REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of February
[___], 2014, is by and among Arch Therapeutics, Inc., a Nevada corporation
(the “Company”), and each of 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 January [___], 2014 (as may be amended from time
to time, 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) shares of Common Stock (as defined in the
Securities Purchase Agreement) (the “Common Shares”) and (ii) the Warrants,
which will be exercisable to purchase Warrant Shares (each as defined in the
Securities Purchase Agreement) in accordance with the terms of the Warrants.

 

B.           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 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) 90th calendar day after the Closing Date (or the 150th
calendar day after the Closing Date in the event that such Registration
Statement is subject to review by the SEC) and (B) 3rd 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) 90th calendar day following the date on which
the Company was required to file such additional Registration Statement (or the
150th calendar day after such date in the event that such Registration Statement
is subject to review by the SEC) and (B) 3rd 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 45th
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 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 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 Common Shares, (ii) the
Warrant Shares and (iii) any capital stock of the Company issued or issuable
with respect to the Common Shares, the Warrant Shares 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 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 exercise of the
Warrants, provided that all of the foregoing shall cease being Registrable
Securities upon any sale thereof pursuant to an effective Registration Statement
or Rule 144.

 

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(j)          “Registration Statement” means a registration statement or
registration statements of the Company filed under the 1933 Act covering
Registrable Securities, including (in each case) the prospectus, amendments and
supplements to such registration statements, including pre-effective and
post-effective amendments, and all exhibits and other material incorporated by
reference or deemed to be incorporated by reference in such registration
statements.

 

(k)          “Required Holders” means (i) the holders of at least a majority of
the Registrable Securities and (ii) Cranshire (as defined in the Securities
Purchase Agreement).

 

(l)          “Required Registration Amount” means 133% of the sum of (i) the
Common Shares issued and (ii) the maximum number of Warrant Shares issued and
issuable pursuant to the Warrants as of the Trading Day (as defined in the
Warrants) immediately preceding the applicable date of determination (without
taking into account any limitations on the exercise of the Warrants set forth
therein or any potential future adjustments to the number of Warrant Shares
and/or exercise price therefor as set forth in the Warrants), all subject to
adjustment as provided in Section 2(d).

 

(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.

 

2.            Registration.

 

(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
or if the SEC shall have any comments regarding either such section) the
“Selling Securityholders” and “Plan of Distribution” sections in substantially
the form attached hereto as Exhibit B (and each Buyer hereby acknowledges and
agrees solely with respect to the initial Registration Statement that, as of the
date hereof, (i) the disclosure set forth under such “Plan of Distribution”
section is accurate and complete with respect to it and (ii) the information
about such Buyer set forth in such “Selling Securityholders” section is accurate
and complete). The Company shall use its commercially reasonable 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.

 

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(b)          Legal Counsel. Subject to Section 5 hereof, Cranshire shall have
the right to select one (1) legal counsel to review and oversee, solely on its
behalf, any registration pursuant to this Section 2 (“Legal Counsel”), which
shall be Greenberg Traurig, LLP or such other counsel as thereafter designated
by Cranshire.

 

(c)          Use of Form S-3. The Company shall undertake to register the resale
of all the Registrable Securities on Form S-3 as soon as such form is available,
provided that the Company shall maintain the effectiveness of all Registration
Statements then in effect and the availability for use of each prospectus
contained therein until such time as a Registration Statement on Form S-3
covering the resale of all the Registrable Securities has been declared
effective by the SEC and the prospectus contained therein is available for use
or, if earlier, such time as a Registration Statement is no longer required to
be maintained hereunder.

 

(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
shortest 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
thirty (30) 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
commercially reasonable 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) 0.90. The calculation set forth in the foregoing
sentence shall be made without regard to any limitations on 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).

