
in the following core strategies:
|
|
·
|
Platform technology business
model.
We are implementing a platform technology business model that will focus on developing and manufacturing carbon
electrode assemblies that we can offer for sale to established battery manufacturers who want to use our PbC carbon electrode
products in their batteries under license from Axion.
|
|
|
·
|
Leverage relationships with battery manufacturers.
Our business model is based on the premise that, as we continue forward, we can most effectively address the needs of
the market by providing PbC negative electrode assemblies to established lead-acid battery manufacturers to manufacture batteries
for Axion’s customers and projects. We believe this business model should allow us to leverage the reputation
of established manufacturers in order to reduce our time to market and increase our potential market penetration.
|
|
|
·
|
Build a recognized brand.
We believe strong
brand name recognition is important in order to increase product awareness and to effectively penetrate the mass market. We
intend to differentiate our brand by emphasizing our combination of high performance and low total cost per storage cycle.
|
|
|
|
|
|
|
·
|
Targeted marketing strategy.
Markets for motive
power, utility grid connected power; renewable energy and standby power (UPS) are becoming increasingly attractive. We are
actively pursuing the use of our lead carbon technology products in these markets and in customizing the PbC products and
electronic systems to meet customer needs.
|
|
|
|
|
|
|
·
|
Maintain our technical advantage and reduce manufacturing
costs.
We intend to maintain our technical advantage by continuing to invest in research and development and advancement
in more cost effective electrode manufacturing. Our research and development focus will now be working with prospective
customers on the commercial application of our PbC technology to fit their unique requirements.
|
Our current
commercial market applications focus is:
|
|
·
|
Utility applications e.g. frequency regulation
|
|
|
·
|
Buffering, smoothing and micro grid for renewable
energy sources (solar and wind)
|
|
|
·
|
Hybrid medium and heavy duty trucks
|
|
|
·
|
Residential and small community energy storage
|
|
|
·
|
Hybrid locomotives
|
|
|
·
|
Hybrid vehicles incorporating stop/start technology
|
Recent Developments
Axion’s
PowerCube, located at the Clover Lane manufacturing facility, began operation in 2011 and participated in PJM’s Frequency
Regulation – Ancillary Services Market well over two years. Due to curtailment of operations, this proven PowerCube module
is being converted to a marketing demonstration unit for use at potential customer sites.
During
2014, Axion quoted on a number of projects but were not awarded any of them. Multiple MegaWatts of systems proposals have carried
over into 2015 and are still under evaluation by potential customers but no orders for these projects have been forthcoming to
date.
Our work with
ePower Engine Systems, a third party entity that develops and markets auxiliary power systems for trucks, continues. We continue
to support the ePower series hybrid system that incorporates PbC batteries through 56 battery strings in Series 8 heavy duty 18
wheel trucks. We also continue to monitor work with Norfolk Southern for hybrid railroad engine applications. Both developments
are progressing slowly and significant near term business is not expected.
Effective
as of July 1, 2014, Thomas Granville resigned as our Chief Executive Officer and Chairman of the Board due to certain unanticipated
adverse health concerns and remained as a director and as an employee as Special Assistant to the CEO. On August 3, 2014, he resigned
as a director but retains a consulting role with us until August 2015.
Effective
as of July 1, 2014, David DiGiacinto, who was appointed to our Board of Directors on February 1, 2014, was appointed as our Chief
Executive Officer and Chairman of the Board. Also, effective on July 1, 2014, Charles Trego, who was our Chief Financial Officer
from April 1, 2010 until August 2, 2013 and has been a Director since September 27, 2013, was appointed as our Chief Financial
Officer. Mr. Trego remains as a Director, although he resigned from the Audit Committee. In January 2015, Richard Bogan and Don
Farley were appointed as Directors and due to Mr. DiGiacinto’s untimely demise that same month, Mr. Farley was appointed
as Chairman.
On
August 1, 2014, we entered into warrant exchange agreements with the holders of the senior warrants issued in conjunction with
our May 8, 2013 senior convertible note financing. Pursuant to the warrant exchange agreements, the holders exchanged all of these
warrants for shares of our common stock at a ratio of 1.7 shares for each warrant exchanged, in a transaction exempt from registration
under Section 3(a)(9) of the Securities Act of 1933, as amended. Warrants to purchase 9,875 shares of our common stock were exchanged
for 16,788 shares of our common stock.
Pursuant
to the warrant exchange agreements, the holders agreed to the following limitations on the resale of the shares:
|
·
|
Through October 31, 2014, each holder may only sell,
pledge, assign or otherwise transfer up to 10% of the number of shares issued to it.
|
|
|
|
|
·
|
From November 1, 2014 through January 31, 2015, each
holder may sell, pledge, assign or otherwise transfer up to an additional 25% of the number of shares issued to it (up to
an aggregate of 35% inclusive of the 10% set forth in the bullet point above).
|
|
·
|
Through January 31,
2015, each holder may not sell shares during any trading day in an amount, in the aggregate, exceeding 15% of the composite
aggregate share trading volume of our common stock measured at the time of each sale of securities during such trading day
as reported on Bloomberg.
|
|
·
|
However, each holder
may sell shares in excess of those permitted under the bullet points above on any trading day on which the VWAP for our common
stock for the preceding trading day is at least $332.50 or less than $35.00.
|
The warrant
exchange agreements contain customary covenants regarding maintenance by us of current reporting status under the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Effective October
29, 2014, we consummated an underwritten public offering consisting of 53,572 shares of common stock, together with Series A warrants
to purchase 53,572 shares of our common stock and Series B warrants to purchase 1,875,000 shares of its common stock for gross
proceeds to us of approximately $6.1 million and net proceeds of $5.5 million. The public offering price for each share of common
stock, together with one Series A warrant and one Series B warrant, was $113.75. The Series A Warrants may be exercised
for a period of five years and have an exercise price of $113.75 per share of common stock. The Series B warrants may be exercised
for a period of 15 months and have an exercise price of $113.75 per share of common stock. In connection with the offering, we
granted to the underwriter a 45-day option to acquire up to 8,036 additional shares of common stock and/or up to 8,036 additional
Series A warrants and/or up to 281,250 additional Series B warrants. We also closed on the underwriter’s exercise of the
over-allotment option on the Series A warrants and the Series B warrants. Our common stock and Series A warrants are now listed
on the Nasdaq Capital Market under the symbols “AXPW” and “AXPWW”, respectively.
Effective as
of November 1, 2014, we entered into an employment contract with Charles Trego as our Chief Financial Officer pursuant to a written
Executive Employment Agreement. The term of the employment agreement began effective as of November 1, 2014 and continues
until October 31, 2016, and Mr. Trego received an annual salary of $225,000 during the term of the executive employment agreement
and a car allowance of $750 per month. Mr. Trego would receive a stipend of $22,500 on the first and second anniversaries of the
date of the executive employment agreement, respectively, if he is still employed by us in such capacity on the first anniversary
date, and on the second anniversary date, if he has an agreement to continue as the Chief Financial Officer for at least six months
subsequent to the second anniversary date. Mr. Trego resigned as our Chief Financial Officer on October 2, 2015
Salary
Deferral Agreements:
Effective October
4, 2014 for David DiGiacinto, and November 1, 2014 for Charles Trego, Phillip Baker and Vani Dantam, our then four most highly
compensated employees entered into salary deferral agreements with us pursuant to which each agreed to defer portions of their
salary for one year from the date of effectiveness of the salary deferral agreement, as set forth on the table below. The deferred
portions of the salaries are to be paid to each such employee by the earlier of December 31, 2015 and the occurrence of one of
the following events: (i) consummation by us of any subsequent financing transactions with at least $6,000,000 in gross proceeds
in the aggregate; (ii) a change in control or (iii) a sale of all or substantially all of our assets. The amounts of salary deferred
for each executive is set forth in the table below:
|
Employee Name
|
|
Effective Date of Deferral
|
|
Amount of
Deferral
|
|
|
|
|
|
|
|
|
|
David DiGiacinto
|
|
October 4, 2014
|
|
$
|
162,500
|
(1)
|
|
Charles Trego
|
|
November 1, 2014
|
|
$
|
50,000
|
|
|
Phillip Baker
|
|
November 1, 2014
|
|
$
|
39,800
|
|
|
Vani Dantam
|
|
November 1, 2014
|
|
$
|
45,000
|
|
(1) Mr. DiGiacinto
was deceased on January 25, 2015, and his deferred salary was paid to his estate in the first quarter of 2015.
Effective January
1, 2015, the Board of Directors appointed Richard H. Bogan to replace Howard K. Schmidt, who resigned from the Board, effective
December 31, 2014.
Board of Directors
Committee Appointments
Our Board of
Directors appointed directors to the following committees on February 18, 2015. All directors appointed to the Committees meet
the definition of independence as set forth in the Nasdaq rules, and the directors appointed to the Audit Committee meet the additional
definition of “independent” as set forth in Rule 10A-3 as promulgated under the Securities Exchange Act of 1934, as
amended.
|
Committee
Name
|
|
Chairman
|
|
Members
|
|
Audit Committee
|
|
Richard Bogan
|
|
D. Walker Wainwright and Michael Kishinevsky
|
|
Compensation Committee
|
|
D. Walker Wainwright
|
|
Michael Kishinevsky and Richard Bogan
|
|
Nominating Committee
|
|
Michael Kishinevsky
|
|
Richard Bogan and D. Walker Wainwright
|
Binding Letter of Intent with
LCB International, Inc.
On June 13, 2015, we entered into
a Binding Letter of Intent with LCB International, Inc., a British Virgin Islands corporation, regarding an exclusive license
of our intellectual property portfolio of PbC technology for various applications (including, but not limited to related e-energy
solutions for motive and stationary applications, including, but not limited to e-scooter, commercial, light and off road vehicles
and grid storage of our PbC technology in the People’s Republic of China, Taiwan, Macao and Hong Kong. Despite negotiations
between the parties during the third quarter of 2015, they were unable to reach agreement on definitive documentation, and the
parties are currently exploring the possibility of a revised transaction structure revolving around a technology license structure.
Sharon
PA Project
On June 12, 2015, we entered into
a 30 month and 18 day option to enter into an energy frequency regulation lease for the subject property. The option fee is $4,000
per month for months 1 thru 18 and $6,000 per month thereafter, and we can extend the option for an additional six months upon
notice at least 30 days prior to the initial lease term. The option agreement permits us to exercise the option at any time during
the option term.
We are also preparing filings seeking
regulatory approval for a 2.5MW frequency regulation project at Sharon PA that is enabled by a lease option for the site including
possible expansion to a 12.5MW project at a later date, subject to regulatory approval. Carbon electrodes were prepared for PbC
battery manufacturing trials with select U.S. based battery companies, a key goal of our strategy. Commercial development progress
was made on applications for less complicated drop-in uses of PbC batteries. Activities to engage licensing and development partners
for key markets are also ongoing in keeping with our strategy.
On June 26, 2015, we executed an
amendment pursuant to which it extended the lease option for an additional six months upon the same terms and conditions.
Reverse
Stock Split
On July 14,
2015, we effected a 1-for-35 reverse split of our common stock and Series A warrants. The number of Series B warrants was not
impacted by the 1-for -35 reverse split. All share related and per share information has been adjusted to give effect to the reverse
stock split from the beginning of the earliest periods presented.
Bridge
Notes
On August 7,
2015, we entered into a securities purchase agreement with several accredited investors, including one of our directors pursuant
to which it is selling $600,000 principal amount of convertible notes to the investors. The transaction was approved by our Board
of Directors on August 5, 2015. These bridge notes carry an original issue discount of 15% so that the gross amount of proceeds
to us (before expenses) was $510,000. The bridge notes bear interest at the rate of 12% per annum, and the interest is payable
in cash upon repayment of the notes or in shares of our common stock upon conversion of the notes. The notes have a term of 90
days from the date of issuance, which may be extended at the option of the investor with respect to all or any portion of a note
(i) in the event that and for so long as an event of default is occurring under a note, (ii) through the date that all shares
issued upon conversion of the note may be resold under Rule 144 without restriction and/or (iii) through the date that is 10 business
days after the consummation of a change in control transaction, all as specified in these bridge notes. The conversion price for
the notes is $1.75 per share. The holders of the notes were issued one five year warrant for each $1.00 of principal amount of
the note invested (510,000 warrants in total). Each warrant has an exercise price of $1.75 per share. The agreement, notes and
warrants contain other terms and provisions which are customary for a transaction of this nature, including standard representations
and warranties and events of default. The transaction is exempt from registration under Section 4(a)(2) of the Securities Act
of 1933, as amended, and Regulation D, as promulgated thereunder, and closed on August 7, 2015. All monies were received on August
11, 2015. As of the date of this prospectus, all but $11,765 of the principal amount of these bridge notes has been satisfied.
Nasdaq
Notification
On August 25, 2015, we received
a written notification from the Nasdaq Stock Market LLC that it did not meet the minimum of $2,500,000 in stockholders’
equity for continued listing (as set forth in Listing Rule 5550(b)(1)) as a result of the report of shareholders equity of $570,824
in our Form 10-Q for the period ended June 30, 2015, which was largely as a result of the valuation of the our Series B warrants
for the quarter ended June 30, 2015. The notification does not result in the immediate delisting of our common stock, and our
common stock continues to trade uninterrupted on the Nasdaq Capital Market.
We submitted
a plan to regain compliance on October 9, 2015. If the plan is accepted, we can be granted an extension of up to 180 calendar
days to evidence compliance. Nasdaq is continuing to review the plan, and we have submitted additional information at the request
of Nasdaq.
Management
Changes
In October
2015, Charles Trego resigned as Chief Financial Officer, and Danielle Baker was appointed as the Chief Accounting Officer.
$9 Million Financing Transaction
On November 4, 2015, we entered
into a financing transaction for the sale of convertible notes and warrants issued by us with gross proceeds of $9 million to
us. Upon closing of the sale of the notes and warrants, we received cash proceeds of $1.85 million and deposit of an additional
$7.15 million into a series of control accounts in our name. We are permitted to withdraw funds from our control accounts (i)
in connection with certain conversions of the notes or (ii) otherwise, as follows: $1,000,000 on each 30 day anniversary of the
commencing on the 30
th
day after the effective date of a registration statement being filed in connection with the
transaction until there are no more funds in the control accounts, subject in each instance to equity conditions set forth in
the convertible notes.
We received approximately $1.7 million
in net proceeds at closing, which occurred on November 5, 2015, after deducting our placement agent’s fee of $138,750. Offering
expenses, other than our placement agent’s fee, were approximately $100,000, which were paid out of the proceeds at Closing.
At each release of funds, we will receive approximately $925,000 in net proceeds, after deducting our placement agent’s
fee of $75,000.
The initial conversion price of
the notes is $1.23 per share, and the initial exercise price of the 10,975,608 warrants is $1.29 per share.
As a result of “rollover”
of $363,530 of principal amount and accrued and unpaid interest of our August 2015 bridge notes, an additional note in the principal
amount of $363,530 with the same terms as the convertible notes, and an additional 443,328 warrants were issued effective the
date of this prospectus. The terms of the notes and warrants are further described in “DESCRIPTION OF PRIVATE PLACEMENT
AND CONVERTIBLE NOTES” in this prospectus.
Background
The Energy
Storage Industry
The energy
storage industry has traditionally been based on battery, flywheel, capacitor, thermal, chemical systems, power to gas, gravity,
pumped storage hydroelectricity, and compressed air systems, to provide a temporary or back-up source for energy. The major industries
utilizing energy storage systems are automotive for stop/start, hybrid and electric vehicle applications, heavy duty truck and
rail for hybrid applications, renewable energy for storage and smoothing, and electrical utilities for back-up, energy smoothing
and frequency regulation.
Energy storage
for vehicles, including stop/start technology, electric drive, hybrid electric cars, trucks and locomotives is a fundamental factor
to improving vehicles’ economic, social, and environmental sustainability. The combination of high fuel costs and increasingly
more stringent government regulation of emissions, fuel efficiency and mileage requirements for vehicles for passenger and freight
transport, and other commercial applications, is a major impetus for the development of new green technologies.
The electric
power sector’s demands for energy storage continue to increase. The amount of electricity which can be generated is relatively
fixed over short periods of time, although demand for electricity fluctuates throughout the day. Energy storage devices and systems
store electrical energy for use as required, even during periods when power is not generated. Electrical storage devices can manage
the amount of power required to supply customers at times when need is greatest, which is typically during peak load. These devices
assist in regulating the flow of power from renewable energy applications, like wind and solar power. The result is a system which
is smoother and more dispatchable, which makes it easier for grid operators to control the power output from those sources. Energy
storage devices and systems can also balance microgrids to achieve a good match between generation and load. They can provide
frequency regulation, to maintain the balance between the network's load and power generated, and can achieve a more reliable
power supply for high tech industrial facilities.
There are several
revenue opportunities (e.g. peak shaving, load shifting, synchronized reserve, etc.) that can be accessed when a storage component
is included in a renewable energy application. The greatest current rate of return is achieved when the storage asset is focused
on the frequency regulation sector of the demand response market. Revenue rates are set per the Federal Regulatory Energy
Commission’s 'pay for performance' regulations (FERC Order No. 755 adopted in 2011 and FERC Order No. 784 adopted in 2013),
which means that systems that respond faster than other systems, and respond with measured accuracy within the parameter guidelines,
will be paid at the highest revenue rate. Solar photovoltaic farms as a stand- alone system cannot effectively participate in
the ancillary markets because of lack of availability (evening hours), intermittency and other factors. When a solar photovoltaic
farm is combined with a storage source, we believe the revenue provided by the system, when augmented with tax subsidies, is increased
by more than double when combined with participation in ancillary services such as frequency regulation. In addition, the storage
system in this application can be a source of emergency power if the grid goes completely down.
Our Business
Products
We have devoted
more than ten years to research and development on our PbC technology. Our work has focused on developing our intellectual property,
characterizing baseline performance, developing proprietary treatment processes for the activated carbon we use in our electrodes,
developing proprietary designs and manufacturing techniques for electrode assemblies and fabricating a series of material and
design evaluation prototypes that range from single cell to multi-cell batteries for use in energy storage devices and systems.
Our battery
consists of a standard lead-acid battery configuration with the standard lead negative electrodes replaced with activated carbon
negative electrodes. A diagram of a typical Axion PbC battery, showing both the similarities and differences when compared with
the standard lead acid battery is presented herein below (with the “activated carbon negative electrodes” being unique
to PbC batteries).
As we began
our transition to commercial manufacturing, in 2010 we entered into a long-term lease for an additional New Castle, Pennsylvania
facility that we had been subleasing since 2008 (our Green Ridge Road facility, which is less than ½ mile from our original
Clover Lane facility in New Castle). This 45,000 square foot facility currently houses our Gen II robotic PbC negative electrode
production line. In addition, during this transition we:
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refined our fabrication
methods for carbon sheeting, packet assembly and other key components of our carbon electrode assemblies;
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Demonstrated production
of our PbC batteries and construction of Power Cubes;
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demonstrated that proper
quality control can be achieved on our robotic PbC negative electrode manufacturing line; and
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demonstrated and documented
the performance of our products in key applications;
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We believe
demand for cost-effective energy storage systems produced using our PbC technology will grow. We also believe that competitive
advantages of PbC are:
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enhanced partial state-of-charge performance when
compared to advanced lead-acid and lithium ion products;
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longer life achieved in string applications with
minimal battery management when compared to advanced lead-acid batteries;
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better charge acceptance
when compared to advanced lead-acid batteries;
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faster recharge rate when compared to advanced lead-acid
and lithium ion and other storage chemistries;
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longer cycle lives in deep discharge applications
when compared to advanced lead-acid and similar life when compared to lithium ion batteries; and
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inherent voltage equalization among cells in individual
batteries and especially among batteries in string applications of all quantities which aids performance and length of battery
life ;
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We anticipate
our ability to establish and maintain a competitive position will be dependent on several factors, including:
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the availability of
raw materials and key components;
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our ability to manufacture
commercial carbon electrode assemblies;
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our ability to operate facilities that can fabricate
PbC negative electrode assemblies and commercially manufacture our PbC device with consistent quality at a predictable cost;
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our ability to establish
and expand a customer base;
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our ability to execute and perform on any future
strategic distribution agreements with tier one and/or tier two battery manufacturers;
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our ability to compete
against established, emerging, and other storage technologies;
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the market for batteries
in general; and
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our ability to attract
and retain key personnel.
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In the fourth
quarter of 2012, we began early stage commercialization of our PbC technology products. We began implementation of a platform
technology business model including fine tuning both the development and manufacturing of our proprietary carbon electrode assemblies
that are unique to our PbC batteries. In addition to using these assemblies in our batteries, we eventually intend to execute
licenses and sell the assemblies to other established battery manufacturers that are seeking to market more advanced batteries.
We believe a platform technology business model will reduce our time to market, allow us to rely on the established business abilities
of existing manufacturers and forge a strong brand identity for our PbC products, while, at the same time, allow us to focus on
a narrow band of value-added activities that should minimize our investment and maximize our profitability.
Development
History
Since 2008,
we have invested in upgrading, and where necessary, replacing existing battery manufacturing equipment in order to support our
long range business plan. These early improvements included the installation of a new automatic paste mixer and a fixed orifice
pasting line for improved quality and dimensional tolerances of battery plates, an automatic stacker for precise wrap and alignment
of absorbed glass matt separator that is needed for the production of our premium PbC products, the modernization of our second
lead-acid production line; the rebuild of five casting machines; the addition of new welding equipment; and a 35% expansion of
our formation area. Subsequently, a new robotic carbon electrode manufacturing line was installed at our Green Ridge Road facility
in New Castle, PA. These initiatives have provided the manufacturing framework and capability for improvements in our quality,
cost and ability to deliver our products.
From March
2011 through 2013, we utilized our Clover Lane facility capability and capacity primarily to contract manufacture specialty lead-acid
batteries for a third party. The flooded lead-acid batteries were manufactured in our facility, with the purchaser carrying the
cost of inventory and providing the raw materials required. As 2014 progressed, we experienced a wind down of our flooded lead-acid
battery contract, and we are in the processing of consolidating our facilities, as there is currently no active manufacturing
taking place.
We continued
with a limited amount of automotive work through discussions with auto companies and their suppliers.. We and others believe that
the fastest, and least expensive, method of reducing carbon dioxide emissions from an internal combustion engine vehicle, and
the way to helping meet current and future Corporate Average Fuel Economy standards is attained by equipping the vehicle with
stop/start technology. The solution offered by our PbC technology combines low cost with a fast rate of charge acceptance. We
believe our PbC technology is well suited for the emerging micro-hybrid market incorporating stop/start systems and will continue
to seek development partners for this application.
We continue
our efforts in the hybrid heavy duty truck and the hybrid locomotive market. Similar to the hybrid stop/start automotive market,
battery charge acceptance, fast re-charge ability and high cycle life are critical characteristics required in a product for the
heavy duty truck and locomotive hybrid markets.
With the financial
assistance provided by the Pennsylvania Energy Development Authority and Commonwealth Financing Authority grants, we commissioned
our first PowerCube product onsite at our Clover Lane facility in 2011. The PowerCube was fully assembled and integrated by us
and, in addition to the batteries, contains a racking system, electronics and power equipment, battery management system, climate
control and fire suppression systems. As part of this undertaking, we entered into a partnership with Viridity Energy and PJM
Interconnection (the largest regional power transmission organization in the US which coordinates the movement of wholesale electricity
for more than 61 million people in all or parts of 13 states). The PowerCube was network-connected to the PJM system and while
connected allowed us to respond through Viridity to curtailment and demand response signals from PJM and then participate in frequency
regulation. Due to the implementation of the FERC “pay for performance” provisions, there are economic incentives
to utilize our PowerCube as fast response to these signals from PJM increases at the utility will pay on a per kilowatt basis
based on set performance metrics. This PowerCube is currently undergoing retrofitting to incorporate performance enhancements
for use in demonstrations at potential customer sites.
Since the PowerCube
can be scaled, we also commenced development of smaller PowerCube units (mini-cubes). These mini-cube applications include residential
storage (at levels down to 10 kilowatt) and small commercial storage. The units can be connected to wind and solar power sources
in addition to filtering power directly from the grid. The end product will provide backup power, power quality, power smoothing,
and potential peak shaving. We are working with installers and integrators and have begun to take this product to market in North
America, as was the case with the Washington Naval Yard which was brought online in 2012 and has continued to function. The experience
gained with the PowerCube is invaluable in designing systems for frequency regulation projects. Axion has bid on several large
projects in 2014 and 2015, although to date, we have not received any orders as a result of those bids.
Our work with
ePower Engine Systems, which is a third party entity which develops and markets auxiliary power systems for trucks continues but
with slow progress and few sales.
Our Patents
and Intellectual Property
We
own thirteen issued U.S. patents at the date of this report covering various aspects of our PbC technologies, and we typically
have a number of patent applications in process at any point in time. There is no assurance that any of the pending patent applications
will ultimately be granted. Our issued patents are:
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U.S.
Patent No. 6,466,429 (expires May 2021) - Electric double layer capacitor
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U.S.
Patent No. 6,628,504 (expires May 2021) - Electric double layer capacitor
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U.S.
Patent No. 6,706,079 (expires May 2022) - Method of formation and charge of the negative polarizable carbon electrode in an
electric double layer capacitor
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U.S.
Patent No. 7,006,346 (expires April 2024) - Positive Electrode of an electric double layer capacitor
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U.S.
Patent No. 7,110,242 (expires February 2021) - Electrode for electric double layer capacitor and method of fabrication
thereof
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U.S.
Patent No. 7,119,047 (expires February 2021) - Modified activated carbon for carbon for capacitor electrodes and method
of fabrication thereof
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U.S.
Patent No. 7,569,514 (expires May 22, 2021) - Method of Fabrication of Modified Activated Carbon
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U.S.
Patent No. 7,881,042 (expires March 2027) – Cell Assembly for an Energy Storage Device using PTFE Binder in Activated
Carbon Electrodes
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U.S.
Patent No. 7,998,616 (expires February 2028) – Negative Electrode for a Hybrid Energy Storage Device
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U.S.
Patent No. 8,023,251 (expires November 2028) – Hybrid Energy Storage Device and Method of Making Same
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U.S.
Patent No. 8,192,865 (expires October 2027) – Negative Electrode for a Hybrid Energy Storage Device
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U.S.
Patent No. 8,202,653 (expires February 2028) – Electrode Grid Structure
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U.S.
Patent No. 8,347,468 (expires February 2031) – Method of Making a Current Collector
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Presently,
we have no obligation to pay any royalties or license fees with respect to the commercialization of our PbC device technology,
and we are not subject to any field of use restrictions. We believe our patents and patent applications, along with our trade
secrets, know-how and other intellectual property are necessary to our success.
Our ability
to compete effectively with other companies will depend on our ability to maintain and protect the PbC device intellectual property
and technology. We plan to file additional patent applications in the future. However, the degree of protection offered by our
existing patents or the likelihood that our future applications will be granted, or the degree of protection afforded by future
patents, if granted, is uncertain. Competitors in both the United States and foreign countries, many of which have substantially
greater resources and have made substantial investment in competing technologies, may have, or may apply for and obtain patents
that may prevent, limit or interfere with our ability to make and sell products based on our PbC device technology. Competitors
may also intentionally infringe on our patents. The prosecution and defense of patent litigation is both costly and time-consuming,
even if the outcome is favorable to us. An adverse outcome in the defense of a patent infringement suit could subject us to significant
liabilities to third parties and prevent us from using all or any portion of the technology covered by such a patent. Although
third parties have not asserted any infringement claims against us to date, there is no assurance that third parties will not
assert such claims in the future.
We also rely
on trade secrets and know-how, and there is no assurance that others will not independently develop the same or similar technology
or obtain unauthorized access to our trade secrets, know-how and other unpatented technology. To protect our rights in these areas,
we require all employees, consultants, advisors and collaborators to enter into strict confidentiality agreements. These agreements
may not provide meaningful protection for our unpatented technology in the event of an unauthorized use, misappropriation or disclosure.
While we have attempted to protect the unpatented proprietary technology that we develop or acquire, and will continue to attempt
to protect future proprietary technology through patents, copyrights and trade secrets, we believe that our success will depend,
to a large extent, upon continued innovation and technological expertise.
In general,
the level of protection afforded by a patent is directly proportional to the ability of the patent owner to protect and enforce
those rights through legal action. Since our financial resources are limited, and patent litigation can be both expensive and
time consuming, there can be no assurance that we will be able to successfully prosecute an infringement claim in the event that
a competitor develops a technology or introduces a product that infringes on one or more of our patents or patent applications.
There can be no assurance that our competitors will not independently develop other technologies that render our proposed products
obsolete. In general, we believe the best protection of our proprietary technology will come from market position, technical innovation,
speed-to-market, and product performance. There is no assurance that we will realize any benefit from our intellectual property
rights.
Our Sales
and Marketing Strategy
Over the last
few years, our PbC technology evolved through the research, development, prototype and early adoption stages. On a parallel path,
we explored potential existing as well as potential future market applications that our product might profitably service. Throughout
the process, different PbC configurations, along with various ancillary components, were subject to trial and error testing. Our
strategy was to find markets where:
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our product demonstrated superior performance to
the current products of choice; or
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where our product demonstrated a measurable cost
savings alternative to those products; or
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where it provided a combination of the two.
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The end result
of this process was the identification of specific target markets; the development of an improved PbC battery product that can
be sold into those markets as a standalone unit as part of an entire Axion energy storage system such as our PowerCube; or as
the battery component of someone else’s energy storage system. The PowerCube includes not only PbC batteries but also all
of the electronics necessary to accumulate or dispatch power from those batteries. The containerized Cube unit also includes battery
racking, Axion’s battery management system, all necessary wiring and a fire suppression system.
On January
28, 2015 we announced a strategic marketing, sales and reselling agreement with privately owned Portland OR-based Pacific Energy
Ventures LLC (PEV), a technology and project development firm specializing in the renewable energy and energy storage sectors.
Under the agreement, PEV will represent us and PbC-based products nationally on a non-exclusive basis, initially focused in the
area that comprises the power grid of PJM Interconnection LLC, a Regional Transmission Organization serving all or parts of 13
states in the Northeast and the District of Columbia. PEV will promote the sale of PbC and PowerCube products for use with
renewable energy and energy storage projects.
The PEV association
is the first in a series of anticipated strategic relationships that we anticipate developing in key market segments for its technology.
Additionally, we will seek marketing partners who have reach and reputation in key markets to accelerate the introduction of our
products and product systems. This strategy will be applied on a global basis.
Our sales cycle
time varies greatly depending on the particular market and the specific customer’s product knowledge and expectations, but
generally speaking, excluding the transportation market, the time required to introduce our product to a new customer - through
sale conclusion - is 4 to 6 months. We will continue to seek relationships with industry leaders in the various market segments
to better penetrate targets that are suitable for our PbC systems. Most projects require some upfront expense to initiate the
system development. This would be for battery production and software development to integrate the technology as a component in
various component systems such as with the ongoing ePower project.
Our Competition
Our PbC technology
is competitive with technologies being developed by a number of new and established companies engaged in the manufacture of energy
storage components, devices and systems. In addition, many universities, research institutions and other companies are developing
advanced electrochemical energy storage technologies including:
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symmetric supercapacitors;
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asymmetric supercapacitors with organic electrolytes;
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nickel metal hydride batteries;
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other advanced lead-acid devices; and
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Other business
entities are developing advanced energy production technologies like fuel cells, solar cells and windmills which may use our products,
or, in some cases, compete with our products. Since some of our competitors are developing technologies that may ultimately have
costs similar to, or lower than, our projected costs, there can be no assurance we will be able to compete effectively.
Our competitors
with more diversified product offerings may be better positioned to withstand changing market conditions. Some of our competitors
own, partner with, or have longer term or stronger relationships with suppliers of raw materials and components, which could result
in them being able to obtain raw materials on a more favorable basis than us. It is possible that new competitors or alliances
among existing competitors could emerge and rapidly acquire significant market share, which would harm our business.
The development
of technology, equipment and manufacturing techniques and the operation of a facility for the automated production of rechargeable
batteries require large capital expenditures. In order to minimize our capital investment in manufacturing facilities and establish
strong brand name recognition for our products, our overall strategy is to negotiate strategic alliances and other production
agreements with established battery manufacturers that want to add high-performance co-branded products to their existing product
lines. There can be no assurance that our PbC platform technology business model will succeed in the battery industry.
Our Employees
As of December
31, 2014 we employed a staff of 40, including an 8 member scientific and engineering team, and 20 people who are involved principally
in manufacturing. We are not subject to any collective bargaining agreements, and we believe we have a good relationship with
our employees. On March 31, 2015, we accepted the resignation of Vani Dantam, Vice President of Sales and Marketing. Charles Trego
resigned as our Chief Financial Officer on October 2, 2015, and Danielle Baker, our Controller, was appointed as our Chief Accounting
Officer. Due to downsizing, we had 25 employees as of September 30, 2015.
Description
of Properties
On March 10,
2013, we exercised our option for a five year renewal on our lease on existing space at our manufacturing plant located at 3601
Clover Lane in New Castle, Pennsylvania. We have utilized this space to manufacture our PbC and specialty lead-acid battery products
and to continue to produce and test prototypes which incorporate our developed technology. Our Clover Lane plant, which we will
use for limited purposes on a prospective basis, allows us to manufacture batteries for sale under the Axion brand name; to manufacture
for third parties under specific contract arrangements; or to manufacture prototypes for our own use and testing, or for testing
by our customers. Our facility has been fully tested and found to be in compliance with emission standards established by new
federal guidelines in accordance with the Clean Air Act–Title III.
The salient
terms of the renewal lease are as follows:
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The
renewal term commenced on March 10, 2013 with a term of five years.
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The lease may be extended
for one additional five-year term with future rent to be negotiated at a commercially reasonable rate.
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The battery manufacturing
facility includes 70,438 square feet of floor space, including 7,859 square feet of office, locker, lab and lunch area, 46,931
square feet of manufacturing space, 1,488 square feet of dedicated lab space, 9,200 square feet of storage buildings and 5,000
square feet of basement area.
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The rental amount for
the initial term is $16,700 per month, which is fixed through March 2015. In addition to the monthly rental, we are obligated
to pay all required maintenance costs, taxes and special assessments, maintain public liability insurance, and maintain fire
and casualty insurance for an amount equal to 100% of the replacement value of the leased premises.
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On May 26, 2011 we executed
an addendum to the existing lease agreement which resulted in the lease of an additional 2,160 square feet of additional space
for $500 per month. There were no other changes to the existing lease.
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With the execution of
the addendum we now lease 72,598 square feet for a monthly rent of $17,200 on a “triple net” basis.
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On November
4, 2010, we entered into a commercial lease with Becan Development, LLC to lease a 45,000 square foot building, located at 209
Green Ridge Road in New Castle, PA, which we currently occupy to house offices, research and development, electrode manufacturing
and warehousing.
The salient
terms of the lease are as follows:
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The
term commenced on January 1, 2011 and the term expires on December 31, 2015.
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The lease may be extended
for two five-year terms, by giving notice not less than 30 nor more than 120 days before the expiration of the initial term
or first renewal term (as applicable). The renewal leases shall be on terms substantially similar to the terms of the initial
lease except for any adjustment to rent, if warranted, as mutually agreed upon by Lessor and us.
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The
rental amount for the initial term is $19,297 per month and is on a “triple net” basis.
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If we are able to obtain
sufficient funding from either the federal or state government or agencies, and it enters into a binding agreement to purchase
the property, the lease shall be immediately terminated and Lessor shall credit the most recent 6 months of actual rental
payments made to lessor against the purchase price of the property.
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We also have a right
of first refusal to purchase the property within 30 days of receipt of notice of a third party offer from lessor upon substantially
the same terms as those offered by the third party.
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The
lease contains market terms on standard provisions such as defaults and maintenance.
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On August 28, 2015, we signed a
promissory note with each of the two landlords deferring lease payments until December 31, 2015. The aggregate amount of the promissory
notes is $291,975 earning interest at 12% per annum compounded monthly.
LEGAL
PROCEEDINGS
From time to time, we are involved
in lawsuits, claims, investigations and proceedings, including pending opposition proceedings involving patents that arise in
the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business,
results of operations, financial condition or cash flows.
MANAGEMENT
Our board
of directors directs the management of the business and affairs of our company as provided in our certificate of incorporation,
our by-laws and the General Corporation Law of Delaware. Members of our board of directors keep informed about our business through
discussions with senior management, by reviewing analyses and reports sent to them, and by participating in board and committee
meetings.
Board
Leadership Structure and Risk Oversight; Diversity
Our company
is led by Donald Farley, who was appointed as Chairman after the untimely demise of David DiGiacinto, our CEO. Our
board of directors has been traditionally divided into three classes of directors that serve for staggered three-year terms. Four
of our current board members have been elected to serve for terms that expire on the date of our 2015 Annual Meeting (and are
proposed for re-election at the 2015 Annual Meeting); and one has been elected to serve for term that expires on the date of our
2016 Annual Meeting. The board has three standing committees – audit, compensation and nominating. The
Audit Committee is comprised solely of independent directors, and each committee has a separate chair. Our Audit Committee
is responsible for overseeing risk management, and our full board receives periodic reports from management.
Our board
leadership structure is used by other smaller public companies in the Unites States, and we believe that this leadership structure
is effective for us. We believe that having a combined Chairman/CEO and chairs for each of our board committees is
the correct form of leadership for us. We have a single leader and oversight of company operations by experienced directors,
three of whom are also committee chairs. We believe that our directors provide effective oversight of the risk management
function, especially through the work of the Audit Committee and dialogue between the full board and our management.
We do not
currently consider diversity in identifying nominees for director. Due to our small size, the priority has been in
attracting qualified directors, and issues such as diversity have not yet been considered.
The following
table identifies our current directors and specifies their respective ages and positions with us.
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Age
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Position
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Donald Farley
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72
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Chairman and Director
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Richard Bogan
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64
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Director
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Michael Kishinevsky
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49
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Director
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Charles Trego
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65
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Director
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D. Walker Wainwright
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65
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Director
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Executive
officers
The following
table identifies our current non-director executive officers and specifies their respective ages and positions with us.
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Name
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Age
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Position
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Philip S. Baker
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67
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Chief Operating Officer
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Presiding
Director
Our Chairman,
Donald Farley, acts as the presiding director at meetings of our board of directors. In the event that Mr. Farley is unavailable
to serve at a particular meeting, responsibility for the presiding director function will rotate among the chairmen of each of
the committees of our board of directors.
Corporate
Governance
Our board
of directors believes that sound governance practices and policies provide an important framework to assist them in fulfilling
their duty to stockholders. Our board of directors has implemented many “best practices” in the area of corporate
governance, including separate committees for the areas of audit and compensation, careful annual review of the independence of
our Audit and Compensation Committee members, maintenance of a majority of independent directors, and written expectations of
management and directors, among other things. In 2014, all incumbent directors attended 75% of our meetings of the board of directors.
