Document:

ex10-1.htm

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

EXHIBIT 10.1

FIRST AMENDMENT TO LICENSE AND DISTRIBUTION AGREEMENT

 

This First Amendment to the License and Distribution Agreement (this “Amendment”) is entered into this 15th day of February, 2012 (the “First Amendment Effective Date”) between EYELEVEL INTERACTIVETM North America, LLC, a Delaware limited liability company (“Licensor”) and Superior Uniform Group, Inc., a Florida corporation (“Licensee” or “Distributor”). Licensor and Distributor may be referred to herein as a “Party” or collectively as the “Parties.”

 

WHEREAS, Licensor (as successor to EYELEVEL INTERACTIVETM, LLC) and Distributor entered a License and Distribution Agreement, effective January 4, 2011 (“LDA” and, together with this Amendment, the “Agreement”);

 

WHEREAS, the Parties now seek to formally amend the aforementioned LDA in accordance with the terms of a Term Sheet executed by the Parties on October 7, 2011;

 

In return for the promises herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by both Parties, it is agreed as follows:

 

1.      Defined Terms. Unless otherwise specified herein, all definitions, terms and provisions of the LDA remain in effect.

 

	
2.

	
Modification to List of Exclusive Customers. Effective as of the date of this Amendment, the list of Exclusive Customers set forth in Attachment D to the original LDA is deleted in its entirety and replaced by the list of Exclusive Customers set forth in Exhibit A to this Agreement. Any company who was listed in Attachment D to the original LDA but who is not listed in Exhibit A to this Amendment shall not be deemed an Exclusive Customer for purposes of the Agreement. Notwithstanding the foregoing, the companies listed in Exhibit B to this Amendment (“Key Customers”) may revert to their original status as Tier 1 or Tier 2 Exclusive Customers, as applicable, in accordance with this Section. Specifically, if neither Licensor nor [*] (a) executes a [*] (as defined in this Agreement) and obtains at least [*] from [*] (as defined in this Agreement) to support that [*] within [*] months after the First Amendment Effective Date; and (b) obtains a [*] or [*] totaling at least [*] dollars ($[*]) from any Key Customer within [*] months after the First Amendment Effective Date, each Key Customer that fails to satisfy these requirements shall revert to its initial status as a Tier 1 or Tier 2 Exclusive Customer, as applicable (a “Reversion Customer”). Licensor shall have no obligation to pay Distributor any royalties with respect a Reversion Customer, even if the Reversion Customer subsequently loses its status as an Exclusive Customer pursuant to Section 4.3 of the LDA and thereafter becomes a customer of Licensor or another Authorized Distributor.  This Section shall survive termination and/or expiration of this Agreement.  Additionally, Licensor may sell and/or provide Products to a Key Customer only either directly or through [*] (or an affiliate of [*]).  Licensor may not sell and/or provide Products to a Key Customer via any other entity.

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

	
3.

	
Amendments to LDA.

 

	
(a)

	
Section 11 of the LDA is amended to read as follows:

 

11.           MINIMUM PERFORMANCE REQUIREMENTS. For purposes herein, the “Adjustment Amount” is the total Gross Sales by Licensor (including sales through [*]) to the Key Customers, but in no event less than $[*] (regardless of actual Gross Sales), and in no event greater than $[*].  Distributor is required to achieve the following minimum sales requirements: (i) $[*] in Gross Sales less the Adjustment Amount during the Term of this Agreement; and (ii) an additional $[*] in Gross Sales less the Adjustment Amount during each year in each renewal term. Licensor shall not be permitted to terminate this Agreement solely due to Distributor’s failure to meet these minimum sales requirements but Licensor may prohibit Distributor from entering into a renewal term if Distributor fails to meet these minimum sales requirements. Notwithstanding the foregoing, Distributor may terminate this Agreement upon 30 days advance written notice to Licensor if Distributor does not generate: (i) at least $[*] in Gross Sales in the first [*] months of the Term; or (ii) at least $[*] in Gross Sales in the first [*] months of the Term. Notwithstanding any other provision in this Agreement, if this Agreement is terminated under this Section 11, Distributor is released from all further performance or payment obligations other than any obligations that survive the termination or expiration of this Agreement. The Parties agree to cooperate in good faith to allow Distributor to withdraw from the business without injury to any of its Customers.