 

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(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
(disregarding any reduction pursuant to Section 2(f) of Registrable Securities
that constitute Common Shares) 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 unless such failure to file on or before the
Filing Deadline shall solely be the result of an unreasonable objection by Legal
Counsel (a “Filing Failure”), or (B) not declared effective by the SEC on or
before the Effectiveness Deadline for such Registration Statement (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) (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) of
Registrable Securities that constitute Common Shares) 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 the Principal 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 on any
day after the Effective Date of a Registration Statement, a Registration
Statement is not effective for any reason or the prospectus contained therein is
not available for use for any reason and 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) 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) (a “Current Public Information Failure”), 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 Purchase Price (as defined in the Securities Purchase Agreement) (1)
on the date of such Filing Failure, Effectiveness Failure, Maintenance Failure
or Current Public Information Failure, as applicable, and (2) 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 (3rd)
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 and
one-half percent (1.5%) 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). Notwithstanding anything to
the contrary contained in this Agreement, the Company shall not be liable for
any Registration Delay Payments solely with respect to the exclusion from the
initial Registration Statement required to be filed hereunder of the Warrant
Shares (or any capital stock of the Company issued or issuable with respect to
the Warrant Shares) as a result of the application of Section 2(f).

 

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(f)          Offering. Notwithstanding anything to the contrary contained in
this Agreement, but subject to the payment of the Registration Delay Payments as
expressly set forth in Section 2(e), 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 (i) first, reduce the number of Warrant Shares (or
any capital stock of the Company issued or issuable with respect to the Warrant
Shares) to be included by all Investors on a pro rata basis (based upon the
number of such Reigstrable Securities otherwise required to be included for each
Investor), and (ii) second, reduce the number of Common Shares (or any capital
stock of the Company issued or issuable with respect to the Common Shares) to be
included by all Investors on a pro rata basis (based upon the number of such
Registrable Securities otherwise required to be included for each Investor),
unless in either case 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).  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
securities that are not Registrable Securities, if any such securities are
permitted by the Required Holders to be included in accordance with the terms of
this 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 thirty (30) days of such request
(subject to any restrictions or longer periods 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).

 

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(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 ten (10) 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.

 

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(i)          No Inclusion of Other Securities. In no event shall the Company
include any securities other than Registrable Securities on any Registration
Statement 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.

 

3.            Related Obligations.

 

The Company shall use its commercially reasonable 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 commercially
reasonable 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 one (1) Business Day 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 forty-eight (48) hours
after the submission of such request.

 

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(b)          Subject to Section 3(p) 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
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 any legal counsel
for each other Investor to review and comment upon (i) each Registration
Statement at least five (5) 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 promptly
furnish to Legal Counsel, 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; if in each case such items are not available on EDGAR. The
Company shall reasonably cooperate with Legal Counsel and any 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, if requested
and 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 second
(2nd) Business Day following effectiveness of each Registration Statement, ten
(10) copies of the final 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, provided that, in each case, the availability of any such documents on
EDGAR shall be deemed to satisfy the Company’s obligation to furnish such
documents under this Section 3(d) unless otherwise required by applicable law.

 

9

 

 

(e)          The Company shall use its commercially reasonable 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, any 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, includes
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(p), 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), if such supplement or amendment is not
available on EDGAR by the time required under Section 3(p). 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 no later than 8:30 a.m. (New
York time) on the Trading Day immediately following such effectiveness), 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 and/or
receives written comments to a Registration Statement from 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 ten
(10) days after the receipt thereof).

 

10

 

 

(g)          The Company shall (i) use its commercially reasonable 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 any such stop order and the resolution
thereof or its receipt of actual notice of the initiation or threat of any
proceeding for such purpose.

 

(h)          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, rules or regulations or the Staff’s interpretations thereof or is required
pursuant to any SEC comments to a Registration Statement, (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. Notwithstanding anything to the contrary herein, no
Effectiveness Failure or Maintenance Failure shall be deemed to occur to the
extent that a Registration Statement is not declared or maintained effective by
the required deadlines or for the required periods as set forth herein solely
because an Investor is seeking a protective order or other action under this
Section 3(h).

 

11

 

 

(i)          Without limiting any obligation of the Company under the Securities
Purchase Agreement, the Company shall use its commercially reasonable 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 the OTC
Bulletin Board or the OTCQX or OTCQB tiers of the OTC Marketplace, or (iii) if,
despite the Company’s commercially reasonable 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 commercially reasonable 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(i).

 

(j)          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, without limiting the transfer restrictions set forth herein, in
the Securities Purchase Agreement or the Warrants or as required by applicable
securities laws, 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.

 

(k)          If requested by an Investor, the Company shall as soon as
reasonably practicable after receipt of notice from such Investor and subject to
Section 3(p) 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); and (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 pursuant to clause (i).

 

(l)          The Company shall use its commercially reasonable 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.