Code
of Business Conduct and Ethics
Our board
of directors has adopted a Code of Business Conduct and Ethics, which has been distributed to all directors, officers, and employees
and is given to new employees at the time of hire. The Code of Business Conduct and Ethics contains a number of provisions that
apply principally to our Chief Executive Officer, Chief Financial Officer and other key accounting and management personnel. A
copy of our Code of Business Conduct and Ethics can be found under the “Investor Information” section of our website
at
www.axionpower.com
. We intend to disclose future amendments to certain provisions of our Code of Business Conduct
and Ethics, or waivers of such provisions, applicable to our directors and executive officers, at the same location on our web
site identified above. The inclusion of our web site address in this proxy statement does not include or incorporate by reference
the information on our web site into this proxy statement.
Communications
with the Board of Directors
Stockholders
and other parties who are interested in communicating with members of our board of directors, either individually or as a group,
may do so by writing to Donald Farley, c/o Axion Power International, Inc., 3601 Clover Lane, New Castle, Pennsylvania 16105.
Mr. Farley will review all correspondence and forward to the appropriate members of the board of directors copies of all correspondence
that, in the opinion of Mr. Farley, deals with the functions of the board of directors or its committees or that he otherwise
determines requires their attention. Concerns relating to accounting, internal controls or auditing matters should be immediately
brought to the attention of our audit committee and will be handled in accordance with procedures established by that committee.
Director
Independence
Our board
of directors has determined that three of our current directors meet the independence requirements of the Nasdaq Capital Market
on which we are listed. In the judgment of the board of directors, Mr. Farley and Mr. Trego do not meet such independence standards.
In reaching its conclusions, the board of directors considered all relevant facts and circumstances with respect to any direct
or indirect relationships between us and each of the directors, including those discussed under the caption “Certain Relationships
and Related Transactions” below. Our board of directors determined that any relationships that exist or existed in the past
between us and each of the independent directors were immaterial on the basis of the information set forth in the above-referenced
sections.
Board
Committees
The board
of directors currently has three standing committees: the audit committee, the compensation committee, and the nominating committee.
These committees are responsible to the full board.
Audit
Committee
– Our board of directors has created an audit committee that presently consists of Mr. Bogan, Mr.
Kishinevsky and Mr. Wainwright. Mr. Bogan serves as the current chairman of our audit committee. Each of the members has a basic
understanding of finance and accounting, and is able to read and understand fundamental financial statements. The board of directors
has determined that each of the members of the audit committee would meet the independence requirements applicable to Nasdaq Capital
Market companies. Our board of directors has also determined that Richard Bogan, due to his professional experience, meets the
definition of an “Audit Committee Financial Expert” as defined in Item 407(d)(5)(ii) under Regulation S-K, promulgated
under the Securities Exchange Act of 1934. The audit committee has the sole authority to appoint, review and discharge our independent
registered public accounting firm. The audit committee reviews the results and scope of the audit and other services provided
by our independent registered public accounting firm, as well as our accounting principles and our system of internal controls,
reports the results of their review to the full board of directors and to management, and recommends to the full board of directors
that the our audited consolidated financial statements be included in our Annual Report on Form 10-K.
The audit
committee met 5 times during the year-ended December 31, 2014. The audit committee charter can be found on our website under
About
Axion; Corporate Governance / Committees
, at
www.axionpower.com.
Compensation
Committee
– Our board of directors has created a compensation committee that presently consists of Messrs. Bogan,
Farley and Wainwright. Mr. Wainwright serves as chairman of the compensation committee. The compensation committee makes recommendations
concerning compensation of the executive management team and non-employee directors and administers our stock-based incentive
compensation plans. The chairman establishes meeting agendas after consultation with other committee. Subject to supervision by
the full board of directors, the compensation committee administers our stock option plans. Our Chief Executive Officer and other
members of management regularly discuss our compensation issues with compensation committee members. Subject to compensation committee
review, modification and approval, our CEO typically makes recommendations respecting bonuses and equity incentive awards for
the other members of the executive management team. The compensation committee in conjunction with other non-employee directors
establishes all bonus and equity incentive awards for Mr. Farley (who abstains as to his compensation) and the other executive
members of the management team. Our board of directors has determined that all members of the compensation committee
except for Mr. Farley meet the independence requirements applicable to Nasdaq Capital Market companies.
The compensation
committee met once during the year ended December 31, 2014. The compensation committee charter can be found on our website under
“
About Axion; Corporate Governance; Committees
,” at
www.axionpower.com.
Nominating
Committee
-Our board of directors has created a nominating committee that consists of Messrs. Bogan, Wainwright and Kishinevsky.
Mr. Kishinevsky serves as chairman of the nomination committee. As currently constituted, the nominating committee will seek out
candidates for director positions on the board of directors and present those candidates to the entire board for approval. With
respect to director nominees, our nominating committee will consider nominees recommended by stockholders that are submitted in
accordance with our By-Laws. We do not have any specific minimum qualifications that our board believes must be met by a board
recommended nominee for a position on our board of directors or any specific qualities or skills that our board believes are necessary
for one or more of our directors to possess. We have developed a formal process for identifying and evaluating nominees for director,
including nominees recommended by security holders. The nominating committee may consider use of an executive search firm for
assistance in discovering potential board candidates. All members meet the independence requirements of the Nasdaq Capital Market.
The nominating
committee met once during the year ended December 31, 2014. The nominating committee charter can be found on our website
under
“About Axion; Corporate Governance; Committees.”
Board
nominations
Stockholders
wishing to bring a nomination for a director candidate before a stockholders meeting must give written notice to our Corporate
Secretary, either by personal delivery or by United States mail, postage prepaid. The stockholder’s notice must be received
by the Corporate Secretary not later than (a) with respect to an Annual Meeting of Stockholders, 120 days before the date on which
next year’s proxy statement will be mailed, which we anticipate will be on or about May 1, 2016, and (b) with respect to
a special meeting of stockholders for the election of directors, the close of business on the tenth day following the date on
which notice of the meeting is first given to stockholders. The stockholder’s notice must set forth all information relating
to each person whom the stockholder proposes to nominate that is required to be disclosed under applicable rules and regulations
of the SEC, including the written consent of the person proposed to be nominated to being named in the proxy statement as a nominee
and to serving as a director if elected. The stockholder’s notice must also set forth as to the stockholder making the nomination
(i) the name and address of the stockholder, (ii) the number of shares held by the stockholder, (iii) a representation that the
stockholder is a holder of record of our stock, entitled to vote at the meeting and intends to appear in person or by proxy at
the meeting to nominate the person named in the notice, and (iv) a description of all arrangements or understandings between the
stockholder and each nominee.
Stockholder
Communications with the Board of Directors
Stockholders
may communicate directly with the board of directors or any board member by writing to them at Axion Power International, Inc.,
3601 Clover Lane, New Castle, PA 16105, C/O Secretary, Michael Kishinevsky. The outside of the envelope should prominently indicate
that the correspondence is intended for the board of directors or for a specific director. The secretary will forward all such
written communications to the director to whom it is addressed or, if no director is specified, to the entire board of directors.
Director
Attendance at Annual Meetings of Stockholders
We encourage
our directors to attend Annual Meetings, although such attendance is not required. Five directors attended the 2014 Annual Meeting.
EXECUTIVE
COMPENSATION
The following
table sets forth the compensation earned by or paid to our Named Executive Officers with respect to the year ended December 31,
2014. The Named Executive Officers are as shown. We did not have any non-equity incentive plans, pension plans or deferred
compensation plans during the year ended December 31, 2014.
SUMMARY
COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
All Other
|
|
|
Total
|
|
|
Name and Principal
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Position
|
|
Year
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)
|
|
Thomas Granville
CEO and Director (5)
|
|
|
2014
|
|
|
|
231,500
|
|
|
|
38,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,077
|
|
|
|
272,577
|
|
|
Thomas Granville
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEO and Director
|
|
|
2013
|
|
|
|
380,000
|
|
|
|
38,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,307
|
|
|
|
425,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles R. Trego (6)
|
|
|
2014
|
|
|
|
25,961
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,039
|
|
|
|
27,000
|
|
|
CFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles R. Trego
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CFO
|
|
|
2013
|
|
|
|
147,116
|
|
|
|
22,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,240
|
|
|
|
182,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philip S. Baker
|
|
|
2014
|
|
|
|
199,800
|
|
|
|
19,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,536
|
|
|
|
227,136
|
|
|
COO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philip S. Baker
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COO
|
|
|
2013
|
|
|
|
199,800
|
|
|
|
19,980
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,536
|
|
|
|
227,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vani Dantam
|
|
|
2014
|
|
|
|
225,000
|
|
|
|
22,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,837
|
|
|
|
251,337
|
|
|
Vani Dantam
|
|
|
2013
|
|
|
|
225,000
|
|
|
|
22,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,399
|
|
|
|
266,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David DiGiacinto
CEO (7)
|
|
|
2014
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
199,584
|
|
|
|
10,404
|
|
|
|
360,988
|
|
|
1.
|
Salaries are presented as the contractual amount
paid during 2014 and 2013.
|
|
2.
|
Discretionary bonuses are not made pursuant to any
specific bonus plan. The bonuses cited were awarded and paid in the indicated years.
|
|
3.
|
Stock and option awards were granted pursuant to
the individual employment contracts. Options are valued using the Black-Scholes-Merton option pricing model.
|
|
4.
|
Other compensation includes company perquisites relating
to pre and post-employment consulting contracts, severance payments, auto allowance, personal use of company cars, accrued
vacation payments, moving expenses, and other earned compensation.
|
|
5.
|
Mr. Granville resigned as CEO effective as of July
1, 2014.
|
|
6.
|
Represents only salary from November 1, 2014 - December
31, 2014. Compensation as consultant is included in the Director’s Compensation section. Mr. Trego resigned
as our CFO on October 2, 2015.
|
|
7.
|
Mr. DiGiacinto was deceased on January 22, 2015.
|
Employment
Agreements
Effective as of April 1, 2013, we
entered into an Executive Employment Agreement with Philip S. Baker as its Chief Operating Officer. Under the terms of the Agreement,
which has a term of three years, Mr. Baker receives an annual salary of $199,800, which is subject to review annually, an annual
stipend of $19,980, an annual bonus as determined by the Compensation Committee of the Board of Directors, and an annual car allowance
of $6,000. On April 1, 2013, Mr. Baker was granted a five year option to purchase 131 shares of our common stock with an exercise
price of $2,625 per share, 15 options vested on April 1, 2010, and, beginning in June, 2010, 4 options vest monthly through the
remaining 34 months of his contract.
Effective as of November 1, 2014,
we entered into an Executive Employment Agreement with Charles R. Trego as its Chief Financial Officer. Under the terms of the
Agreement, which has a term of two years, Mr. Trego receives an annual salary of $225,000, an annual stipend of $22,500 on the
first and second anniversaries of the date of the Executive Employment Agreement, respectively, if he is still employed by us
in such capacity on the first anniversary date, and on the second anniversary date, if he has an agreement to continue as the
Chief Financial Officer for at least six months subsequent to the second anniversary date, an annual car allowance of $9,000.
Mr. Trego resigned as our Chief Financial Officer as of October 2, 2015.
Both Mr. Baker’s and Mr. Trego’s
contracts are also subject to the following general terms. These agreements generally required each executive to devote substantially
all of his business time to the our affairs, establish standards of conduct, prohibit competition with our company during their
term, affirm our rights respecting the ownership and disclosure of patents, trade secrets and other confidential information,
provide for the acts and events that would give rise to termination of such agreements and provide express remedies for a breach
of the agreement. Each of the executives is allowed to participate in our standard employee benefit programs, including medical/hospitalization
insurance and group life insurance, as in effect from time to time. Each of the covered executives generally received an automobile
allowance, reimbursement for all reasonable business expenses incurred by him on behalf of us in the performance of his duties,
and a severance package that guarantees continued remuneration equal to the executive’s base salary for a total of 23 months
so long as we elect to enforce the provisions of the Non-Competition Agreement, should the executive be unable to find employment
or accepts employment at a reduced rate of pay due solely to the Non-Competition Agreement. There are no non-qualified deferred
compensation plans.
Effective November 1, 2014, Charles
Trego, Phillip Baker and two other former executives entered into salary deferral agreements with us pursuant to which each agreed
to defer portions of their salary for one year from the date of effectiveness of the salary deferral agreement. The deferred portions
of the salaries are to be paid to each such employee by the earlier of December 31, 2015 and the occurrence of one of the following
events: (i) consummation by us of any subsequent financing transactions with at least $6,000,000 in gross proceeds in the aggregate;
(ii) a change in control of our company or (iii) a sale of all or substantially all of the assets of us. At December 31, 2014,
the total deferred salaries amounted to $51,988.
Effective as of April 1, 2013, we
entered into new three year employment agreements with Phillip Baker and others who no longer work for us, which expire on March
31, 2016. The agreement is identical to the prior employment agreement in effect with each of the officers, except with respect
to the new terms and as set forth below.
There is
a new payment schedule, which calls for a stipend payment equal to 10% of base salary (which is the same as in the prior agreement
and which remains unchanged during the term of said agreement), in cash within 45 days from the date of effectiveness of each
agreement, and then the same stipend payment is due on the first, second and third anniversaries of the effective date of the
Agreement so long as the executive is still employed by us on each said anniversary date.
The following
table sets forth the stipend payment schedule:
|
Executive
|
|
Payment within 45 days
of April 1, 2013
|
|
|
Payment on 1 year
anniversary (1)
|
|
|
Payment on 2 year
anniversary (1)
|
|
|
Payment on 3 year
anniversary (1)
|
|
|
Philip Baker
|
|
$
|
19,980
|
|
|
$
|
19,980
|
|
|
$
|
19,980
|
|
|
$
|
19,980
|
|
|
(1)
|
Payable only if executive is still employed by us
on the anniversary date.
|
Warrants
As of
December 31, 2014, we had 2,223,284 outstanding warrants that represent potential future cash proceeds to our company of
$15,515,827. The warrants are divided into five classes that are presently exercisable and expire at various times through
December 2019. The following table summarizes the number of warrants in each class, the anticipated proceeds from the
exercise of each class, and the expiration date of each class.
Warrant
Series
|
|
Number
of
Warrants
|
|
|
Exercise
Price
|
|
|
Anticipated
Proceeds
|
|
|
Expiration
Date
|
|
Subordinated note holder
|
|
|
1,099
|
|
|
$
|
528.50
|
|
|
|
579,871
|
|
|
May 7, 2018
|
|
Placement agent warrants
|
|
|
1,562
|
|
|
|
528.50
|
|
|
|
823,587
|
|
|
May 7, 2018-July
8, 2019
|
|
Series A warrants issued October 29, 2014
|
|
|
61,608
|
|
|
|
113.75
|
|
|
|
7,007,810
|
|
|
October 29, 2019
|
|
Investor
|
|
|
2,765
|
|
|
|
35.00
|
|
|
|
96,749
|
|
|
December 11, 2019
|
|
Series B Warrants issued October 29, 2014
|
|
|
2,156,250
|
|
|
|
3.25
|
|
|
|
7,007,810
|
|
|
January 29, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,223,284
|
|
|
|
|
|
|
$
|
15,515,827
|
|
|
|
Option
Plan Awards
The holders
of warrants are not required to exercise their rights at any time prior to the expiration date and we are unable to predict the
amount and timing of any future warrant exercises. We reserve the right to temporarily reduce the exercise prices of our warrants
from time to time in order to encourage the early exercise of the warrants.
As of December
31, 2014, we had 3,872 outstanding stock options that represent potential future cash proceeds to our company of $5,351,226. The
outstanding options include 2,657 options that are currently vested and exercisable and 1,215 that will vest and become exercisable
over the next three years. These options represent potential future cash proceeds to our company of $ 5,001,663 and $ 349,563,
respectively.
|
|
|
Vested
|
|
|
Unvested
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Proceeds
|
|
|
Shares
|
|
|
Price
|
|
|
Proceeds
|
|
|
Employee & Officer plan options
|
|
|
1,556
|
|
|
$
|
1,913
|
|
|
$
|
2,976,625
|
|
|
|
895
|
|
|
$
|
301.25
|
|
|
$
|
269,625
|
|
|
Directors plan options
|
|
|
669
|
|
|
|
881.97
|
|
|
|
590,038
|
|
|
|
320
|
|
|
|
249.81
|
|
|
|
79,938
|
|
|
Non-plan options to consultants and employees
|
|
|
432
|
|
|
|
3,321,76
|
|
|
|
1,435,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,657
|
|
|
$
|
1,882.44
|
|
|
$
|
5,001,663
|
|
|
|
1,215
|
|
|
$
|
287.71
|
|
|
$
|
349,563
|
|
The holders of options are not required
to exercise their rights at any time and we are unable to predict the amount and timing of any future option exercises. We reserve
the right to temporarily reduce the exercise prices of our options from time to time in order to encourage the early exercise
of the options.
Outstanding
Equity Awards at 2014 Fiscal Year-End
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
|
Non-Plan
|
|
|
Equity
Incentive Plan Awards
|
|
|
|
|
|
|
|
Equity
Incentive Plan Awards
|
|
|
|
Number
of shares underlying unexercised options
|
|
|
|
|
|
|
|
# Shares
|
|
|
|
|
|
|
|
Name
|
|
#
Exercisable
|
|
|
#
Unexercisable
|
|
|
Unearned
|
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
Date
|
|
Number
Unearned
Shares
or units
of
stock
|
|
|
Market
Value
|
|
|
Unearned
shares,
units, or
other
rights not
vested
|
|
|
Market
Value
|
|
|
Footnotes
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granville, Tom
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
4,375.00
|
|
|
varies through
6/15/2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Issued pursuant to June 2008 Executive
Employment Agreement. Options Expire 5 years after monthly vest date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granville, Tom
|
|
|
206
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,625.00
|
|
|
varies through 6/29/2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Issued pursuant to June 2010 Executive Employment
Agreement. Options Expire 5 years after monthly vest date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Trego
|
|
|
436
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,625.00
|
|
|
varies through 3/30/2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Issued pursuant to April 2010 Executive Employment
Agreement. Options Expire 5 years after monthly vest date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philip Baker
|
|
|
132
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,625.00
|
|
|
varies through 3/30/2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Issued pursuant to April 2010 Executive Employment
Agreement. Options Expire 5 years after monthly vest date
|
Post-Termination Compensation
We have not entered into change
in control agreements with any of our named executive officers or other members of the executive management team, although our
employment agreements with certain members of management do call for immediate vesting of options upon a 50% change in control.
No awards of equity incentives under our 2004 Incentive Stock Plan or awards of options under our 2004 Outside Directors Stock
Option Plan provide for immediate vesting upon a change in control other than a restricted stock grant of 720 shares issued to
Robert Nelson. However, the compensation committee has the full and exclusive power to interpret the plans, including the power
to accelerate the vesting of outstanding, unvested awards. A “change in control” is generally defined as (1) the acquisition
by any person of 30% or more of the combined voting power of our outstanding securities or (2) the occurrence of a transaction
requiring stockholder approval and involving the sale of all or substantially all of our assets or the merger of us with or into
another corporation.
Director
Compensation
The following table provides information
regarding compensation paid to non-employee directors for services rendered during the year ended December 31, 2014.
|
|
|
Fees Earned or
|
|
|
Stock
|
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Awards
|
|
|
Total
|
|
|
Name
|
|
($)(1)
|
|
|
($)
|
|
|
($)
|
|
|
Thomas Granville (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Charles Trego (3)
|
|
|
194,263
|
|
|
|
6,120
|
|
|
|
200,383
|
|
|
Dr. Howard K. Schmidt
|
|
|
19,900
|
|
|
|
10,620
|
|
|
|
30,520
|
|
|
Michael Kishinevsky
|
|
|
22,800
|
|
|
|
12,510
|
|
|
|
35,310
|
|
|
D. Walker Wainwright
|
|
|
25,200
|
|
|
|
14,400
|
|
|
|
39,600
|
|
|
David DiGiacinto
|
|
|
11,482
|
|
|
|
4,208
|
|
|
|
15,690
|
|
|
1.
|
Fees are presented based on the amount paid during
2014.
|
|
2.
|
Mr. Granville received no compensation during 2014
for his service as a Director, as he served as our chief executive officer for a portion of that time period. For a summary
of the compensation received by him as chief executive officer during 2014, see Summary Compensation Table above.
|
|
3.
|
Mr. Trego also provided consulting services at the
request of the Board of Directors from July 2014 to October 2014.
|
Only non-management
directors are compensated separately for service as members of our board of directors. Each of our non-management directors received
the following components of compensation for the period January 1, 2014 through December 31, 2014:
|
|
·
|
A basic annual retainer of $25,000 for service as a director;
|
|
|
·
|
A supplemental retainer of $6,000 for service as chairman of any committee;
|
|
|
·
|
A supplemental annual retainer of $3,000 for service as a committee member;
|
|
|
·
|
A meeting fee of $1,500 per day for each board or committee meeting attended in person or $500 for each board or committee meeting attended by telephone;
|
|
|
·
|
Reimbursement for all reasonable travel, meals and lodging costs incurred on our behalf; and
|
|
|
·
|
Options to reelected directors.
|
For 2014
and 2013, we issued 343 and 285 options, respectively pursuant to our directors’ stock option plan. Of this total, no options
were exercised during the year ended December 31, 2014, 114
options are currently vested and exercisable at a weighted
average price of $736.22 per share, and 229 options are unvested and will be exercisable at a weighted average price of $262.50
per share.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
On November
19, 2015, we had 100,000,000 shares of common stock authorized and 3,934,728 shares of common stock issued and outstanding. The
following table sets forth certain information with respect to the beneficial ownership of our securities as of November 19, 2015,
for (i) each of our directors and executive officers and (ii) all of our directors and executive officers as a group. We do not
have any persons who we know beneficially owns more than 5% of our common stock. Normally, we would rely on the Section 16 filings
for determining if there are any 5% owners. Our reporting is limited to the information we do have when we do not have the benefit
of further information.
Beneficial
ownership data in the table has been calculated based on the Securities and Exchange Commission rules that require us to identify
all securities that are exercisable for or convertible into shares of our common stock within 60 days of November 19, 2015 and
treat the underlying stock as outstanding for the purpose of computing the percentage of ownership of the holder.
Except as indicated
by the footnotes following the table, and subject to applicable community property laws, each person identified in the table possesses
sole voting and investment power with respect to all capital stock held by that person. The address of each named executive officer
and director, unless indicated otherwise by footnote, is c/o Axion Power International, Inc. 3601 Clover Lane, New Castle PA 16105.
|
|
|
Common
Stock
|
|
|
Warrants &
Options (1)
|
|
|
Combined
Ownership
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker, Philip
|
|
|
-
|
|
|
|
1,413
|
|
|
|
1,413
|
|
|
|
*
|
|
|
Bogan, Richard
|
|
|
1,285
|
|
|
|
433
|
|
|
|
1,718
|
|
|
|
*
|
|
|
Farley, Donald
|
|
|
5,137
|
|
|
|
433
|
|
|
|
5,570
|
|
|
|
*
|
|
|
Kishinevsky, Michael
|
|
|
1,376
|
|
|
|
100
|
|
|
|
1,476
|
|
|
|
*
|
|
|
Trego, Charles
|
|
|
400
|
|
|
|
1,718
|
|
|
|
2,118
|
|
|
|
*
|
|
|
Wainwright, Walker
|
|
|
1,503
|
|
|
|
150
|
|
|
|
1,653
|
|
|
|
*
|
|
|
Directors and officers as a group (6 persons)
|
|
|
9,701
|
|
|
|
4,227
|
|
|
|
13,948
|
|
|
|
0.002
|
%
|
*Less
than 1%
|
(1)
|
Represents
shares of common stock issuable upon exercise of warrants and options held by the stockholders that are presentably exercisable
or will become exercisable within 60 days.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Transactions with Executive Management
See the “Executive
Compensation” section for a discussion of the material elements of compensation awarded to, earned by or paid to our named
executive officers. Other than as stated in the “Executive Compensation” section, we have not entered into any transactions
with executive management.
DESCRIPTION
OF PRIVATE PLACEMENT AND CONVERTIBLE NOTES
Description of the Private Placement
On November 4, 2015, we entered
into a financing transaction for the sale of convertible notes and warrants issued by us with gross proceeds of $9 million to
us. Upon closing of the sale of the notes and warrants, we received cash proceeds of $1.85 million and deposit of an additional
$7.15 million into a series of control accounts in our name. We are permitted to withdraw funds from our control accounts (i)
in connection with certain conversions of the notes or (ii) otherwise, as follows: $1,000,000 on each 30 day anniversary of the
commencing on the 30
th
day after the effective date of a registration statement being filed in connection with the
transaction until there are no more funds in the control accounts, subject in each instance to equity conditions set forth in
the convertible notes.
We received approximately $1.7 million
in net proceeds at closing, which occurred on November 5, 2015, after deducting our placement agent’s fee of $138,750. Offering
expenses, other than our placement agent’s fee, were approximately $100,000, which were paid out of the proceeds at Closing.
At each release of funds, we will receive approximately $925,000 in net proceeds, after deducting our placement agent’s
fee of $75,000.
The initial conversion price of
the notes is $1.23 per share, and the initial exercise price of the 10,975,608 warrants is $1.29 per share.
As a result of “rollover”
of $363,530 of principal amount and accrued and unpaid interest of our August 2015 bridge notes, an additional note in the principal
amount of $363,530 with the same terms as the convertible notes, and an additional 443,328 warrants were issued effective the
date of this prospectus. The terms of the notes and warrants are further described in “DESCRIPTION OF PRIVATE PLACEMENT
AND CONVERTIBLE NOTES” in this prospectus.
The following is intended to provide
a summary of the terms of the agreements and securities described above. This summary is qualified in its entirety by reference
to the full text of the agreements, each of which is attached as an exhibit to our Current Report on Form 8-K dated November 4,
2015. Readers should review those agreements for a complete understanding of the terms and conditions associated with these transactions.
Securities Purchase Agreement
The convertible notes and warrants
were issued pursuant to the terms of a Securities Purchase Agreement among us and the investors named therein. The Purchase Agreement
provided for the sale of the convertible notes and warrants for gross proceeds of $9 million to us.
Notes
Ranking
The notes are senior unsecured obligations
of us.
Maturity
Date
Unless earlier converted or redeemed,
the notes mature 14 months from the Closing, subject to the right of the investors to extend the date (i) if an event of default
under the notes has occurred and is continuing or any event shall have occurred and be continuing that with the passage of time
and the failure to cure would result in an event of default under the Notes and (ii) for a period of 20 business days after the
consummation of a fundamental transaction if certain events occur.
Interest
The notes bear interest at the rate
of 9% per annum and are compounded monthly, on the first calendar day of each calendar month. The interest rate will increase
to 18% per annum upon the occurrence and continuance of an event of default (as described below). Interest on the notes is payable
in arrears on each installment date (as defined below). If a holder elects to convert or redeem all or any portion of a note prior
to the maturity date, all accrued and unpaid interest on the amount being converted or redeemed will also be payable. If we elect
to redeem all or any portion of a note prior to the maturity date, all accrued and unpaid interest on the amount being redeemed
will also be payable. The amount of interest due at any time is the amount of any interest that, but for any conversion, installment
conversion, acceleration or redemption hereunder on such given date, would have accrued with respect to the conversion amount
or installment amount being converted or redeemed under the note at the interest rate for the period from such given date through
the maturity date of the note.
Conversion
All amounts due under the notes
are convertible at any time, in whole or in part, at the option of the holders into shares of our common stock at a fixed conversion
price, which is subject to adjustment as described below. The notes are initially convertible into shares of our common stock
at the initial price of $1.23 per share. This conversion price is subject to adjustment for stock splits, combinations or similar
events and “full ratchet” antidilution provisions.
Payment
of Principal and Interest
We have agreed to make amortization
payments with respect to the principal amount of each note in shares of our common stock, subject to the satisfaction of certain
equity conditions, or at our option, in cash on each of the following installment dates:
|
|
·
|
the twenty-first trading day after the earlier of
(x) the initial effective date of a registration statement filed in connection with this offering or (y) January 20, 2016;
the first trading day of the calendar month immediately following the initial installment date (or if such date is less than
twenty trading days after the initial installment date, the second calendar month immediately following the initial installment
date to the extent); and then each month through and including the Maturity Date, each in an amount equal to 1/12 of the principal
amount of each note.
|
Acceleration
and Deferral of Amortization Amounts
During each
period after an installment date and prior to the immediately subsequent installment date, a holder may elect to accelerate the
amortization of the note at the applicable amortization conversion price for such prior installment date with respect to any given
installment period, the holder may not elect to effect any acceleration during such installment period if either (x) in the aggregate,
all the accelerations in such installment period exceeds the sum of two (2) other installment amounts, or (y) accelerations have
been consummated in four (4) prior installment periods.
The holder of a note may, at the
holder’s election by giving notice to us, defer the payment of the installment amount due on any installment dates, in whole
or in part, to another installment date, in which case the amount deferred will become part of such subsequent installment date
and will continue to accrue interest.
Events
of Default
The notes contain standard and customary
events of default including but not limited: (i) failure to register our common stock within certain time periods; (ii) failure
to make payments when due under the Notes; and (iii) bankruptcy or insolvency of us.
If an event of default occurs, each
holder may require us to redeem all or any portion of the notes (including all accrued and unpaid interest thereon), in cash,
at a price equal to the greater of (i) up to 125% of the amount being redeemed, depending on the nature of the default, and (ii)
the intrinsic value of the shares of common stock then issuable upon conversion of the note.
Fundamental
Transactions
The notes prohibit us from entering
into specified transactions involving a change of control, unless the successor entity assumes in writing all of our obligations
under the notes under a written agreement.
In the event of transactions involving
a change of control, the holder of a note will have the right to require us to redeem all or any portion of the Note it holds
(including all accrued and unpaid thereon) at a price equal to the greater 125% of the amount of the Note being redeemed and the
intrinsic value of the shares of common stock then issuable upon conversion of the note being redeemed.
Limitations
on Conversion and Issuance
A note may not be converted and
shares of common stock may not be issued under the notes if, after giving effect to the conversion or issuance, the holder together
with its affiliates would beneficially own in excess of 4.99% of our outstanding shares of common stock. At each holder’s
option, the note blocker may be raised or lowered to any other percentage not in excess of 9.99%.
Until such time we have obtained stockholder approval required by The Nasdaq Stock Market for the issuance of shares greater
than 19.99% of its outstanding and outstanding shares of common stock on the closing date, we may not issue, upon conversion
of the notes, a number of shares of common stock which, when aggregated with any shares of common stock issued on or after
the original issue date and prior to such conversion date (i) in connection with the conversion of any notes issued pursuant
to the securities purchase agreement or as interest pursuant to the notes and (ii) in connection with the exercise of any
warrants, would exceed that threshold of shares of common stock (subject to adjustment for forward and reverse stock splits,
recapitalizations and the like occurring after November 5, 2015). We intend to hold the special meeting of stockholders and/or
conduct a solicitation for consent for the purpose of obtaining that stockholder approval on or before January 15, 2016. Until
we have obtained this stockholder approval, we may not draw down any additional funds from our control accounts beyond the
$1.85 million which was funded to us at the November 5, 2015 closing.
Warrants
The warrants
entitle the holders of the warrants to purchase, in aggregate, 11,418,936 (10,975,608 shares from the November 5, 2015 closing
and 443,328 shares from the “rollover” of bridge notes described at the beginning of this section) shares of our common
stock. The warrants will expire November 5, 2017. The Warrants are initially be exercisable at an exercise price equal to the
lower of $1.29 and 85% of the market price at the time of exercise, subject to certain adjustments.
The warrants may be exercised for
cash, provided that, if there is no effective registration statement available registering the exercise of the warrants, the warrants
may be exercised on a cashless basis. This prospectus does not cover the shares of common stock issuable from time to time upon
exercise of the warrants. We anticipate that we will file a registration statement covering the shares of common stock issuable
upon the exercise of the warrants prior to the time the warrants become exercisable.
The exercise price of the warrants is
subject to adjustment for stock splits, combinations or similar events, and, in this event, the number of shares issuable upon
the exercise of the warrant will also be adjusted so that the aggregate exercise price shall be the same immediately before and
immediately after the adjustment. In addition, the exercise price is also subject to a “full ratchet” anti-dilution
adjustment if we issue or are deemed to have issued securities at a price lower than the then applicable exercise price.
Limitations on Exercise
The warrants may not be exercised if,
after giving effect to the exercise, the holder of the warrant together with its affiliates would beneficially own in excess of
4.99% of our outstanding shares of common stock. At each holder’s option, the warrant blocker applicable to the exercise
of the warrants may be raised or lowered to any other percentage not in excess of 9.99%.
Fundamental Transactions
The warrants prohibit us from entering
into specified transactions involving a change of control, unless the successor entity assumes all of our obligations under the
Warrants under a written agreement before the transaction is completed.
Registration Rights Agreement
We entered into
a registration Rights Agreement with the Holders as of the date of Closing. Under this Agreement, we have agreed to register 200%
of the shares issuable under the notes and 125% of the shares issuable under the warrants, with filing to occur no later than
15 days of the Closing and with effectiveness to occur no later than 75 days of the Closing. If we are unable to meet either of
these deadlines, we may be required to pay certain cash damages under the registration rights agreement or, with the passage of
additional time, an event of default under the notes may occur.
Dollar Value of Underlying Securities
and Potential Profits on Conversion
The
following table sets forth the potential profit to be realized upon conversion by the selling stockholders of the convertible
notes based on the conversion price on November 5, 2015 and the closing price of our common stock on November 5, 2015 (the date
the convertible notes were issued).
2
Potential
Profit from Conversion of the Convertible Notes at the Option of the Selling Stockholders
|
Per share market price as of November 5, 2015
|
|
$
|
1.14
|
|
|
Per share conversion price as of November 5, 2015
|
|
$
|
1.23
|
|
|
Total shares underlying convertible notes based on conversion price
|
|
|
8,608,322
|
|
|
Aggregate market value of underlying shares based on per share market
price as of November 5, 2015
|
|
$
|
9,813,488
|
|
|
Aggregate conversion price of underlying shares
|
|
$
|
9,000,000
|
|
|
Aggregate cash purchase price for the convertible notes
|
|
$
|
9,000,000
|
|
|
Total premium to market price of underlying shares
|
|
|
9.04
|
%
|
The following table
sets forth the potential profit to be realized upon exercise of the warrants by the selling stockholders based on the exercise
price at November 5, 2015 and the per share closing price of our common stock on November 5, 2015 (the date of issuance of the
warrants).
2
The impact of the $363,530 principal amount of
additional notes and 443,328 warrants issued as a result of the “roll over” of the $363,530 principal amount and unpaid
interest of August 2015 bridge note issued to CVI International, Inc. is not considered in the impacts of the below tables.
Potential
Profit from Exercise of the Warrants
|
Per share market price as of November 5, 2015
|
|
$
|
1.14
|
|
|
Per share exercise price as of November 5, 2015
|
|
$
|
1.29
|
|
|
Total shares underlying warrants
|
|
|
10,975,608
|
|
|
Aggregate market value of underlying shares based on market price as of November 5, 2015
|
|
$
|
12,512,194
|
|
|
Aggregate exercise price of underlying shares
|
|
$
|
14,158,535
|
|
|
Total premium to market price of underlying shares
|
|
|
13.16
|
%
|
Shares Issuable to Selling Stockholders
in Satisfaction of Principal and Interest
The following table
sets forth the total number of shares of company common stock which would be issued to the selling stockholders if we elect to
convert all principal and interest under the convertible notes into shares of its common stock in lieu of paying cash. The following
table assumes that: (a) principal and interest payments are made on the twelve regularly scheduled installment dates (beginning
on January 20, 2016), (b) that no such regularly scheduled installment payments are accelerated or deferred, (c) that no payments
of interest will be made prior to the first installment date (January 20, 2016), (d) that the indicated conversion price remains
the same from the first installment date until the convertible notes are paid in full, and (e) that the selling stockholders do
not convert the convertible notes at their election. This table is provided for illustrative purposes only, as it is unlikely
that these assumptions will be fully accurate at all relevant times.
Number of
Shares Issuable in Satisfaction of the Convertible Notes
Based on Various
Assumed Conversion Prices
|
Assumed Conversion Price*
|
|
Number of Shares Potentially Issuable
|
|
|
|
|
|
|
|
Initial Conversion price ($1.23 per share)
|
|
|
8,123,968
|
|
|
$1.20 per share
|
|
|
8,327,067
|
|
|
$1.17 per share
|
|
|
8,540,582
|
|
|
$1.14 per share
|
|
|
8,765,334
|
|
|
$1.11 per share
|
|
|
9,002,235
|
|
*Assumes conversion
price remains the same throughout the entire installment payment period, which is unlikely to occur because the conversion price
applicable to each installment payment will be based on the market price of our common stock prior to each such installment date.
Payments to Selling Stockholders
and Affiliates
In connection with the convertible notes,
we are or may be required to make the following payments to the selling stockholders and their affiliates:
|
|
|
|
|
|
Maximum Early
|
|
|
Maximum
|
|
|
Total Maximum
|
|
|
|
|
Maximum Interest
|
|
|
Redemption
|
|
|
Registration
|
|
|
Payments During
|
|
|
Payee
|
|
Payments
(1)
|
|
|
Premiums
(2)
|
|
|
Penalties
(3)
|
|
|
First
12 Months (4)
|
|
|
Selling Stockholders
|
|
$
|
992,480
|
|
|
$
|
21,969,920
|
|
|
$
|
1,080,000
|
|
|
$
|
1,822,480
|
|
(1) Represents
the maximum amount of interest payable by us to the selling stockholders under the convertible notes assuming (a) that all twelve
installment payments thereunder are timely made (beginning with the first installment payment being made on January 20, 2016)
and that no installment payments are accelerated or deferred, (b) that no payments of interest will be made prior to the first
installment date, (c) that the convertible notes are not otherwise converted prior to the maturity date, (d) that interest is
paid in cash and (e) that no event of default thereunder occurs.
(2) Represents
the cash amount that would be payable by us if it were required to redeem the convertible notes as a result of an event of default
or change of control assuming (a) that the applicable premium to be applied upon the event of default or change of control is
200%, (b) that the event of default or change of control occurs on November 5, 2015, and (c) that the required payments continue
until January 5, 2017. The default interest rate is 18% per annum upon the occurrence and continuance of an event of default.
(3) Represents
the maximum monetary penalties and interest that would be payable if we failed to timely file, obtain a declaration of effectiveness
or maintain the effectiveness with respect to the registration statement required under the above-described registration rights
agreement. Assumes that (a) the monetary penalties begin to accrue in November 2015, (b) the monetary penalties continue to accrue
until November 5, 2016, and (c) the monetary penalties will not be paid until November 4, 2016 (which results in the payment of
interest on unpaid amounts at a rate of 1% per month from November 5, 2015 to November 4, 2016).
(4) Represents
the maximum amounts payable in cash under the other columns in this table during the first 12 months after the sale of the convertible
notes assuming that there is no redemption thereof during the first year due to an event of default or change of control.