 

	
(b)

	
Section 12.1 of the LDA is amended to read as follows:

 

12.1           License Fee.

 

      (a)                Generally. Distributor agrees to pay Licensor a “License Fee” of: (i) $[*] in cash plus the issuance to Licensor of [*] warrants to acquire Superior Uniform Group, Inc. common stock at the closing price as quoted on NASDAQ or the book value per share, whichever is higher, as of the Effective Date; and (ii) $[*] for each year of each renewal term. The cash portion of the License Fee shall be paid on the Effective Date.  The warrants described in clause “i” shall be issued on the Effective Date. The license fees for any renewal term shall be paid on the first day of the renewal term and thereafter annually on each anniversary of the first day of the renewal term. Each license fee payment is non-refundable.

 

           (b)               Preferred Pricing. Licensor agrees that in no case shall Licensor charge any other Similarly Situated Authorized Distributor a License Fee: (i) that averages less than $[*] per month over the first [*] months of the term; or (ii) that averages less than $[*] per month over the remaining months of the term and any renewal term. In the event Licensor breaches this covenant, Licensor, as Distributor’s sole remedy, shall be obligated to promptly pay to Distributor an amount equal to the difference between the minimum average monthly License Fee described in the preceding sentence and the actual average monthly License Fee charged to the Similarly Situated Authorized Distributor for the applicable period of time.

 

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

	
(c)

	
Sections 12.2 through 12.4 of the LDA are amended to read as follows:

 

12.2           Royalty Fee

 

(a)(i)           Generally. In addition to the License Fee, Distributor shall pay Licensor a monthly Royalty Fee equal to [*]% of Gross Sales for the immediately preceding month of operation (the “Earned Royalties”).  Notwithstanding the foregoing, Distributor agrees to pay Licensor a “Minimum Guaranteed Royalty Fee” equal to: (i) $[*] less [*] percent ([*]%) of the Adjustment Amount for the Term of this agreement; and (ii) an additional $[*] less [*] percent ([*]%) of the Adjustment Amount for each year of each renewal term. Each period referenced in the preceding sentence, including the Term and each renewal term, shall be referred to as a “Measuring Period.” Accordingly, within [*] days after the expiration of each Measuring Period, Distributor shall pay Licensor the shortfall, if any, between the applicable “Minimum Guaranteed Royalty Fee” for such Measuring Period and the total Earned Royalties paid for such Measuring Period. If the Earned Royalties exceed the Minimum Guaranteed Royalty Fee for any given Measuring Period, the difference between the Earned Royalties and the Minimum Guaranteed Royalty Fee shall not be credited against the Minimum Guaranteed Royalty Fee for any subsequent Measuring Period.

 

(a)(ii) During the Term of the Agreement Licensor shall pay Distributor a monthly Royalty Fee equal to the greater of:

 

(x) [*] percent ([*]%) of all Revenues received by Licensor from all sales by [*] and/or Licensor, including all of their respective affiliates, to any and all Key Customers, or

 

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

(y) $[*] per garment plus $[*] per removable panel that displays artwork, text or other images through any passive or active means, including but not limited to conventional printing and electronically controlled display means, (“Removable Panel”) sold and/or provided to any and all Key Customers.

 

(a)(iii) For the first [*] months after the Term (“First Post Term Period”), Licensor shall pay Distributor a monthly Royalty Fee the greater of:

 

(x) [*] percent ([*]%) of all Revenues received by Licensor from all sales by [*] and/or Licensor, including all of their respective affiliates, to any and all Key Customers, or

 

(y) $[*] per garment plus $[*] per Removable Panel sold and/or provided to any and all Key Customers.

 

(a)(iv)  For the next [*] months after the end of the First Post Term Period (“Second Post Term Period”), Licensor shall pay Distributor a monthly Royalty Fee the greater of:

 

(x) [*] percent ([*]%) of all Revenues received by Licensor from all sales by [*] and/or Licensor, including all of their respective affiliates, to any and all Key Customers, or

 

(y) $[*] per garment plus $[*] per Removable Panel sold and/or provided to any and all Key Customers.

 

(a)(v)           Other than as stated in Paragraph 4 (Minimum Revenues to Distributor) of the First Amendment to License and Distribution Agreement between Licensor and Distributor, in no event shall the Royalty Fee owed to Distributor pursuant to Section 12.2 exceed: (i) [*] percent ([*]%) of Licensor’s Revenues received during the Term and First Post Term Period from Key Customers; plus (ii) [*] percent ([*]%) of Licensor’s Revenues received during the Second Post Term Period from Key Customers.