 

(m)          Solely to the extent an Investor is or is deemed an underwriter in
or with respect to a Registration Statement, the Company shall make generally
available to its security holders as soon as reasonably 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.

 

(n)          The Company shall otherwise use its commercially reasonable efforts
to comply with all applicable rules and regulations of the SEC in connection
with any registration hereunder.

 

12

 

 

(o)          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.

 

(p)          Notwithstanding anything to the contrary herein (but subject to the
last sentence of this Section 3(p)), 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 twenty (20) 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”). 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(p), 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.

 

(q)          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.

 

13

 

 

4.            Obligations of the Investors.

 

(a)          At least five (5) Business Days prior to the first anticipated
filing date of each Registration Statement or any prospectus supplement or
pre-effective or post-effective amendment thereto, 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
beneficial ownership information related thereto, 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. Without limiting the
generality of the foregoing, the Investor acknowledges and agrees that such
information shall include at least (i) the Investor’s confirmation of the
accuracy of, or revision to maintain the accuracy of, the disclosure under the
heading “Plan of Distribution” in the applicable Registration Statement (of any
prospectus supplement or pre-effective or post-effective amendment thereto), and
(ii) the detail regarding such Investor as set forth under the heading “Selling
Securityholders” in the applicable Registration Statement (or any prospectus
supplement or pre-effective or post-effective amendment thereto).

 

(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 or any prospectus supplement or pre-effective or post-effective
amendment thereto 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 covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it in
connection with sales of Registrable Securities pursuant to a Registration
Statement.

 

14

 

 

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 also reimburse Cranshire for the fees and
disbursements of Legal Counsel in connection with registration, filing or
qualification pursuant to Sections 2 and 3 of this Agreement which amount shall
be limited to $10,000.

 

6.          Indemnification.

 

(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, managers, 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, managers, 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
party 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 or (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 (the
matters in the foregoing clauses (i) through (iii) 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 or on
behalf of 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 be available to a
particular Investor to the extent such Claim is based on a failure of such
Investor to deliver or to cause to be delivered the prospectus made available by
the Company (to the extent applicable), including, without limitation, a
corrected prospectus, if such prospectus or corrected prospectus was timely made
available by the Company pursuant to Section 3(d) and then only if, and to the
extent that, following the receipt of the corrected prospectus no grounds for
such Claim would have existed; and (iii) 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.

 

15

 

 

(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, officers, employees,
agents, advisors, representatives 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 or on behalf of such Investor or its Indemnified
Persons 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.

 

16

 

 

(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 at
any time for all Indemnified Persons or Indemnified Parties (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 or Indemnified Person (as the case may be).
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.

 

17

 

 

(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.

 

7.            Contribution.

 

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.

 

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

 

18

 

 

(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 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.

 

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 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 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.
Notwithstanding anything to the contrary set forth herein, the rights of the
Investors hereunder, may only be assigned by each Investor to transferees or
assignees that after such assignment hold or have the right to acquire at least
300,000 shares of Common Stock that constitute Registrable Securities (subject
to appropriate adjustment for stock splits, stock dividends, combinations and
other recapitalizations).

 

10.         Amendment of Registration Rights.

 

Provisions of this Agreement may be amended only with the written consent of the
Company and the Required Holders. Any amendment 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, (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) or (3) applies
retroactively. 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 (in a writing signed by all of 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 10 shall be binding on
each Investor, provided that no such waiver shall be effective to the extent
that it (1) applies to less than all the Investors (unless a party gives a
waiver as to itself only) 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 consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of any
provision of this Agreement unless the same consideration also is offered to all
of the parties to this Agreement.

 

19

 

 

11.         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, if delivered
personally; (ii) when sent, if sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); (iii) when sent, if sent by e-mail (provided that such sent
e-mail is kept on file (whether electronically or otherwise) by the sending
party and the sending party does not receive an automatically generated message
from the recipient’s e-mail server that such e-mail could not be delivered to
such recipient) and (iv) if sent by overnight courier service, 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/or e-mail addresses for such communications
are as follows:

 

If to the Company:

 

Arch Therapeutics, Inc.

20 William Street, Suite 2790

Wellesley, Massachusetts 02481

Facsimile: (617) 431-2307

E-mail address: twn@archtherapeutics.com

Attention: Chief Executive Officer

 

With a copy (for informational purposes only) to:

 

Morrison & Foerster LLP

12531 High Bluff Drive, Suite 100

San Diego, California 92130

Facsimile: (858) 720-5125

E-mail address: srowles@mofo.com

Attention: Steven G. Rowles, Esq.