Net Proceeds from Private Placement
of Convertible Notes
The
following table sets forth the gross proceeds received from the private placement of the convertible notes and calculates the
net proceeds thereof after deduction of the anticipated payments pursuant to the convertible notes and related documents. The
net proceeds do not include the payment of any contingent payments, such as liquidated damages or repayment premiums in the case
of default or a change of control. The net proceeds assumes that all interest and principal will be paid in cash and that all
nine installment payments are timely made (beginning with the first installment payment on January 20, 2015), notwithstanding
that we may pay (and are expected to pay) interest and principal in shares of its common stock under specified circumstances,
as described above. The interest amount reflected below assumes that all nine installment payments are made when due without any
event of default, and the table assumes that none of the convertible notes are converted prior to maturity. Based on the foregoing
assumptions, the net proceeds represent approximately 78.97% of the gross proceeds.
|
Gross Proceeds
|
|
$
|
9,000,000
|
|
|
Approximate Aggregate Interest Payments
|
|
$
|
992,480
|
|
|
Approximate Transaction Costs (including Placement Agent Fees)
|
|
$
|
900,000
|
|
|
Net Proceeds
|
|
$
|
7,107,520
|
|
Comparison of Issuer Proceeds to
Potential Investor Profit
As discussed above,
we plan to use the proceeds from the sale of the convertible notes for general corporate purposes. The following table summarizes
the potential proceeds we will receive pursuant to the securities purchase agreement, the convertible notes and the warrants.
For purposes of this table, we have assumed that the selling stockholders will exercise all of the warrants on a cash basis. We
have also assumed that the convertible notes will be held by the selling stockholders through the maturity date thereof.
|
Total Gross Proceeds Payable to us(1)
|
|
$
|
23,158,535
|
|
|
Payments that have been made or may be required to be made by us until
maturity(2)
|
|
$
|
992,480
|
|
|
Net proceeds to us assuming maximum payments made by us(3)
|
|
$
|
22,166,055
|
|
|
Total possible profit to the selling stockholders (4)
|
|
$
|
0.00
|
|
|
Percentage of payments and profit over net proceeds(5)
|
|
|
4.48
|
%
|
|
Percentage of payments and profit over net proceeds per year of the
term(6)
|
|
|
3.84
|
%
|
(1) Includes gross
proceeds payable to us on the sale of the convertible notes in the amount of $9,000,000 and assumes full exercise of the warrants
to yield an aggregate exercise price of $14,158,535. However, there is no assurance that any warrants will actually be exercised
or if they are exercised, whether they will be exercised for cash.
(2) Total possible
payments (excluding repayment of principal) payable by us to the selling stockholders or their affiliates assuming the convertible
notes remain outstanding until the maturity date and that interest is paid in cash. Assumes that no liquidated damages are incurred
and that no redemption premium on the convertible notes will be applicable.
(3) Total net proceeds to us calculated
by subtracting the result in footnote (2) from the result in footnote (1).
(4) This number
represents the total possible profit to the selling stockholders based on the aggregate discount to market price of the shares
underlying the convertible notes and warrants as indicated in the above table entitled “Potential Profit from Conversion
of Convertible Notes.” Because the conversion price of the convertible notes and the exercise price of the warrants was
higher than the market price on the date of issuance thereof (as reflected on such table), this number indicates a profit of “0”.
However this does not mean that the selling stockholders will not realize a profit on their investment which could occur if the
market price for the common stock exceeds the exercise price of the warrants.
(5) Percentage of the total possible
payments to the selling stockholders as calculated in footnote (2) plus profit calculated in footnote (4) compared to the net
proceeds disclosed in footnote (3).
(6) Based on a 14-month term.
Comparison of Registered Shares to
Outstanding Shares
The
following table compares the number of shares held by persons other than the selling stockholders, company affiliates, and affiliates
of selling stockholders with the number of shares registered for resale and sold by such parties in prior transactions as well
as in the current transactions involving the notes and warrants:
|
Shares Outstanding Prior to the Private Placement Held by Persons
Other than the Selling Stockholders, or Affiliates of us or Selling Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
Shares Registered for Resale by Selling Stockholders or
Affiliates of Selling Stockholders in Prior Registration Statements
|
|
|
0
|
|
|
|
|
|
|
|
|
Shares Registered for Resale by Selling Stockholders or Affiliates
of the Selling Stockholders that Continue to be Held by Such Persons
|
|
|
0
|
|
|
|
|
|
|
|
|
Shares Sold in Registered Resale Transactions by the Selling Stockholders
or Affiliates Thereof
|
|
|
0
|
|
|
|
|
|
|
|
|
Shares Registered for Resale on behalf of the Selling Stockholders
or Affiliates Thereof in Connection with the private placement (including reserves)
|
|
|
31,647,293
|
|
Other Information
As of the date
of this prospectus, we do not believe that we will have the financial ability to make all payments on the convertible notes in
cash when due. Accordingly, we do intend, as of the date of this prospectus, to make such payments in shares of our common stock
to the greatest extent possible.
Each selling shareholder has advised
us that it may enter into short sales in the ordinary course of its business of investing and trading securities. Each selling
shareholder has advised us, and represented to us in the purchase agreement for the convertible notes and warrants, that no short
sales were entered into during the period beginning when such selling shareholder obtained knowledge that we were contemplating
a private placement and ending upon the public announcement of any such private placement. Additionally, each selling shareholder
has agreed in the securities purchase agreement that, so long as a selling shareholder holds any convertible note, the selling
shareholder will not maintain a “net short position” in our common stock, which generally means that the selling shareholder
has agreed not to maintain a short position in our common stock without maintaining an equivalent offsetting long position.
We have not had any material relationships
or arrangements with any of the selling stockholders, their affiliates, or any person with whom any selling shareholder has a
contractual relationship regarding this private placement (or any predecessors of those persons).
According to information provided by
each selling stockholder to us, some of the selling stockholders have been involved in a transaction with us prior to the November
5, 2015 purchase by the selling stockholders of these convertible notes and warrants.
We believe that the available funds
at September 30, 2015, and including the net proceeds from our November 5, 2015 issue of $9 million in convertible notes plus
internally generated funds from products sales will provide sufficient financial resources to fund our operations, working capital,
and capital expenditures through the fourth quarter of 2016.
Subsequent sources of outside funding
will be required to fund our working capital, capital expenditures and rate operations beyond the fourth quarter of 2016. No assurances
can be given that we will be successful in complying with certain of the terms and conditions in the issuance of the convertible
notes or in arranging further funding, if needed, to continue the execution of its business plan including the development and
commercialization of new products, or if successful, on what terms. Failure to obtain such funding will require management to
substantially curtail, if not cease operations, which will result in a material adverse effect on the financial position and our
results of operations.
THE
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The shares of common
stock being offered by the selling stockholders are those issuable to the selling stockholders upon conversion of the notes and
exercise of the warrants. For additional information regarding the issuance of the notes and the warrants, see “Private
Placement of Notes and Warrants” above. We are registering the shares of common stock in order to permit the selling stockholders
to offer the shares for resale from time to time. Except for the ownership of the notes and the warrants issued pursuant to the
Securities Purchase Agreement, the selling stockholders have not had any material relationship with us within the past three years.
The table below
lists the selling stockholders and other information regarding the beneficial ownership (as determined under Section 13(d) of
the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) of the shares of common stock held
by each of the selling stockholders. The second column lists the number of shares of common stock beneficially owned by the selling
stockholders, based on their respective ownership of shares of common stock, notes and warrants, as of November 19, 2015, assuming
conversion of the notes and exercise of the warrants held by each such selling stockholder on that date but not taking account
of any limitations on conversion and exercise set forth therein.
The third column
lists the shares of common stock being offered by this prospectus by the selling stockholders and does not take in account any
limitations on (i) conversion of the notes set forth therein or (ii) exercise of the warrants set forth therein.
In accordance with
the terms of a registration rights agreement with the holders of the notes and the warrants, this prospectus generally covers
the resale of the sum of (i) 200% of the maximum number of shares of common stock issuable upon conversion of the notes, (ii)
200% of the maximum number of other shares of common stock issuable pursuant to the notes and (iii) 125% the maximum number of
shares of common stock issuable upon exercise of the warrants, in each case, determined as if the outstanding notes and warrants
were converted or exercised (as the case may be) in full (without regard to any limitations on conversion or exercise contained
therein and assuming all notes issuable pursuant to the securities purchase agreement have been issued as of the closing date)
as of the trading day immediately preceding the date this registration statement was initially filed with the SEC. Because the
conversion price of the notes and the exercise price of the warrants may be adjusted, the number of shares that will actually
be issued may be more or less than the number of shares being offered by this prospectus. The fourth column assumes the sale of
all of the shares offered by the selling stockholders pursuant to this prospectus.
Under the terms
of the notes and the warrants, a selling stockholder may not convert the notes or exercise the warrants to the extent (but only
to the extent) such selling stockholder or any of its affiliates would beneficially own a number of shares of our common stock
which would exceed 4.99% of the outstanding shares of us. The number of shares in the second column does not reflect these limitations.
The selling stockholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”
|
|
|
|
|
|
Maximum Number of
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Shares of Common
|
|
|
Number of Shares
|
|
|
|
|
of Common Stock
|
|
|
Stock to be Sold
|
|
|
of Common Stock
|
|
|
|
|
Owned Prior to
|
|
|
Pursuant to this
|
|
|
Owned After
|
|
|
Name of Selling Stockholder
|
|
Offering
|
|
|
Prospectus
(15)
|
|
|
Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVI Investments, Inc. (1)
|
|
|
5,835,157
|
(2)
|
|
|
9,240,353
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intracoastal Capital, LLC (3)
|
|
|
1,220,996
|
(4)
|
|
|
1,664,863
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empery Asset Master, Ltd. (5)
|
|
|
1,796,078
|
(6)
|
|
|
2,700,110
|
|
|
|
61,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empery Tax Efficient, LP (7)
|
|
|
1,159,921
|
(8)
|
|
|
1,716,280
|
|
|
|
57,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empery Tax Efficient II, LP (9)
|
|
|
1,662,377
|
(10)
|
|
|
2,451,833
|
|
|
|
87,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alto Opportunity Master Fund, SPC (11)
|
|
|
4,452,370
|
(12)
|
|
|
6,936,927
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson Bay Master Fund Ltd. (13)
|
|
|
4,452,370
|
(14)
|
|
|
6,936,927
|
|
|
|
-
|
|
|
|
(1)
|
Heights
Capital Management, Inc., the authorized agent of CVI Investments, Inc. (“CVI”),
has discretionary authority to vote and dispose of the shares held by CVI and may be
deemed to be the beneficial owner of these shares. Martin Kobinger, in his capacity as
Investment Manager of Heights Capital Management, Inc., may also be deemed to have investment
discretion and voting power over the shares held by CVL Mr. Kobinger disclaims any such
beneficial ownership of the shares. CVI Investments, Inc.is affiliated with one or more
FINRA members, none of whom are currently expected to participate in the sale pursuant
to the prospectus contained in the Registration Statement of Shares purchased by the
Investor in this Offering.
|
|
|
(2)
|
Represents
2,347,926 shares of common stock issuable pursuant to the terms of the convertible notes
without regard to the “maximum percentage” as defined in the notes. Also
includes 3,187,231 shares of common stock issuable upon exercise of the warrants also
without regard to any maximum percentage limitations. Also includes 300,000 shares of
common stock issuable upon exercise of warrants owned by the holder prior to the November
2015 private placement.
|
|
|
(3)
|
Mitchell
P. Kopin (“Mr. Kopin”) and Daniel B. Asher (“Mr. Asher”), each
of whom is a manager of Intracoastal Capital LLC (“Intracoastal”), have shared
voting control and investment discretion over the securities herein that are held by
Intracoastal. As a result, each of Mr. Kopin and Mr. Asher may be deemed to have beneficial
ownership (as determined under Section 13(d) of the Exchange Act) of the securities reported
herein that are held by Intracoastal. Mr. Asher, who is a manger of Intracoastal, is
also a control person of a broker-dealer. As a result of such common control, Intracoastal
may be deemed to be an affiliate of a broker-dealer. Intracoastal acquired the common
stock being registered hereunder in the ordinary course of business, and at the time
of the acquisition of the notes and warrants described herein, Intracoastal did not have
any arrangements or understandings with respect to any person to distribute such securities.
|
|
|
(4)
|
Represents
458,801 shares of common stock issuable pursuant to the terms of the convertible notes
without regard to the “maximum percentage” as defined in the notes. Also
includes 609,756 shares of common stock issuable upon exercise of the warrants also without
regard to any maximum percentage limitations.
|
|
|
(5)
|
Empery
Asset Management LP, the authorized agent of Empery Asset Master Ltd (“EAM”),
has discretionary authority to vote and dispose of the shares held by EAM and may be
deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their
capacity as investment managers of Empery Asset Management LP, may also be deemed to
have investment discretion and voting power over the shares held by EAM. EAM, Mr. Hoe
and Mr. Lane each disclaim any beneficial ownership of these shares.
|
|
|
(6)
|
Represents
735,789 shares of common stock issuable pursuant to the terms of the convertible notes
without regard to the “maximum percentage” as defined in the notes. Also
includes 998,808 shares of common stock issuable upon exercise of the warrants and 61,481
shares of common stock issuable upon exercise of warrants issued in August 2015, in each
case without regard to any maximum percentage limitations.
|
|
|
(7)
|
Empery
Asset Management LP, the authorized agent of Empery Tax Efficient, LP (“ETE”),
has discretionary authority to vote and dispose of the shares held by ETE and may be
deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their
capacity as investment managers of Empery Asset Management LP, may also be deemed to
have investment discretion and voting power over the shares held by ETE. ETE, Mr. Hoe
and Mr. Lane each disclaim any beneficial ownership of these shares.
|
|
|
(8)
|
Represents
467,691 shares of common stock issuable pursuant to the terms of the convertible notes
without regard to the “maximum percentage” as defined in the notes. Also
includes 634,875 shares of common stock issuable upon exercise of the warrants, 584 shares
of common stock issuable upon exercise of warrants issued in October 2014, and 56,771
shares of common stock issuable upon exercise of warrants issued in August 2015, in each
case without regard to any maximum percentage limitations.
|
|
|
(9)
|
Empery
Asset Management LP, the authorized agent of Empery Tax Efficient II, LP (“ETE
II”), has discretionary authority to vote and dispose of the shares held by ETE
II and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan
Lane, in their capacity as investment managers of Empery Asset Management LP, may also
be deemed to have investment discretion and voting power over the shares held by ETE
II. ETE II, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares.
|
|
|
(10)
|
Represents
668,132 shares of common stock issuable pursuant to the terms of the convertible notes
without regard to the “maximum percentage” as defined in the notes. Also
includes 906,967 shares of common stock issuable upon exercise of the warrants, 5,530
shares of common stock issuable upon exercise of warrants issued in October 2014 and
81,748 shares of common stock issuable upon exercise of warrants issued in August 2015,
in each case without regard to any maximum percentage limitations.
|
|
|
(11)
|
Robin
R. Shaw has voting and/or investment power over such shares of stock.
|
|
|
(12)
|
Represents
1,911,670 shares of common stock issuable pursuant to the terms of the convertible notes
without regard to the “maximum percentage” as defined in the notes. Also
includes 2,540,650 shares of common stock issuable upon exercise of the warrants also
without regard to any maximum percentage limitations.
|
|
|
(13)
|
Hudson
Bay Capital Management LP, the investment manager of Hudson Bay Master Fund Ltd., has
voting and investment power over these securities. Sander Gerber is the managing member
of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management
LP. Sander Gerber disclaims beneficial ownership over these securities.
|
|
|
(14)
|
Represents
1,911,670 shares of common stock issuable pursuant to the terms of the convertible notes
without regard to the “maximum percentage” as defined in the notes. Also
includes 2,540,650 shares of common stock issuable upon exercise of the warrants also
without regard to any maximum percentage limitations.
|
|
|
(15)
|
On
November 5, 2015, we entered into a registration rights agreement with the selling stockholders
listed in this table. See the section of this prospectus entitled “
DESCRIPTION
OF PRIVATE PLACEMENT AND CONVERTIBLE NOTES
.” Under the registration rights
agreement, we are required to file a resale registration statement for the shares underlying
the convertible notes and warrants to enable the resale of such shares by the selling
stockholders on a delayed or continuous basis under Rule 415 of the Securities Act. Pursuant
to the terms of the convertible notes, we may make interest and/or installment payments
with shares of our common stock, and we are including in this registration statement
2.00 times the number of shares issuable pursuant to the terms of the convertible notes
and 1.25 times the number of shares issuable upon the exercise of the warrants as of
the date of the registration rights agreement. Accordingly, the full number of shares
set forth in this column may not ultimately become issuable to the selling stockholders
under such convertible notes and warrants.
|
PLAN
OF DISTRIBUTION
We are registering
the shares of common stock issuable upon conversion of the notes and exercise of the warrants to permit the resale of these shares
of common stock by the holders of the notes and warrants from time to time after the date of this prospectus. We will not receive
any of the proceeds from the sale by the selling stockholders of the shares of common stock; although we will receive the exercise
price of any Warrants not exercised by the selling stockholders on a cashless exercise basis. We will bear all fees and expenses
incident to our obligation to register the shares of common stock.
The selling stockholders
may sell all or a portion of the shares of common stock held by them and offered hereby from time to time directly or through
one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers,
the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares
of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale,
at varying prices determined at the time of sale or at negotiated prices. These sales may be effected in transactions, which may
involve crosses or block transactions, pursuant to one or more of the following methods:
·
on
any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
·
in
the over-the-counter market;
·
in
transactions otherwise than on these exchanges or systems or in the over-the-counter market;
·
through
the writing or settlement of options, whether such options are listed on an options exchange or otherwise;
·
ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
·
block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
·
purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
·
an
exchange distribution in accordance with the rules of the applicable exchange;
·
privately
negotiated transactions;
·
short
sales made after the date the Registration Statement is declared effective by the SEC;
·
broker-dealers
may agree with a selling security holder to sell a specified number of such shares at
a stipulated price per share;
·
a
combination of any such methods of sale; and
·
any
other method permitted pursuant to applicable law.
The selling stockholders
may also sell shares of common stock under Rule 144 promulgated under the Securities Act of 1933, as amended, if available, rather
than under this prospectus. In addition, the selling stockholders may transfer the shares of common stock by other means not described
in this prospectus. If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters,
broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions
or commissions from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers
or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of
common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders
may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions
and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of
common stock to broker-dealers that in turn may sell such shares.
The selling stockholders
may pledge or grant a security interest in some or all of the notes, warrants or shares of common stock owned by them and, if
they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of
common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act amending, if necessary, the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate
the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this prospectus.
To the extent required
by the Securities Act and the rules and regulations thereunder, the selling stockholders and any broker-dealer participating in
the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities
Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a
prospectus supplement, if required, will be distributed, which will set forth the aggregate amount of shares of common stock being
offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed
or re-allowed or paid to broker-dealers.
Under the securities
laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers.
In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is available and is complied with.
There can be no
assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration
statement, of which this prospectus forms a part.
The selling stockholders
and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation
M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders
and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged
in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock.
All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage
in market-making activities with respect to the shares of common stock.
We will pay all
expenses of the registration of the shares of common stock pursuant to the registration rights agreement, estimated to be $50,000
in total, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state
securities or “blue sky” laws; provided, however, a selling stockholder will pay all underwriting discounts and selling
commissions, if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities
Act in accordance with the registration rights agreements or the selling stockholders will be entitled to contribution. We may
be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act that may
arise from any written information furnished to us by the selling stockholder specifically for use in this prospectus, in accordance
with the related registration rights agreements or we may be entitled to contribution.
Once sold under the registration statement,
of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other
than
our affiliates.
DESCRIPTION
OF SECURITIES
General
Our amended and restated certificate
of incorporation authorizes the issuance of 100,000,000 shares of common stock and 12,500,000 shares of preferred stock. As of
November 19, 2015, we had 3,948,728 common shares issued and outstanding. Outstanding warrants and vested options entitle the
holders to purchase 642,673 additional shares of common stock. We effected a 1:50 reverse split and a decrease in our authorized
common stock to 100 million shares on September 8, 2014. We effected a 1:35 reverse split of our common stock on July 14, 2015.
Within the limits established by our
amended and restated certificate of incorporation, our board of directors has the power at any time and without stockholder approval
to issue shares of our authorized common stock or preferred stock for cash, to acquire property or for any other purpose that
the board of directors believes is in the best interests of us. Our stockholders have no pre-emptive rights and any decision to
issue additional shares of common stock or preferred stock will reduce the percentage ownership of our current stockholders and
could dilute our net tangible book value.
Our board of directors has the power
to establish the designation, rights and preferences of any preferred stock we issue in the future. Accordingly, our board of
directors may, without stockholder approval, issue preferred stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the voting power or other rights of the holders of common stock. Subject to the directors’ duty
to act in our best interest, shares of preferred stock can be issued quickly with terms calculated to delay or prevent a change
in control or make removal of management more difficult.
The following summary
of our capital stock does not purport to be complete and is subject to and qualified in its entirety by our amended and restated
certificate of incorporation and our by-laws, each of which are included as exhibits to the registration statement of which this
prospectus forms a part and by the provisions of applicable law.
Common Stock
Our common stockholders are entitled
to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect
to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors
can elect the entire board of directors. The holders of common stock are entitled to receive dividends when, as and if declared
by our board of directors out of funds legally available. In the event of our liquidation, dissolution or winding up, our common
stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having preference over the common stock. The holders of common
stock have no preemptive or other subscription rights and there are no redemption provisions applicable to the common stock. All
of our outstanding shares of common stock are fully paid and non-assessable. On July 18, 2014, we amended our Bylaws to allow
shares of our stock to be issued by issuance of uncertificated book entry shares.
Warrants Issued in this Offering
See description of the warrants issued
in “DESCRIPTION OF PRIVATE PLACEMENT AND CONVERTIBLE NOTES” on p. 40 of this prospectus.
Placement Agent’s Warrants
We have agreed
to grant to Maxim Group LLC, the representative of the underwriters, warrants to purchase 1,097,561 shares of our common stock,
which warrants have identical terms to the warrants issued to the selling stockholders in this prospectus.
Other Warrants
As of September 30, 2015, we had 614,636
outstanding warrants that represent potential future cash proceeds to us of $7,859,894. The warrants are divided into four classes
that are presently exercisable and expire at various times through August 6, 2020. The following table summarizes the number of
warrants in each class, the anticipated proceeds from the exercise of each class, and the expiration date of each class.
|
Warrant
|
|
Number of
|
|
|
Exercise
|
|
|
Anticipated
|
|
|
|
|
Series
|
|
Warrants
|
|
|
Price
|
|
|
Proceeds
|
|
|
Expiration Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Subordinated Convertible Notes
|
|
|
1,099
|
|
|
|
528.50
|
|
|
|
579,877
|
|
|
May 7, 2018
|
|
2013 Placement Agent
|
|
|
905
|
|
|
|
528.5
|
|
|
|
477,023
|
|
|
May 7, 2018 - December 8, 2018
|
|
2014 Placement Agent
|
|
|
657
|
|
|
|
528.5
|
|
|
|
346,545
|
|
|
March 4, 2019 – July 8, 2019
|
|
2014 Investor
|
|
|
2,765
|
|
|
|
35.00
|
|
|
|
96,775
|
|
|
December 11, 2019
|
|
2014 Series A
|
|
|
61,608
|
|
|
|
17.50
|
|
|
|
1,078,140
|
|
|
October 24, 2019
|
|
2014 Series B
|
|
|
34,521
|
|
|
|
113.75
|
|
|
|
3,926,764
|
|
|
October 24, 2019
|
|
2015 Placement Agent
|
|
|
3,081
|
|
|
|
149.1
|
|
|
|
459,377
|
|
|
October 24, 2019
|
|
2015 Bridge Loan
|
|
|
510,000
|
|
|
|
1.75
|
|
|
|
892,500
|
|
|
August 6, 2020
|
|
TOTAL
|
|
|
614,636
|
|
|
|
|
|
|
$
|
7,859,894
|
|
|
|
The holders of warrants are not required
to exercise their rights at any time prior to the expiration date and we are unable to predict the amount and timing of any future
warrant exercises. We reserve the right to temporarily reduce the exercise prices of our warrants from time to time in order to
encourage the early exercise of the warrants.
Stock Options
As of September 30, 2015, we had 15,252
outstanding stock options that represent potential future cash proceeds to us of $4,400,461. The outstanding options include 10,038
options that are currently vested and exercisable and 5,214 that will vest and become exercisable over the next three years. These
options represent potential future cash proceeds to us of $4,214,161 and $186,300 respectively.
|
|
|
Vested Option Grants
|
|
|
Unvested Option Grants
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Proceeds
|
|
|
Shares
|
|
|
Price
|
|
|
Proceeds
|
|
|
Employee & officer plan options
|
|
|
9,333
|
|
|
$
|
401.25
|
|
|
$
|
3,744,897
|
|
|
|
20
|
|
|
$
|
225.50
|
|
|
$
|
4,510
|
|
|
Directors plan options
|
|
|
705
|
|
|
|
662.82
|
|
|
|
469,264
|
|
|
|
5,194
|
|
|
|
35.00
|
|
|
|
181,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,038
|
|
|
$
|
419.82
|
|
|
$
|
4,214,161
|
|
|
|
5,214
|
|
|
$
|
35.73
|
|
|
$
|
186,300
|
|
The holders of options are not required
to exercise their rights at any time and we are unable to predict the amount and timing of any future option exercises. We reserve
the right to temporarily reduce the exercise prices of our options from time to time in order to encourage the early exercise
of the options.
Delaware Anti-takeover Statute
We are subject to the provisions of
section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, those provisions prohibit a Delaware
corporation from engaging in any business combination with any interested stockholder for a period of three years following the
date that the stockholder became an interested stockholder, unless:
|
|
·
|
the transaction is approved by the board of directors before the date the interested stockholder attained that status;
|
|
|
·
|
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or
|
|
|
·
|
on or after the date the business combination is approved by the board of directors and authorized at a meeting of stockholders by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
|
|
Section 203 defines “business combination” to include the following:
|
|
|
·
|
any merger or consolidation involving the corporation and the interested stockholder;
|
|
|
·
|
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
|
|
|
·
|
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
|
|
|
·
|
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
|
|
|
·
|
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
|
In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with or controlling or controlled by any of these entities or persons.
A Delaware corporation may opt out of
this provision either with an express provision in its certificate of incorporation or bylaws approved by its stockholders. However,
we have not opted out, and do not currently intend to opt out, of this provision. The statute could prohibit or delay mergers
or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
Certificate of Incorporation and
By-laws
Our amended and restated certificate of
incorporation and by-laws include provisions that may have the effect of delaying or preventing a change of control or changes
in our management. These provisions include:
|
|
·
|
the division of our board of directors into three classes of directors that serve for rotating three-year terms;
|
|
|
·
|
the right of the board of directors to elect a director to fill a vacancy created by the resignation of a director or the expansion of the board of directors;
|
|
|
·
|
the prohibition of cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
|
|
|
·
|
the requirement for advance notice for nominations of candidates for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;
|
|
|
·
|
the ability of the board of directors to issue, without stockholder approval, up to 12,355,000 shares of preferred stock with terms set by the board of directors, which rights could be senior to those of common stock; and
|
|
|
·
|
the right of our board of directors to alter our bylaws without stockholder approval.
|
Transfer Agent
Our transfer agent is Continental Stock
Transfer & Trust, 17 Battery Place, New York, New York 10004.
LEGAL
MATTERS
The legality of the shares of common
stock offered by this prospectus will be passed upon for us by Jolie Kahn, Esq. of Philadelphia, PA.
EXPERTS
The financial statements as of December
31, 2014 and 2013 incorporated by reference in this prospectus have been so included in reliance on the reports of Mayer Hoffman
McCann P.C., an independent registered public accounting firm, and EFP Rotenberg, LLP, an independent registered public accounting
firm, given on the authority of said firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We have filed a registration statement
on Form S-1 with the Securities and Exchange Commission with respect to this offering. This prospectus, which is part of the registration
statement, does not include all of the information contained in the registration statement. You should refer to the registration
statement and its exhibits and schedules for additional information. Whenever we make reference in this prospectus to any of our
contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits and
schedules attached to the registration statement for copies of the actual contract, agreement or other document.
We also file annual,
quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission under the Exchange
Act. You may read and copy any materials that we may file without charge at the Securities and Exchange Commission’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may call the Securities and Exchange Commission at 1-800-Securities
and Exchange Commission-0330 for further information on the operation of the Public Reference Room. You may obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the Securities and Exchange Commission at 100 F Street,
N.E., Washington, D.C. 20549. The Securities and Exchange Commission also maintains an Internet site, http://www.sec.gov, which
contains reports, proxy and information statements and other information regarding issuers that file electronically with the Securities
and Exchange Commission. The other information we file with the Securities and Exchange Commission is not part of the registration
statement of which this prospectus forms a part.
31,647,293 Shares of Common Stock
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
We estimate that our expenses in connection
with this offering, other than underwriting discounts and commissions, will be as follows:
|
Securities and Exchange Commission registration fee
|
|
$
|
4,664
|
|
|
Printing and engraving expenses
|
|
$
|
-
|
|
|
Legal fees and expenses
|
|
$
|
30,000
|
|
|
Accountant fees and expenses
|
|
$
|
7,500
|
|
|
Total
|
|
$
|
42,164
|
|
Item 14. Indemnification of Directors
and Officers
Section 102 of the Delaware General
Corporation Law allows a corporation to eliminate the personal liability of a director to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except where the director breached his or her duty of loyalty
to the corporation or its stockholders, failed to act in good faith, engaged in intentional misconduct or knowingly violated a
law, authorized the payment of a dividend or approved a stock purchase or redemption in violation of the Delaware General Corporation
Law or obtained an improper personal benefit.
Our amended and restated certificate
of incorporation specifically limits each director’s personal liability, as permitted by Section 102 of the Delaware General
Corporation Law, and provides that if the Delaware General Corporation Law is hereafter amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall
be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended.
Section 145 of the Delaware General
Corporation Law provides, among other things, that a corporation may indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses, liabilities, or other matters referred to in or covered
by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any by-law, agreement, vote of stockholders or disinterested directors of otherwise both as
to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person. Our amended and restated certificate of incorporation provides for indemnification of our directors,
officers, employees and agents to the fullest extent permitted by the Delaware General Corporation Law.
Item 15. Recent Sales of Unregistered
Securities
Since January 1, 2011, Axion has issued
and sold the following securities in transactions exempt from registration under Section 4(2) of the Securities Act of 1933:
On May 8, 2013, we sold convertible
notes and warrants issued in conjunction with the May 2013 convertible notes for an aggregate principal amount of $9.0 million
and subordinated convertible notes and warrants issued in conjunction with the May 2013 subordinated convertible notes for an
aggregate principal amount of $1.0 million, as described in our audited financial statements for the year ended December 31, 2013.
On November 5, 2015, we sold $9.0 million
aggregate principal amount of convertible notes and warrants as described in
“DESCRIPTION OF PRIVATE PLACEMENT AND CONVERTIBLE
NOTES”
on p. 40 of this prospectus.
All of the above
equity transactions were made in reliance on Section 4(a)(2) of the Securities Act and/or Regulation D promulgated under the Securities
Act.
Item 16. Exhibits and Financial Statement
Schedules
|
2.1
|
Reorganization Agreement (without exhibits) between
Tamboril Cigar Company, Axion Power Corporation and certain stockholders of Axion Power Corporation dated December 31, 2003.
|
(1)
|
|
2.2
|
First Addendum to the Reorganization Agreement between Tamboril
Cigar Company, Axion Power Corporation and certain stockholders of Axion Power Corporation dated January 9, 2004.
|
(1)
|
|
3.1
|
Amended and Restated Certificate of Incorporation of Tamboril Cigar
Company dated February 13, 2001.
|
(2)
|
|
3.3
|
Amendment to the Certificate of Incorporation of Tamboril Cigar
Company dated June 4, 2004.
|
(3)
|
|
3.4
|
Amendment to the Certificate of Incorporation of Axion Power International,
Inc. dated June 4, 2004.
|
(3)
|
|
3.5
|
Amended By-laws of Axion Power International, Inc. dated June 4,
2004.
(3)
|
|
|
3.6
|
Certificate of Amendment to the Certificate of Incorporation of
Axion Power International, Inc., dated June 14, 2010.
|
(25)
|
|
3.7
|
Certificate
of Amendment to the Certificate of Incorporation of Axion Power International, Inc., dated
July 22, 2011.
|
(9)
|
|
4.1
|
Specimen Certificate for shares of Company’s $0.00001 par
value common stock.
|
|
|
4.2
|
Trust Agreement for the Benefit of the Shareholders of Mega-C Power
Corporation dated December 31, 2003.
|
(1)
|
|
4.3
|
Succession Agreement Pursuant to the Provisions of the Trust Agreement
for the Benefit of the Shareholders of Mega-C Power Corporation dated March 25, 2004.
|
(4)
|
|
4.4
|
Form of Warrant Agreement for 1,796,300 capital warrants.
|
(9)
|
|
4.5
|
Form of Warrant Agreement for 667,000 Series
I investor warrants.
|
(9)
|
|
4.6
|
Form of Warrant Agreement for 350,000 Series
II investor warrants.
|
(9)
|
|
4.7
|
Form of Warrant Agreement for 313,100 Series
III investor warrants.
|
(9)
|
|
4.8
|
Form of 8% Cumulative Convertible Senior
Preferred Stock Certificate
|
(D)
|
|
4.9
|
First Amended and Restated Trust Agreement for the Benefit of the
Shareholders of Mega-C Power Corporation dated February 28, 2005.
|
(11)
|
|
4.10
|
Second Amendment and Restated Trust Agreement for the Benefit of
the Shareholders of Mega-C Power Corporation dated November 21, 2006.
|
(19)
|
|
4.11
|
Certificate of Powers, Designations, Preferences and Rights of
the 8% Convertible Senior Preferred Stock of Axion Power International, Inc. dated March 17, 2005.
|
(12)
|
|
4.12
|
Certificate of Powers, Designations, Preferences and Rights of
the Series-A Convertible Preferred Stock, Par Value $0.005 Per Share, of Axion Power International, Inc. dated October 23,
2006.
|
(13)
|
|
4.13
|
Amended Certificate of Powers, Designations, Preferences and Rights
of the Series-A Convertible Preferred Stock, Par Value $0.005 Per Share, of Axion Power International, Inc. dated October
26, 2006.
|
(13)
|
|
4.14
|
Certificate of Amendment to the Certificate of Powers,
Designations, Preferences and Rights of the Series-A Convertible Preferred Stock, Par Value $.005 Per Share, of Axion Power
International, Inc. dated February 24, 2010.
|
|
|
4.15
|
Form of Warrants
|
(40)
|
|
4.16
|
Form of Underwriters Warrant
|
(39)
|
|
4.17
|
Form of Senior Indenture
|
(43)
|
|
4.18
|
Form of Subordinated Indenture
|
(43)
|
|
5.1
|
Opinion as to the Legality of Shares of Jolie Kahn, Esq.
|
|
|
10.1
|
Development and License Agreement between Axion Power
Corporation and C and T Co. Incorporated dated November 15, 2003.
|
(1)
|
|
10.2
|
Letter Amendment to Development and License Agreement between Axion
Power Corporation and C and T Co. Incorporated dated November 17, 2003.
|
(1)
|
|
10.3
|
Tamboril Cigar Co. Incentive Stock Plan dated January 8, 2004.
|
(A)
|
|
10.4
|
Tamboril Cigar co. Outside Directors Stock Option Plan dated February
2, 2004.
|
(A)
|
|
10.5
|
Stock Purchase & Investment Representation Letter among John
L. Petersen, Sally A. Fonner and C and T Co. Incorporated dated January 9, 2004.
|
(1)
|
|
10.6
|
Letter Amendment to Development and License Agreement between Axion
Power Corporation and C and T Co. Incorporated dated January 9, 2004.
|
(1)
|
|
10.7
|
First Amendment to Development and License
Agreement between Axion Power Corporation and C and T Co. Incorporated dated as of January 9, 2004.
|
(5)
|
|
10.8
|
Definitive Incentive Stock Plan of Axion Power International, Inc.
dated June 4, 2004.
|
(3)
|
|
10.9
|
Definitive Outside Directors’ Stock Option Plan of Axion
Power International, Inc. dated June 4, 2004.
|
(3)
|
|
10.10
|
Executive Employment Agreement of Charles Mazzacato.
|
(9)
|
|
10.11
|
Executive Employment Agreement of Peter Roston.
|
(9)
|
|
10.12
|
Amended Retainer Agreement between the law firm of Fefer, Petersen
& Cie dated March 31, 2005.
|
(C)
|
|
10.13
|
Retainer Agreement between the law firm of Fefer, Petersen &
Cie and Tamboril Cigar Company dated January 2, 2004.
|
(10)
|
|
10.14
|
Bankruptcy Settlement Agreement Between Axion Power International,
Inc. and Mega-C Power Corporation dated December, 2005.
|
(E)
|
|
10.15
|
Second Amendment to Development and License Agreement between Axion
Power International, Inc. and C and T Co. Incorporated dated as of March 18, 2005.
|
(12)
|
|
10.16
|
Executive Employment Agreement of Thomas Granville dated June 23,
2008.
|
(20)
|
|
10.17
|
Loan agreement between Axion Battery Products, Inc.
as borrower, Axion Power International, Inc. as accommodation party and Robert Averill as lender respecting a $1,000,000 purchase
money and working capital loan dated January 31, 2006.
|
(14)
|
|
10.18
|
Security agreement between Axion Battery Products, Inc. as debtor
and Robert Averill as secured party dated January 31, 2006.
|
(14)
|
|
10.19
|
Security agreement between Axion Power International, Inc. as debtor
and Robert Averill as secured party dated January 31, 2006.
|
(14)
|
|
10.20
|
Promissory Note between Axion Battery Products, Inc. as maker and
Robert Averill as payee dated February 14, 2006.
|
(14)
|
|
10.21
|
Form of Warrant Agreement between Axion Power International, Inc.
and Robert Averill.
|
(14)
|
|
10.22
|
Commercial Lease Agreement between Axion Battery Products, Inc.
as lessee and Steven F. Hoye and Steven C. Warner as lessors dated February 14, 2006.
|
(14)
|
|
10.23
|
Asset Purchase Agreement dated between Axion Battery Products,
Inc. as buyer and National City Bank of Pennsylvania as seller February 10, 2006.
|
(14)
|
|
10.24
|
Escrow Agreement between Axion Battery Products, Inc. and National
City Bank of Pennsylvania as parties in interest and William E. Kelleher, Jr. and James D. Newell as escrow agents dated February
14, 2006.
|
(14)
|
|
10.25
|
Executive Employment Agreement of Edward Buiel dated
June 23, 2008.
|
(21)
|
|
10.26
|
Consulting Agreement, by and between Axion Power International,
Inc. and Andrew Carr Conway, Jr. dated as of September 27, 2007.
|
(16)
|
|
10.27
|
Amendment No. 1 to Consulting Agreement by and between Axion Power
International, Inc. and Andrew Carr Conway, Jr. dated as of October 31, 2007.
|
(16)
|
|
10.28
|
Securities Purchase Agreement by and between Axion Power International,
Inc. and Quercus Trust dated as of January 14, 2008.
|
(17)
|
|
10.29
|
Common Stock Purchase Warrant executed by Axion Power International,
Inc. dated January 14, 2008.
|
(17)
|
|
10.30
|
Executive Employment Agreement of Donald T. Hillier dated June
18, 2008.
|
(19)
|
|
10.31
|
Amendment to Warrants and Securities Purchase Agreement by and
between Axion Power International, Inc. and Quercus Trust dated as of September 22, 2009.
|
(22)
|
|
10.32
|
Securities Purchase Agreement by and between Axion Power International,
Inc. and the Investors named therein dated as of December 18, 2009.
|
(23)
|
|
10.33
|
Registration Rights Agreement, executed by Axion Power International
Inc. and the Investors named therein.
|
(23)
|
|
10.34
|
Amendment No. 2 to Securities Purchase by and between Axion Power
International, Inc. and Quercus Trust Agreement dated as of January 14, 2008.
|
(23)
|
|
10.35
|
Lock-Up Agreement executed by Quercus Trust and David Gelbaum and
Monica Chavez Gelbaum.
|
(23)
|
|
10.36
|
Lease Agreement by and between Steven F. Hoye and Steven C. Warner,
Lessor, and Axion Power Battery Manufacturing, Inc., Lessee dated March 28, 2010.
|
(6)
|
|
10.37
|
Executive Employment Agreement of Charles R. Trego dated April
1, 2010.
|
(24)
|
|
10.38
|
Executive Employment Agreement of Phillip S. Baker dated April
1, 2010.
|
(24)
|
|
10.39
|
Executive Employment Agreement of Thomas Granville dated June 29,
2010.
|
(26)
|
|
10.40
|
Amendment No. 3 to Securities Purchase Agreement by and between
Axion Power International, Inc. and the Quercus Trust dated September 30, 2010.
|
(27)
|
|
10.41
|
Intentionally omitted.
|
|
|
10.42
|
Form of Subscription Agreement
|
(31)
|
|
10.43
|
Placement Agency Agreement, dated January 31, 2012
|
(31)
|
|
10.44
|
Securities Purchase Agreement, dated November 4, 2015, between
Axion Power International, Inc. and the Investors
|
(32)
|
|
10.45
|
Form of Note
|
(32)
|
|
10.46
|
Form of Warrant
|
(32)
|
|
10.47
|
Registration Rights Agreement, dated May 8, 2013, between Axion
Power International, Inc. and the Investors
|
(32)
|
|
10.48
|
Subordinated Note Purchase Agreement, dated November 4, 2015, between
Axion Power International, Inc. and the Subordinated Investors
|
(32)
|
|
10.49
|
Form of Subordinated Note
|
(32)
|
|
10.50
|
Form of Subordinated Note Warrant
|
(32)
|
|
10.51
|
Subordination Agreement, dated May 8, 2013, by and among Axion
Power International, Inc., the Investors and the Subordinated Investors
|
(32)
|
|
10.52
|
Executive Employment Agreement of Thomas Granville, effective April
1, 2013
|
(33)
|
|
10.53
|
Executive Employment Agreement of Charles Trego, effective April
1, 2013
|
(33)
|
|
10.54
|
Executive Employment Agreement of Phillip Baker, effective April
1, 2013
|
(33)
|
|
10.55
|
Executive Employment Agreement of Vani Dantam, effective April
1, 2013
|
(33)
|
|
10.56
|
Executive Employment Agreement of Stephen Graham, effective October
21, 2013
|
(34)
|
|
10.57
|
Form of Senior Note Amendment
|
(35)
|
|
10.58
|
Executive Employment Agreement of David DiGiacinto, effective July
1, 2014
|
(36)
|
|
10.59
|
Executive Employment Agreement of Thomas Granville, effective July
1, 2014
|
(36)
|
|
10.60
|
Consulting Agreement of Charles Trego, effective July 1, 2014
|
(36)
|
|
10.61
|
Amended Note, dated as of June 30, 2014
|
(37)
|
|
10.62
|
Security Agreement, dated as of June 30, 2014
|
(37)
|
|
10.63
|
Form of Warrant Exchange Agreement, dated as of August 1, 2014
|
(38)
|
|
10.64
|
Executive Employment Agreement of Charles Trego effective November
1, 2014
|
(42)
|
|
10.65
|
Salary Deferral Agreements, effective October 1, 2014
and November 1, 2014, respectively
|
(42)
|
|
10.66
|
Form of Settlement and Release Agreement
|
(45)
|
|
10.67
|
Form of Amendment to Warrant Agreement
|
(46)
|
|
10.68
|
Form of Amended and Restated Warrant Agreement
|
(47)
|
|
10.69
|
Letter of Intent, dated June 13, 2015
|
(48)
|
|
10.70
|
Form of Securities Purchase Agreement dated August 6, 2015
|
(49)
|
|
10.71
|
Form of Note
|
(49)
|
|
10.72
|
Form of Warrant
|
(49)
|
|
10.73
|
Amendment to Securities Purchase Agreement
|
(50)
|
|
10.74
|
Securities Purchase Agreement dated November 4, 2015
|
|
|
10.75
|
Form of Note
|
(51)
|
|
10.76
|
Form of Warrant
|
(51)
|
|
10.77
|
Registration Rights Agreement, dated November 5, 2015
|
|
|
14.1
|
Code of Business Conduct and Ethics
|
(6)
|
|
23.1
|
Consent of Jolie Kahn, Esq. (included in Exhibit 5.1)
|
|
|
23.2
|
Consent of Mayer Hoffman & McCann, P.C.
|
|
|
23.3
|
Consent of EFP Rotenberg, LLP
|
|
|
(1)
|
Incorporated by reference from our Current Report on
Form 8-K dated January 15, 2004.
|
|
(2)
|
Incorporated by reference from our Current Report on Form 8-K dated
February 5, 2003.
|
|
(3)
|
Incorporated by reference from our Current Report on Form 8-K dated June 7, 2004.
|
|
(4)
|
Incorporated by reference from our Current Report on Form 8-K dated April 13, 2004.
|
|
(5)
|
Incorporated by reference from our Form S-3 registration statement dated May 20, 2004.
|
|
(6)
|
Incorporated by reference from our Annual Report on Form 10-KSB dated March 30, 2004
|
|
(7)
|
Incorporated by reference from our Current Report on Form 8-K dated April 13, 2003.
|
|
(8)
|
Incorporated by reference from our Current Report on Form 8-K dated February 16, 2004.
|
|
(9)
|
Incorporated by reference from our Form S-1 registration statement dated September 2, 2004.
|
|
(10)
|
Incorporated by reference from our Form S-1 registration statement dated December 17, 2004.
|
|
(11)
|
Incorporated by reference from our Current Report on Form 8-K dated February 28, 2005.
|
|
(12)
|
Incorporated by reference from our Current Report on Form 8-K dated March 21, 2005.
|
|
(13)
|
Incorporated by reference from our Current Report on Form 8-K dated November 8, 2006.
|
|
(14)
|
Incorporated by reference from our Current Report on Form 8-K dated February 16, 2006.
|
|
(15)
|
Incorporated by reference from our Current Report on Form 8-K dated January 3, 2007.
|
|
(16)
|
Incorporated by reference from our Current Report on Form 8-K dated November 6, 2007.
|
|
(17)
|
Incorporated by reference from our Current Report on Form 8-K dated January 17, 2008.
|
|
(18)
|
Incorporated by reference from our Current Report on Form 8-K dated January 31, 2008.
|
|
(19)
|
Incorporated by reference from our Registration Statement on Form S-1 dated July 3, 2008.
|
|
(20)
|
Incorporated by reference from our Current Report on Form 8-K dated June 27, 2008.
|
|
(21)
|
Incorporated by reference from our Current Report on Form 8-K dated July 2, 2008.
|
|
(22)
|
Incorporated by reference from our Current Report on Form 8-K dated September
22, 2009.
|
|
(23)
|
Incorporated by reference from our Current Report on Form 8-K dated December 18, 2009.
|
|
(24)
|
Incorporated by reference from our Form 10-K for the year ended December 31, 2009 filed on
March 30, 2010
|
|
(25)
|
Intentionally omitted.
|
|
(26)
|
Incorporated by reference from our Current Report on Form 8-K, filed on April 6, 2010.
|
|
(27)
|
Incorporated by reference from our Current Report on Form 8-K dated July 6, 2010.
|
|
(28)
|
Incorporated by reference from our Current Report on Form 8-K dated October 4, 2010.
|
|
(29)
|
Incorporated by reference from our Current Report on Form 8-K dated November 10, 2010.
|
|
(30)
|
Incorporated by reference from our Current Report on Form 8-K dated July 22, 2011.
|
|
(31)
|
Incorporated by reference from our Current Report on Form 8-K dated January 31, 2012.
|
|
(32)
|
Incorporated by reference from our Current Report on Form 8-K dated May 8, 2013
|
|
(33)
|
Incorporated by reference from our Quarterly Report on Form 10-Q dated May 15, 2013
|
|
(34)
|
Incorporated by reference from our Current Report on Form 8-K, dated October 15, 2013
|
|
(35)
|
Incorporated by reference from our Current Report on Form 8-K dated January 3, 2014.
|
|
(36)
|
Incorporated by reference from our Current Report on Form 8-K dated July 8, 2014.
|
|
(37)
|
Incorporated by reference from our Current Report on Form 8-K dated July 31, 2014.
|
|
(38)
|
Incorporated by reference from our Current Report on Form 8-K dated August
4, 2014.
|
|
(39)
|
Incorporated by reference from our Registration Statement on Form S-1/A dated September 15,
2014.
|
|
(40)
|
Incorporated by reference from our Amendment No. 3 to Form S-1, dated October 22, 2014.
|
|
(41)
|
Incorporated by reference from our Current Report on Form 8-K filed on September 8, 2014.
|
|
(42)
|
Incorporated by reference from our Current Report on Form 8-K filed on November 10, 2014.
|
|
(43)
|
Incorporated by reference from our Registration Statement on Form S-3 filed on June 3, 2011.
|
|
(44)
|
Incorporated by reference from our Current Report on Form 8-K filed on December 11, 2014.
|
|
(45)
|
Incorporated by reference from our Current Report on Form 8-K filed on December 15, 2014.
|
|
(46)
|
Incorporated by reference from our Current Report on Form 8-K filed on May 14, 2015.
|
|
(47)
|
Incorporated by reference from our Current Report on Form 8-K filed on June 17, 2015.
|
|
(48)
|
Incorporated by reference from our Current Report on Form 8-K filed on June 18, 2015.
|
|
(49)
|
Incorporated by reference from our Current Report on Form 8-K filed on August 7, 2015.
|
|
(50)
|
Incorporated by reference from our Current Report on Form 8-K filed on August 11, 2015.
|
|
(51)
|
Incorporation by reference from our Current Report on Form 8-K filed on November 5, 2015.
|
|
(A)
|
Incorporated by reference from our Current Report on Form 8-K/A dated February 2, 2004.
|
|
(B)
|
Incorporated by reference from our Current Report on Form 8-K dated April 4, 2005.
|
|
(C)
|
Incorporated by reference from our Registration Statement on Form SB-2 dated April 16, 2005.
|
|
(D)
|
Incorporated by reference from our Current Report on Form 8-K dated December 13, 2005.
|
|
31.1
|
Certification of Chief Executive Officer Pursuant
to Rule 13a-14(a)
|
|
32.2
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
|
|
32.1
|
Statement of Principal Executive Officer Pursuant to Section
1350 of Title 18 of the United States Code.
|
|
32.2
|
Statement of Principal Financial Officer Pursuant
to Section 1350 of Title 18 of the United States Code.
|
Item 17. Undertakings
The undersigned registrant hereby undertakes:
|
1.
|
To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
|
|
|
i.
|
To include any prospectus required by section 10(a)(3) of the Securities Act;
|
|
|
ii.
|
To reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the effective registration statement.
|
|
|
|
|
|
|
iii.
|
To include any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such information in the registration statement.
|
|
2.
|
That, for the purpose of determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
|
|
|
|
2.
|
That, for the purpose of determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
|
3.
|
To remove from registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
|
|
4.
|
That, for the purpose of determining liability under the Securities Act to any purchaser:
|
|
|
i.
|
If the registrant is relying on Rule 430B (Section 430B of this chapter):
|
|
|
A.
|
Each prospectus filed by the registrant pursuant to Rule 424(b)(3)shall be deemed to be part
of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement;
and
|
|
|
B.
|
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part
of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or
(x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part
of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness
or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B,
for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a
new effective date of the registration statement relating to the securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or prospectus that is part of the registration statement or made
in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part
of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede
or modify any statement that was made in the registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such effective date; or
|
|
|
ii.
|
If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as
part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other
than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first
use.
|
|
5.
|
That, for the purpose of determining liability of the registrant under the Securities Act to
any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering
of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method
used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:
|
|
|
i.
|
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering
required to be filed pursuant to Rule 424;
|
|
|
ii.
|
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned
registrant or used or referred to by the undersigned registrant;
|
|
|
iii.
|
The portion of any other free writing prospectus relating to the offering containing material
information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
|
|
|
iv.
|
Any other communication that is an offer in the offering made by the undersigned registrant
to the purchaser.
|
|
6.
|
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication
of such issue.
|
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1933, the registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in New Castle, Pennsylvania, on the 20
th
day of November,
2015.
AXION POWER INTERNATIONAL, INC.
|
|
AXION POWER INTERNATIONAL,
INC.
|
|
|
|
|
|
By:
|
/s/
Donald Farley
|
|
|
|
Donald Farley, Principal Executive Officer and Director
|
|
|
|
|
|
|
Dated: November 20, 2015
|
|
|
AXION POWER INTERNATIONAL,
INC.
|
|
|
|
|
|
By:
|
/s/
Danielle Baker
|
|
|
|
Danielle Baker, Principal Financial Officer and Principal Accounting
Officer
|
|
|
|
|
|
|
Dated: November 20, 2015
|
In accordance with
the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Donald
Farley
|
|
|
|
|
|
Donald Farley
|
|
Director
|
|
November 20, 2015
|
|
|
|
|
|
|
|
/s/ Michael
Kishinevsky
|
|
|
|
|
|
Michael Kishinevsky
|
|
Director
|
|
November 20, 2015
|
|
|
|
|
|
|
|
/s/ Charles
Trego
|
|
|
|
|
|
Charles Trego
|
|
Director
|
|
November 20, 2015
|
|
|
|
|
|
|
|
/s/ D. Walker
Wainwright
|
|
|
|
|
|
D. Walker Wainwright
|
|
Director
|
|
November 20, 2015
|
|
|
|
|
|
|
|
/s/ Richard
Bogan
|
|
|
|
|
|
Richard Bogan
|
|
Director
|
|
November 20, 2015
|
Exhibit 10.74
EXECUTION COPY
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES
PURCHASE AGREEMENT
(the “
Agreement
”), dated as of November 4, 2015, is by and among Axion Power International,
Inc., a Delaware corporation with offices located at 3601 Clover Lane, New Castle, Pennsylvania 16105 (the “
Company
”),
and each of the investors listed on the Schedule of Buyers attached hereto (individually, a “
Buyer
” and collectively,
the “
Buyers
”).
RECITALS
A. The
Company and each Buyer is executing and delivering this Agreement in reliance upon the exemption from securities registration afforded
by Section 4(a)(2) of the Securities Act of 1933, as amended (the “
1933 Act
”), and Rule 506(b) of Regulation
D (“
Regulation D
”) as promulgated by the United States Securities and Exchange Commission (the “
SEC
”)
under the 1933 Act.
B. The
Company has authorized the issuance of senior secured convertible notes of the Company, in the aggregate original principal amount
of $9,000,000 in the form attached hereto as
Exhibit A
(the “
Notes
”), which Notes shall be convertible
into shares of Common Stock (as defined below) (the shares of Common Stock issuable pursuant to the terms of the Notes, including,
without limitation, upon conversion or otherwise, collectively, the “
Conversion Shares
”), in accordance with
the terms of the Notes.
C. Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, at the Closing
(as defined below) (i) a Note in the aggregate original principal amount set forth opposite such Buyer’s name in column (3)
on the Schedule of Buyers (which aggregate principal amount for all Buyers shall not exceed $9,000,000)(each, an “
Note
”,
and collectively, the “
Notes
”)(as converted, collectively, the “
Conversion Shares
”) and (ii)
a warrant to initially acquire up to that aggregate number of additional shares of Common Stock set forth opposite such Buyer’s
name in column (4) on the Schedule of Buyers, in the form attached hereto as
Exhibit B
(the “
Warrants
”)
(as exercised, collectively, the “
Warrant Shares
”).
D. The
Notes may be entitled to interest and certain other amounts, which, at the option of the Company and subject to certain conditions,
may be paid in shares of Common Stock (the “
Interest Shares
”) or in cash.
E. At
the Closing, the parties hereto shall execute and deliver a Registration Rights Agreement, in the form attached hereto as
Exhibit
C
(the “
Registration Rights Agreement
”), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the 1933
Act and the rules and regulations promulgated thereunder, and applicable state securities laws.
F. The
Notes, the Conversion Shares, the Interest Shares, the Warrants and the Warrant Shares are collectively referred to herein as the
“
Securities
.”
AGREEMENT
NOW, THEREFORE, in
consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and each Buyer hereby agree as follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
(a)
Purchase
of Notes and Warrants
. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6(a) and 7(a) below,
the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, shall purchase from the Company on the
Closing Date (as defined below) a Note in the original principal amount as is set forth opposite such Buyer’s name in column
(3) on the Schedule of Buyers along with Warrants to initially acquire up to that aggregate number of Warrant Shares as is set
forth opposite such Buyer’s name in column (4) on the Schedule of Buyers.
(b)
Closing
.
The closing (the “
Closing
”) of the purchase of the Notes and the Warrants by the Buyers shall occur at the offices
of Kelley Drye & Warren LLP, 101 Park Avenue, New York, NY 10178. The date and time of the Closing (the “
Closing Date
”)
shall be 10:00 a.m., New York time, on the first (1
st
) Business Day (as defined below) (and including the date hereof
if a Business Day) on which the conditions to the Closing set forth in Sections 6(a) and 7(a) below are satisfied or waived (or
such other date as is mutually agreed to by the Company and each Buyer). As used herein “
Business Day
” means
any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by
law to remain closed.
(c)
Purchase
Price
. The aggregate purchase price for the Notes and the Warrants to be purchased by each Buyer (the “
Purchase Price
”)
shall be the amount set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers. Each Buyer and the Company
agree that the Notes and the Warrants constitute an “investment unit” for purposes of Section 1273(c)(2) of the Internal
Revenue Code of 1986, as amended (the “
Code
”). The Buyers and the Company mutually agree that the allocation
of the issue price of such investment unit between the Notes and the Warrants in accordance with Section 1273(c)(2) of the Code
and Treasury Regulation Section 1.1273-2(h) shall be, per $1,000 principal amount of Notes purchased, an aggregate amount of $136.07
allocated to the Warrants and $863.93 allocated to the Notes, and neither the Buyers nor the Company shall take any position inconsistent
with such allocation in any tax return or in any judicial or administrative proceeding in respect of taxes.
(d)
Form
of Payment
. On the Closing Date, (A) each Buyer shall pay its respective Purchase Price (less, in the case of CVI (as defined
below), the amounts withheld pursuant to Section 4(g)) to the Company for the Notes and the Warrants to be issued and sold to such
Buyer at the Closing, by wire transfer of immediately available funds in accordance with the Flow of Funds Letter (as defined below)
and (B) the Company shall deliver to each Buyer (x) a Note in the aggregate original principal amount as is set forth opposite
such Buyer’s name in column (3) of the Schedule of Buyers, and (y) a Warrant pursuant to which such Buyer shall have the
right to initially acquire up to such aggregate number of Warrant Shares as is set forth opposite such Buyer’s name in column
(5) of the Schedule of Buyers, in each case, duly executed on behalf of the Company and registered in the name of such Buyer or
its designee.
2. BUYER’S
REPRESENTATIONS AND WARRANTIES.
Each Buyer, severally
and not jointly, represents and warrants to the Company with respect to only itself that, as of the date hereof and as of the Closing
Date:
(a)
Organization;
Authority
. Such Buyer is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction
of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by the
Transaction Documents (as defined below) to which it is a party and otherwise to carry out its obligations hereunder and thereunder.
(b)
No
Public Sale or Distribution
. Such Buyer (i) is acquiring its Note and Warrants, (ii) upon conversion of its Note will acquire
the Conversion Shares issuable upon conversion thereof, and (iii) upon exercise of its Warrants (other than pursuant to a
Cashless Exercise (as defined in the Warrants)) will acquire the Warrant Shares issuable upon exercise thereof, in each case, for
its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof in violation
of applicable securities laws, except pursuant to sales registered or exempted under the 1933 Act; provided, however, by making
the representations herein, such Buyer does not agree, or make any representation or warranty, to hold any of the Securities for
any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant
to a registration statement or an exemption from registration under the 1933 Act. Such Buyer does not presently have any agreement
or understanding, directly or indirectly, with any Person to distribute any of the Securities in violation of applicable securities
laws. For purposes of this Agreement, “
Person
” means an individual, a limited liability company, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization, any other entity and any Governmental Entity or any department
or agency thereof
(c)
Accredited
Investor Status
. Such Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.
(d)
Reliance
on Exemptions
. Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon
the truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility
of such Buyer to acquire the Securities.
(e)
Information
.
Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of
the Company and materials relating to the offer and sale of the Securities that have been requested by such Buyer. Such Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other
due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect
such Buyer's right to rely on the Company's representations and warranties contained herein. Such Buyer understands that its investment
in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its acquisition of the Securities.
(f)
No
Governmental Review
. Such Buyer understands that no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.
(g)
Transfer
or Resale
. Such Buyer understands that except as provided in the Registration Rights Agreement and Section 4(h) hereof: (i)
the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered
for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company (if requested by the Company) an opinion of counsel, in a form reasonably acceptable to the Company, to the effect that
such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant
to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor rule thereto) (collectively, “
Rule 144
”);
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144, and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some
other exemption under the 1933 Act or the rules and regulations of the SEC promulgated thereunder; and (iii) neither the Company
nor any other Person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder. Notwithstanding the foregoing, the Securities may be pledged in connection
with a bona fide margin account or other loan or financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities
shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this
Agreement or any other Transaction Document (as defined in Section 3(b)), including, without limitation, this Section 2(g).
(h)
Validity;
Enforcement
. This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer
in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.
(i)
No
Conflicts
. The execution, delivery and performance by such Buyer of this Agreement and the Registration Rights Agreement and
the consummation by such Buyer of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational
documents of such Buyer, or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii)
above, for such conflicts, defaults, rights or violations which could not, individually or in the aggregate, reasonably be expected
to have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.
(j)
Residency
.
Such Buyer is a resident of the jurisdiction specified below its address on the Schedule of Buyers.
(k)
Certain
Trading Activities
. Such Buyer has not directly or indirectly, nor has any person acting on behalf of or pursuant to any understanding
with such Buyer, engaged in any transactions in the securities of the Company (including, without limitation, Short Sales involving
the Company’s securities) since the time that such Buyer was first contacted by the Company or the Placement Agent (as defined
herein) regarding the investment in the Company contemplated herein. “
Short Sales
” include, without limitation,
all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the 1934 Act (“
Regulation
SHO
”) and all types of direct and indirect stock pledges, forward sales contracts, options, puts, calls, swaps and similar
arrangements (including on a total return basis), and sales and other transactions through non-U.S. broker dealers or foreign regulated
brokers (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The Company represents
and warrants to each of the Buyers that, as of the date hereof and as of the Closing Date:
(a)
Organization
and Qualification
. Each of the Company and each of its Subsidiaries are entities duly organized and validly existing and in
good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authority to own their
properties and to carry on their business as now being conducted and as presently proposed to be conducted. Each of the Company
and each of its Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this
Agreement, “
Material Adverse Effect
” means any material adverse effect on (i) the business, properties, assets,
liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary,
individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents or (iii)
the authority or ability of the Company or any of its Subsidiaries to perform any of their respective obligations under any of
the Transaction Documents (as defined below). Other than the Persons (as defined below) set forth on Schedule 3(a) the Company
has no Subsidiaries. None of Axion Power Corporation, a corporation organized under the laws of Canada, or C&T Corporation,
a corporation organized under the laws of Canada owns or possesses any material property or assets or has any operations, business
or liabilities (each, an “
Inactive Subsidiary
”). “
Subsidiaries
” means any Person in which
the Company, directly or indirectly, (I) owns any of the outstanding capital stock or holds any equity or similar interest of such
Person or (II) controls or operates all or any part of the business, operations or administration of such Person, and each of the
foregoing, is individually referred to herein as a “
Subsidiary
” (excluding any Inactive Subsidiaries).
(b)
Authorization;
Enforcement; Validity
. The Company has the requisite power and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of this Agreement and the other Transaction Documents by the Company, and the consummation by the Company
of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Notes and the reservation
for issuance and issuance of the Conversion Shares issuable upon conversion of the Notes and the reservation for issuance and issuance
of any Interest Shares issuable pursuant to the terms of the Notes and the issuance of the Warrants and the reservation for issuance
and issuance of the Warrant Shares issuable upon exercise of the Warrants) have been duly authorized by the Company’s board
of directors or other governing body and (other than the filing with the SEC of one or more Registration Statements in accordance
with the requirements of the Registration Rights Agreement, a Form D with the SEC and any other filings as may be required by any
state securities agencies) no further filing, consent or authorization is required by the Company, its board of directors or its
stockholders or other governing body. This Agreement and the other Transaction Documents to which it is a party have been duly
executed and delivered by the Company and constitutes the legal, valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity
or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally,
the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution
may be limited by federal or state securities law. “
Transaction Documents
” means, collectively, this Agreement,
the Notes, the Warrants, the Controlled Account Agreements (as defined in the Notes), the Registration Rights Agreement, the Irrevocable
Transfer Agent Instructions (as defined below) and each of the other agreements and instruments entered into or delivered by any
of the parties hereto in connection with the transactions contemplated hereby and thereby, as may be amended from time to time.
(c)
Issuance
of Securities
. The issuance of the Notes and the Warrants are duly authorized and upon issuance in accordance with the terms
of the Transaction Documents shall be validly issued, fully paid and non-assessable and free from all preemptive or similar rights,
mortgages, defects, claims, liens, pledges, charges, taxes, rights of first refusal, encumbrances, security interests and other
encumbrances (collectively “
Liens
”) with respect to the issuance thereof. As of the Closing, the Company shall
have reserved from its duly authorized capital stock not less than the sum of (i) 200% of the maximum number of Conversion Shares
initially issuable upon conversion of the Notes (assuming for purposes hereof that the Notes are convertible at the initial Conversion
Price (as defined in the Notes) and without taking into account any limitations on the conversion of the Notes set forth in the
Notes and assuming for such purpose that all Notes have been issued on the Closing Date), (ii) 200% of the maximum number of Interest
Shares initially issuable pursuant to the terms of the Notes from the Closing Date through the twenty-one month anniversary of
the Closing Date (determined as if issued on the Trading Day (as defined in the Notes) immediately preceding the Closing Date without
taking into account any limitations on the issuance of securities set forth in the Notes and assuming for such purpose that all
Notes have been issued on the Closing Date) and (iii) 125% of the maximum number of Warrant Shares initially issuable upon exercise
of the Warrants (without taking into account any limitations on the exercise of the Warrants set forth therein). Upon issuance
or conversion in accordance with the Notes or exercise in accordance with the Warrants (as the case may be), the Conversion Shares,
the Interest Shares and the Warrant Shares, respectively, when issued, will be validly issued, fully paid and nonassessable and
free from all preemptive or similar rights or Liens with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. Subject to the accuracy of the representations and warranties of the Buyers in this Agreement,
the offer and issuance by the Company of the Securities is exempt from registration under the 1933 Act.
(d)
No
Conflicts
. The execution, delivery and performance of the Transaction Documents by the Company and its Subsidiaries and the
consummation by the Company and its Subsidiaries of the transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Notes, the Warrants, the Conversion Shares the Interest Shares and Warrant Shares and the reservation for issuance
of the Conversion Shares, the Interest Shares and the Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation (as defined below) (including, without limitation, any certificate of designation contained therein), By-Laws (as
defined below), certificate of formation, memorandum of association, articles of association, bylaws or other organizational documents
of the Company or any of its Subsidiaries, or any capital stock or other securities of the Company or any of its Subsidiaries,
(ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) in
any respect under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture
or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation,
order, judgment or decree (including, without limitation, foreign, federal and state securities laws and regulations and the rules
and regulations of the Nasdaq Capital Market (the
“Principal Market
”) and including all applicable foreign,
federal and state laws, rules and regulations) applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected except, in the case of clause (ii) or (iii) above, to the
extent such violations that could not reasonably be expected to have a Material Adverse Effect.
(e)
Consents
.
Neither the Company nor any Subsidiary is required to obtain any consent from, authorization or order of, or make any filing or
registration with (other than the filing with the SEC of one or more Registration Statements in accordance with the requirements
of the Registration Rights Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies),
any Governmental Entity (as defined below) or any regulatory or self-regulatory agency or any other Person in order for it to execute,
deliver or perform any of its respective obligations under or contemplated by the Transaction Documents, in each case, in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company or any Subsidiary
is required to obtain pursuant to the preceding sentence have been or will be obtained or effected on or prior to the Closing Date,
and neither the Company nor any of its Subsidiaries are aware of any facts or circumstances which might prevent the Company or
any of its Subsidiaries from obtaining or effecting any of the registration, application or filings contemplated by the Transaction
Documents. The Company is not in violation of the requirements of the Principal Market and has no knowledge of any facts or circumstances
which could reasonably lead to delisting or suspension of the Common Stock in the foreseeable future. “
Governmental Entity
”
means any nation, state, county, city, town, village, district, or other political jurisdiction of any nature, federal, state,
local, municipal, foreign, or other government, governmental or quasi-governmental authority of any nature (including any governmental
agency, branch, department, official, or entity and any court or other tribunal), multi-national organization or body; or body
exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature or instrumentality of any of the foregoing, including any entity or enterprise owned or controlled by a
government or a public international organization or any of the foregoing.
(f)
Acknowledgment
Regarding Buyer’s Purchase of Securities
. The Company acknowledges and agrees that each Buyer is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby
and thereby and that no Buyer is (i) an officer or director of the Company or any of its Subsidiaries, (ii) an “affiliate”
(as defined in Rule 144) of the Company or any of its Subsidiaries or (iii) to its knowledge, a “beneficial owner”
of more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the “
1934 Act
”)). The Company further acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company or any of its Subsidiaries (or in any similar capacity) with respect to the Transaction Documents and
the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection
with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s
purchase of the Securities. The Company further represents to each Buyer that the Company’s decision to enter into the Transaction
Documents to which it is a party has been based solely on the independent evaluation by the Company and its representatives.
(g)
No
General Solicitation; Placement Agent’s Fees
. Neither the Company, nor any of its Subsidiaries or affiliates, nor any
Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or brokers’ commissions (other than for Persons engaged by any Buyer
or its investment advisor) relating to or arising out of the transactions contemplated hereby, including, without limitation, placement
agent fees payable to Maxim Group LLC, as placement agent (the “
Placement Agent
”) in connection with the sale
of the Securities. The fees and expenses of the Placement Agent to be paid by the Company or any of its Subsidiaries are as set
forth on Schedule 3(g) attached hereto. The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, attorney's fees and out-of-pocket expenses) arising in connection with any such claim. The Company
acknowledges that it has engaged the Placement Agent in connection with the sale of the Securities. Other than the Placement Agent,
neither the Company nor any of its Subsidiaries has engaged any placement agent or other agent in connection with the offer or
sale of the Securities.
(h)
No
Integrated Offering
. None of the Company, its Subsidiaries or any of their affiliates, nor any Person acting on 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 require registration of the issuance of any of the Securities under the 1933 Act, whether through integration with prior
offerings or otherwise, or cause this offering of the Securities to require approval of stockholders of the Company for purposes
of the 1933 Act or under any applicable stockholder approval provisions, including, without limitation, under the rules and regulations
of any exchange or automated quotation system on which any of the securities of the Company are listed or designated for quotation.
None of the Company, its Subsidiaries, their affiliates nor any Person acting on their behalf will take any action or steps that
would require registration of the issuance of any of the Securities under the 1933 Act or cause the offering of any of the Securities
to be integrated with other offerings of securities of the Company.
(i)
Dilutive
Effect
. The Company understands and acknowledges that the number of Conversion Shares, Interest Shares and Warrant Shares will
increase in certain circumstances. The Company further acknowledges that its obligation to issue the Conversion Shares upon conversion
of the Notes in accordance with this Agreement and the Notes, the Interest Shares in accordance with this Agreement and the Notes
and the Warrant Shares upon exercise of the Warrants in accordance with this Agreement, the Notes and the Warrants is, in each
case, absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
(j)
Application
of Takeover Protections; Rights Agreement
. The Company and its board of directors have taken all necessary action, if any,
in order to render inapplicable any control share acquisition, interested stockholder, business combination, poison pill (including,
without limitation, any distribution under a rights agreement), stockholder rights plan or other similar anti-takeover provision
under the Certificate of Incorporation, Bylaws or other organizational documents or the laws of the jurisdiction of its incorporation
or otherwise which is or could become applicable to any Buyer as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities. The Company
and its board of directors have taken all necessary action, if any, in order to render inapplicable any stockholder rights plan
or similar arrangement relating to accumulations of beneficial ownership of shares of Common Stock or a change in control of the
Company or any of its Subsidiaries.
(k)
SEC
Documents; Financial Statements
. During the two (2) years prior to the date hereof, the Company has timely filed all reports,
schedules, forms, proxy statements, statements and other documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits and appendices included therein
and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred
to as the “
SEC Documents
”). The Company has delivered or has made available to the Buyers or their respective
representatives true, correct and complete copies of each of the SEC Documents not available on the EDGAR system. As of their respective
dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with
the SEC, 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.
As of their respective dates, the financial statements of the Company included in the SEC Documents complied in all material respects
with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as in effect as
of the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles
(“
GAAP
”), consistently applied, during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments which will not be material, either individually or in the aggregate).
The reserves, if any, established by the Company or the lack of reserves, if applicable, are reasonable based upon facts and circumstances
known by the Company on the date hereof and there are no loss contingencies that are required to be accrued by the Statement of
Financial Accounting Standard No. 5 of the Financial Accounting Standards Board which are not provided for by the Company in its
financial statements or otherwise. No other information provided by or on behalf of the Company to any of the Buyers which is not
included in the SEC Documents (including, without limitation, information referred to in Section 2(e) of this Agreement or
in the disclosure schedules to this Agreement) contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein not misleading, in the light of the circumstance under which they are or
were made. The Company is not currently contemplating to amend or restate any of the financial statements (including, without limitation,
any notes or any letter of the independent accountants of the Company with respect thereto) included in the SEC Documents (the
“
Financial Statements
”), nor is the Company currently aware of facts or circumstances which would require the
Company to amend or restate any of the Financial Statements, in each case, in order for any of the Financials Statements to be
in compliance with GAAP and the rules and regulations of the SEC. The Company has not been informed by its independent accountants
that they recommend that the Company amend or restate any of the Financial Statements or that there is any need for the Company
to amend or restate any of the Financial Statements.
(l)
Absence
of Certain Changes
. Since the date of the Company’s most recent audited financial statements contained in a Form 10-K,
there has been no material adverse change and no material adverse development in the business, assets, liabilities, properties,
operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any of its Subsidiaries.
Since the date of the Company’s most recent audited financial statements contained in a Form 10-K, neither the Company nor
any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets, individually or in the aggregate, outside
of the ordinary course of business or (iii) made any capital expenditures, individually or in the aggregate, outside of the ordinary
course of business. Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any law
or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does the Company or
any Subsidiary have any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and after giving effect to the transactions contemplated
hereby to occur at the Closing, will not be Insolvent (as defined below). For purposes of this Section 3(l), “
Insolvent
”
means, (i) with respect to the Company and its Subsidiaries, on a consolidated basis, (A) the present fair saleable value of the
Company’s and its Subsidiaries’ assets is less than the amount required to pay the Company’s and its Subsidiaries’
total Indebtedness (as defined below), (B) the Company and its Subsidiaries are unable to pay their debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and matured or (C) the Company and its Subsidiaries intend
to incur or believe that they will incur debts that would be beyond their ability to pay as such debts mature; and (ii) with respect
to the Company and each Subsidiary, individually, (A) the present fair saleable value of the Company’s or such Subsidiary’s
(as the case may be) assets is less than the amount required to pay its respective total Indebtedness, (B) the Company or such
Subsidiary (as the case may be) is unable to pay its respective debts and liabilities, subordinated, contingent or otherwise, as
such debts and liabilities become absolute and matured or (C) the Company or such Subsidiary (as the case may be) intends to incur
or believes that it will incur debts that would be beyond its respective ability to pay as such debts mature. Neither the Company
nor any of its Subsidiaries has engaged in any business or in any transaction, and is not about to engage in any business or in
any transaction, for which the Company’s or such Subsidiary’s remaining assets constitute unreasonably small capital
with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.
(m)
No
Undisclosed Events, Liabilities, Developments or Circumstances
. No event, liability, development or circumstance has occurred
or exists, or is reasonably expected to exist or occur with respect to the Company, any of its Subsidiaries or any of their respective
businesses, properties, liabilities, prospects, operations (including results thereof) or condition (financial or otherwise), that
(i) would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed
with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced, (ii)
could have a material adverse effect on any Buyer’s investment hereunder or (iii) could have a Material Adverse Effect.
(n)
Conduct
of Business; Regulatory Permits
. Neither the Company nor any of its Subsidiaries is in violation of any term of or in default
under its Certificate of Incorporation, any certificate of designation, preferences or rights of any other outstanding series of
preferred stock of the Company or any of its Subsidiaries or Bylaws or their organizational charter, certificate of formation,
memorandum of association, articles of association, Certificate of Incorporation or certificate of incorporation or bylaws, respectively.
Neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule
or regulation applicable to the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except in all cases for possible violations which could not, individually or
in the aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company is not in violation
of any of the rules, regulations or requirements of the Principal Market and has no knowledge of any facts or circumstances that
could reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future. During
the two years prior to the date hereof, (i) the Common Stock has been listed or designated for quotation on the Principal Market,
(ii) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company has received no
communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock
from the Principal Market. The Company and each of its Subsidiaries possess all certificates, authorizations and permits issued
by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess
such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither
the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit. There is no agreement, commitment, judgment, injunction, order or decree binding upon the
Company or any of its Subsidiaries or to which the Company or any of its Subsidiaries is a party which has or would reasonably
be expected to have the effect of prohibiting or materially impairing any business practice of the Company or any of its Subsidiaries,
any acquisition of property by the Company or any of its Subsidiaries or the conduct of business by the Company or any of its Subsidiaries
as currently conducted other than such effects, individually or in the aggregate, which have not had and would not reasonably be
expected to have a Material Adverse Effect on the Company or any of its Subsidiaries.