 

20

 

 

If to the Company’s Transfer Agent:

 

Empire Stock Transfer

1859 Whitney Mesa Drive

Henderson, Nevada 89014

Facsimile: (702) 974-1444

E-mail address: brian@empirestock.com

Attention: Brian Barthlow

 

If to Legal Counsel:

 

Greenberg Traurig, LLP
77 W. Wacker Drive, Suite 3100
Chicago, Illinois 60601
E-mail addresses: liebermanp@gtlaw.com

 mazurt@gtlaw.com

Facsimile: (312) 456-8435
Attention: Peter H. Lieberman, Esq.

   Todd A. Mazur, Esq.

 

If to a Buyer, to its address, facsimile number or e-mail address (as the case
may be) 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 or e-mail 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 Greenberg Traurig, LLP shall only be
provided copies of notices sent to Cranshire.

 

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 containing the time, date and
recipient facsimile number 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 (iv) above,
respectively. A copy of the e-mail transmission containing the time, date and
recipient e-mail address shall be rebuttable evidence of receipt by e-mail in
accordance with clause (iii) above.

 

(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.

 

21

 

 

(d)          The parties hereby agree that they have chosen that 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. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
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)          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, or any
instrument that any Investor received from, 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, or (ii) limit any obligations of the Company
under any of the other Transaction Documents.

 

(f)          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.

 

(g)          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.

 

22

 

 

(h)          This Agreement may be executed in two or more 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.

 

(i)          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.

 

(j)          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 and not defined 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.

 

(k)          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.

 

(l)          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 pages follow]

 

23

 

 

IN WITNESS WHEREOF, 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.

 

  COMPANY:       ARCH THERAPEUTICS, INC.

 

  By:         Name:     Title:

 

 

 

 

IN WITNESS WHEREOF, 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.

 

  BUYER:       CRANSHIRE CAPITAL MASTER FUND, LTD.

 

  By: Cranshire Capital Advisors, LLC   Its: Investment Manager

 

        By:   Its:

 

 

 

 

IN WITNESS WHEREOF, 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.

 

  BUYER:       EQUITEC SPECIALISTS, LLC

 

  By: Cranshire Capital Advisors, LLC   Its: Investment Manager

 

        By:   Its:

 

 

 

 

IN WITNESS WHEREOF, 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.

 

  BUYER:       Anson Investments Master Fund, Ltd.

 

  By:         Name:         Title:      

 

 

 

 

 

IN WITNESS WHEREOF, 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.

 

  BUYER:       CAPITAL VENTURES INTERNATIONAL

 

  By:         Name:         Title:      

 

 

 

 

 

IN WITNESS WHEREOF, 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.

 

  BUYER:       HENG HONG LTD

 

  By:         Name:         Title:      

 

 

 

 

IN WITNESS WHEREOF, 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.

 

  BUYER:       ocean creation investments limited

 

  By:         Name:         Title:      

 

 

 

 

IN WITNESS WHEREOF, 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.

 

  BUYER:             Ong Kim Kiat

 

 

 

 

IN WITNESS WHEREOF, 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.

 

  BUYER:       0903746 B.C. Ltd

 

  By:         Name:         Title:      

 

 

 

 

IN WITNESS WHEREOF, 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.

 

  BUYER:             Karmdeep Bains

 

 

 

 

IN WITNESS WHEREOF, 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.

 

  BUYER:             Harpreet Bains

 

 

 

 

EXHIBIT A

 

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

 

[Address 1]

[Address 2]

[Address 3]

Facsimile: [(   )    -    ]

E-mail address: [__________]

Attention: [__________]

 

Re:Arch Therapeutics, Inc.

 

Ladies and Gentlemen:

 

We are counsel to Arch Therapeutics, Inc., a Nevada 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 investors named on the Schedule of Buyers attached
thereto (collectively, the “Holders”) pursuant to which the Company issued to
the Holders shares of the Company’s common stock, $0.001 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 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 (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 listed below as a selling
securityholder thereunder (each such Holder, a “Selling Securityholder”) with
respect to the number of Registrable Securities set forth opposite such Holder’s
name below.