(o)
Foreign
Corrupt Practices
. Neither the Company, the Company’s subsidiary or any director, officer, agent, employee, nor any
other person acting for or on behalf of the foregoing (individually and collectively, a “
Company Affiliate
”)
have violated the U.S. Foreign Corrupt Practices Act (the “
FCPA
”) or any other applicable anti-bribery or anti-corruption
laws, nor has any Company Affiliate offered, paid, promised to pay, or authorized the payment of any money, or offered, given,
promised to give, or authorized the giving of anything of value, to any officer, employee or any other person acting in an official
capacity for any Governmental Entity to any political party or official thereof or to any candidate for political office (individually
and collectively, a “
Government Official
”) or to any person under circumstances where such Company Affiliate
knew or was aware of a high probability that all or a portion of such money or thing of value would be offered, given or promised,
directly or indirectly, to any Government Official, for the purpose of:
(i) (A)
influencing any act or decision of such Government Official in his/her official capacity, (B) inducing such Government Official
to do or omit to do any act in violation of his/her lawful duty, (C) securing any improper advantage, or (D) inducing such Government
Official to influence or affect any act or decision of any Governmental Entity, or
(ii) assisting
the Company or its Subsidiaries in obtaining or retaining business for or with, or directing business to, the Company or its Subsidiaries.
(p)
Sarbanes-Oxley
Act
. The Company and each Subsidiary is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of
2002, as amended, and any and all applicable rules and regulations promulgated by the SEC thereunder.
(q)
Transactions
With Affiliates
. No current or former employee, partner, director, officer or stockholder (direct or indirect) of the Company
or its Subsidiaries, or any associate, or, to the knowledge of the Company, any affiliate of any thereof, or any relative with
a relationship no more remote than first cousin of any of the foregoing, is presently, or has ever been, (i) a party to any transaction
with the Company or its Subsidiaries (including any contract, agreement or other arrangement providing for the furnishing of services
by, or rental of real or personal property from, or otherwise requiring payments to, any such director, officer or stockholder
or such associate or affiliate or relative Subsidiaries (other than for ordinary course services as employees, officers or directors
of the Company or any of its Subsidiaries)) or (ii) the direct or indirect owner of an interest in any corporation, firm, association
or business organization which is a competitor, supplier or customer of the Company or its Subsidiaries (except for a passive investment
(direct or indirect) in less than 5% of the common stock of a company whose securities are traded on or quoted through an Eligible
Market (as defined in the Notes)), nor does any such Person receive income from any source other than the Company or its Subsidiaries
which relates to the business of the Company or its Subsidiaries or should properly accrue to the Company or its Subsidiaries.
No employee, officer, stockholder or director of the Company or any of its Subsidiaries or member of his or her immediate family
is indebted to the Company or its Subsidiaries, as the case may be, nor is the Company or any of its Subsidiaries indebted (or
committed to make loans or extend or guarantee credit) to any of them, other than (i) for payment of salary for services rendered,
(ii) reimbursement for reasonable expenses incurred on behalf of the Company, and (iii) for other standard employee benefits made
generally available to all employees or executives (including stock option agreements outstanding under any stock option plan approved
by the Board of Directors of the Company).
(r)
Equity
Capitalization.
(i)
Definitions
:
(A) “
Common
Stock
” means (x) the Company’s shares of common stock, $0.005 par value per share, and (y) any capital stock
into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.
(B) “
Preferred
Stock
” means (x) the Company’s blank check preferred stock, $0.005 par value per share, the terms of which may
be designated by the board of directors of the Company in a certificate of designations and (y) any capital stock into which such
preferred stock shall have been changed or any share capital resulting from a reclassification of such preferred stock (other than
a conversion of such preferred stock into Common Stock in accordance with the terms of such certificate of designations).
(ii)
Authorized
and Outstanding Capital Stock
. As of the date hereof, the authorized capital stock of the Company consists of (A) 100,000,000
shares of Common Stock, of which, 3,934,728 are issued and outstanding and 1,020,604 shares are reserved for issuance pursuant
to Convertible Securities (as defined below) (other than the Notes and the Warrants) exercisable or exchangeable for, or convertible
into, shares of Common Stock and (B) 12,500,000 shares of Preferred Stock, none of which are issued and outstanding. 95,044,668
shares of Common Stock are held in the treasury of the Company.
(iii)
Valid
Issuance; Available Shares; Affiliates
. All of such outstanding shares are duly authorized and have been, or upon issuance
will be, validly issued and are fully paid and nonassessable.
Schedule 3(r)(iii)
sets forth the number of shares of Common
Stock that are (A) reserved for issuance pursuant to Convertible Securities (as defined below) (other than the Notes and the Warrants)
and (B) that are, as of the date hereof, owned by Persons who are “affiliates” (as defined in Rule 405 of the 1933
Act and calculated based on the assumption that only officers, directors and holders of at least 10% of the Company’s issued
and outstanding Common Stock are “affiliates” without conceding that any such Persons are “affiliates”
for purposes of federal securities laws) of the Company or any of its Subsidiaries. To the Company’s knowledge, no Person
owns 10% or more of the Company’s issued and outstanding shares of Common Stock (calculated based on the assumption that
all Convertible Securities (as defined below), whether or not presently exercisable or convertible, have been fully exercised or
converted (as the case may be) taking account of any limitations on exercise or conversion (including “blockers”)
contained therein without conceding that such identified Person is a 10% stockholder for purposes of federal securities laws).
(iv)
Existing
Securities; Obligations
. Except as disclosed on
Schedule 3(r)(iv)
: (A) none of the Company’s or any Subsidiary’s
shares, interests or capital stock is subject to preemptive rights or any other similar rights or Liens suffered or permitted by
the Company or any Subsidiary; (B) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares,
interests or capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements
by which the Company or any of its Subsidiaries is or may become bound to issue additional shares, interests or capital stock of
the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares, interests or
capital stock of the Company or any of its Subsidiaries; (C) there are no agreements or arrangements under which the Company or
any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except pursuant to the
Registration Rights Agreement); (D) there are no outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries;
(E) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance
of the Securities; and (F) neither the Company nor any Subsidiary has any stock appreciation rights or “phantom stock”
plans or agreements or any similar plan or agreement.
(v)
Organizational
Documents
. The Company has furnished to the Buyers true, correct and complete copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “
Certificate
of Incorporation
”), and
the Company’s bylaws, as amended and as in effect on the date hereof (the “
Bylaws
”), and the terms of
all Convertible Securities and the material rights of the holders thereof in respect thereto.
(s)
Indebtedness
and Other Contracts
. Neither the Company nor any of its Subsidiaries, (i) except as disclosed on
Schedule 3(s)
,
has any outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may
become bound, (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect,
(iii) has any financing statements securing obligations in any amounts filed in connection with the Company or any of its Subsidiaries;
(iv) is in violation of any term of, or in default under, any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (v) is
a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the
Company’s officers, has or is expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
have any liabilities or obligations required to be disclosed in the SEC Documents which are not so disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses and which,
individually or in the aggregate, do not or could not have a Material Adverse Effect. For purposes of this Agreement: (x) “
Indebtedness
”
of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed
as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance
with GAAP) (other than trade payables entered into in the ordinary course of business consistent with past practice), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced
by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness
(even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession
or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP,
consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses
(A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in any property or assets (including accounts and contract rights) owned by any Person, even
though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and
(H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through
(G) above; and (y) “
Contingent Obligation
” means, as to any Person, any direct or indirect liability, contingent
or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary
purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee
of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with,
or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.
(t)
Litigation
.
There is no action, suit, arbitration, proceeding, inquiry or investigation before or by the Principal Market, any court, public
board, other Governmental Entity, self-regulatory organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the Company’s or its Subsidiaries’
officers or directors, which is outside of the ordinary course of business or individually or in the aggregate material to the
Company or any of its Subsidiaries, whether of a civil or criminal nature or otherwise, in their capacities as such, except as
set forth in
Schedule 3(t)
. No director, officer or employee of the Company or any of its subsidiaries has willfully violated
18 U.S.C. §1519 or engaged in spoliation in reasonable anticipation of litigation. Without limitation of the foregoing, there
has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving
the Company, any of its Subsidiaries or any current or former director or officer of the Company or any of its Subsidiaries. The
SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company
under the 1933 Act or the 1934 Act. After reasonable inquiry of its employees, the Company is not aware of any fact which might
result in or form the basis for any such action, suit, arbitration, investigation, inquiry or other proceeding. Neither the Company
nor any of its Subsidiaries is subject to any order, writ, judgment, injunction, decree, determination or award of any Governmental
Entity.
(u)
Insurance
.
The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company
and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or
applied for, and neither the Company nor any such Subsidiary has any reason to believe that it will be unable 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 at a cost that would not have a Material Adverse Effect.
(v)
Employee
Relations
. Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union. The Company believes that its and its Subsidiaries’ relations with their respective employees are good.
No executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of the Company or any of
its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary
or otherwise terminate such officer’s employment with the Company or any such Subsidiary. No executive officer or other key
employee of the Company or any of its Subsidiaries is, or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each such executive officer or other key employee (as the
case may be) does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.
The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure
to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(w)
Title
.
(i)
Real
Property
. Each of the Company and its Subsidiaries holds good title to all real property, leases in real property, facilities
or other interests in real property owned or held by the Company or any of its Subsidiaries (the “
Real Property
”)
owned by the Company or any of its Subsidiaries (as applicable). The Real Property is free and clear of all Liens and is not subject
to any rights of way, building use restrictions, exceptions, variances, reservations, or limitations of any nature except for (a)
Liens for current taxes not yet due and (b) zoning laws and other land use restrictions that do not impair the present or anticipated
use of the property subject thereto. Any Real Property held under lease by the Company or any of its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company or any of its Subsidiaries.
(ii)
Fixtures
and Equipment
. Each of the Company and its Subsidiaries (as applicable) has good title to, or a valid leasehold interest in,
the tangible personal property, equipment, improvements, fixtures, and other personal property and appurtenances that are used
by the Company or its Subsidiary in connection with the conduct of its business (the “
Fixtures and Equipment
”).
The Fixtures and Equipment are structurally sound, are in good operating condition and repair, are adequate for the uses to which
they are being put, are not in need of maintenance or repairs except for ordinary, routine maintenance and repairs and are sufficient
for the conduct of the Company’s and/or its Subsidiaries’ businesses (as applicable) in the manner as conducted prior
to the Closing. Each of the Company and its Subsidiaries owns all of its Fixtures and Equipment free and clear of all Liens except
for (a) liens for current taxes not yet due and (b) zoning laws and other land use restrictions that do not impair the present
or anticipated use of the property subject thereto.
(x)
Intellectual
Property Rights
. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and
registrations therefor (“
Intellectual Property Rights
”) necessary to conduct their respective businesses as
now conducted and as presently proposed to be conducted. Each of patents owned by the Company or any of its Subsidiaries is listed
on Schedule 3(x)(i). Except as set forth in Schedule 3(x)(ii), none of the Company's Intellectual Property Rights have expired
or terminated or have been abandoned or are expected to expire or terminate or are expected to be abandoned, within three years
from the date of this Agreement, except to the extent of Intellectual Property Rights no longer considered necessary for the operation
of this business. The Company does not have any knowledge of any infringement by the Company or its Subsidiaries of Intellectual
Property Rights of others. There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or
any of its Subsidiaries, being threatened, against the Company or any of its Subsidiaries regarding its Intellectual Property Rights.
Neither the Company nor any of its Subsidiaries is aware of any facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their Intellectual Property Rights.
(y)
Environmental
Laws
. (i) The Company and its Subsidiaries (A) are in compliance
with any and all Environmental Laws (as defined below), (B) have received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses and (C) are in compliance with all terms and conditions
of any such permit, license or approval where, in each of the foregoing clauses (A), (B) and (C), the failure to so comply could
be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. The term “
Environmental Laws
”
means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation,
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.
(ii)
No
Hazardous Materials
:
(A) have
been disposed of or otherwise released from any Interest of the Company or any of its Subsidiaries in violation of any Environmental
Laws; or
(B) are
present on, over, beneath, in or upon an Interest or any portion thereof in quantities that would constitute a violation of any
Environmental Laws. No prior use by the Company or any of its Subsidiaries of any Property or Interest has occurred that violates
any Environmental Laws, which violation would have a material adverse effect on the business of the Company or any of its Subsidiaries.
(iii) Neither
the Company nor any of its Subsidiaries knows of any other person who or entity which has stored, treated, recycled, disposed of
or otherwise located on any Interest any Hazardous Materials, including, without limitation, such substances as asbestos and polychlorinated
biphenyls.
(iv) None
of the Interests are on any federal or state “Superfund” list or Liability Information System (“
CERCLIS
”)
list or any state environmental agency list of sites under consideration for CERCLIS, nor subject to any environmental related
Liens.
(z)
Subsidiary
Rights
. The Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or such Subsidiary.
(aa)
Tax
Status
. The Company and each of its Subsidiaries (i) has timely made or filed all foreign, federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely 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, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate
for the payment of all 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 and its Subsidiaries know of no basis for any such claim. The Company is not operated in such a manner as to qualify as
a passive foreign investment company, as defined in Section 1297 of the Code. The net operating loss carryforwards (“
NOLs
”)
for United States federal income tax purposes of the consolidated group of which the Company is the common parent, if any, shall
not be adversely effected by the transactions contemplated hereby. The transactions contemplated hereby do not constitute an “ownership
change” within the meaning of Section 382 of the Code, thereby preserving the Company’s ability to utilize such NOLs.
(bb)
Internal
Accounting and Disclosure Controls
. The Company and each of its Subsidiaries maintains internal control over financial reporting
(as such term is defined in Rule 13a-15(f) under the 1934 Act) that is effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles, including 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 and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared
with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference.
The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the 1934 Act) that are
effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the
1934 Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC,
including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Company’s management, including
its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure. Neither the Company nor any of its Subsidiaries has received any notice or correspondence from any
accountant, Governmental Entity or other Person relating to any potential material weakness or significant deficiency in any part
of the internal controls over financial reporting of the Company or any of its Subsidiaries.
(cc)
Off
Balance Sheet Arrangements
. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries
and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings
and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.
(dd)
Investment
Company Status
. The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,”
an affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for, an “investment company” as
such terms are defined in the Investment Company Act of 1940, as amended.
(ee)
Acknowledgement
Regarding Buyers’ Trading Activity
. It is understood and acknowledged by the Company that (i) following the public disclosure
of the transactions contemplated by the Transaction Documents, in accordance with the terms thereof, none of the Buyers have been
asked by the Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the Company or any of its Subsidiaries,
to desist from effecting any transactions in or with respect to (including, without limitation, purchasing or selling, long and/or
short, except in compliance with paragraph 4(w) hereof) any securities of the Company, or “derivative” securities based
on securities issued by the Company or to hold any of the Securities for any specified term; (ii) any Buyer, and counterparties
in “derivative” transactions to which any such Buyer is a party, directly or indirectly, presently may have a “short”
position in the Common Stock which was established prior to such Buyer’s knowledge of the transactions contemplated by the
Transaction Documents; and (iii) each Buyer shall not be deemed to have any affiliation with or control over any arm’s length
counterparty in any “derivative” transaction. The Company further understands and acknowledges that following the public
disclosure of the transactions contemplated by the Transaction Documents pursuant to the Press Release (as defined below) one or
more Buyers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding,
including, without limitation, during the periods that the value and/or number of the Warrant Shares, the Interest Shares or Conversion
Shares, as applicable, deliverable with respect to the Securities are being determined and such hedging and/or trading activities,
if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the
hedging and/or trading activities are being conducted. The Company acknowledges that such aforementioned hedging and/or trading
activities do not constitute a breach of this Agreement, the Notes, the Warrants or any other Transaction Document or any of the
documents executed in connection herewith or therewith.
(ff)
Manipulation
of Price
. Neither the Company nor any of its Subsidiaries has, and, to the knowledge of the Company, no Person acting on their
behalf has, directly or indirectly, (i) taken any action designed to cause or to result in the stabilization or manipulation of
the price of any security of the Company or any of its Subsidiaries 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 (other than the Placement
Agent), (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the
Company or any of its Subsidiaries or (iv) paid or agreed to pay any Person for research services with respect to any securities
of the Company or any of its Subsidiaries.
(gg)
U.S.
Real Property Holding Corporation
. Neither the Company nor any of its Subsidiaries is, or has ever been, and so long as any
of the Securities are held by any of the Buyers, shall become, a U.S. real property holding corporation within the meaning of Section 897
of the Code, and the Company and each Subsidiary shall so certify upon any Buyer’s request.
(hh)
Registration
Eligibility
. The Company is eligible to register the Registrable Securities for resale by the Buyers using Form S-1 promulgated
under the 1933 Act.
(ii)
Transfer
Taxes
. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be
paid in connection with the issuance, sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have
been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.
(jj)
Bank
Holding Company Act
. Neither the Company nor any of its Subsidiaries 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 (25%) 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.
(kk)
[Intentionally
Omitted]
.
(ll)
Illegal
or Unauthorized Payments; Political Contributions
. Neither the Company nor any of its Subsidiaries nor, to the best of the
Company’s knowledge (after reasonable inquiry of its officers and directors), any of the officers, directors, employees,
agents or other representatives of the Company or any of its Subsidiaries or any other business entity or enterprise with which
the Company or any Subsidiary is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment,
contribution or gift of money, property, or services, whether or not in contravention of applicable law, (i) as a kickback or bribe
to any Person or (ii) to any political organization, or the holder of or any aspirant to any elective or appointive public office
except for personal political contributions not involving the direct or indirect use of funds of the Company or any of its Subsidiaries.
(mm)
Money
Laundering
. The Company and its Subsidiaries are in compliance with, and have not previously violated, the USA Patriot Act
of 2001 and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, without limitation, the
laws, regulations and Executive Orders and sanctions programs administered by the U.S. Office of Foreign Assets Control, including,
but not limited, to (i) Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and Prohibiting Transactions
With Persons Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations
contained in 31 CFR, Subtitle B, Chapter V.
(nn)
Management
.
Except as set forth in
Schedule 3(nn)
hereto, during the past five year period, no current or former officer or director
or, to the knowledge of the Company, no current ten percent (10%) or greater stockholder of the Company or any of its Subsidiaries
has been the subject of:
(i) a
petition under bankruptcy laws or any other insolvency or moratorium law or the appointment by a court of a receiver, fiscal agent
or similar officer for such Person, or any partnership in which such person was a general partner at or within two years before
the filing of such petition or such appointment, or any corporation or business association of which such person was an executive
officer at or within two years before the time of the filing of such petition or such appointment;
(ii) a
conviction in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations that do not
relate to driving while intoxicated or driving under the influence);
(iii) any
order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining any such person from, or otherwise limiting, the following activities:
(1) Acting
as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the United States Commodity Futures Trading Commission or an associated person
of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing
any conduct or practice in connection with such activity;
(2) Engaging
in any particular type of business practice; or
(3) Engaging
in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of securities
laws or commodities laws;
(iv) any
order, judgment or decree, not subsequently reversed, suspended or vacated, of any authority barring, suspending or otherwise limiting
for more than sixty (60) days the right of any such person to engage in any activity described in the preceding sub paragraph,
or to be associated with persons engaged in any such activity;
(v) a
finding by a court of competent jurisdiction in a civil action or by the SEC or other authority to have violated any securities
law, regulation or decree and the judgment in such civil action or finding by the SEC or any other authority has not been subsequently
reversed, suspended or vacated; or
(vi) a
finding by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated
any federal commodities law, and the judgment in such civil action or finding has not been subsequently reversed, suspended or
vacated.
(oo)
Stock
Option Plans
. Each stock option granted by the Company was granted
(i) in accordance with the terms of the applicable stock option plan of the Company 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 policy or practice of the Company 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.
(pp)
No
Disagreements with Accountants and Lawyers
. There are no material
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.
In addition, on or prior to the date hereof, the Company had discussions with its accountants about its financial statements previously
filed with the SEC. Based on those discussions, the Company has no reason to believe that it will need to restate any such financial
statements or any part thereof.
(qq)
No
Disqualification Events
. With respect to Securities to be offered
and sold hereunder in reliance on Rule 506(b) under the 1933 Act (“
Regulation D Securities
”), none of the Company,
any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in
the offering contemplated hereby, 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 1933 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 1933 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 Buyers a copy of any disclosures provided thereunder.
(rr)
Other
Covered Persons
. The Company is not aware of any Person (other
than the Placement Agent) that has been or will be paid (directly or indirectly) remuneration for solicitation of Buyers or potential
purchasers in connection with the sale of any Regulation D Securities.
(ss)
No
Additional Agreements
. The Company does not have any agreement or understanding with any Buyer with respect to the transactions
contemplated by the Transaction Documents other than as specified in the Transaction Documents.
(tt)
Public
Utility Holding Act
. None of the Company nor any of its Subsidiaries is a “holding company,” or an “affiliate”
of a “holding company,” as such terms are defined in the Public Utility Holding Act of 2005.
(uu)
Federal
Power Act
. None of the Company nor any of its Subsidiaries is subject to regulation as a “public utility” under
the Federal Power Act, as amended.
(vv)
Ranking
of Notes
. No Indebtedness of the Company, as of the Closing Date, will be senior to, or
pari passu
with, the Notes in
right of payment, whether with respect to payment or redemptions, interest, damages, upon liquidation or dissolution or otherwise.
(ww)
Disclosure
.
The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning
the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other
Transaction Documents. The Company understands and confirms that each of the Buyers will rely on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided to the Buyers regarding the Company and its Subsidiaries,
their businesses and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf
of the Company or any of its Subsidiaries 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. All of the written information furnished after the date hereof by or on behalf of the Company or
any of its Subsidiaries to each Buyer pursuant to or in connection with this Agreement and the other Transaction Documents, taken
as a whole, will be true and correct in all material respects as of the date on which such information is so provided and will
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. Each press release issued by the Company
or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release 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 are made, not misleading. No event or circumstance
has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties,
liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable
law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not
been so publicly disclosed. All financial projections and forecasts that have been prepared by or on behalf of the Company or any
of its Subsidiaries and made available to you have been prepared in good faith based upon reasonable assumptions and represented,
at the time each such financial projection or forecast was delivered to each Buyer, the Company’s best estimate of future
financial performance (it being recognized that such financial projections or forecasts are not to be viewed as facts and that
the actual results during the period or periods covered by any such financial projections or forecasts may differ from the projected
or forecasted results). The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically set forth in Section 2.
4. COVENANTS.
(a)
Best
Efforts
. Each Buyer shall use its best efforts to timely satisfy each of the covenants hereunder and conditions to be satisfied
by it as provided in Section 6 of this Agreement. The Company shall use its best efforts to timely satisfy each of the covenants
hereunder and conditions to be satisfied by it as provided in Section 7 of this Agreement.
(b)
Form
D and Blue Sky
. The Company shall file a Form D with respect to the Securities as required under Regulation D and to provide
a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the Closing Date, 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 Buyers at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states
of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken
to the Buyers on or prior to the Closing Date. Without limiting any other obligation of the Company under this Agreement, the Company
shall timely make all filings and reports relating to the offer and sale of the Securities required under all applicable securities
laws (including, without limitation, all applicable federal securities laws and all applicable “Blue Sky” laws), and
the Company shall comply with all applicable foreign, federal, state and local laws, statutes, rules, regulations and the like
relating to the offering and sale of the Securities to the Buyers.
(c)
Reporting
Status
. Until the date on which the Buyers shall have sold all of the Registrable Securities (the “
Reporting Period
”),
the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would no longer require or otherwise permit such termination. From the time Form S-3 is available to the Company for
the registration of the Registrable Securities, the Company shall take all actions necessary to maintain its eligibility to register
the Registrable Securities for resale by the Buyers on Form S-3.
(d)
Use
of Proceeds
. The Company will use the proceeds from the sale of the Securities for general corporate purposes, but not, directly
or indirectly, for (i) except as set forth on Schedule 4(d), the satisfaction of any indebtedness of the Company or any of its
Subsidiaries (other than payment of trade payables incurred after the date hereof and current liabilities in the ordinary course
of business of the Company and its Subsidiaries and consistent with prior practices), (ii) the redemption or repurchase of any
securities of the Company or any of its Subsidiaries, or (iii) the settlement of any outstanding litigation.
(e)
Financial
Information
. The Company agrees to send the following to each Investor (as defined in the Registration Rights Agreement) during
the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are available to the public through the
EDGAR system, within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q, any interim reports or any consolidated balance sheets, income statements, stockholders’
equity statements and/or cash flow statements for any period other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) unless the following are either filed with
the SEC through EDGAR or are otherwise widely disseminated via a recognized news release service (such as PR Newswire), on the
same day as the release thereof, facsimile copies of all press releases issued by the Company or any of its Subsidiaries and (iii)
unless the following are filed with the SEC through EDGAR, copies of any notices and other information made available or given
to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders.
(f)
Listing
.
The Company shall promptly secure the listing or designation for quotation (as the case may be) of all of the Registrable Securities
upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed or designated
for quotation (as the case may be) (subject to official notice of issuance) and shall maintain such listing or designation for
quotation (as the case may be) of all Registrable Securities from time to time issuable under the terms of the Transaction Documents
on such national securities exchange or automated quotation system. The Company shall maintain the Common Stock’s listing
or authorization for quotation (as the case may be) on the Principal Market, The New York Stock Exchange, the NYSE MKT, the Nasdaq
Global Market, the OTCQX, the OTCQB or the Nasdaq Global Select Market (each, an “
Eligible Market
”). Neither
the Company nor any of its Subsidiaries shall take any action which could be reasonably expected to result in the delisting or
suspension of the Common Stock on an Eligible Market. The Company shall pay all fees and expenses in connection with satisfying
its obligations under this Section 4(f).
(g)
Fees
.
The Company shall reimburse CVI Investments, Inc. (“
CVI
”) for all reasonable costs and expenses incurred by
it or its affiliates in connection with the structuring, documentation, negotiation and closing of the transactions contemplated
by the Transaction Documents (including, without limitation, as applicable, all reasonable legal fees of outside counsel and disbursements
of Kelley Drye & Warren LLP, counsel to the lead Buyer, any other reasonable fees and expenses in connection with the structuring,
documentation, negotiation and closing of the transactions contemplated by the Transaction Documents and due diligence and regulatory
filings in connection therewith) (the “
Transaction Expenses
”) and shall be withheld by the lead Buyer from its
Purchase Price at the Closing; provided, that the Company shall promptly reimburse Kelley Drye & Warren LLP on demand for all
Transaction Expenses not so reimbursed through withholding at the Closing; and provided further, that such reimbursement amount
shall not exceed $60,000 without the prior consent of the Company. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, Controlled Account Bank (as defined in the Note) fees, transfer agent fees, DTC (as
defined below) fees or broker’s commissions (other than for Persons engaged by any Buyer) relating to or arising out of the
transactions contemplated hereby (including, without limitation, any fees or commissions payable to the Placement Agent, who is
the Company’s sole placement agent in connection with the transactions contemplated by this Agreement). The Company shall
pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’
fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment. Except as otherwise set forth
in the Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities
to the Buyers.
(h)
Pledge
of Securities
. Notwithstanding anything to the contrary contained in this Agreement, the Company acknowledges and agrees that
the Securities may be pledged by an Investor in connection with a bona fide margin agreement or other loan or financing arrangement
that is secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Investor effecting a pledge of Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document, including, without limitation,
Section 2(g) hereof;
provided
that an Investor and its pledgee shall be required to comply with the provisions of Section
2(g) hereof in order to effect a sale, transfer or assignment of Securities to such pledgee. The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities
to such pledgee by a Buyer.
(i)
Disclosure
of Transactions and Other Material Information
. The Company shall, on or before 8:30 a.m., New York time, on the first
(1
st
) Business Day after the date of this Agreement, issue a press release (the “
Press Release
”)
reasonably acceptable to the Buyers disclosing all the material terms of the transactions contemplated by the Transaction Documents.
On or before 8:30 a.m., New York time, on the first (1
st
) Business Day after the date of this Agreement, the Company
shall file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by the Transaction Documents
in the form required by the 1934 Act and attaching all the material Transaction Documents (including, without limitation, this
Agreement (and all schedules to this Agreement), the form of Notes, the form of the Warrants and the form of the Registration Rights
Agreement) (including all attachments, the “
8-K Filing
”). From and after the filing of the 8-K Filing, the Company
shall have disclosed all material, non-public information (if any) provided to any of the Buyers 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. The Company shall not, and the Company shall cause each of its Subsidiaries and each of its and their respective officers,
directors, employees and agents not to, provide any Buyer with any material, non-public information regarding the Company or any
of its Subsidiaries from and after the date hereof without the express prior written consent of such Buyer. To the extent that
the Company delivers any material, non-public information to a Buyer without such Buyer's consent, the Company hereby covenants
and agrees that such Buyer shall not have any duty of confidentiality with respect to, or a duty not to trade on the basis of,
such material, non-public information. In the event of a breach of any of the foregoing covenants, including, without limitation,
Section 4(o) of this Agreement, or any of the covenants or agreements contained in any other Transaction Document, by the
Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents (as determined in
the reasonable good faith judgment of such Buyer), in addition to any other remedy provided herein or in the Transaction Documents,
such Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise,
of such breach or such material, non-public information, as applicable, without the prior approval by the Company, any of its Subsidiaries,
or any of its or their respective officers, directors, employees or agents. No Buyer shall have any liability to the Company, any
of its Subsidiaries, or any of its or their respective officers, directors, employees, stockholders or agents, for any such disclosure.
Subject to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided, however, the Company shall be entitled, without the
prior approval of any Buyer, to make the Press Release and any press release or other public disclosure with respect to such transactions
(i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release). Without the prior written consent of the applicable Buyer, the Company
shall not (and shall cause each of its Subsidiaries and affiliates to not) disclose the name of such Buyer in any filing, announcement,
release or otherwise. Notwithstanding anything contained in this Agreement to the contrary and without implication that the contrary
would otherwise be true, the Company expressly acknowledges and agrees that no Buyer has had, and no Buyer shall have (unless expressly
agreed to by a particular Buyer after the date hereof in a written definitive and binding agreement executed by the Company and
such particular Buyer (it being understood and agreed that no Buyer may bind any other Buyer with respect thereto)), any duty of
confidentiality with respect to, or a duty not to trade on the basis of, any material, non-public information regarding the Company
or any of its Subsidiaries.
(j)
Additional
Registration Statements
. Until the Applicable Date (as defined below) and at any time thereafter while any Registration Statement
is not effective or the prospectus contained therein is not available for use or any Current Public Information Failure (as defined
in the Registration Rights Agreement) exists, the Company shall not file a registration statement under the 1933 Act relating to
securities that are not the Registrable Securities. “
Applicable Date
” means the earlier of (x) the first date
on which the resale by the Buyers of all Registrable Securities is covered by one or more effective Registration Statements (as
defined in the Registration Rights Agreement) (and each prospectus contained therein is available for use on such date) or (y)
the first date on which all of the Registrable Securities are eligible to be resold by the Buyers pursuant to Rule 144 (or, if
a Current Public Information Failure (as defined in the Registration Rights Agreement) has occurred and is continuing, such later
date after which the Company has cured such Current Public Information Failure).
(k)
Additional
Issuance of Securities
. So long as any Buyer beneficially owns any Notes or Warrants, the Company will not, without the prior
written consent of the Buyers holding a majority in aggregate principal amount of the Notes then outstanding, issue any Notes (other
than to the Buyers as contemplated hereby) and the Company shall not issue any other securities that would cause a breach or default
under the Notes or the Warrants (other than an issuance of additional Notes and/or related additional Warrants to Buyers after
the date hereof in exchange (each, a “
Permitted Exchange
”) for Indebtedness of the Company owed to such Buyers
(the “
Existing Bridge Buyers
”) as of the date hereof (each, an “
Existing Bridge Note
”). The
Company agrees that for the period commencing on the date hereof and ending on the date immediately following nine months after
the Closing Date (the “
Restricted
Period
”), neither the Company nor any of its Subsidiaries shall directly
or indirectly issue, offer, sell, grant any option or right to purchase, or otherwise dispose of (or announce any issuance, offer,
sale, grant of any option or right to purchase or other disposition of) any equity security or any equity-linked or related security
(including, without limitation, any “equity security” (as that term is defined under Rule 405 promulgated under the
1933 Act), any Convertible Securities (as defined below), any debt security convertible into equity, any preferred stock or any
purchase rights) (any such issuance, offer, sale, grant, disposition or announcement (whether occurring during the Restricted Period
or at any time thereafter) is referred to as a “
Subsequent Placement
”). Notwithstanding the foregoing, this
Section 4(k) shall not apply in respect of the issuance of (A) shares of Common Stock or standard options to purchase Common Stock
to directors, officers or employees of the Company in their capacity as such pursuant to an Approved Stock Plan (as defined below),
provided that (1) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after
the date hereof pursuant to this clause (A) do not, in the aggregate, exceed more than 5% of the Common Stock issued and outstanding
immediately prior to the date hereof and (2) the exercise price of any such options is not lowered, none of such options are amended
to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially
changed in any manner that adversely affects any of the Buyers; (B) shares of Common Stock issued upon the conversion or exercise
of Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that
are covered by clause (A) above) issued prior to the date hereof, provided that the conversion, exercise or other method of issuance
(as the case may be) of any such Convertible Security is made solely pursuant to the conversion, exercise or other method of issuance
(as the case may be) provisions of such Convertible Security that were in effect on the date immediately prior to the date of this
Agreement, the conversion, exercise or issuance price of any such Convertible Securities (other than standard options to purchase
Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (A) above) is not lowered, none of such Convertible
Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by
clause (A) above) are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such
Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are
covered by clause (A) above) are otherwise materially changed in any manner that adversely affects any of the Buyers; (C) the Conversion
Shares, (D) the Interest Shares, (E) Warrant Shares and (F) shares of Common Stock and Convertible Securities issued pursuant to
equipment strategic mergers or acquisitions of other assets or businesses, or strategic licensing or development transactions;
provided that (x) the primary purpose of such issuance is not to raise capital as determined in good faith by the Buyers, (y) the
purchaser or acquirer of such shares of Common Stock in such issuance solely consists of either (1) the actual participants in
such strategic licensing or development transactions, (2) the actual owners of such assets or securities acquired in such merger
or acquisition or (3) the shareholders, partners or members of the foregoing Persons, and (z) the number or amount (as the case
may be) of such shares of Common Stock issued to such Person by the Company shall not be disproportionate to such Person’s
actual participation in such strategic licensing or development transactions or ownership of such assets or securities to be acquired
by the Company (as applicable) (each of the foregoing in clauses (A) through (F), collectively the “
Excluded Securities
”).
“
Approved Stock Plan
” means any employee benefit plan which has been approved by the board of directors of the
Company prior to or subsequent to the date hereof pursuant to which shares of Common Stock and standard options to purchase Common
Stock may be issued to any employee, officer or director for services provided to the Company in their capacity as such. “
Convertible
Securities
” means any capital stock or other security of the Company or any of its Subsidiaries that is at any time and
under any circumstances directly or indirectly convertible into, exercisable or exchangeable for, or which otherwise entitles the
holder thereof to acquire, any capital stock or other security of the Company (including, without limitation, Common Stock) or
any of its Subsidiaries.
(l)
Reservation
of Shares
. So long as any Notes or Warrants remain outstanding, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, no less than the sum of (i) 125% of the maximum number of shares of
Common Stock issuable upon conversion of all the Notes then outstanding (assuming for purposes hereof, that the Notes are convertible
at the Conversion Price (as defined in the Notes) and without regard to any limitations on the conversion of the Notes set forth
therein), and (ii) 125% of the maximum number of Interest Shares issuable pursuant to the terms of the Notes then outstanding from
the Closing Date through the twelve month anniversary of the Closing Date (determined as if issued on the Trading Day immediately
preceding the Closing Date without taking into account any limitations on the issuance of securities set forth in the Notes and
assuming for such purpose that all Notes have been issued on the Closing Date) and (iii) 125% of the maximum number of Warrant
Shares issuable upon exercise of all the Warrants then outstanding (without regard to any limitations on the exercise of the Warrants
set forth therein).(collectively, the “
Required Reserve Amount
”); provided that at no time shall the number
of shares of Common Stock reserved pursuant to this Section 4(l) be reduced other than proportionally in connection with any conversion,
exercise and/or redemption, as applicable of Notes and Warrants. If at any time the number of shares of Common Stock authorized
and reserved for issuance is not sufficient to meet the Required Reserve Amount, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company's obligations pursuant to the Transaction Documents, in the case of an insufficient
number of authorized shares, obtain stockholder approval of an increase in such authorized number of shares, and voting the management
shares of the Company in favor of an increase in the authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Required Reserve Amount.
(m)
Conduct
of Business
. The business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except where such violations would not reasonably be expected to result, either individually
or in the aggregate, in a Material Adverse Effect.
(n)
Other
Notes; Variable Securities
. Except with respect to a Permitted Exchange, so long as any Notes remain outstanding, the Company
and each Subsidiary shall be prohibited from effecting or entering into an agreement to effect any Subsequent Placement involving
a Variable Rate Transaction. “
Variable Rate Transaction
” means a transaction in which the Company or any Subsidiary
(i) issues or sells any Convertible Securities either (A) at a conversion, exercise 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 Convertible 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 Convertible Securities or upon the occurrence of specified or contingent events directly
or indirectly related to the business of the Company or the market for the Common Stock, other than pursuant to a customary “weighted
average” or “full ratchet” anti-dilution provision or (ii) enters into any agreement (including, without limitation,
an equity line of credit or an “at-the-market” offering) whereby the Company or any Subsidiary may sell securities
at a future determined price (other than standard and customary “preemptive” or “participation” rights).
Each Buyer shall be entitled to obtain injunctive relief against the Company and its Subsidiaries to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
(o)
Participation
Right
. From the date hereof through the two (2) year anniversary of the Closing Date, neither the Company nor any of its Subsidiaries
shall, directly or indirectly, effect any Subsequent Placement unless the Company shall have first complied with this Section 4(o).
The Company acknowledges and agrees that the right set forth in this Section 4(o) is a right granted by the Company, separately,
to each Buyer.
(i) At
least two (2) Trading Days prior to any proposed or intended Subsequent Placement, the Company shall deliver to each Buyer a written
notice of its proposal or intention to effect a Subsequent Placement (each such notice, a “
Pre-Notice
”), which
Pre-Notice shall not contain any information (including, without limitation, material, non-public information) other than: (x)
a statement that the Company proposes or intends to effect a Subsequent Placement, (y) a statement that the statement in clause
(x) above does not constitute material, non-public information and (z) a statement informing such Buyer that it is entitled to
receive an Offer Notice (as defined below) with respect to such Subsequent Placement upon its written request. Upon the written
request of a Buyer within two (2) Trading Days after the Company’s delivery to such Buyer of such Pre-Notice, and only upon
a written request by such Buyer, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver
to such Buyer an irrevocable written notice (the “
Offer Notice
”) of any proposed or intended issuance or sale
or exchange (the “
Offer
”) of the securities being offered (the “
Offered Securities
”) in a
Subsequent Placement, which Offer Notice shall (A) identify and describe the Offered Securities, (B) describe the price and other
terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold
or exchanged, (C) identify the Persons (if known) to which or with which the Offered Securities are to be offered, issued, sold
or exchanged and (D) offer to issue and sell to or exchange with such Buyer in accordance with the terms of the Offer such Buyer’s
pro rata portion of 50% of the Offered Securities, provided that the number of Offered Securities which such Buyer shall have the
right to subscribe for under this Section 4(o) shall be (x) based on such Buyer’s pro rata portion of the aggregate original
principal amount of the Notes purchased hereunder by all Buyers (the “
Basic Amount
”), and (y) with respect to
each Buyer that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic
Amounts of other Buyers as such Buyer shall indicate it will purchase or acquire should the other Buyers subscribe for less than
their Basic Amounts (the “
Undersubscription Amount
”), which process shall be repeated until each Buyer shall
have an opportunity to subscribe for any remaining Undersubscription Amount.
(ii) To
accept an Offer, in whole or in part, such Buyer must deliver a written notice to the Company prior to the end of the second Business
Day after such Buyer’s receipt of the Offer Notice (the “
Offer Period
”), setting forth the portion of
such Buyer’s Basic Amount that such Buyer elects to purchase and, if such Buyer shall elect to purchase all of its Basic
Amount, the Undersubscription Amount, if any, that such Buyer elects to purchase (in either case, the “
Notice of Acceptance
”).
If the Basic Amounts subscribed for by all Buyers are less than the total of all of the Basic Amounts, then each Buyer who has
set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for; provided, however, if the Undersubscription Amounts subscribed
for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the “
Available
Undersubscription Amount
”), each Buyer who has subscribed for any Undersubscription Amount shall be entitled to purchase
only that portion of the Available Undersubscription Amount as the Basic Amount of such Buyer bears to the total Basic Amounts
of all Buyers that have subscribed for Undersubscription Amounts, subject to rounding by the Company to the extent it deems reasonably
necessary. Notwithstanding the foregoing, if the Company desires to modify or amend the terms and conditions of the Offer prior
to the expiration of the Offer Period, the Company may deliver to each Buyer a new Offer Notice and the Offer Period shall expire
on the second Business Day after such Buyer’s receipt of such new Offer Notice.
(iii) The
Company shall have ten Business Days from the expiration of the Offer Period above (A) to offer, issue, sell or exchange all or
any part of such Offered Securities as to which a Notice of Acceptance has not been given by a Buyer (the “
Refused Securities
”)
pursuant to a definitive agreement(s) (the “
Subsequent Placement Agreement
”), but only to the offerees described
in the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and
interest rates) that are not more favorable to the acquiring Person or Persons or less favorable to the Company than those set
forth in the Offer Notice and (B) to publicly announce (x) the execution of such Subsequent Placement Agreement, and (y) either
(I) the consummation of the transactions contemplated by such Subsequent Placement Agreement or (II) the termination of such Subsequent
Placement Agreement, which shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent Placement Agreement
and any documents contemplated therein filed as exhibits thereto.
(iv) In
the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the
terms specified in Section 4(o)(iii) above), then each Buyer may, at its sole option and in its sole discretion, withdraw
its Notice of Acceptance or reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount
that shall be not less than the number or amount of the Offered Securities that such Buyer elected to purchase pursuant to Section 4(o)(ii)
above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Buyers pursuant to this Section 4(o)
prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event
that any Buyer so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities
have again been offered to the Buyers in accordance with Section 4(o)(i) above.
(v) Upon
the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, such Buyer shall acquire from
the Company, and the Company shall issue to such Buyer, the number or amount of Offered Securities specified in its Notice of Acceptance,
as reduced pursuant to Section 4(o)(iv) above if such Buyer has so elected, upon the terms and conditions specified in the
Offer. The purchase by such Buyer of any Offered Securities is subject in all cases to the preparation, execution and delivery
by the Company and such Buyer of a separate purchase agreement relating to such Offered Securities reasonably satisfactory in form
and substance to such Buyer and its counsel.
(vi) Any
Offered Securities not acquired by a Buyer or other Persons in accordance with this Section 4(o) may not be issued, sold or
exchanged until they are again offered to such Buyer under the procedures specified in this Agreement.
(vii) The
Company and each Buyer agree that if any Buyer elects to participate in the Offer, (x) neither the Subsequent Placement Agreement
with respect to such Offer nor any other transaction documents related thereto (collectively, the “
Subsequent Placement
Documents
”) shall include any term or provision whereby such Buyer shall be required to agree to any restrictions on
trading as to any securities of the Company 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, any agreement previously entered into with the Company or any instrument received
from the Company, and (y) any registration rights set forth in such Subsequent Placement Documents shall be similar in all material
respects to the registration rights contained in the Registration Rights Agreement.
(viii) Notwithstanding
anything to the contrary in this Section 4(o) and unless otherwise agreed to by such Buyer, the Company shall either confirm in
writing to such Buyer that the transaction with respect to the Subsequent Placement has been abandoned or shall publicly disclose
its intention to issue the Offered Securities, in either case, in such a manner such that such Buyer will not be in possession
of any material, non-public information, by the fifth (5
th
) Business Day following delivery of the Offer Notice. If
by such fifth (5
th
) Business Day, no public disclosure regarding a transaction with respect to the Offered Securities
has been made, and no notice regarding the abandonment of such transaction has been received by such Buyer, such transaction shall
be deemed to have been abandoned and such Buyer shall not be in possession of any material, non-public information with respect
to the Company or any of its Subsidiaries. Should the Company decide to pursue such transaction with respect to the Offered Securities,
the Company shall provide such Buyer with another Offer Notice and such Buyer will again have the right of participation set forth
in this Section 4(o). The Company shall not be permitted to deliver more than one such Offer Notice to such Buyer in any thirty
(30) day period, except as expressly contemplated by the last sentence of Section 4(o)(ii).
(ix) The
restrictions contained in this Section 4(o) shall not apply in connection with the issuance of (I) any Excluded Securities or any
Permitted Exchange, or (II) any shares of Common Stock issued or issuable in connection with strategic or commercial alliances,
acquisitions, mergers, and strategic partnerships, provided, that (x) the primary purpose of such issuance is not to raise capital
as determined in good faith by the board of directors of the Company, (y) the purchaser or acquirer of the securities in such issuance
solely consists of either (A) the actual participants in such strategic or commercial alliance or strategic or commercial partnership,
(B) the actual owners of such assets or securities acquired in such acquisition or merger or (C) the stockholders, partners or
members of the foregoing Persons and (z) the number or amount of securities issued to such Persons by the Company shall not be
disproportionate to each such Person’s actual participation in such strategic or commercial alliance or strategic or commercial
partnership or ownership of such assets or securities to be acquired by the Company, as applicable. The Company shall not circumvent
the provisions of this Section 4(o) by providing terms or conditions to one Buyer that are not provided to all.
(p)
Dilutive
Issuances
. Other than a Permitted Exchange, for so long as any Notes or Warrants remain outstanding, the Company shall not,
in any manner, enter into or affect any Dilutive Issuance (as defined in the Notes) if the effect of such Dilutive Issuance is
to cause the Company to be required to issue upon conversion of any Notes or exercise of any Warrant any shares of Common Stock
in excess of that number of shares of Common Stock which the Company may issue upon conversion of the Notes and exercise of the
Warrants without breaching the Company’s obligations under the rules or regulations of the Principal Market.
(q)
Passive
Foreign Investment Company
. The Company shall conduct its business, and shall cause its Subsidiaries to conduct their respective
businesses, in such a manner as will ensure that the Company will not be deemed to constitute a passive foreign investment company
within the meaning of Section 1297 of the Code.
(r)
Restriction
on Redemption and Cash Dividends
. So long as any Notes are outstanding, the Company shall not, directly or indirectly, redeem,
or declare or pay any cash dividend or distribution on, any securities of the Company without the prior express written consent
of the Buyers.
(s)
Corporate
Existence
. So long as any Buyer beneficially owns any Notes or Warrants, the Company shall not be party to any Fundamental
Transaction (as defined in the Notes) unless the Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes and the Warrants.
(t)
Stock
Splits
. Until the Notes are no longer outstanding, the Company shall not effect any stock combination, reverse stock split
or other similar transaction (or make any public announcement or disclosure with respect to any of the foregoing) without the prior
written consent of the Required Holders (as defined below).
(u)
Conversion
and Exercise Procedures
. Each of the form of Exercise Notice (as defined in the Warrants) included in the Warrants and the
form of Conversion Notice (as defined in the Notes) included in the Notes set forth the totality of the procedures required of
the Buyers in order to exercise the Warrants or convert the Notes. Except as provided in Section 5(d), no additional legal opinion,
other information or instructions shall be required of the Buyers to exercise their Warrants or convert their Notes. The Company
shall honor exercises of the Warrants and conversions of the Notes and shall deliver the Conversion Shares, Interest Shares and
Warrant Shares in accordance with the terms, conditions and time periods set forth in the Notes and Warrants.
(v)
Regulation
M
. The Company will not take any action prohibited by Regulation M under the 1934 Act, in connection with the distribution
of the Securities contemplated hereby.
(w)
Trading
in Common Stock
.
(i) Each
Buyer hereby agrees solely with the Company, severally and not jointly, and not with any other Buyer, for so long as such Buyer
owns any Notes, such Buyer shall not (x) maintain a Net Short Position (as defined below) or (y) together with any of its affiliates
or any other person acting on behalf of or pursuant to any understanding with such Buyer or its affiliates, sell shares of Common
Stock received by such Buyer pursuant to a Company Conversion (as defined in the Notes) during any Trading Day in an amount, in
the aggregate, exceeding 15% of the composite aggregate share trading volume as reported on Bloomberg (as defined in the Warrant)
of the Common Stock measured at the time of each sale of Common Stock during such Trading Day.
(ii) For
purposes hereof, a “
Net Short Position
” by a person means a position whereby such person has executed one or
more sales of Common Stock that is marked as a short sale (but not including any sale marked “short exempt”) and that
is executed at a time when such Buyer has no equivalent offsetting long position in the Common Stock (or is deemed to have a long
position hereunder or otherwise in accordance with Regulation SHO of the 1934 Act). For purposes of determining whether a Buyer
has an equivalent offsetting long position in the Common Stock, all Common Stock (A) that is owned by such Buyer, (B) that may
be issued as Interest Shares pursuant to the terms of the Notes issuable to such Buyer or then held by such Buyer, as applicable,
or (C) that would be issuable upon conversion or exercise in full of all Securities issuable to such Buyer or then held by such
Buyer, as applicable, (assuming that such Securities were then fully convertible or exercisable, notwithstanding any provisions
to the contrary, and giving effect to any conversion or exercise price adjustments that would take effect given only the passage
of time) shall be deemed to be held long by such Buyer.
(x)
General
Solicitation
. None of the Company, any of its affiliates (as
defined in Rule 501(b) under the 1933 Act) or any person acting on behalf of the Company or such affiliate will solicit any offer
to buy or offer or sell the Securities by means of any form of general solicitation or general advertising within the meaning of
Regulation D, including: (i) any advertisement, article, notice or other communication published in any newspaper, magazine
or similar medium or broadcast over television or radio; and (ii) any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
(y)
Integration
.
None of the Company, any of its affiliates (as defined in Rule 501(b) under the 1933 Act), or any person acting on behalf of the
Company or such affiliate will sell, offer for sale, or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in the 1933 Act) which will be integrated with the sale of the Securities in a manner under the rules and regulations
of the Principal Market or would require the registration of the Securities under the 1933 Act and the Company will take all action
that is appropriate or necessary to assure that its offerings of other securities will not be integrated for purposes of the 1933
Act or the rules and regulations of the Principal Market, with the issuance of Securities contemplated hereby.
(z)
Notice
of Disqualification Events
. The Company will notify the Buyers
in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event
that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.
(aa)
Stockholder
Approval
. The Company shall provide each stockholder entitled to vote at either (x) the next annual meeting of stockholders
of the Company or (y) a special meeting of stockholders of the Company (the “
Stockholder Meeting
”), which shall
be promptly called and held not later than January 15, 2016 (the “
Stockholder Meeting Deadline
”), a proxy statement,
substantially in a form which shall have been previously reviewed by Kelley Drye & Warren LLP, at the expense of the Company
but in any event such expense not to exceed $5,000 without the prior written approval of the Company; soliciting each such stockholder's
affirmative vote at the Stockholder Meeting for approval of resolutions (“
Stockholder Resolutions
”) providing
for the approval of the issuance of all of the Securities in compliance with the rules and regulations of the Principal Market
(without regard to any limitations on conversion or exercise set forth in the Notes or Warrants, respectively)(such affirmative
approval being referred to herein as the “
Stockholder Approval
”, and the date such Stockholder Approval is obtained,
the “
Stockholder Approval Date
”), and the Company shall use its reasonable best efforts to solicit its stockholders'
approval of such resolutions and to cause the Board of Directors of the Company to recommend to the stockholders that they approve
such resolutions. The Company shall be obligated to seek to obtain the Stockholder Approval by the Stockholder Meeting Deadline.
If, despite the Company's reasonable best efforts the Stockholder Approval is not obtained on or prior to the Stockholder Meeting
Deadline, the Company shall cause an additional Stockholder Meeting to be held once in each of the three subsequent calendar quarters
thereafter until such Stockholder Approval is obtained. If, despite the Company's reasonable best efforts the Stockholder Approval
is not obtained after such subsequent stockholder meetings, the Company shall cause an additional Stockholder Meeting to be held
semi-annually thereafter until such Stockholder Approval is obtained.
(bb)
Closing
Documents
. On or prior to fourteen (14) calendar days after the Closing Date, the Company agrees to deliver, or cause to be
delivered, to each Buyer and Kelley Drye & Warren LLP a complete closing set of the executed Transaction Documents, Securities
and any other document required to be delivered to any party pursuant to Section 7 hereof or otherwise.
5. REGISTER;
TRANSFER AGENT INSTRUCTIONS; LEGEND.
(a)
Register
.
The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate
by notice to each holder of Securities), a register for the Notes and the Warrants in which the Company shall record the name and
address of the Person in whose name the Notes and
the Warrants have been issued (including the name and address of each
transferee), the principal amount of the Notes held by such Person, the number of Conversion Shares issuable upon conversion of
the Notes, the number of Interest Shares issuable with respect to the Notes and the number of Warrant Shares issuable upon exercise
of the Warrants held by such Person. The Company shall keep the register open and available at all times during business hours
for inspection of any Buyer or its legal representatives upon reasonable prior notice.
(b)
Transfer
Agent Instructions
. The Company shall issue irrevocable instructions to its transfer agent and any subsequent transfer agent
in a form acceptable to each of the Buyers (the “
Irrevocable Transfer Agent Instructions
”) to issue certificates
or credit shares to the applicable balance accounts at The Depository Trust Company (“
DTC
”), registered in the
name of each Buyer or its respective nominee(s), for the Conversion Shares, the Interest Shares and the Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon conversion of the Notes or the exercise of the Warrants
(as the case may be). The Company represents and warrants that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5(b), and stop transfer instructions to give effect to Section 2(g) hereof, will be given by the
Company to its transfer agent with respect to the Securities, and that the Securities shall otherwise be freely transferable on
the books and records of the Company, as applicable, to the extent provided in this Agreement and the other Transaction Documents.
If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section 2(g), the Company shall permit the
transfer and shall promptly instruct its transfer agent to issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment.
In the event that such sale, assignment or transfer involves Conversion Shares, the Interest Shares or Warrant Shares sold, assigned
or transferred pursuant to an effective registration statement or in compliance with Rule 144, the transfer agent shall issue such
shares to such Buyer, assignee or transferee (as the case may be) without any restrictive legend in accordance with Section 5(d)
below. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Buyer. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that a Buyer
shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.
The Company shall cause its counsel to issue the legal opinion referred to in the Irrevocable Transfer Agent Instructions to the
Company’s transfer agent on each Effective Date (as defined in the Registration Rights Agreement). Any fees (with respect
to the transfer agent, counsel to the Company or otherwise) associated with the issuance of such opinion or the removal of any
legends on any of the Securities shall be borne by the Company.
(c)
Legends
.
Each Buyer understands that the Securities have been issued (or will be issued in the case of the Conversion Shares, the Interest
Shares and the Warrant Shares) pursuant to an exemption from registration or qualification under the 1933 Act and applicable state
securities laws, and except as set forth below, the Securities shall bear any legend as required by the “blue sky”
laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against
transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE
OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
(d)
Removal
of Legends
. Certificates evidencing Securities shall not be required to contain the legend set forth in Section 5(c) above
or any other legend (i) while a registration statement (including a Registration Statement) covering the resale of such Securities
is effective under the 1933 Act, (ii) following any sale of such Securities pursuant to Rule 144 (assuming the transferor is not
an affiliate of the Company), (iii) if such Securities are eligible to be sold, assigned or transferred under Rule 144 (provided
that a Buyer provides the Company with reasonable assurances that such Securities are eligible for sale, assignment or transfer
under Rule 144 which shall not include an opinion of Buyer’s counsel), (iv) in connection with a sale, assignment or other
transfer (other than under Rule 144), provided that (if requested by the Company) such Buyer provides the Company with an opinion
of counsel to such Buyer, in a generally acceptable form, to the effect that such sale, assignment or transfer of the Securities
may be made without registration under the applicable requirements of the 1933 Act or (v) if such legend is not required under
applicable requirements of the 1933 Act (including, without limitation, controlling judicial interpretations and pronouncements
issued by the SEC). If a legend is not required pursuant to the foregoing, the Company shall no later than three (3) Trading Days
(or such earlier date as required pursuant to the 1934 Act or other applicable law, rule or regulation for the settlement of a
trade initiated on the date such Buyer delivers such legended certificate representing such Securities to the Company) following
the delivery by a Buyer to the Company or the transfer agent (with notice to the Company) of a legended certificate representing
such Securities (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance
and/or transfer, if applicable), together with any other deliveries from such Buyer as may be required above in this Section 5(d),
as directed by such Buyer, either: (A) provided that the Company’s transfer agent is participating in the DTC Fast Automated
Securities Transfer Program and such Securities are Conversion Shares, Interest Shares or Warrant Shares, credit the aggregate
number of shares of Common Stock to which such Buyer shall be entitled to such Buyer’s or its designee’s balance account
with DTC through its Deposit/Withdrawal at Custodian system or (B) if the Company’s transfer agent is not participating in
the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight courier) to such Buyer, a certificate
representing such Securities that is free from all restrictive and other legends, registered in the name of such Buyer or its designee
(the date by which such credit is so required to be made to the balance account of such Buyer’s or such Buyer’s designee
with DTC or such certificate is required to be delivered to such Buyer pursuant to the foregoing is referred to herein as the “
Required
Delivery Date
”, and the date such shares of Common Stock are actually delivered without restrictive legend to such Buyer
or such Buyer’s designee with DTC, as applicable, the “
Share Delivery Date
”). The Company shall be responsible
for any transfer agent fees or DTC fees with respect to any issuance of Securities or the removal of any legends with respect to
any Securities in accordance herewith.
(e)
Failure
to Timely Deliver; Buy-In
. If the Company fails to fail, for any reason or for no reason, to issue and deliver (or cause to
be delivered) to a Buyer (or its designee) by the Required Delivery Date, either (I) if the Transfer Agent is not participating
in the DTC Fast Automated Securities Transfer Program, a certificate for the number of Conversion Shares or Warrant Shares (as
the case may be) to which such Buyer is entitled and register such Conversion Shares or Warrant Shares (as the case may be) on
the Company’s share register or, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program,
to credit the balance account of such Buyer or such Buyer’s designee with DTC for such number of Conversion Shares or Warrant
Shares (as the case may be) submitted for legend removal by such Buyer pursuant to Section 5(d) above or (II) if the Registration
Statement covering the resale of the Conversion Shares or Warrant Shares (as the case may be) submitted for legend removal by such
Buyer pursuant to Section 5(d) above (the “
Unavailable Shares
”) is not available for the resale of such Unavailable
Shares and the Company fails to promptly, but in no event later than as required pursuant to the Registration Rights Agreement
(x) so notify such Buyer and (y) deliver the Conversion Shares or Warrant Shares, as applicable, electronically without any restrictive
legend by crediting such aggregate number of Conversion Shares or Warrant Shares (as the case may be) submitted for legend removal
by such Buyer pursuant to Section 5(d) above to such Buyer’s or its designee’s balance account with DTC through its
Deposit/Withdrawal At Custodian system (the event described in the immediately foregoing clause (II) is hereinafter referred as
a “
Notice Failure
” and together with the event described in clause (I) above, a “
Delivery Failure
”),
then, in addition to all other remedies available to such Buyer, the Company shall pay in cash to such Buyer on each day after
the Share Delivery Date and during such Delivery Failure an amount equal to 2% of the product of (A) the sum of the number of shares
of Common Stock not issued to such Buyer on or prior to the Required Delivery Date and to which such Buyer is entitled, and (B)
any trading price of the Common Stock selected by such Buyer in writing as in effect at any time during the period beginning on
the date of the delivery by such Buyer to the Company of the applicable Conversion Shares or Warrant Shares (as the case may be)
and ending on the applicable Share Delivery Date. In addition to the foregoing, if on or prior to the Required Delivery Date either
(I) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, the Company shall fail to
issue and deliver a certificate to a Buyer and register such shares of Common Stock on the Company's share register or, if the
Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, credit the balance account of such Buyer
or such Buyer’s designee with DTC for the number of shares of Common Stock to which such Buyer submitted for legend removal
by such Buyer pursuant to Section 5(d) above (ii) below or (II) a Notice Failure occurs, and if on or after such Trading Day such
Buyer purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Buyer of shares of Common Stock submitted for legend removal by such Buyer pursuant to Section 5(d) above that such Buyer anticipated
receiving from the Company (a “
Buy-In
”), then the Company shall, within three (3) Trading Days after such Buyer’s
request and in such Buyer’s discretion, either (i) pay cash to such Buyer in an amount equal to such Buyer’s total
purchase price (including brokerage commissions and other out-of-pocket expenses, if any, for the shares of Common Stock so purchased)
(the “
Buy-In Price
”), at which point the Company’s obligation to so deliver such certificate or credit
such Buyer’s balance account shall terminate and such shares shall be cancelled, or (ii) promptly honor its obligation to
so deliver to such Buyer a certificate or certificates or credit the balance account of such Buyer or such Buyer’s designee
with DTC representing such number of shares of Common Stock that would have been so delivered if the Company timely complied with
its obligations hereunder and pay cash to such Buyer in an amount equal to the excess (if any) of the Buy-In Price over the product
of (A) such number of shares of Conversion Shares or Warrant Shares (as the case may be) that the Company was required to deliver
to such Buyer by the Required Delivery Date multiplied by (B) the lowest Closing Sale Price (as defined in the Warrants) of the
Common Stock on any Trading Day during the period commencing on the date of the delivery by such Buyer to the Company of the applicable
Conversion Shares or Warrant Shares (as the case may be) and ending on the date of such delivery and payment under this clause
(ii). Nothing shall limit such Buyer’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 certificates representing shares of Common Stock (or to electronically deliver such shares of Common Stock) as
required pursuant to the terms hereof. Notwithstanding anything herein to the contrary, with respect to any given Notice Failure
and/or Delivery Failure, this Section 5(e) shall not apply to the applicable Buyer the extent the Company has already paid such
amounts in full to such Buyer with respect to such Notice Failure and/or Delivery Failure, as applicable, pursuant to the analogous
sections of the Note or Warrant, as applicable, held by such Buyer.
(f)
FAST
Compliance
. While any Notes or Warrants remain outstanding, the Company shall maintain a transfer agent that participates in
the DTC Fast Automated Securities Transfer Program.
6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.
(a) The
obligation of the Company hereunder to issue and sell the Notes
and the related Warrants to each Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions
are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each
Buyer with prior written notice thereof:
(i) Such
Buyer shall have executed each of the other Transaction Documents to which it is a party and delivered the same to the Company.
(ii) Such
Buyer and each other Buyer shall have delivered to the Company the Purchase Price (less, in the case of any Buyer, the amounts
withheld pursuant to Section 4(g)) for the Note and the related Warrants being purchased by such Buyer at the Closing by wire
transfer of immediately available funds in accordance with the Flow of Funds Letter.
(iii) The
representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as
of the Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific
date, which shall be true and correct as of such specific date), and such Buyer shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied
with by such Buyer at or prior to the Closing Date.
7. CONDITIONS
TO EACH BUYER’S OBLIGATION TO PURCHASE.
(a) The
obligation of each Buyer hereunder to purchase its Note
and its related Warrants at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:
(i) The
Company and each Subsidiary (as the case may be) shall have duly executed and delivered to such Buyer each of the Transaction Documents
to which it is a party and the Company shall have duly executed and delivered to such Buyer a Note (in such original principal
amount as is set forth across from such Buyer’s name in column (3) of the Schedule of Buyers) together with the related Warrants
(initially for such aggregate number of Warrant Shares as is set forth across from such Buyer’s name in column (4) of the
Schedule of Buyers) being purchased by such Buyer at the Closing pursuant to this Agreement.
(ii) Such
Buyer shall have received the opinion of Jolie Kahn, Esq., the Company’s counsel, dated as of the Closing Date, in the form
acceptable to such Buyer.
(iii) The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form acceptable to such
Buyer, which instructions shall have been delivered to and acknowledged in writing by the Company’s transfer agent.
(iv) The
Company shall have delivered to such Buyer a certificate evidencing the formation and good standing of the Company in such entity’s
jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction of formation as of a date
within ten (10) days of the Closing Date.
(v) The
Company shall have delivered to such Buyer a certificate evidencing the Company’s and each Subsidiary’s qualification
as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of each jurisdiction in which
the Company and each Subsidiary conducts business and is required to so qualify, as of a date within ten (10) days of the Closing
Date.
(vi) The
Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Delaware Secretary
of State within ten (10) days of the Closing Date.
(vii) Each
Subsidiary shall have delivered to such Buyer a certified copy of its Certificate of Incorporation (or such equivalent organizational
document) as certified by the Secretary of State (or comparable office) of such Subsidiary’s jurisdiction of incorporation
within ten (10) days of the Closing Date.
(viii) The
Company shall have delivered to such Buyer a certificate, in the form acceptable to such Buyer, executed by the Secretary of the
Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s
board of directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation of the Company and (iii) the
Bylaws of the Company, each as in effect at the Closing.
(ix) Each
and every representation and warranty of the Company shall be true and correct as of the date when made and as of the Closing Date
as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall
be true and correct as of such specific date) and the Company shall have performed, satisfied and complied in all respects with
the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, duly executed by the Chief Executive Officer of the Company, dated
as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the
form acceptable to such Buyer.
(x) The
Company shall have delivered to such Buyer a letter from the Company’s transfer agent certifying the number of shares of
Common Stock outstanding on the Closing Date immediately prior to the Closing.
(xi) The
Common Stock (A) shall be designated for quotation or listed (as applicable) on the Principal Market and (B) shall not have been
suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension
by the SEC or the Principal Market have been threatened, as of the Closing Date, either (I) in writing by the SEC or the Principal
Market or (II) by falling below the minimum maintenance requirements of the Principal Market.
(xii) The
Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale
of the Securities, including without limitation, those required by the Principal Market, if any.
(xiii) No
statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority or other Governmental Entity of competent jurisdiction that prohibits the consummation of
any of the transactions contemplated by the Transaction Documents.
(xiv) Since
the date of execution of this Agreement, no event or series of events shall have occurred that reasonably would have or result
in a Material Adverse Effect.
(xv) Each
Controlled Account Bank (as defined in the Notes) and the Company shall have duly executed and delivered to such Buyer the Controlled
Account Agreements with respect to the Master Restricted Accounts (as defined in the Notes).
(xvi) The
Company shall have completed, duly executed and delivered to each Buyer the FCPA questionnaire in the form provided to the Company
by CVI prior to the Closing Date.
(xvii) Such
Buyer shall have received a letter on the letterhead of the Company, duly executed by the Chief Executive Officer of the Company,
setting forth the wire amounts of each Buyer and the wire transfer instructions of the Company with respect to the portion of the
Purchase Price set forth in column (6) of the Schedule of Buyers and, the wire instructions of the Controlled Account Bank with
respect to the portion of the Purchase Price set forth in column (7) of the Schedule of Buyers related to the Master Restricted
Account (the "
Flow of Funds Letter
").
(xviii) The
Company and its Subsidiaries shall have delivered to such Buyer such other documents, instruments or certificates relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.
8. TERMINATION.
In the event that the
Closing shall not have occurred with respect to a Buyer within five (5) days of the date hereof, then such Buyer shall have the
right to terminate its obligations under this Agreement with respect to itself at any time on or after the close of business on
such date without liability of such Buyer to any other party; provided, however, (i) the right to terminate this Agreement under
this Section 8 shall not be available to such Buyer if the failure of the transactions contemplated by this Agreement to have
been consummated by such date is the result of such Buyer’s breach of this Agreement and (ii) the abandonment of the sale
and purchase of the Notes and the Warrants shall be applicable only to such Buyer providing such written notice, provided further
that no such termination shall affect any obligation of the Company under this Agreement to reimburse such Buyer for the expenses
described in Section 4(g) above. Nothing contained in this Section 8 shall be deemed to release any party from any liability
for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the
right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction
Documents.
9. MISCELLANEOUS.
(a)
Governing
Law; Jurisdiction; Jury Trial
. All questions concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict
of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. 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 under any of the other Transaction Documents or with any transaction contemplated hereby or thereby,
and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address
for such 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 manner permitted
by law. Nothing contained herein shall be deemed or operate to preclude any Buyer from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company’s obligations to such Buyer or to enforce a judgment
or other court ruling in favor of such Buyer.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT
TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT OR IN CONNECTION
WITH OR ARISING OUT OF THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.
(b)
Counterparts
.
This Agreement may be executed in two or more identical counterparts, all of which 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. In the event that
any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an
executed signature page, such signature page 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 signature page were an original thereof.
(c)
Headings;
Gender
. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation
of, this Agreement. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine,
feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include”
and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,”
“hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the provision
in which they are found.
(d)
Severability;
Maximum Payment Amounts
. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable
by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified
continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations
or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the
parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
Notwithstanding anything to the contrary contained in this Agreement or any other Transaction Document (and without implication
that the following is required or applicable), it is the intention of the parties that in no event shall amounts and value paid
by the Company and/or any of its Subsidiaries (as the case may be), or payable to or received by any of the Buyers, under the Transaction
Documents (including without limitation, any amounts that would be characterized as “interest” under applicable law)
exceed amounts permitted under any applicable law. Accordingly, if any obligation to pay, payment made to any Buyer, or collection
by any Buyer pursuant the Transaction Documents is finally judicially determined to be contrary to any such applicable law, such
obligation to pay, payment or collection shall be deemed to have been made by mutual mistake of such Buyer, the Company and its
Subsidiaries and such amount shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest,
as the case may be, as would not be so prohibited by the applicable law. Such adjustment shall be effected, to the extent necessary,
by reducing or refunding, at the option of such Buyer, the amount of interest or any other amounts which would constitute unlawful
amounts required to be paid or actually paid to such Buyer under the Transaction Documents. For greater certainty, to the extent
that any interest, charges, fees, expenses or other amounts required to be paid to or received by such Buyer under any of the Transaction
Documents or related thereto are held to be within the meaning of “interest” or another applicable term to otherwise
be violative of applicable law, such amounts shall be pro-rated over the period of time to which they relate.
(e)
Entire
Agreement; Amendments
. This Agreement, the other Transaction Documents and the schedules and exhibits attached hereto and thereto
and the instruments referenced herein and therein supersede all other prior oral or written agreements between the Buyers, the
Company, its Subsidiaries, their affiliates and Persons acting on their behalf solely with respect to the matters contained herein
and therein, and this Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and the
instruments referenced herein and therein contain the entire understanding of the parties solely with respect to the matters covered
herein and therein; provided, however, nothing contained in this Agreement or any other Transaction Document shall (or shall be
deemed to) (i) have any effect on any agreements any Buyer has entered into with, or any instruments any Buyer has received from,
the Company or any of its Subsidiaries prior to the date hereof with respect to any prior investment made by such Buyer in the
Company or (ii) waive, alter, modify or amend in any respect any obligations of the Company or any of its Subsidiaries, or any
rights of or benefits to any Buyer or any other Person, in any agreement entered into prior to the date hereof between or among
the Company and/or any of its Subsidiaries and any Buyer, or any instruments any Buyer received from the Company and/or any of
its Subsidiaries prior to the date hereof, and all such agreements and instruments shall continue in full force and effect. Except
as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. For clarification purposes, the Recitals are part of this Agreement. No provision of
this Agreement may be amended other than by an instrument in writing signed by the Company and the Required Holders (as defined
below), and any amendment to any provision of this Agreement made in conformity with the provisions of this Section 9(e) shall
be binding on all Buyers and holders of Securities, as applicable; provided that no such amendment shall be effective to the extent
that it (A) applies to less than all of the holders of the Securities then outstanding or (B) imposes any obligation or liability
on any Buyer without such Buyer’s prior written consent (which may be granted or withheld in such Buyer’s sole discretion).
No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party, provided
that the Required Holders may waive any provision of this Agreement, and any waiver of any provision of this Agreement made in
conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Securities, as applicable,
provided that no such waiver shall be effective to the extent that it (1) applies to less than all of the holders of the Securities
then outstanding (unless a party gives a waiver as to itself only) or (2) imposes any obligation or liability on any Buyer without
such Buyer’s prior written consent (which may be granted or withheld in such Buyer’s sole discretion). The Company
has not, directly or indirectly, made any agreements with any Buyers relating to the terms or conditions of the transactions contemplated
by the Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company, any Subsidiary or otherwise. As a material inducement for each Buyer to enter into this Agreement,
the Company expressly acknowledges and agrees that (x) no due diligence or other investigation or inquiry conducted by a Buyer,
any of its advisors or any of its representatives shall affect such Buyer’s right to rely on, or shall modify or qualify
in any manner or be an exception to any of, the Company’s representations and warranties contained in this Agreement or any
other Transaction Document and (y) unless a provision of this Agreement or any other Transaction Document is expressly preceded
by the phrase “except as disclosed in the SEC Documents,” nothing contained in any of the SEC Documents shall affect
such Buyer’s right to rely on, or shall modify or qualify in any manner or be an exception to any of, the Company’s
representations and warranties contained in this Agreement or any other Transaction Document. “
Required Holders
”
means (I) prior to the Closing Date, each Buyer entitled to purchase Notes at the Closing and (II) on or after the Closing Date,
(A) each of the Buyers, solely with respect to any waiver or amendment of Section 4(o), (B) the holder of a Note related to a Master
Restricted Account, solely with respect to any amendment or waiver of the corresponding Controlled Account Agreement, (C) each
of the Existing Bridge Buyers, with respect to any amendment or waiver of this Agreement, solely to the extent necessary to effect
the issuance of additional Notes and/or related additional Warrants pursuant to a Permitted Exchange, if any, or (D) otherwise,
holders of a majority of the Registrable Securities as of such time (excluding any Registrable Securities held by the Company or
any of its Subsidiaries as of such time) or issuable to hereunder or pursuant to the Notes and/or the Warrants.
(f)
Notices
.
Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must
be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent
by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending
party) or electronic mail; or (iii) one (1) Business Day after deposit with an overnight courier service with next day delivery
specified, in each case, properly addressed to the party to receive the same. The addresses, facsimile numbers and e-mail addresses
for such communications shall be:
If to the Company:
3601 Clover Lane
New Castle, Pennsylvania 16105
Telephone: (724) 654-9300
Facsimile: (724) 654-1781
Attention: Chairman
E-Mail: dfarley@axionpower.com
With a copy (for informational purposes only) to:
Jolie Kahn, Esq.
2 Liberty Place, Suite 3401
Philadelphia, PA 19103
Telephone: (215)375-6646
Facsimile: 866-705-3071
E-Mail: joliekahnlaw@sbcglobal.net
If to the Transfer Agent:
Continental Stock Transfer & Trust Company
17 Battery Place
8
th
Floor
New York, NY 10004
Telephone: (212) 845-3217
Facsimile: (212) 616-7616
Attention: Michael G. Mullings
E-Mail: mmullings@continentalstock.com
If to a Buyer, to its address, e-mail address
and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer’s representatives as set forth on the
Schedule of Buyers,
with a copy (for informational purposes only) to:
Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Telephone: (212) 808-7540
Facsimile: (212) 808-7897
Attention: Michael A. Adelstein, Esq.
E-mail: madelstein@kelleydrye.com
or to such other address, e-mail address
and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given
to each other party five (5) days prior to the effectiveness of such change, provided that Kelley Drye & Warren LLP shall only
be provided copies of notices sent to the CVI. Written confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine or e-mail containing
the time, date, recipient facsimile number and, with respect to each facsimile transmission, an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.
(g)
Successors
and Assigns
. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of any of the Notes and Warrants. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Required Holders, including, without limitation, by way of a Fundamental
Transaction (as defined in the Warrants) (unless the Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Warrants) or a Fundamental Transaction (as defined in the Notes) (unless the Company is in compliance
with the applicable provisions governing Fundamental Transactions set forth in the Notes). A Buyer may assign some or all of its
rights hereunder in connection with any transfer of any of its Securities without the consent of the Company, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.
(h)
No
Third Party Beneficiaries
. This Agreement is intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, other than
the Indemnitees referred to in Section 9(k).
(i)
Survival
.
The representations, warranties, agreements and covenants shall survive the Closing. Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.
(j)
Further
Assurances
. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request
in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(k)
Indemnification
.
In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each holder of any Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including,
without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “
Indemnitees
”)
from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “
Indemnified Liabilities
”),
incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any material misrepresentation or breach of any
representation or warranty made by the Company or any Subsidiary in any of the Transaction Documents, (ii) any breach of any covenant,
agreement or obligation of the Company or any Subsidiary contained in any of the Transaction Documents or (iii) any cause of action,
suit, proceeding or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company or any Subsidiary) or which otherwise involves such Indemnitee that arises out of or results from
(A) the execution, delivery, performance or enforcement of any of the Transaction Documents, (B) any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (C) any disclosure
properly made by such Buyer pursuant to Section 4(i), or (D) the status of such Buyer or holder of the Securities either as
an investor in the Company pursuant to the transactions contemplated by the Transaction Documents or as a party to this Agreement
(including, without limitation, as a party in interest or otherwise in any action or proceeding for injunctive or other equitable
relief). To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make
the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable
law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights Agreement.
(l)
Construction
.
The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and
no rules of strict construction will be applied against any party. No specific representation or warranty shall limit the generality
or applicability of a more general representation or warranty. Each and every reference to share prices, shares of Common Stock
and any other numbers in this Agreement that relate to the Common Stock shall be automatically adjusted for any stock splits, stock
dividends, stock combinations, recapitalizations or other similar transactions that occur with respect to the Common Stock after
the date of this Agreement. It is expressly understood and agreed that for all purposes of this Agreement, and without implication
that the contrary would otherwise be true, neither transactions nor purchases nor sales shall include the location and/or reservation
of borrowable shares of Common Stock.
(m)
Remedies
.