 

Name of Selling

Securityholder

 

Number of Shares of Common

Stock registered under the

Registration Statement

 

Number of Shares of Common

Stock underling the Warrants

registered under the

Registration Statement

                             

 

 

 

 

In connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us 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] and, as of the date hereof, we
have no knowledge, after telephonic inquiry of a member of the SEC’s staff, 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.

 

This letter shall serve as our standing instruction letter to you that we have
no objection to the removal of the restrictive legend from certificates
representing the Registrable Securities set forth in the table above upon
request of a Selling Securityholder or its broker in connection with the sale by
the Selling Securityholder of such Registrable Securities pursuant to the
Registration Statement. You need not require further letters from us to effect
the removal of the restrictive legend from any such certificates as contemplated
hereby and by the Company’s Irrevocable Transfer Agent Instructions dated
_________ __, 20__.

 

Our lack of objection to the removal of the restrictive legend from certificates
representing the Registrable Securities as set forth in this instruction letter
is in reliance upon each Selling Securityholder’s contractual obligations under
the Registration Rights Agreement to comply with the prospectus delivery
requirements under the 1933 Act as applicable to it, unless an exemption
therefrom is available; to sell the Registrable Securities under the
Registration Statement only in accordance with the plan of distribution
contained therein; and to refrain from selling the Registrable Securities under
the Registration Statement at any time that such Registration Statement is not
effective for any reason. Notwithstanding anything herein that may be implied or
construed to the contrary, we have made no investigation into, and are not and
shall not be considered to render any opinion with respect to, the extent of any
Selling Securityholder’s compliance or non-compliance with any such contractual
obligations, and we have assumed for all purposes with respect to this
instruction letter that the Selling Securityholder’s are in full compliance
therewith.

 

The authorizations and opinions set forth in this letter may be rescinded, and
thereupon shall immediately be deemed null and void, upon delivery of a notice
either (a) in writing or (b) verbally to be followed by written confirmation.
This letter is solely for your benefit and may not be relied upon by, nor may
copies be delivered to, any other person without our prior written consent.

 

  Very truly yours,       MORRISON & FOERSTER LLP

 

  By:    

 

CC:[LIST NAMES OF HOLDERS]

 

 

 

 

EXHIBIT B

 

SELLING SECURITYHOLDERS

 

This prospectus covers the resale from time to time by the selling
securityholders identified in the table below of up to an aggregate of [_______]
shares of our common stock, [_______] of which were previously issued to the
selling securityholders and [_______] of which may be issuable upon exercise of
our Series A warrants, Series B warrants and Series C warrants. The shares of
common stock being offered by the selling securityholders and the Series A
warrants, Series B warrants and Series C warrants, in each case, were issued to
the selling securityholders in the January 2014 Private Placement. For
additional information regarding the issuance of the common stock and the
warrants, see “January 2014 Private Placement” elsewhere in this prospectus.

 

We are registering the shares of common stock pursuant to the terms of the
registration rights agreement among us and the holders of the common stock and
the warrants issued in the January 2014 Private Placement, in order to permit
the selling securityholders identified in the table below to offer the shares
for resale from time to time. In accordance with the terms of the registration
rights agreement, this prospectus generally covers the resale of 133% of the sum
of (i) the shares of common stock issued to the selling securityholders and (ii)
the maximum number of shares of common stock issuable upon exercise of the
warrants determined as if the outstanding warrants were exercised in full
(without regard to any limitations on exercise contained therein) as of the
trading day immediately preceding the date this registration statement was
initially filed with the SEC. Because the exercise price of the warrants is
subject to anti-dilution and other adjustments as set forth therein and as
further described elsewhere in this prospectus, 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 warrants issued in the January 2014 Private Placement
also provide that a selling securityholder may not exercise its warrants to the
extent (but only to the extent) such selling securityholder or any of its
affiliates would beneficially own a number of shares of our common stock which
would exceed 4.9%. The number of shares to be registered by this prospectus
generally does not take into account any such ownership limitation.

 

The table below has been prepared based upon information furnished to us by the
selling securityholders as of as of [________], 2014. The selling
securityholders may sell all, some or none of their shares in this offering. See
the disclosure under the heading “Plan of Distribution” elsewhere in this
prospectus. The selling securityholders identified in the table below may have
sold, transferred or otherwise disposed of some or all of their shares since the
date on which the information in the following table is presented in
transactions exempt from or not subject to the registration requirements of the
Securities Act. Information concerning the selling securityholders may change
from time to time and, if necessary, we will amend or supplement this prospectus
accordingly and as required.