Each Buyer and in the event of assignment by Buyer of its rights and obligations hereunder, each holder of Securities, shall have
all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted
at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having
any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond
or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights
granted by law. Furthermore, the Company recognizes that in the event that it or any Subsidiary fails to perform, observe, or discharge
any or all of its or such Subsidiary’s (as the case may be) obligations under the Transaction Documents, any remedy at law
may prove to be inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek specific
performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction
in any such case without the necessity of proving actual damages and without posting a bond or other security. The remedies provided
in this Agreement and the other Transaction Documents shall be cumulative and in addition to all other remedies available under
this Agreement and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other
injunctive relief).
(n)
Withdrawal
Right
. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and the Company or any
Subsidiary does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or
withdraw, in its sole discretion from time to time upon written notice to the Company or such Subsidiary (as the case may be),
any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.
(o)
Payment
Set Aside; Currency
. To the extent that the Company makes a payment or payments to any Buyer hereunder or pursuant to any of
the other Transaction Documents or any of the Buyers enforce or exercise their rights hereunder or 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, foreign, 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. Unless otherwise expressly indicated, all dollar amounts referred to in this Agreement and the other
Transaction Documents are in United States Dollars (“
U.S. Dollars
”), and all amounts owing under this Agreement
and all other Transaction Documents shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be
converted into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “
Exchange
Rate
”
means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Agreement,
the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation.
(p)
Judgment
Currency
.
(i) If
for the purpose of obtaining or enforcing judgment against the Company in connection with this Agreement or any other Transaction
Document in any court in any jurisdiction it becomes necessary to convert into any other currency (such other currency being hereinafter
in this Section 9(p) referred to as the “
Judgment Currency
”) an amount due in US Dollars under this Agreement,
the conversion shall be made at the Exchange Rate prevailing on the Trading Day immediately preceding:
(1) the
date actual payment of the amount due, in the case of any proceeding in the courts of New York or in the courts of any other jurisdiction
that will give effect to such conversion being made on such date: or
(2) the
date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as
of which such conversion is made pursuant to this Section 9(p)(i)(2) being hereinafter referred to as the “
Judgment
Conversion Date
”).
(ii) If
in the case of any proceeding in the court of any jurisdiction referred to in Section 9(p)(i)(2) above, there is a change
in the Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable
party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted
at the Exchange Rate prevailing on the date of payment, will produce the amount of US Dollars which could have been purchased with
the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion
Date.
(iii) Any
amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained
for any other amounts due under or in respect of this Agreement or any other Transaction Document.
(q)
Independent
Nature of Buyers’ Obligations and Rights
. The obligations of each Buyer under the Transaction Documents are several and
not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations
of any other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action
taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as, and the Company acknowledges that the
Buyers do not so constitute, a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption
that the Buyers are in any way acting in concert or as a group or entity, and the Company shall not assert any such claim with
respect to such obligations or the transactions contemplated by the Transaction Documents or any matters, and the Company acknowledges
that the Buyers are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such
obligations or the transactions contemplated by the Transaction Documents. The decision of each Buyer to purchase Securities pursuant
to the Transaction Documents has been made by such Buyer independently of any other Buyer. Each Buyer acknowledges that no other
Buyer has acted as agent for such Buyer in connection with such Buyer making its investment hereunder and that no other Buyer will
be acting as agent of such Buyer in connection with monitoring such Buyer’s investment in the Securities or enforcing its
rights under the Transaction Documents. The Company and each Buyer confirms that each Buyer has independently participated with
the Company and its Subsidiaries in the negotiation of the transaction contemplated hereby with the advice of its own counsel and
advisors. Each Buyer shall be entitled to independently protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose. The use of a single agreement to effectuate the purchase and
sale of the Securities contemplated hereby was solely in the control of the Company, not the action or decision of any Buyer, and
was done solely for the convenience of the Company and its Subsidiaries and not because it was required or requested to do so by
any Buyer. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction
Document is between the Company, each Subsidiary and a Buyer, solely, and not between the Company, its Subsidiaries and the Buyers
collectively and not between and among the Buyers.
[
signature pages follow
]
IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first
written above.
|
|
COMPANY:
|
|
|
|
|
|
AXION POWER INTERNATIONAL, INC.
|
|
|
By:
|
/s/ Donald Farley
|
|
|
|
|
Name: Donald Farley
|
|
|
|
Title: Chairman
|
IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first
written above.
|
|
BUYER:
|
|
|
|
|
|
CVI Investments, Inc.
|
|
|
By:
|
/s/ Martin Korbinger
|
|
|
|
Name: Martin Korbinger
|
|
|
|
Title: Investment Manager
|
IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first
written above.
|
|
BUYER:
|
|
|
|
|
|
Intracoastal Capital, LLC
|
|
|
By:
|
/s/ Keith Goodman
|
|
|
|
|
Name: Keith Goodman
|
|
|
|
Title:
|
IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first
written above.
|
|
BUYER:
|
|
|
|
|
|
Empery Asset Master, Ltd.
|
|
|
By:
|
/s/ Brett Director
|
|
|
|
|
Name: Brett Director
|
|
|
|
Title: General Counsel
|
IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first
written above.
|
|
BUYER:
|
|
|
|
|
|
Empery Tax
Efficient, LP
|
|
|
By:
|
/s/ Brett Director
|
|
|
|
|
Name: Brett Director
|
|
|
|
Title: General Counsel
|
IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first
written above.
|
|
BUYER:
|
|
|
|
|
|
Empery Tax Efficient II, LP
|
|
|
By:
|
/s/ Brett Director
|
|
|
|
Name: Brett Director
|
|
|
|
Title: General Counsel
|
IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first
written above.
|
|
BUYER:
|
|
|
|
|
|
Alto Opportunity Master Fund, SPC
|
|
|
By:
|
/s/ Dan Kocan
|
|
|
|
|
Name: Dan Kocan
|
|
|
|
Title: Partner/Director
|
IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first
written above.
|
|
BUYER:
|
|
|
|
|
|
Hudson Bay Master Fund Ltd.
|
|
|
By:
|
/s/ Charles Winkler
|
|
|
|
|
Name: Charles Winkler
|
|
|
|
Title: Authorized Signatory
|
SCHEDULE
OF BUYERS
|
(1)
|
|
(2)
|
|
(3)
|
|
|
(4)
|
|
|
(5)
|
|
|
(6)
|
|
|
(7)
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buyer
|
|
Address
and Facsimile Number
|
|
Original
Principal
Amount
of
Notes
|
|
|
Aggregate
Number
of
Warrant
Shares
|
|
|
Purchase
Price
|
|
|
Wire
Amount
of
Purchase
Price
to
Company
|
|
|
Wire
Amount
of
Purchase
Price
to
Master
Restricted
Account
|
|
|
Legal
Representative’s
Address
and Facsimile Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVI Investments,
Inc.
|
|
c/o Heights Capital Management
101 California Street, Suite 3250
San Francisco, CA 94111
Attention: Martin Kobinger,
Investment Manager
Facsimile: 415-403-6525
Telephone: 415-403-6500
E-Mail: sam.winer@sig.com
Residence: Cayman Islands
|
|
$
|
2,250,000
|
|
|
|
2,743,902
|
|
|
$
|
2,250,000
|
|
|
$
|
462,500.00
|
|
|
$
|
1,787,500.00
|
|
|
Kelley Drye & Warren LLP
101
Park Avenue
New York, NY 10178
Telephone: (212) 808-7540
Facsimile: (212) 808-7897
E-Mail: madelstein@kelleydrye.com
Attention: Michael A. Adelstein, Esq.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intracoastal Capital, LLC
|
|
245 Palm Trail
Delray Beach, Florida 33483
Attn: Mitchell Kopin/Keith Goodman
Facsimile: (847) 562-9031
E-Mail: mkopin@cranshirecapital.com and kgoodman@cranshirecapital.com
Residence: Delaware
|
|
$
|
500,000.00
|
|
|
|
609,756
|
|
|
$
|
500,000.00
|
|
|
$
|
102,777.78
|
|
|
$
|
397,222.22
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empery Asset Master, Ltd.
|
|
c/o Empery Asset Management, LP
1 Rockefeller
Plaza, Suite 1205
New York, NY 10020
Attention: Ryan M. Lane
Facsimile: 212-608-3307
Telephone: 212-608-3300
Residence: Cayman Islands
Email: notices@emperyam.com
|
|
$
|
819,022.81
|
|
|
|
998,808
|
|
|
$
|
819,022.81
|
|
|
$
|
168,354.68
|
|
|
$
|
650,668.13
|
|
|
N/A
|
|
(1)
|
|
(2)
|
|
(3)
|
|
|
(4)
|
|
|
(5)
|
|
|
(6)
|
|
|
(7)
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buyer
|
|
Address
and Facsimile Number
|
|
Original
Principal
Amount
of
Notes
|
|
|
Aggregate
Number
of
Warrant
Shares
|
|
|
Purchase
Price
|
|
|
Wire
Amount
of
Purchase
Price
to
Company
|
|
|
Wire
Amount
of
Purchase
Price
to
Master
Restricted
Account
|
|
|
Legal
Representative’s
Address
and Facsimile Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empery Tax Efficient, LP
|
|
c/o Empery Asset Management, LP
1 Rockefeller
Plaza, Suite 1205
New York, NY 10020
Attention: Ryan M. Lane
Facsimile: 212-608-3307
Telephone: 212-608-3300
Residence: Delaware
Email: notices@emperyam.com
|
|
$
|
520,597.84
|
|
|
|
634,875
|
|
|
$
|
520,597.84
|
|
|
$
|
107,011.78
|
|
|
$
|
413,586.06
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empery Tax Efficient II,
LP
|
|
c/o Empery Asset Management, LP
1 Rockefeller
Plaza, Suite 1205
New York, NY 10020
Attention: Ryan M. Lane
Facsimile: 212-608-3307
Telephone: 212-608-3300
Residence: Delaware
Email: notices@emperyam.com
|
|
$
|
743,712.69
|
|
|
|
906,967
|
|
|
$
|
743,712.69
|
|
|
$
|
152,874.28
|
|
|
$
|
590,838.41
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alto Opportunity Master
Fund, SPC
|
|
c/o Tenor Capital Management,
1180 Avenue
of Americas, Suite 1940
New York, NY 10036
Attention: Waqas Khatri, Ravi Patel
E-Mail: wkhatri@tenorcapital.com
operations@tenorcapital.com
Residence: Cayman Islands
|
|
$
|
2,083,333.33
|
|
|
|
2,540,650
|
|
|
$
|
2,083,333.33
|
|
|
$
|
428,240.74
|
|
|
$
|
1,655,092.59
|
|
|
N/A
|
|
(1)
|
|
(2)
|
|
(3)
|
|
|
(4)
|
|
|
(5)
|
|
|
(6)
|
|
|
(7)
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buyer
|
|
Address
and Facsimile Number
|
|
Original
Principal
Amount
of
Notes
|
|
|
Aggregate
Number
of
Warrant
Shares
|
|
|
Purchase
Price
|
|
|
Wire
Amount
of
Purchase
Price
to
Company
|
|
|
Wire
Amount
of
Purchase
Price
to
Master
Restricted
Account
|
|
|
Legal
Representative’s
Address
and Facsimile Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson
Bay Master Fund Ltd.
|
|
Please deliver any notices
other than Pre-Notices to:
777 Third Avenue, 30th Floor
New York, NY 10017
Attention: Yoav Roth
Facsimile: (212) 571-1279
E-Mail: investments@hudsonbaycapital.com
Residence: Cayman Islands
Please deliver any Pre-Notice to:
777 Third Ave., 30th Floor
New York, NY 10017
Facsimile: (646) 214-7946
Attention: Scott Black
General
Counsel and Chief Compliance Officer
|
|
$
|
2,083,333.33
|
|
|
|
2,540,650
|
|
|
$
|
2,083,333.33
|
|
|
$
|
428,240.74
|
|
|
$
|
1,655,092.59
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
9,000,000.00
|
|
|
|
10,975,608
|
|
|
$
|
9,000,000.00
|
|
|
$
|
1,850,000.00
|
|
|
$
|
7,150,000.00
|
|
|
|
DISCLOSURE SCHEDULES
SECURITIES PURCHASE AGREEMENT AMONG AXION
POWER INTERNATIONAL, INC. (THE “COMPANY”) AND THE BUYERS AS DEFINED THEREIN, DATED NOVEMBER 4, 2015
SCHEDULE 3(A)
Active Subsidiary and included in the definition of “Subsidiary”:
Axion Power Battery Manufacturing, Inc., a Pennsylvania corporation
Inactive Subsidiaries and not included in the definition of
“Subsidiary”: Axion Power Corporation, a Canadian Federal corporation, and C & T Co. Inc., an Ontario corporation
SCHEDULE 3(G)
PLACEMENT AGENT’S FEES
7.5% cash and 7.5% warrants
SCHEDULE 3(R)(III)
SHARES RESERVED FOR ISSUANCE FOR CONVERTIBLE
SECURITIES AND SHARES OWNED BY AFFILIATES
Shares owned by affiliates: 33,257 shares (updated number of
shares by the Company for recent Board compensation although not material amount)
Shares reserved for issuance:
Bridge Notes: 353,143 shares (principal
plus three months’ interest)
Bridge Note Warrants: 510,000 shares
Stock options: 5,215 shares
Series B warrants: 38,837 shares
SCHEDULE 3(S)
INDEBTEDNESS
Bridge Notes
On August 6, 2015,
the Company entered
into a securities purchase agreement (“Agreement”) with several accredited investors, including one director of the
Company (each, an “Investor”) pursuant to which it is selling $600,000 principal amount of Senior Convertible Notes
(“Notes”) to the Investors. The transaction was approved by the Company’s Board of Directors on August 5, 2015.
The Notes carry an original issue discount of 15% so that the gross amount of proceeds to the Company (before expenses) is $510,000.
The Notes bear interest at the rate of 12% per annum, and the interest is payable in cash upon repayment of the Notes or in shares
of the Company’s common stock upon conversion of the Notes. The Notes have a term of 90 days from the date of issuance, which
may be extended at the option of the Investor with respect to all or any portion of a Note (i) in the event that and for so long
as an event of default is occurring under a Note, (ii) through the date that all shares issued upon conversion of the Note may
be resold under Rule 144 without restriction and/or (iii) through the date that is 10 business days after the consummation of a
change in control transaction, all as specified in the Notes. The conversion price for the Notes is $1.75 per share. The holders
of the Notes will be issued one five year warrant (“Warrants”) for each $1.00 of principal amount of the Note invested
(510,000 Warrants in total). Each Warrant has an exercise price of $1.75 per share. The Agreement, Notes and Warrants contain other
terms and provisions which are customary for a transaction of this nature, including standard representations and warranties and
events of default. The transaction is exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended,
and Regulation D, as promulgated thereunder, and closed on August 10, 2015. All monies were received by August 11, 2015..
Notes with Landlords
The Company’s two landlords have also agreed to extend
the payment date of an aggregate of $291,975 due in lease payments until December 31, 2015, pursuant to notes issued on or about
August 20, 2015 (but retroactive to May 1, 2015), bearing interest at an annual rate of 12% in the principal amount of $291,975.
Both the Bridge Notes and the Notes with the Landlords are included
in the definition of “Permitted Indebtedness”.
SCHEDULE 3(T)
LITIGATION
On August 25, 2015, Axion Power International, Inc. (the “Company”)
received a written notification from the Nasdaq Stock Market LLC that it did not meet the minimum of $2,500,000 in stockholders’
equity for continued listing (as set forth in Listing Rule 5550(b)(1)) as a result of the report of shareholders equity of $570,824
in the Company’s Form 10-Q for the period ended June 30, 2015.
The notification does not result in
the immediate delisting of the Company's common stock, and its common stock will continue to trade uninterrupted on the Nasdaq
Capital Market.
The Company was provided with a 45
calendar day period (by October 9, 2015) in which to submit a plan to regain compliance and has so submitted a plan. If the plan
is accepted, the Company can be granted an extension of up to 180 calendar days to evidence compliance.
SCHEDULE 3(X)(I)
LIST OF PATENTS
U.S. Patent No. 6,628,504 (expires May 2021) - Electric double
layer capacitor
U.S. Patent No. 8,202,653 (expires February 2028) – Electrode
Grid Structure
U.S. Patent No. 8,023,251 (expires November 2028) – Hybrid
Energy Storage Device and Method of Making Same
U.S. Patent No. 7,998,616 (expires February 2028) – Negative
Electrode for a Hybrid Energy Storage Device
U.S. Patent No. 7,881,042 (expires March 2027) – Cell
Assembly for an Energy Storage Device using PTFE Binder in Activated Carbon Electrodes
U.S. Patent No. 7,110,242 (expires February 2021) - Electrode
for electric double layer capacitor and method of fabrication thereof
U.S. Patent No. 7,119,047 (expires February 2021) - Modified
activated carbon for carbon for capacitor electrodes and method of fabrication thereof
U.S. Patent No. 7,569,514 (expires May 22, 2021) - Method of
Fabrication of Modified Activated Carbon
U.S. Patent No. 6,466,429 (expires May 2021) - Electric double
layer capacitor U.S. Patent No. 6,706,079 (expires May 2022) - Method of formation and charge of the negative polarizable carbon
electrode in an electric double layer capacitor
U.S. Patent No. 7,006,346 (expires April 2024) - Positive Electrode
of an electric double layer capacitor
U.S. Patent No. 8,192,865 (expires October 2027) – Negative
Electrode for a Hybrid Energy Storage Device
U.S. Patent No. 8,347,468 (expires February 2031) – Method
of Making a Current Collector
Active patent applications:
US14/114,756 Process for the Manufacture of Carbon Sheet for
an Electrode
US14/267,151 Improved Lead-Carbon Battery Current Collector
Shielding with Ported Packets
US14/338,717 Electrode Current Collector Shielding and Protection
SCHEDULE 3(X)(II)
LIST OF EXPIRED,
TERMINATED AND ABANDONED (OR EXPECTED TO EXPIRE OR TERMINATE OR BE ABANDONED) WITHIN THREE YEARS FROM THE DATE OF THE SPAEXCEPT
TO THE EXTENT SUCH PATENTS ARE NO LONGER CONSIDERED NECESSARY FOR THE OPERATION OF THE COMPANY’S BUSINESS
None.
SCHEDULE 3(NN)
MANAGEMENT BANKRUPTCY,
ETC.
None.
SCHEDULE 4(D)
USE OF PROCEEDS
TO PAY INDEBTEDNESS OTHER THAN TRADE DEBT
PAYMENT OF INDEBTEDNESS TO LANDLORDS
SATISFACTION OF BRIDGE NOTES
Exhibit 10.77
REGISTRATION RIGHTS AGREEMENT
This
REGISTRATION
RIGHTS AGREEMENT
(this “
Agreement
”), dated as of November 5, 2015, is by and among Axion Power International,
Inc., a Delaware corporation with offices located at 3601 Clover Lane, New Castle, Pennsylvania 16105 (the “
Company
”),
and the undersigned buyers (each, a “
Buyer
,” and collectively, the “
Buyers
”).
RECITALS
A. In
connection with the Securities Purchase Agreement by and among the parties hereto, dated as of November 4, 2015 (the “
Securities
Purchase Agreement
”), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase
Agreement, to issue and sell to each Buyer (i) the Notes (as defined in the Securities Purchase Agreement) which will be convertible
into Conversion Shares (as defined in the Securities Purchase Agreement) in accordance with the terms of the Notes and (ii) the
Warrants (as defined in the Securities Purchase Agreement) which will be exercisable to purchase Warrant Shares (as defined in
the Securities Purchase Agreement) in accordance with the terms of the Warrants.
B. The
Notes may be entitled to interest and certain other amounts, which, at the option of the Company and subject to certain conditions,
may be paid in shares of Common Stock that have been registered for resale (the “
Interest Shares
”) or in cash.
C. To
induce the Buyers to consummate the transactions contemplated by the Securities Purchase Agreement, the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar
successor statute (collectively, the “
1933 Act
”), and applicable state securities laws.
AGREEMENT
NOW, THEREFORE,
in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and each of the Buyers hereby agree as follows:
1.
Definitions.
Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. As used
in this Agreement, the following terms shall have the following meanings:
(a) “
Business
Day
” means any day other than Saturday, Sunday or any other day on which commercial banks in New York, New York are authorized
or required by law to remain closed.
(b) “
Closing
Date
” shall have the meaning as set forth in the Securities Purchase Agreement.
(c) “
Effective
Date
” means the date that the applicable Registration Statement has been declared effective by the SEC.
(d) “
Effectiveness
Deadline
” means (i) with respect to the initial Registration Statement required to be filed pursuant to Section 2(a),
the earlier of the (A) 75
th
calendar day after the Closing Date and (B) 2nd Business Day after the date the Company
is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement will not be reviewed or will
not be subject to further review and (ii) with respect to any additional Registration Statements that may be required to be filed
by the Company pursuant to this Agreement, the earlier of the (A) 60
th
calendar day following the date on which the
Company was required to file such additional Registration Statement and (B) 2
nd
Business Day after the date the Company
is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement will not be reviewed or will
not be subject to further review.
(e) “
Filing
Deadline
” means (i) with respect to the initial Registration Statement required to be filed pursuant to Section 2(a),
the 15
th
calendar day after the Closing Date and (ii) with respect to any additional Registration Statements that
may be required to be filed by the Company pursuant to this Agreement, the date on which the Company was required to file such
additional Registration Statement pursuant to the terms of this Agreement.
(f) “
Investor
”
means a Buyer or any transferee or assignee of any Registrable Securities, Notes or Warrants, as applicable, to whom a Buyer assigns
its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee thereof to whom a transferee or assignee of any Registrable Securities, Notes or Warrants, as applicable,
assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9.
(g) “
Person
”
means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization
or a government or any department or agency thereof.
(h) “
register
,”
“
registered
,” and “
registration
” refer to a registration effected by preparing and filing
one or more Registration Statements in compliance with the 1933 Act and pursuant to Rule 415 and the declaration of effectiveness
of such Registration Statement(s) by the SEC.
(i) “
Registrable
Securities
” means (i) the Conversion Shares, (ii) the Interest Shares, (iii) the Warrant Shares and (iv) any capital
stock of the Company issued or issuable with respect to the Conversion Shares, the Warrant Shares, the Interest Shares, the Notes
or the Warrants, including, without limitation, (1) as a result of any stock split, stock dividend, recapitalization, exchange
or similar event or otherwise and (2) shares of capital stock of the Company into which the shares of Common Stock (as defined
in the Notes) are converted or exchanged and shares of capital stock of a Successor Entity (as defined in the Warrants) into which
the shares of Common Stock are converted or exchanged, in each case, without regard to any limitations on conversion of the Notes
or exercise of the Warrants.
(j) “
Registration
Statement
” means a registration statement or registration statements of the Company filed under the 1933 Act covering
Registrable Securities.
(k) “
Required
Holders
” means, as of any given time, the holders of a majority of the Registrable Securities as of such time (excluding
any Registrable Securities held by the Company or any of its Subsidiaries as of such time).
(l) “
Required
Registration Amount
” means the sum of (i) 200% of the maximum number of Conversion Shares issuable upon conversion of
the Notes (assuming for purposes hereof that the Notes are convertible at the initial Conversion Price (as defined in the Notes)
and without taking into account any limitations on the conversion of the Notes set forth in the Notes), (ii) 200% of the maximum
number of Interest Shares issuable pursuant to the terms of the Notes from the Closing Date through the first anniversary of the
Closing Date (determined as if issued on the Trading Day (as defined in the Notes) immediately preceding the Closing Date without
taking into account any limitations on the issuance of securities set forth in the Notes and assuming all Notes issuable pursuant
to the Securities Purchase Agreement have been issued as of the Closing Date) and (iii) 125% the maximum number of Warrant Shares
issuable upon exercise of the Warrants (without taking into account any limitations on the exercise of the Warrants set forth therein
and calculated as of the time of filing of the applicable Registration Statement), all subject to adjustment as provided in Section 2(d)
and/or Section 2(f).
(m) “
Rule
144
” means Rule 144 promulgated by the SEC under the 1933 Act, as such rule may be amended from time to time, or any
other similar or successor rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration.
(n) “
Rule
415
” means Rule 415 promulgated by the SEC under the 1933 Act, as such rule may be amended from time to time, or any
other similar or successor rule or regulation of the SEC providing for offering securities on a continuous or delayed basis.
(o) “
SEC
”
means the United States Securities and Exchange Commission or any successor thereto.
(a)
Mandatory
Registration
. The Company shall prepare and, as soon as practicable, but in no event later than the Filing Deadline, file with
the SEC an initial Registration Statement on Form S-1 covering the resale of all of the Registrable Securities, provided that such
initial Registration Statement shall register for resale at least the number of shares of Common Stock equal to the Required Registration
Amount as of the date such Registration Statement is initially filed with the SEC. Such initial Registration Statement, and each
other Registration Statement required to be filed pursuant to the terms of this Agreement, shall contain (except if otherwise directed
by the Required Holders) the “
Selling Stockholders
” and “
Plan of Distribution
” sections in
substantially the form attached hereto as
Exhibit B
. The Company shall use its best efforts to have such initial Registration
Statement, and each other Registration Statement required to be filed pursuant to the terms of this Agreement, declared effective
by the SEC as soon as practicable, but in no event later than the applicable Effectiveness Deadline for such Registration Statement.
(b)
Legal
Counsel
. Subject to Section 5 hereof, Kelley Drye & Warren, LLP, counsel solely to the lead investor (“
Legal
Counsel
”) shall review and oversee any registration, solely on behalf of the lead investor, pursuant to this Section 2.
(c)
[Intentionally
Omitted]
.
(d)
Sufficient
Number of Shares Registered
. In the event the number of shares available under any Registration Statement is insufficient to
cover all of the Registrable Securities required to be covered by such Registration Statement or an Investor’s allocated
portion of the Registrable Securities pursuant to Section 2(h), the Company shall amend such Registration Statement (if permissible),
or file with the SEC a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover
at least the Required Registration Amount as of the Trading Day immediately preceding the date of the filing of such amendment
or new Registration Statement, in each case, as soon as practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises (but taking account of any Staff position with respect to the date on which the Staff will permit such
amendment to the Registration Statement and/or such new Registration Statement (as the case may be) to be filed with the SEC).
The Company shall use its best efforts to cause such amendment to such Registration Statement and/or such new Registration Statement
(as the case may be) to become effective as soon as practicable following the filing thereof with the SEC, but in no event later
than the applicable Effectiveness Deadline for such Registration Statement. For purposes of the foregoing provision, the number
of shares available under a Registration Statement shall be deemed “insufficient to cover all of the Registrable Securities”
if at any time the number of shares of Common Stock available for resale under the applicable Registration Statement is less than
the product determined by multiplying (i) the Required Registration Amount as of such time by (ii) 0.80. The calculation set forth
in the foregoing sentence shall be made without regard to any limitations on (i) conversion of the Notes (and such calculation
shall assume that the Notes are then fully convertible into shares of Common Stock at the then-prevailing applicable Conversion
Price) and (ii) exercise of the Warrants (and such calculation shall assume that the Warrants are then fully exercisable for shares
of Common Stock at the then-prevailing applicable Exercise Price).
(e)
Effect
of Failure to File and Obtain and Maintain Effectiveness of any Registration Statement
. If (i) a Registration Statement covering
the resale of all of the Registrable Securities required to be covered thereby and required to be filed by the Company pursuant
to this Agreement is (A) not filed with the SEC on or before the Filing Deadline for such Registration Statement (a “
Filing
Failure
”) (it being understood that if the Company files a Registration Statement without affording each Investor and
Legal Counsel the opportunity to review and comment on the same as required by Section 3(c) hereof, the Company shall be deemed
to not have satisfied this clause (i)(A) and such event shall be deemed to be a Filing Failure) or (B) not declared effective
by the SEC on or before the Effectiveness Deadline for such Registration Statement (an “
Effectiveness Failure
”)
(it being understood that if on the Business Day immediately following the Effective Date for such Registration Statement the Company
shall not have filed a “final” prospectus for such Registration Statement with the SEC under Rule 424(b) in accordance
with Section 3(b) (whether or not such a prospectus is technically required by such rule), the Company shall be deemed to
not have satisfied this clause (i)(B) and such event shall be deemed to be an Effectiveness Failure), (ii) other than during an
Allowable Grace Period (as defined below), on any day after the Effective Date of a Registration Statement sales of all of the
Registrable Securities required to be included on such Registration Statement (disregarding any reduction pursuant to Section 2(f))
cannot be made pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration
Statement effective, a failure to disclose such information as is necessary for sales to be made pursuant to such Registration
Statement, a suspension or delisting of (or a failure to timely list) the shares of Common Stock on an Eligible Market (as defined
in the Securities Purchase Agreement), or a failure to register a sufficient number of shares of Common Stock or by reason of a
stop order) or the prospectus contained therein is not available for use for any reason (a “
Maintenance Failure
”),
or (iii) if a Registration Statement is not effective for any reason or the prospectus contained therein is not available for use
for any reason, the Company fails to file with the SEC any required reports under Section 13 or 15(d) of the 1934 Act such that
it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable) (a “
Current Public Information Failure
”)
as a result of which any of the Investors are unable to sell Registrable Securities without restriction under Rule 144 (including,
without limitation, volume restrictions), then, as partial relief for the damages to any holder by reason of any such delay in,
or reduction of, its ability to sell the underlying shares of Common Stock (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of Registrable Securities relating to such Registration Statement
an amount in cash equal to one percent (1%) of such Investor’s original principal amount of such Investor’s Note on
the Closing Date (assuming for such purpose that all Notes issuable to such Investor are issued as of the Closing Date) on every
thirty (30) day anniversary of (I) a Filing Failure until such Filing Failure is cured; (II) an Effectiveness Failure until such
Effectiveness Failure is cured; (III) a Maintenance Failure until such Maintenance Failure is cured; and (IV) a Current Public
Information Failure until the earlier of (i) the date such Current Public Information Failure is cured and (ii) such time that
such public information is no longer required pursuant to Rule 144 (in each case, pro rated for periods totaling less than
thirty (30) days). The payments to which a holder of Registrable Securities shall be entitled pursuant to this Section 2(e)
are referred to herein as “
Registration Delay Payments
.” Following the initial Registration Delay Payment for
any particular event or failure (which shall be paid on the date of such event or failure, as set forth above), without limiting
the foregoing, if an event or failure giving rise to the Registration Delay Payments is cured prior to any thirty (30) day anniversary
of such event or failure, then such Registration Delay Payment shall be made on the third (3
rd
) Business Day after such
cure. In the event the Company fails to make Registration Delay Payments in a timely manner in accordance with the foregoing, such
Registration Delay Payments shall bear interest at the rate of one percent (1%) per month (prorated for partial months) until paid
in full. Notwithstanding the foregoing, no Registration Delay Payments shall be owed to an Investor (other than with respect to
a Maintenance Failure resulting from a suspension or delisting of (or a failure to timely list) the shares of Common Stock on the
Principal Market) with respect to any period during which all of such Investor’s Registrable Securities may be sold by such
Investor without restriction under Rule 144 (including, without limitation, volume restrictions) and without the need for current
public information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable).
(f)
Offering
.
Notwithstanding anything to the contrary contained in this Agreement, in the event the staff of the SEC (the “
Staff
”)
or the SEC seeks to characterize any offering pursuant to a Registration Statement filed pursuant to this Agreement as constituting
an offering of securities by, or on behalf of, the Company, or in any other manner, such that the Staff or the SEC
do not permit such Registration Statement to become effective and used for resales in a manner that does not constitute such
an offering and that permits the continuous resale at the market by the Investors participating therein (or as otherwise
may be acceptable to each Investor) without being named therein as an “underwriter,” then the Company shall reduce
the number of shares to be included in such Registration Statement by all Investors until such time as the Staff and the SEC
shall so permit such Registration Statement to become effective as aforesaid. In making such reduction, the Company shall reduce
the number of shares to be included by all Investors on a pro rata basis (based upon the number of Registrable Securities otherwise
required to be included for each Investor) unless the inclusion of shares by a particular Investor or a particular set of Investors
are resulting in the Staff or the SEC’s “by or on behalf of the Company” offering position, in which event the
shares held by such Investor or set of Investors shall be the only shares subject to reduction (and if by a set of Investors on
a pro rata basis by such Investors or on such other basis as would result in the exclusion of the least number of shares by all
such Investors); provided, that, with respect to such pro rata portion allocated to any Investor, such Investor may elect the allocation
of such pro rata portion among the Registrable Securities of such Investor. In addition, in the event that the Staff or the SEC
requires any Investor seeking to sell securities under a Registration Statement filed pursuant to this Agreement to be
specifically identified as an ”underwriter” in order to permit such Registration Statement to become effective,
and such Investor does not consent to being so named as an underwriter in such Registration Statement, then, in each such
case, the Company shall reduce the total number of Registrable Securities to be registered on behalf of such Investor, until
such time as the Staff or the SEC does not require such identification or until such Investor accepts such identification and the
manner thereof. Any reduction pursuant to this paragraph will first reduce all Registrable Securities other than those issued
pursuant to the Securities Purchase Agreement. In the event of any reduction in Registrable Securities pursuant to this
paragraph, an affected Investor shall have the right to require, upon delivery of a written request to the Company signed
by such Investor, the Company to file a registration statement within twenty (20) days of such request (subject to any restrictions
imposed by Rule 415 or required by the Staff or the SEC) for resale by such Investor in a manner acceptable to such Investor,
and the Company shall following such request cause to be and keep effective such registration statement in the same manner
as otherwise contemplated in this Agreement for registration statements hereunder, in each case until such time as: (i)
all Registrable Securities held by such Investor have been registered and sold pursuant to an effective Registration Statement
in a manner acceptable to such Investor or (ii) all Registrable Securities may be resold by such Investor without restriction
(including, without limitation, volume limitations) pursuant to Rule 144 (taking account of any Staff position with respect to
“affiliate” status) and without the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2),
if applicable) or (iii) such Investor agrees to be named as an underwriter in any such Registration Statement in a manner acceptable
to such Investor as to all Registrable Securities held by such Investor and that have not theretofore been included in a Registration
Statement under this Agreement (it being understood that the special demand right under this sentence may be exercised by an Investor
multiple times and with respect to limited amounts of Registrable Securities in order to permit the resale thereof by such Investor
as contemplated above).
(g)
Piggyback
Registrations
. Without limiting any obligation of the Company hereunder or under the Securities Purchase Agreement, if there
is not an effective Registration Statement covering all of the Registrable Securities or the prospectus contained therein is not
available for use and the Company shall determine to prepare and file with the SEC a registration statement relating to an offering
for its own account or the account of others under the 1933 Act of any of its equity securities (other than on Form S-4 or Form
S-8 (each as promulgated under the 1933 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 Investor a written notice of such determination and, if
within fifteen (15) days after the date of the delivery of such notice, any such Investor shall so request in writing, the
Company shall include in such registration statement all or any part of such Registrable Securities such Investor requests to be
registered; provided, however, the Company shall not be required to register any Registrable Securities pursuant to this Section 2(g)
that are eligible for resale pursuant to Rule 144 without restriction (including, without limitation, volume restrictions) and
without the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or that are
the subject of a then-effective Registration Statement.
(h)
Allocation
of Registrable Securities
. The initial number of Registrable Securities included in any Registration Statement and any increase
in the number of Registrable Securities included therein shall be allocated pro rata among the Investors based on the number of
Registrable Securities held by each Investor at the time such Registration Statement covering such initial number of Registrable
Securities or increase thereof is declared effective by the SEC. In the event that an Investor sells or otherwise transfers any
of such Investor’s Registrable Securities, each transferee or assignee (as the case may be) that becomes an Investor shall
be allocated a pro rata portion of the then-remaining number of Registrable Securities included in such Registration Statement
for such transferor or assignee (as the case may be). Any shares of Common Stock included in a Registration Statement and which
remain allocated to any Person which ceases to hold any Registrable Securities covered by such Registration Statement shall be
allocated to the remaining Investors, pro rata based on the number of Registrable Securities then held by such Investors which
are covered by such Registration Statement.
(i)
No
Inclusion of Other Securities
. The Company shall in no event include any securities other than Registrable Securities on any
Registration Statement filed in accordance herewith without the prior written consent of the Required Holders. Until the Applicable
Date (as defined in the Securities Purchase Agreement), the Company shall not enter into any agreement providing any registration
rights to any of its security holders, except as otherwise permitted under the Securities Purchase Agreement.
The Company shall use
its best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition
thereof, and, pursuant thereto, the Company shall have the following obligations:
(a) The
Company shall promptly prepare and file with the SEC a Registration Statement with respect to all the Registrable Securities (but
in no event later than the applicable Filing Deadline) and use its best efforts to cause such Registration Statement to become
effective as soon as practicable after such filing (but in no event later than the Effectiveness Deadline). Subject to Allowable
Grace Periods, the Company shall keep each Registration Statement effective (and the prospectus contained therein available for
use) pursuant to Rule 415 for resales by the Investors on a delayed or continuous basis at then-prevailing market prices (and not
fixed prices) at all times until the earlier of (i) the date as of which all of the Investors may sell all of the Registrable Securities
required to be covered by such Registration Statement (disregarding any reduction pursuant to Section 2(f)) without restriction
pursuant to Rule 144 (including, without limitation, volume restrictions) and without the need for current public information required
by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or (ii) the date on which the Investors shall have sold all of the Registrable
Securities covered by such Registration Statement (the “
Registration Period
”). Notwithstanding anything to the
contrary contained in this Agreement, the Company shall ensure that, when filed and at all times while effective, each Registration
Statement (including, without limitation, all amendments and supplements thereto) and the prospectus (including, without limitation,
all amendments and supplements thereto) used in connection with such Registration Statement (1) shall not contain any 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 the case of prospectuses, in the light of the circumstances in which they were made) not misleading and (2) will disclose (whether
directly or through incorporation by reference to other SEC filings to the extent permitted) all material information regarding
the Company and its securities. The Company shall submit to the SEC, within two (2) Business Days after the later of the date that
(i) the Company learns that no review of a particular Registration Statement will be made by the Staff or that the Staff has no
further comments on a particular Registration Statement (as the case may be) and (ii) the consent of Legal Counsel is obtained
pursuant to Section 3(c) (which consent shall be immediately sought), a request for acceleration of effectiveness of such
Registration Statement to a time and date not later than twenty-four (24) hours after the submission of such request.
(b) Subject
to Section 3(r) of this Agreement, the Company shall prepare and file with the SEC such amendments (including, without limitation,
post-effective amendments) and supplements to each Registration Statement and the prospectus used in connection with each such
Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary
to keep each such Registration Statement effective at all times during the Registration Period for such Registration Statement,
and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities
of the Company required to be covered by such Registration Statement until such time as all of such Registrable Securities shall
have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such
Registration Statement; provided, however, by 8:30 a.m. (New York time) on the Business Day immediately following each Effective
Date, the Company shall file with the SEC in accordance with Rule 424(b) under the 1933 Act the final prospectus to be used in
connection with sales pursuant to the applicable Registration Statement (whether or not such a prospectus is technically required
by such rule). In the case of amendments and supplements to any Registration Statement which are required to be filed pursuant
to this Agreement (including, without limitation, pursuant to this Section 3(b)) by reason of the Company filing a report
on Form 10-Q or Form 10-K or any analogous report under the Securities Exchange Act of 1934, as amended (the “
1934 Act
”),
the Company shall, if permitted under the applicable rules and regulations of the SEC, have incorporated such report by reference
into such Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which
the 1934 Act report is filed which created the requirement for the Company to amend or supplement such Registration Statement.
(c) The
Company shall (A) permit Legal Counsel and legal counsel for each other Investor to review and comment upon (i) each Registration
Statement at least three (3) Business Days prior to its filing with the SEC and (ii) all amendments and supplements to each Registration
Statement (including, without limitation, the prospectus contained therein) (except for Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and any similar or successor reports) within a reasonable number of days prior
to their filing with the SEC, and (B) not file any Registration Statement or amendment or supplement thereto in a form to which
Legal Counsel or any legal counsel for any other Investor reasonably objects. The Company shall not submit a request for acceleration
of the effectiveness of a Registration Statement or any amendment or supplement thereto or to any prospectus contained therein
without the prior consent of Legal Counsel, which consent shall not be unreasonably withheld. The Company shall promptly furnish
to Legal Counsel and legal counsel for each other Investor, without charge, (i) copies of any correspondence from the SEC or the
Staff to the Company or its representatives relating to each Registration Statement, provided that such correspondence shall not
contain any material, non-public information regarding the Company or any of its Subsidiaries (as defined in the Securities Purchase
Agreement), (ii) after the same is prepared and filed with the SEC, one (1) copy of each Registration Statement and any amendment(s)
and supplement(s) thereto, including, without limitation, financial statements and schedules, all documents incorporated therein
by reference, if requested by an Investor, and all exhibits and (iii) upon the effectiveness of each Registration Statement,
one (1) copy of the prospectus included in such Registration Statement and all amendments and supplements thereto. The Company
shall reasonably cooperate with Legal Counsel and legal counsel for each other Investor in performing the Company’s obligations
pursuant to this Section 3.
(d) The
Company shall promptly furnish to each Investor whose Registrable Securities are included in any Registration Statement, without
charge, (i) after the same is prepared and filed with the SEC, at least one (1) copy of each Registration Statement and any amendment(s)
and supplement(s) thereto, including, without limitation, financial statements and schedules, all documents incorporated therein
by reference, if requested by an Investor, all exhibits and each preliminary prospectus, (ii) upon the effectiveness of each Registration
Statement, ten (10) copies of the prospectus included in such Registration Statement and all amendments and supplements thereto
(or such other number of copies as such Investor may reasonably request from time to time) and (iii) such other documents, including,
without limitation, copies of any preliminary or final prospectus, as such Investor may reasonably request from time to time in
order to facilitate the disposition of the Registrable Securities owned by such Investor.
(e) The
Company shall use its best efforts to (i) register and qualify, unless an exemption from registration and qualification applies,
the resale by Investors of the Registrable Securities covered by a Registration Statement under such other securities or “blue
sky” laws of all applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions, such amendments
(including, without limitation, post-effective amendments) and supplements to such registrations and qualifications as may be necessary
to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain
such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, the Company shall
not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would
not otherwise be required to qualify but for this Section 3(e), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify Legal Counsel,
legal counsel for each other Investor and each Investor who holds Registrable Securities of the receipt by the Company of any notification
with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities
or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening
of any proceeding for such purpose.
(f) The
Company shall notify Legal Counsel, legal counsel for each other Investor and each Investor in writing of the happening of any
event, as promptly as practicable after becoming aware of such event, as a result of which the prospectus included in a Registration
Statement, as then in effect, may include an untrue statement of a material fact or omission to state a material fact required
to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made,
not misleading (provided that in no event shall such notice contain any material, non-public information regarding the Company
or any of its Subsidiaries), and, subject to Section 3(r), promptly prepare a supplement or amendment to such Registration
Statement and such prospectus contained therein to correct such untrue statement or omission and deliver ten (10) copies of such
supplement or amendment to Legal Counsel, legal counsel for each other Investor and each Investor (or such other number of copies
as Legal Counsel, legal counsel for each other Investor or such Investor may reasonably request). The Company shall also promptly
notify Legal Counsel, legal counsel for each other Investor and each Investor in writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to Legal Counsel, legal counsel for each other Investor and each
Investor by facsimile or e-mail on the same day of such effectiveness and by overnight mail), and when the Company receives written
notice from the SEC that a Registration Statement or any post-effective amendment will be reviewed by the SEC, (ii) of any request
by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, (iii) of the
Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate; and
(iv) of the receipt of any request by the SEC or any other federal or state governmental authority for any additional information
relating to the Registration Statement or any amendment or supplement thereto or any related prospectus. The Company shall respond
as promptly as practicable to any comments received from the SEC with respect to each Registration Statement or any amendment thereto
(it being understood and agreed that the Company’s response to any such comments shall be delivered to the SEC no later than
fifteen (15) Business Days after the receipt thereof).
(g) The
Company shall (i) use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of each Registration
Statement or the use of any prospectus contained therein, or the suspension of the qualification, or the loss of an exemption from
qualification, of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued,
to obtain the withdrawal of such order or suspension at the earliest possible moment and (ii) notify Legal Counsel, legal counsel
for each other Investor and each Investor who holds Registrable Securities of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
(h) If
any Investor may be required under applicable securities law to be described in any Registration Statement as an underwriter and
such Investor consents to so being named an underwriter, at the request of any Investor, the Company shall furnish to such Investor,
on the date of the effectiveness of such Registration Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company’s independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering,
addressed to the Investors, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the
Investors.
(i) If
any Investor may be required under applicable securities law to be described in any Registration Statement as an underwriter and
such Investor consents to so being named an underwriter, upon the written request of such Investor, the Company shall make available
for inspection by (i) such Investor, (ii) legal counsel for such Investor and (iii) one (1) firm of accountants or other agents
retained by such Investor (collectively, the “
Inspectors
”), all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the “
Records
”), as shall be reasonably deemed
necessary by each Inspector, and cause the Company’s officers, directors and employees to supply all information which any
Inspector may reasonably request; provided, however, each Inspector shall agree in writing to hold in strict confidence and not
to make any disclosure (except to such Investor) or use of any Record or other information which the Company’s board of directors
determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (1) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (2) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court
or government body of competent jurisdiction, or (3) the information in such Records has been made generally available to the public
other than by disclosure in violation of this Agreement or any other Transaction Document (as defined in the Securities Purchase
Agreement). Such Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.
Nothing herein (or in any other confidentiality agreement between the Company and such Investor, if any) shall be deemed to limit
any Investor’s ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and
regulations.
(j) The
Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information
is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required to be disclosed
in such Registration Statement pursuant to the 1933 Act, (iii) the release of such information is ordered pursuant to a subpoena
or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has
been made generally available to the public other than by disclosure in violation of this Agreement or any other Transaction Document.
The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow
such Investor, at such Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.
(k) Without
limiting any obligation of the Company under the Securities Purchase Agreement, the Company shall use its best efforts either to
(i) cause all of the Registrable Securities covered by each Registration Statement to be listed on each securities exchange on
which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, (ii) secure designation and quotation of all of the Registrable
Securities covered by each Registration Statement on an Eligible Market (as defined in the Securities Purchase Agreement), or (iii)
if, despite the Company’s best efforts to satisfy the preceding clauses (i) or (ii) the Company is unsuccessful in satisfying
the preceding clauses (i) or (ii), without limiting the generality of the foregoing, to use its best efforts to arrange for at
least two market makers to register with the Financial Industry Regulatory Authority (“
FINRA
”) as such with
respect to such Registrable Securities. In addition, the Company shall cooperate with each Investor and any broker or dealer through
which any such Investor proposes to sell its Registrable Securities in effecting a filing with FINRA pursuant to FINRA Rule 5110
as requested by such Investor. The Company shall pay all fees and expenses in connection with satisfying its obligations under
this Section 3(k).
(l) The
Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities
to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts (as the
case may be) as the Investors may reasonably request from time to time and registered in such names as the Investors may request.
(m) If
requested by an Investor, the Company shall as soon as practicable after receipt of notice from such Investor and subject to Section 3(r)
hereof, (i) incorporate in a prospectus supplement or post-effective amendment such information as an Investor reasonably requests
to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information
with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering; (ii) make all required filings of such prospectus
supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and (iii) supplement or make amendments to any Registration Statement or prospectus contained therein
if reasonably requested by an Investor holding any Registrable Securities.
(n) The
Company shall use its best efforts to cause the Registrable Securities covered by a Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable
Securities.
(o) The
Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after
the close of the period covered thereby, an earnings statement (in form complying with, and in the manner provided by, the provisions
of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company’s
fiscal quarter next following the applicable Effective Date of each Registration Statement.
(p) The
Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with
any registration hereunder.
(q) Within
one (1) Business Day after a Registration Statement which covers Registrable Securities is declared effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities
(with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation that such
Registration Statement has been declared effective by the SEC in the form attached hereto as
Exhibit A
.
(r) Notwithstanding
anything to the contrary herein (but subject to the last sentence of this Section 3(r)), at any time after the Effective Date
of a particular Registration Statement, the Company may delay the disclosure of material, non-public information concerning the
Company or any of its Subsidiaries the disclosure of which at the time is not, in the good faith opinion of the board of directors
of the Company, in the best interest of the Company and, in the opinion of counsel to the Company, otherwise required (a “
Grace
Period
”), provided that the Company shall promptly notify the Investors in writing of the (i) existence of material,
non-public information giving rise to a Grace Period (provided that in each such notice the Company shall not disclose the content
of such material, non-public information to any of the Investors) and the date on which such Grace Period will begin and (ii) date
on which such Grace Period ends, provided further that (I) no Grace Period shall exceed ten (10) consecutive days and during any
three hundred sixty five (365) day period all such Grace Periods shall not exceed an aggregate of thirty (30) days, (II) the first
day of any Grace Period must be at least five (5) Trading Days after the last day of any prior Grace Period and (III) no Grace
Period may exist during the sixty (60) Trading Day period immediately following the Effective Date of such Registration Statement
(provided that such sixty (60) Trading Day period shall be extended by the number of Trading Days during such period and any extension
thereof contemplated by this proviso during which such Registration Statement is not effective or the prospectus contained therein
is not available for use) (each, an “
Allowable Grace Period
”). “Allowable Grace Period” shall also
mean up to thirty (30) calendar days after the Company files its Form 10-K so long as it files its Post-Effective Amendment to
any Registration Statement within ten days after the date on which it files its Form 10-K. Any Allowable Grace Period under the
preceding sentence shall not be counted against the period set forth in (I) in the preceding sentence. For purposes of determining
the length of a Grace Period above, such Grace Period shall begin on and include the date the Investors receive the notice referred
to in clause (i) above and shall end on and include the later of the date the Investors receive the notice referred to in clause
(ii) above and the date referred to in such notice. The provisions of Section 3(g) hereof shall not be applicable during the
period of any Allowable Grace Period. Upon expiration of each Grace Period, the Company shall again be bound by the first sentence
of Section 3(f) with respect to the information giving rise thereto unless such material, non-public information is no longer
applicable. Notwithstanding anything to the contrary contained in this Section 3(r), the Company shall cause its transfer
agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities
Purchase Agreement in connection with any sale of Registrable Securities with respect to which such Investor has entered into a
contract for sale, and delivered a copy of the prospectus included as part of the particular Registration Statement to the extent
applicable, prior to such Investor’s receipt of the notice of a Grace Period and for which the Investor has not yet settled.
(s) The
Company shall take all other reasonable actions necessary to expedite and facilitate disposition by each Investors of its Registrable
Securities pursuant to each Registration Statement.
(t) Neither
the Company nor any Subsidiary or affiliate thereof shall identify any Investor as an underwriter in any public disclosure or filing
with the SEC, the Principal Market or any Eligible Market and any Buyer being deemed an underwriter by the SEC shall not relieve
the Company of any obligations it has under this Agreement or any other Transaction Document (as defined in the Securities Purchase
Agreement); provided, however, that the foregoing shall not prohibit the Company from including the disclosure found in the "Plan
of Distribution" section attached hereto as Exhibit B in the Registration Statement.
(u) 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 Buyers in this Agreement or otherwise conflicts with the provisions hereof.
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4.
|
Obligations of the Investors.
|
(a) At
least five (5) Business Days prior to the first anticipated filing date of each Registration Statement, the Company shall notify
each Investor in writing of the information the Company requires from each such Investor with respect to such Registration Statement.
It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held
by it, as shall be reasonably required to effect and maintain the effectiveness of the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the Company may reasonably request.
(b) Each
Investor, by such Investor’s acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of each Registration Statement hereunder, unless such Investor
has notified the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable Securities
from such Registration Statement.
(c) Each
Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g)
or the first sentence of 3(f), such Investor will immediately discontinue disposition of Registrable Securities pursuant to any
Registration Statement(s) covering such Registrable Securities until such Investor’s receipt of the copies of the supplemented
or amended prospectus contemplated by Section 3(g) or the first sentence of Section 3(f) or receipt of notice that no
supplement or amendment is required. Notwithstanding anything to the contrary in this Section 4(c), the Company shall cause
its transfer agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of
the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which such Investor has
entered into a contract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event
of the kind described in Section 3(g) or the first sentence of Section 3(f) and for which such Investor has not yet settled.
(d) Each
Investor acknowledges and agrees that any Registrable Securities to be resold pursuant to any Registration Statement may only be
resold (i) at such times after such Registration Statement has been declared effective by the SEC and to the extent at such time
such Registration Statement continues to be effective, (ii) pursuant to and in the manner contemplated by such Registration Statement,
including the “Plan of Distribution” set forth therein and (iii) in compliance with those provisions of the 1933 Act
reasonably related to a resale by such Investor of such Registrable Securities pursuant to the prospectus included in such Registration
Statement, including, but not limited to, the prospectus delivery requirements of the 1933 Act.
(e) Each
Investor covenants and agrees that it will comply with the prospectus delivery requirements of the 1933 Act as applicable to, or
an exemption therefrom, it in connection with sales of Registrable Securities pursuant to a Registration Statement.
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5.
|
Expenses of Registration.
|
All reasonable expenses,
other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant
to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting
fees, FINRA filing fees (if any) and fees and disbursements of counsel for the Company shall be paid by the Company. The Company
shall reimburse Legal Counsel for its fees and disbursements in connection with registration, filing or qualification pursuant
to Sections 2 and 3 of this Agreement which amount shall be limited to $5,000.
(a) To
the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor and each
of its directors, officers, shareholders, members, partners, employees, agents, advisors, representatives (and any other Persons
with a functionally equivalent role of a Person holding such titles notwithstanding the lack of such title or any other title)
and each Person, if any, who controls such Investor within the meaning of the 1933 Act or the 1934 Act and each of the directors,
officers, shareholders, members, partners, employees, agents, advisors, representatives (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding the lack of such title or any other title) of such controlling
Persons (each, an “
Indemnified Person
”), against any losses, obligations, claims, damages, liabilities, contingencies,
judgments, fines, penalties, charges, costs (including, without limitation, court costs, reasonable attorneys’ fees and costs
of defense and investigation), amounts paid in settlement or expenses, joint or several, (collectively, “
Claims
”)
incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from
the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending
or threatened, whether or not an Indemnified Person is or may be a party thereto (“
Indemnified Damages
”), to
which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under
the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“
Blue
Sky Filing
”), or the omission or alleged omission to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained
in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus
(as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances
under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the 1933
Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, “
Violations
”). Subject
to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a):
(i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by such Indemnified Person for such Indemnified Person expressly
for use in connection with the preparation of such Registration Statement or any such amendment thereof or supplement thereto and
(ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent
of the Company, which consent shall not be unreasonably withheld or delayed. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of any of the Registrable
Securities by any of the Investors pursuant to Section 9.
(b) In
connection with any Registration Statement in which an Investor is participating, such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company,
each of its directors, each of its officers who signs the Registration Statement and each Person, if any, who controls the Company
within the meaning of the 1933 Act or the 1934 Act (each, an “
Indemnified Party
”), against any Claim or Indemnified
Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified
Damages arise out of or are based upon any Violation, in each case, to the extent, and only to the extent, that such Violation
occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and, subject to Section 6(c) and the below provisos in this Section 6(b),
such Investor will reimburse an Indemnified Party any legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such Claim; provided, however, the indemnity agreement contained in this Section 6(b)
and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably
withheld or delayed, provided further that such Investor shall be liable under this Section 6(b) for only that amount of a
Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the applicable sale of Registrable
Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of any of the Registrable Securities by any of the
Investors pursuant to Section 9.
(c) Promptly
after receipt by an Indemnified Person or Indemnified Party (as the case may be) under this Section 6 of notice of the commencement
of any action or proceeding (including, without limitation, any governmental action or proceeding) involving a Claim, such Indemnified
Person or Indemnified Party (as the case may be) shall, if a Claim in respect thereof is to be made against any indemnifying party
under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying
party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party (as the case may be); provided, however, an Indemnified Person or Indemnified
Party (as the case may be) shall have the right to retain its own counsel with the fees and expenses of such counsel to be paid
by the indemnifying party if: (i) the indemnifying party has agreed in writing to pay such fees and expenses; (ii) the indemnifying
party shall have failed promptly to assume the defense of such Claim and to employ counsel reasonably satisfactory to such Indemnified
Person or Indemnified Party (as the case may be) in any such Claim; or (iii) the named parties to any such Claim (including, without
limitation, any impleaded parties) include both such Indemnified Person or Indemnified Party (as the case may be) and the indemnifying
party, and such Indemnified Person or such Indemnified Party (as the case may be) shall have been advised by counsel that a conflict
of interest is likely to exist if the same counsel were to represent such Indemnified Person or such Indemnified Party and the
indemnifying party (in which case, if such Indemnified Person or such Indemnified Party (as the case may be) notifies the indemnifying
party in writing that it elects to employ separate counsel at the expense of the indemnifying party, then the indemnifying party
shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party, provided
further that in the case of clause (iii) above the indemnifying party shall not be responsible for the reasonable fees and expenses
of more than one (1) separate legal counsel for such Indemnified Person or Indemnified Party (as the case may be). The Indemnified
Party or Indemnified Person (as the case may be) shall reasonably cooperate with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person (as the case may be) which relates to such action or Claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person (as the case may be) reasonably apprised at all times
as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for
any settlement of any action, claim or proceeding effected without its prior written consent; provided, however, the indemnifying
party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent
of the Indemnified Party or Indemnified Person (as the case may be), consent to entry of any judgment or enter into any settlement
or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified
Party or Indemnified Person (as the case may be) of a release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the Indemnified Party. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person (as the
case may be) with respect to all third parties, firms or corporations relating to the matter for which indemnification has been
made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party (as the case may
be) under this Section 6, except to the extent that the indemnifying party is materially and adversely prejudiced in its ability
to defend such action.
(d) No
Person involved in the sale of Registrable Securities who is guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) in connection with such sale shall be entitled to indemnification from any Person involved in such sale
of Registrable Securities who is not guilty of fraudulent misrepresentation.
(e) The
indemnification required by this Section 6 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 Indemnified Damages are incurred.
(f) The
indemnity and contribution agreements contained herein shall be in addition to (i) any cause of action or similar right of the
Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to pursuant to the law.
To the extent any indemnification
by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however:
(i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the
fault standards set forth in Section 6 of this Agreement, (ii) no Person involved in the sale of Registrable Securities which
Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such
sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent
misrepresentation; and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the amount
of net proceeds received by such seller from the applicable sale of such Registrable Securities pursuant to such Registration Statement.
Notwithstanding the provisions of this Section 7, no Investor shall be required to contribute, in the aggregate, any amount
in excess of the amount by which the net proceeds actually received by such Investor from the applicable sale of the Registrable
Securities subject to the Claim exceeds the amount of any damages that such Investor has otherwise been required to pay, or would
otherwise be required to pay under Section 6(b), by reason of such untrue or alleged untrue statement or omission or alleged
omission.
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8.
|
Reports Under the 1934 Act.
|
With a view to making
available to the Investors the benefits of Rule 144, the Company agrees to:
(a) make
and keep public information available, as those terms are understood and defined in Rule 144;
(b) file
with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so
long as the Company remains subject to such requirements (it being understood and agreed that nothing herein shall limit any obligations
of the Company under the Securities Purchase Agreement) and the filing of such reports and other documents is required for the
applicable provisions of Rule 144; and
(c) furnish
to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company,
if true, that it has complied with the reporting, submission and posting requirements of Rule 144, the 1933 Act and the 1934 Act,
(ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company
with the SEC if such reports are not publicly available via EDGAR, and (iii) such other information as may be reasonably requested
to permit the Investors to sell such securities pursuant to Rule 144 without registration.
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9.
|
Assignment of Registration Rights.
|
All or any portion
of the rights under this Agreement shall be automatically assignable by each Investor to any transferee or assignee (as the case
may be) of all or any portion of such Investor’s Registrable Securities, Notes or Warrants if: (i) such Investor agrees in
writing with such transferee or assignee (as the case may be) to assign all or any portion of such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such transfer or assignment (as the case may be); (ii) the Company is,
within a reasonable time after such transfer or assignment (as the case may be), furnished with written notice of (a) the name
and address of such transferee or assignee (as the case may be), and (b) the securities with respect to which such registration
rights are being transferred or assigned (as the case may be); (iii) immediately following such transfer or assignment (as
the case may be) the further disposition of such securities by such transferee or assignee (as the case may be) is restricted under
the 1933 Act or applicable state securities laws if so required; (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence such transferee or assignee (as the case may be) agrees in writing with the Company
to be bound by all of the provisions contained herein; (v) such transfer or assignment (as the case may be) shall have been made
in accordance with the applicable requirements of the Securities Purchase Agreement, the Notes and the Warrants (as the case may
be); and (vi) such transfer or assignment (as the case may be) shall have been conducted in accordance with all applicable federal
and state securities laws.
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10.
|
Amendment of Registration Rights.
|
Provisions of this
Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and the Required Holders; provided that any such amendment or waiver
that complies with the foregoing, but that disproportionately, materially and adversely affects the rights and obligations of any
Investor relative to the comparable rights and obligations of the other Investors shall require the prior written consent of such
adversely affected Investor. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor
and the Company, provided that no such amendment shall be effective to the extent that it (1) applies to less than all of the holders
of Registrable Securities or (2) imposes any obligation or liability on any Investor without such Investor’s prior written
consent (which may be granted or withheld in such Investor’s sole discretion). No waiver shall be effective unless it is
in writing and signed by an authorized representative of the waiving party. 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 (other than the
reimbursement of legal fees) also is offered to all of the parties to this Agreement.
Miscellaneous.
(a) Solely
for purposes of this Agreement, a Person is deemed to be a holder of Registrable Securities whenever such Person owns, or is deemed
to own, of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two
or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or
election received from such record owner of such Registrable Securities.
(b) Any
notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be
in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent
by facsimile or electronic mail (provided confirmation of transmission is mechanically or electronically generated and kept on
file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service
with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses, facsimile numbers
and email addresses for such communications shall be:
If to the Company:
3601 Clover Lane
New Castle, Pennsylvania 16105
Telephone: (724) 654-9300
Facsimile: (724) 654-1781
Attention: Chairman
E-Mail: dfarley@axionpower.com
With a copy (for informational purposes only) to:
Jolie Kahn, Esq.
2 Liberty Place, Suite 3401
Philadelphia, PA 19103
Telephone: (215) 375-6646
Facsimile: 866-705-3071
E-Mail: joliekahnlaw@sbcglobal.net
If to the Transfer
Agent:
Continental Stock Transfer & Trust Company
17 Battery Place
8
th
Floor
New York, NY 10004
Telephone: (212) 845-3217
Facsimile: (212) 616-7616
Attention: Michael G. Mullings
E-Mail: mmullings@continentalstock.com
If to Legal
Counsel:
Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Telephone: (212) 808-7540
Facsimile: (212) 808-7897
Attention: Michael A. Adelstein, Esq.
Email: madelstein@kelleydrye.com
If to a Buyer, to its address, facsimile
number and/or email address set forth on the Schedule of Buyers attached to the Securities Purchase Agreement, with copies to such
Buyer’s representatives as set forth on the Schedule of Buyers, or to such other address, facsimile number, and/or email
address and/or to the attention of such other Person as the recipient party has specified by written notice given to each other
party five (5) days prior to the effectiveness of such change, provided that Kelley Drye & Warren LLP shall only be provided
notices sent to the lead investor. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or
other communication, (B) mechanically or electronically generated by the sender’s facsimile machine or email containing the
time, date, recipient facsimile number or email address and an image of the first page of such transmission or (C) provided by
a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
(c) Failure
of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof. The Company and each Investor acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that each party hereto shall be entitled to an injunction or injunctions to prevent
or cure breaches of the provisions of this Agreement by any other party hereto and to enforce specifically the terms and provisions
hereof (without the necessity of showing economic loss and without any bond or other security being required), this being in addition
to any other remedy to which any party may be entitled by law or equity.
(d) All
questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal
laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the
State of New York. 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, and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding
is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address for such 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 manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT
TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT
OR ANY TRANSACTION CONTEMPLATED HEREBY.
(e) If
any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the
broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect
the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or
unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations
of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will
endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s),
the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
(f) This
Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and the instruments referenced
herein and therein constitute the entire agreement among the parties hereto and thereto solely with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and
the instruments referenced herein and therein supersede all prior agreements and understandings among the parties hereto solely
with respect to the subject matter hereof and thereof; provided, however, nothing contained in this Agreement or any other Transaction
Document shall (or shall be deemed to) (i) have any effect on any agreements any Investor has entered into with the Company or
any of its Subsidiaries prior to the date hereof with respect to any prior investment made by such Investor in the Company, (ii)
waive, alter, modify or amend in any respect any obligations of the Company or any of its Subsidiaries or any rights of or benefits
to any Investor or any other Person in any agreement entered into prior to the date hereof between or among the Company and/or
any of its Subsidiaries and any Investor and all such agreements shall continue in full force and effect or (iii) limit any obligations
of the Company under any of the other Transaction Documents.
(g) Subject
to compliance with Section 9 (if applicable), this Agreement shall inure to the benefit of and be binding upon the permitted
successors and assigns of each of the parties hereto. This Agreement is not for the benefit of, nor may any provision hereof be
enforced by, any Person, other than the parties hereto, their respective permitted successors and assigns and the Persons referred
to in Sections 6 and 7 hereof.
(h) The
headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. Unless
the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular
and plural forms thereof. The terms “including,” “includes,” “include” and words of like import
shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,”
“hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are found.
(i) This
Agreement may be executed in two or more identical counterparts, all of which 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. In the event that any
signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed
signature page, such signature page 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 signature page were an original thereof.
(j) Each
party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents as any other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
(k) The
language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party. Notwithstanding anything to the contrary set forth in Section 10, terms
used in this Agreement but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing
Date in such other Transaction Documents unless otherwise consented to in writing by each Investor.
(l) All
consents and other determinations required to be made by the Investors pursuant to this Agreement shall be made, unless otherwise
specified in this Agreement, by the Required Holders, determined as if all of the outstanding Notes then held by the Investors
have been converted for Registrable Securities without regard to any limitations on redemption, amortization and/or conversion
of the Notes and the outstanding Warrants then held by Investors have been exercised for Registrable Securities without regard
to any limitations on exercise of the Warrants.
(m) This
Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any other Person.
(n) The
obligations of each Investor under this Agreement and the other Transaction Documents are several and not joint with the obligations
of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor
under this Agreement or any other Transaction Document. Nothing contained herein or in any other Transaction Document, and no action
taken by any Investor pursuant hereto or thereto, shall be deemed to constitute the Investors as, and the Company acknowledges
that the Investors do not so constitute, a partnership, an association, a joint venture or any other kind of group or entity, or
create a presumption that the Investors are in any way acting in concert or as a group or entity with respect to such obligations
or the transactions contemplated by the Transaction Documents or any matters, and the Company acknowledges that the Investors are
not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or the transactions
contemplated by this Agreement or any of the other the Transaction Documents. Each Investor shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction
Documents, and it shall not be necessary for any other Investor 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 herein was solely in the control
of the Company, not the action or decision of any Investor, and was done solely for the convenience of the Company and not because
it was required or requested to do so by any Investor. It is expressly understood and agreed that each provision contained in this
Agreement and in each other Transaction Document is between the Company and an Investor, solely, and not between the Company and
the Investors collectively and not between and among Investors.
[signature page follows]
IN WITNESS WHEREOF
, each Buyer and
the Company have caused their respective signature page to this Registration Rights Agreement to be duly executed as of the date
first written above.
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COMPANY
:
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AXION POWER INTERNATIONAL, INC.
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By:
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/s/ Donald Farley
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Name: Donald Farley
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Title: Chairman
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IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Registration Rights Agreement to be duly executed
as of the date first written above.
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BUYER:
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CVI Investments, Inc.
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By:
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/s/ Martin Korbinger
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Name: Martin Korbinger
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Title: Investment Manager
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IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Registration Rights Agreement to be duly executed
as of the date first written above.
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BUYER:
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Intracoastal Capital, LLC
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By:
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/s/ Keith Goodman
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Name: Keith Goodman
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Title:
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IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Registration Rights Agreement to be duly executed
as of the date first written above.
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BUYER:
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Empery Asset Master, Ltd.
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By:
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/s/ Brett Director
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Name: Brett Director
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Title: General Counsel
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IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Registration Rights Agreement to be duly executed
as of the date first written above.
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BUYER:
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Empery Tax
Efficient, LP
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By:
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/s/ Brett Director
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Name: Brett Director
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Title: General Counsel
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IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Registration Rights Agreement to be duly executed
as of the date first written above.
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BUYER:
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Empery Tax Efficient II, LP
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By:
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/s/ Brett Director
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Name: Brett Director
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Title: General Counsel
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IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Registration Rights Agreement to be duly executed
as of the date first written above.
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BUYER:
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Alto Opportunity Master Fund, SPC
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By:
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/s/ Dan Kocan
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Name: Dan Kocan
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Title: Partner/Director
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IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Registration Rights Agreement to be duly executed
as of the date first written above.
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BUYER:
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Hudson Bay Master Fund Ltd.
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By:
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/s/ Charles Winkler
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Name: Charles Winkler
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Title: Authorized Signatory
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EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
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______________________
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______________________
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______________________
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Attention: _____________
|
Re: Axion Power
International, Inc.
Ladies and Gentlemen:
[We are][I am] counsel
to Axion Power International, Inc., a Delaware corporation (the “
Company
”), and have represented the Company
in connection with that certain Securities Purchase Agreement (the “
Securities Purchase Agreement
”) entered
into by and among the Company and the buyers named therein (collectively, the “
Holders
”) pursuant to which the
Company issued to the Holders senior secured convertible notes (the “
Notes
”) convertible into the Company’s
shares of common stock, $0.0001 par value per share (the “
Common Stock
”), and warrants exercisable for shares
of Common Stock (the “
Warrants
”). Pursuant to the Securities Purchase Agreement, the Company also has entered
into a Registration Rights Agreement with the Holders (the “
Registration Rights Agreement
”) pursuant to which
the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement),
including the shares of Common Stock issuable upon conversion of the Notes and exercise of the Warrants, under the Securities Act
of 1933, as amended (the “
1933 Act
”). In connection with the Company’s obligations under the Registration
Rights Agreement, on ____________ ___, 20__, the Company filed a Registration Statement on Form [S-1][S-3] (File No. 333-_____________)
(the “
Registration Statement
”) with the Securities and Exchange Commission (the “
SEC
”) relating
to the Registrable Securities which names each of the Holders as a selling stockholder thereunder.
In connection with the
foregoing, [we][I] advise you that [a member of the SEC’s staff has advised [us][me] by telephone that [the SEC has entered
an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS]]
[an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS]] has been posted on the web site of the SEC at www.sec.gov] and [we][I] have no knowledge, after a review of information
posted on the website of the SEC at http://www.sec.gov/litigation/stoporders.shtml, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities
are available for resale under the 1933 Act pursuant to the Registration Statement.
This letter shall serve
as our standing opinion to you that the shares of Common Stock underlying the Notes and Warrants are freely transferable by the
Holders pursuant to the Registration Statement. You need not require further letters from us to effect any future legend-free issuance
or reissuance of such shares of Common Stock to the Holders as contemplated by the Company’s Irrevocable Transfer Agent Instructions
dated _________ __, 20__.
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Very truly yours,
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[ISSUER’S COUNSEL]
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By:
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CC:
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CVI Investments, Inc.
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Intracoastal Capital, LLC
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Empery Asset Master, Ltd.
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Empery Tax Efficient, LP
Empery Tax Efficient II, LP
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Alto Opportunity Master Fund, SPC
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Hudson Bay Master Fund Ltd.
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EXHIBIT B
SELLING STOCKHOLDERS
The shares of common
stock being offered by the selling stockholders are those issuable to the selling stockholders upon conversion of the notes and
exercise of the warrants. For additional information regarding the issuance of the notes and the warrants, see “Private Placement
of Notes and Warrants” above. We are registering the shares of common stock in order to permit the selling stockholders to
offer the shares for resale from time to time. Except for the ownership of the notes and the warrants issued pursuant to the Securities
Purchase Agreement, the selling stockholders have not had any material relationship with us within the past three years.
The table below lists
the selling stockholders and other information regarding the beneficial ownership (as determined under Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder) of the shares of common stock held by each of the selling
stockholders. The second column lists the number of shares of common stock beneficially owned by the selling stockholders, based
on their respective ownership of shares of common stock, notes and warrants, as of ________, 201_, assuming conversion of the notes
and exercise of the warrants held by each such selling stockholder on that date but taking account of any limitations on conversion
and exercise set forth therein.
The third column lists
the shares of common stock being offered by this prospectus by the selling stockholders and does not take in account any limitations
on (i) conversion of the notes set forth therein or (ii) exercise of the warrants set forth therein.
In accordance with
the terms of a registration rights agreement with the holders of the notes and the warrants, this prospectus generally covers the
resale of the sum of (i) 200% of the maximum number of shares of common stock issuable upon conversion of the notes, (ii) 200%
of the maximum number of other shares of common stock issuable pursuant to the notes and (iii) 125% the maximum number of
shares of common stock issuable upon exercise of the warrants, in each case, determined as if the outstanding notes and warrants
were converted or exercised (as the case may be) in full (without regard to any limitations on conversion or exercise contained
therein and assuming all notes issuable pursuant to the Secuiries Purchase Agreement have been issued as of the closing date) as
of the trading day immediately preceding the date this registration statement was initially filed with the SEC. Because the conversion
price of the notes and the exercise price of the warrants may be adjusted, the number of shares that will actually be issued may
be more or less than the number of shares being offered by this prospectus. The fourth column assumes the sale of all of the shares
offered by the selling stockholders pursuant to this prospectus.
Under the terms of
the notes and the warrants, a selling stockholder may not convert the notes or exercise the warrants to the extent (but only to
the extent) such selling stockholder or any of its affiliates would beneficially own a number of shares of our common stock which
would exceed 4.99% of the outstanding shares of the Company. The number of shares in the second column reflects these limitations.
The selling stockholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”
|
Name of Selling Stockholder
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Number of Shares of
Common Stock Owned
Prior to Offering
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Maximum
Number of Shares
of Common Stock to be Sold
Pursuant to this Prospectus
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Number of Shares of
Common Stock of
Owned After Offering
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CVI Investments, Inc. (1)
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Intracoastal Capital, LLC (2)
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Empery Asset Master, Ltd. (3)
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Empery Tax Efficient, LP (4)
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Empery Tax Efficient II, LP (5)
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Alto Opportunity Master Fund, SPC (6)
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Hudson Bay Master Fund Ltd. (7)
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(1) [ ]
(2) [ ]
(3) [ ]
(4) [ ]
(5) [ ]
(6) [ ]
(7) [ ]
PLAN OF DISTRIBUTION
We are registering
the shares of common stock issuable upon conversion of the notes and exercise of the warrants to permit the resale of these shares
of common stock by the holders of the notes and warrants from time to time after the date of this prospectus. We will not receive
any of the proceeds from the sale by the selling stockholders of the shares of common stock; although we will receive the exercise
price of any Warrants not exercised by the selling stockholders on a cashless exercise basis. We will bear all fees and expenses
incident to our obligation to register the shares of common stock.
The selling stockholders
may sell all or a portion of the shares of common stock held by them and offered hereby from time to time directly or through one
or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers,
the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares
of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at
varying prices determined at the time of sale or at negotiated prices. These sales may be effected in transactions, which may involve
crosses or block transactions, pursuant to one or more of the following methods:
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·
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on any national securities exchange or quotation service on which the securities may be listed
or quoted at the time of sale;
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·
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in the over-the-counter market;
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·
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in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
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·
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through the writing or settlement of options, whether such options are listed on an options exchange
or otherwise;
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·
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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·
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block trades in which the broker-dealer will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
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·
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purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
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·
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an exchange distribution in accordance with the rules of the applicable exchange;
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·
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privately negotiated transactions;
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·
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short sales made after the date the Registration Statement is declared effective by the SEC;
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·
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broker-dealers may agree with a selling security holder to sell a specified number of such shares
at a stipulated price per share;
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·
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a combination of any such methods of sale; and
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·
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any other method permitted pursuant to applicable law.
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The selling stockholders
may also sell shares of common stock under Rule 144 promulgated under the Securities Act of 1933, as amended, if available,
rather than under this prospectus. In addition, the selling stockholders may transfer the shares of common stock by other means
not described in this prospectus. If the selling stockholders effect such transactions by selling shares of common stock to or
through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form
of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of common stock
for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular
underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection
with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers,
which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling
stockholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close
out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or
pledge shares of common stock to broker-dealers that in turn may sell such shares.
The selling stockholders
may pledge or grant a security interest in some or all of the notes, warrants or shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common
stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act amending, if necessary, the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate
the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this prospectus.
To the extent required
by the Securities Act and the rules and regulations thereunder, the selling stockholders and any broker-dealer participating in
the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities
Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus
supplement, if required, will be distributed, which will set forth the aggregate amount of shares of common stock being offered
and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other
terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or re-allowed
or paid to broker-dealers.
Under the securities
laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers.
In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is available and is complied with.
There can be no assurance
that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement,
of which this prospectus forms a part.
The selling stockholders
and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation M
of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders
and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged
in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock.
All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage
in market-making activities with respect to the shares of common stock.
We will pay all expenses
of the registration of the shares of common stock pursuant to the registration rights agreement, estimated to be $[ ]
in total, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities
or “blue sky” laws; provided, however, a selling stockholder will pay all underwriting discounts and selling commissions,
if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act in
accordance with the registration rights agreements or the selling stockholders will be entitled to contribution. We may be indemnified
by the selling stockholders against civil liabilities, including liabilities under the Securities Act that may arise from any written
information furnished to us by the selling stockholder specifically for use in this prospectus, in accordance with the related
registration rights agreements or we may be entitled to contribution.
Once sold under the
registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands
of persons other than our affiliates.