 

 

 

 

The table below lists the selling securityholders 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 our common stock by each of the selling securityholders. The
second column of the table below lists the number of shares of common stock
beneficially owned by the selling securityholders, based on their respective
ownership of shares of common stock and warrants as of the date presented. The
third column of the table below lists the shares of common stock being offered
by this prospectus by the selling securityholders and also does not take into
account the ownership limitations on exercise of the warrants set forth therein.
The fourth column of the table below reflects the shares owned by each selling
securityholder after completion of this offering, assuming the sale of all of
the shares offered by the selling securityholders pursuant to this prospectus.
The fifth column of the table below reflects the percentage of our common stock
beneficially owned by each selling securityholder after completion of this
offering, assuming the sale of all of the shares offered by such selling
securityholder pursuant to this prospectus.

 

Name of Selling Securityholder  Number of Shares
of Outstanding
Common Stock
Beneficially Owned
Prior to this
Offering (1)   Maximum Number
of Shares of
Common Stock to
be Sold Pursuant to
this Prospectus (2)   Number of
Shares of
Common Stock
Owned After
Offering (3)   Percentage of
Shares of
Common Stock
Beneficially
Owned After
Offering (4)                    Cranshire Capital Master Fund, Ltd. (5) 
 12,800,000    12,800,000    —    —                        Equitec Specialists,
LLC (6)   3,200,000    3,200,000    —    —                        Anson
Investments Master Fund, Ltd. (7)   8,000,000    8,000,000    —    —         
              Capital Ventures International (8)   8,000,000    8,000,000    —  
 —                        Heng Hong Ltd (9)   8,400,000    8,400,000    —    — 
                      0903746 B.C. Ltd (10)   2,800,000    2,800,000    —    — 
                      Ocean Creation Investments Limited (11)   800,000  
 800,000    —    —                        Ong Kim Kiat   800,000    800,000  
 —    —                        Karmdeep & Harpreet Bains   800,000    800,000  
 —    — 

 

*           Less than 1%.

(1)         Assumes that none of the shares of common stock or warrants issued
to the selling securityholders in the January 2014 Private Placement have been
sold or otherwise transferred prior to the date of this prospectus in
transactions exempt from the registration requirements of the Securities Act.

(2)         Includes all shares of common stock issued and issuable to the
selling securityholders in the January 2014 Private Placement, including all
shares underlying the warrants issued therein.

(3)         Assumes that (i) all of the shares of common stock to be registered
on the registration statement of which this prospectus is a part, including all
shares of common stock issued and outstanding and all shares of common stock
issuable upon exercise of the warrants, are sold in the offering and (ii) the
selling securityholders do not acquire additional shares of our common stock
after the date of this prospectus and prior to completion of this offering.

(4)         Percentage ownership for each selling securityholder is determined
under Section 13(d) of the Exchange Act of 1934.

(5)         Cranshire Capital Advisors, LLC (“CCA”) serves as the investment
manager to Cranshire Capital Master Fund, Ltd. (“Cranshire Master Fund”) and
consequently has voting control and investment discretion over securities held
by Cranshire Master Fund. Mitchell P. Kopin (“Mr. Kopin”) has voting control
over CCA. As a result, each of Mr. Kopin and CCA may be deemed to have
beneficial ownership (as determined under Section 13(d) of the Exchange Act of
1934) of the securities held by Cranshire Master Fund which are covered
hereunder.

 

 

 

 

(6)         CCA serves as the investment manager to Equitec Specialists, LLC
(“Equitec”) and consequently has voting control and investment discretion over
securities held by Equitec. Mr. Kopin has voting control over CCA. As a result,
each of Mr. Kopin and CCA may be deemed to have beneficial ownership (as
determined under Section 13(d) of the Exchange Act of 1934) of the securities
held by Equitec which are covered hereunder.

(7)         M5V Advisors Inc. and Frigate Ventures LP (“M5V” and “Frigate”,
respectively), the Co-Investment Advisers of Anson Investments Master Fund LP
(“Anson”), hold voting and dispositive power over the securities held by Anson. 
Bruce Winson is the managing member of Admiralty Advisors LLC, which is the
general partner of Frigate.  Moez Kassam and Adam Spears are directors of M5V. 
Mr. Winson, Mr. Kassam and Mr. Spears each disclaim beneficial ownership of the
securities held by Anson that are covered hereunder except to the extent of
their pecuniary interest therein.  The principal business address of Anson
is 190 Elgin Avenue, George Town, Grand Cayman.

(8)         Heights Capital Management, Inc., the authorized agent of Capital
Ventures International, has discretionary authority to vote and dispose of the
shares held by Capital Ventures International. Martin Kobinger, in his capacity
as Investment Manager of Heights Capital Management, Inc., also has investment
discretion and voting power over the shares held by Capital Ventures
International. As a result, each of Heights Capital Management, Inc. and Mr.
Kobinger may be deemed to have beneficial ownership (as determined under Section
13(d) of the Exchange Act of 1934) of the securities held by Capital Ventures
International that are covered hereunder. Mr. Kobinger disclaims any such
beneficial ownership of such securities.

(9)         Daniel MacMullin, in his capacity as the Managing Partner of Heng
Hong Ltd, has investment discretion and voting power over the shares held by
Heng Hong Ltd. As a result, Mr. McAllister may be deemed to have beneficial
ownership (as determined under Section 13(d) of the Exchange Act of 1934) of the
securities held by Heng Hong Ltd that are covered hereunder. Mr. McAllister
disclaims any such beneficial ownership of such securities.

(10)        Maheep Dhillon, in his capacity as the Managing Member of 0903746
B.C. Ltd, has investment discretion and voting power over the shares held by
0903746 B.C. Ltd. As a result, Mr. Dhillon may be deemed to have beneficial
ownership (as determined under Section 13(d) of the Exchange Act of 1934) of the
securities held by 0903746 B.C. Ltd that are covered hereunder. Mr. Dhillon
disclaims any such beneficial ownership of such securities.

(11)        Norman Winata, in his capacity as the Managing Member of Ocean
Creation Investments Limited, has investment discretion and voting power over
the shares held by Ocean Creation Investments Limited. As a result, Mr. Winata
may be deemed to have beneficial ownership (as determined under Section 13(d) of
the Exchange Act of 1934) of the securities held by Ocean Creation Investments
Limited that are covered hereunder. Mr. Winata disclaims any such beneficial
ownership of such securities.

 

Except for the ownership of the common stock and warrants issued in the January
2014 Private Placement as reflected in the table above and as otherwise
described in this “Selling Securityholder” section below, (a) we have not made,
and are not required to make, any potential payments regarding the January 2014
Private Placement to any selling securityholder, any affiliate of a selling
securityholder, or any person with whom any selling securityholder has a
contractual relationship, other than as described below and (b) none of the
selling securityholders has, or has had within the past three years, any
material relationship with us. We have also been advised that none of the
selling securityholders is a broker-dealer or an affiliate of a broker-dealer,
other than Equitec Specialists, LLC, which has informed us that it is an
affiliate of a broker-dealer.

 

The holders of the warrants issued in the January 2014 Private Placement have
ongoing rights to exercise those warrants. We have described the material terms
of the warrants elsewhere in this prospectus. In addition, the participants in
the January 2014 Private Placement have ongoing registration rights related to
the securities issued therein pursuant to the terms of the registration rights
agreement, which are described in more detail elsewhere in this prospectus.

 

 

 

 

We may be required to make certain payments to the investors in the January 2014
Private Placement under certain circumstances pursuant to the terms of the
securities purchase agreement and the registration rights agreement. These
potential payments include: (a) potential partial damages for failure to
register the common stock issued or issuable upon exercise of warrants; (b)
amounts payable if we and our transfer agent fail to timely remove certain
restrictive legends from certificates representing shares of common stock issued
in the January 2014 Private Placement or issuable upon exercise of the warrants;
(c) expense reimbursement for the lead investor; and (d) payments in respect of
claims for which we provide indemnification. We intend to comply with the
requirements of the registration rights agreement and do not currently expect to
make any such payments; however, it is possible that such payments may be
required.

 

The securities purchase agreement entered into in connection with the January
2014 Private Placement grants to the investors, until the six month anniversary
of the date of the closing of the January 2014 Private Placement, the right to
participate in any financing by us through an issuance of any of our securities
up to an amount equal to the pro rata portion of the investor’s subscription
amount in the January 2014 Private Placement, on the same pricing and other
terms and conditions as such subsequent financing, provided that the aggregate
participation by all such investors collectively shall not exceed 50% of the
subsequent financing amount. The terms and conditions of such subsequent
financing shall not include any provision that requires a participating investor
to agree to any restrictions on its trading of any of the shares acquired in
connection with the January 2014 Private Placement without such investor’s
consent.

 

 

 

 

PLAN OF DISTRIBUTION

 

We are registering (i) the shares of common stock issued and (ii) the shares of
common stock issuable upon exercise of the warrants, in each case, issued to the
selling securityholders in the January 2014 Private Placement to permit the
resale of these shares of common stock by the selling securityholders from time
to time after the date of this prospectus. We will not receive any of the
proceeds from the sale by the selling securityholders of the shares of common
stock. We will bear all fees and expenses incident to our obligation to register
the shares of common stock.

 

The selling securityholders 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 securityholders
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 that comply with the terms of the securities purchase
agreement;

 

 

 

 

·broker-dealers may agree with a selling securityholder 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 securityholders may also sell shares of common stock under Rule 144
promulgated under the Securities Act, if available, rather than under this
prospectus. In addition, the selling securityholders may transfer the shares of
common stock by other means not described in this prospectus. If the selling
securityholders 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 securityholders 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 but, except as set forth in a
supplement to this prospectus to the extent required, in the case of an agency
transaction will not be in excess of a customary brokerage commission in
compliance with FINRA Rule 5110 and in no event shall any broker-dealer receive
fees, commissions and markups that, in the aggregate, would exceed eight percent
(8%)).

 

In connection with sales of the shares of common stock or otherwise, the selling
securityholders 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 securityholders 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 securityholders may also loan or
pledge shares of common stock to broker-dealers that in turn may sell such
shares.

 

The selling securityholders may pledge or grant a security interest in some or
all of the 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 securityholders to include the pledgee, transferee or other successors
in interest as selling securityholders under this prospectus. The selling
securityholders also may transfer and donate the shares of common stock in other
circumstances as permitted by the securities purchase agreement, the
registration rights agreement, the warrants and all applicable law, 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 securityholders 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. In such event, 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. Selling securityholders who are deemed to be “underwriters”
under the Securities Act (if any) will be subject to the prospectus delivery
requirements of the Securities Act and may be subject to certain statutory
liabilities of, including but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Exchange Act.

 

 

 

 

Each selling securityholder has informed us that it is not a registered
broker-dealer and does not have any written or oral agreement or understanding,
directly or indirectly, with any person to engage in a distribution of the
common stock. Upon us being notified in writing by a selling securityholder that
any material arrangement has been entered into with a broker-dealer for the
distribution of common stock, a prospectus supplement, if required, will be
distributed, which will set forth the aggregate amount of shares of common stock
being distributed 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 securityholders 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.

 

Each selling securityholder may sell all, some or none of the shares of common
stock registered pursuant to the registration statement of which this prospectus
forms a part. If sold under the registration statement of which this prospectus
forms a part, the shares of common stock registered hereunder will be freely
tradable in the hands of persons other than our affiliates that acquire such
shares.

 

The selling securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act 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
securityholders 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 have agreed to keep this prospectus effective until the earlier of (i) the
date on which the securities may be resold by the selling securityholders
without registration and without regard to any volume or manner-of-sale
limitations by reason of Rule 144, without the requirement for the Company to be
in compliance with the current public information under Rule 144 under the
Securities Act or any other rule of similar effect or (ii) all of the securities
have been sold pursuant to this prospectus or Rule 144 under the Securities Act
or any other rule of similar effect. We have also agreed to 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, SEC filing fees and expenses of compliance with state securities or
“blue sky” laws; provided, however, a selling securityholder will pay all
underwriting discounts and selling commissions, if any.

 

 

 

 

We have further agreed to indemnify or provide contribution to the selling
securityholders with respect to certain liabilities, including some liabilities
under the Securities Act, in accordance with the registration rights agreements.
Each selling securityholder, severally and not jointly, has agreed to indemnify
or provide contribution to us with respect to certain civil liabilities,
including liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling securityholder specifically for use
in this prospectus, in accordance with the related registration rights
agreements.