 

(b)           Due Date. The Royalty Fee from each Party to the other is due and payable on the later of 15 days after the end of the month of operation for which the royalty fee is paid or the first business day thereafter. During the Term, Licensor may offset the amount of its Royalty Fee or other amount due to Distributor by any unpaid amount due Licensor from Distributor.

 

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

            (c)           Calculating Gross Sales and Revenues. With respect to a given Party, the term “Gross Sales” means (i) all gross sums invoiced by such Party from the [*] and/or [*] plus (ii) all [*] received by such Party related in any way to the [*], and regardless of whether such [*]. “Gross Sales” does not include: (i) refunds, credits and allowances actually made or allowed to Customers for returned Products; (ii) customary trade discounts (including anticipations) afforded to and actually taken by Customers against payment for Products; (iii) any sales or use taxes that seller pays to a government agency based on sales of Products; (iv) any freight charges billed to the Customer; or (v) any [*] revenues that are collected by a Party solely on behalf of and paid to an unrelated and unaffiliated third party within forty-five (45) days after the collection of such revenue. Any Gross Sales that are reported for a given accounting period that are later refunded or credited after the payment of the royalty fee will be credited against future payments owed by the Party. For purposes of calculating and reporting the royalties owed by Licensor to Distributor, the term “Revenues” means: (i) all revenues received by Licensor related in any way to [*] by [*] or an affiliate of [*] to Key Customers, including all [*] revenues received by Licensor related in any way to the [*] or related in any way to the [*] or [*], and regardless of whether such [*] revenues are [*] (however, this shall not include any [*] revenues that are collected by Licensor or its affiliate solely on behalf of and paid to an unrelated and unaffiliated third party within forty-five (45) days after the collection of such revenue); and (ii) all Gross Sales related to Key Customers. If in any month a Party receives revenues (or sends an invoice) in a currency other than U.S. Dollars, then at the end of such calendar month, the Party shall calculate the U.S. Dollar equivalent by applying a conversion rate that is computed using the mid-range rates as quoted by Reuters and other sources as published in the Wall Street Journal on the last business day of such calendar month. The U.S. Dollar equivalent calculated in accordance with the preceding sentence shall be used for calculating and reporting Gross Sales.

 

12.3           Other Fees and Payments. Distributor agrees to pay all other fees, expense reimbursements and other amounts specified in this Agreement in a timely manner as if fully set forth in this Section 12. The Parties also agree to promptly pay each other an amount equal to all taxes levied or assessed against the other based upon goods or services that the Party sells or based upon goods or services that one Party furnishes to the other (other than income taxes and Value Added Taxes that are imposed for amounts paid by under this Agreement).

 

12.4           Late Fee. If any sums due under this Agreement have not been received when due, then, in addition to those sums, the late paying Party must pay the other Party interest on the amounts past due at the rate equal to the lesser of: (i) [*]% over the prime rate of interest per month, compounded, as established by JP Morgan Chase on the date such sums were due; or (ii) the highest rate permitted by applicable law. Notwithstanding the foregoing, neither Party shall impose a late fee with respect to any sum due that is contested in good faith by the other Party provided that the Parties resolve the issue and contesting Party pays the agreed upon amount within 45 days after the initial due date. The Parties acknowledge that this Section 12.4 shall not constitute agreement to accept the late payments after same are due, or a commitment by either Party to extend credit to the other Party.

 

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

	
(d)

	
Section 12.6 and 12.7 of the LDA are amended to read as follows:

 

12.6           Method of Payment. All amounts payable under this Agreement shall be paid by wire transfer in United States Dollars through a financial institution approved by the Parties. The payor is responsible for all costs associated with each wire transfer.

 

12.7           Withholdings for Taxes. Except to the extent provided in this Section, any amount that one Party must pay the other Party shall be paid without withholding or deduction for or on account of any taxes, duties, assessments, fees or other governmental charges imposed or levied by or on behalf of any jurisdiction within the Territory or any political subdivision or taxing authority therein, except that each Party shall withhold and pay by their due date all taxes, if any, which are required to be withheld and paid by that Party under the applicable law of the jurisdiction from which payment is made (collectively, the “Local Taxes”). If a Party is required to withhold Local Taxes, that Party shall provide the other Party with evidence of payment of all Local Taxes withheld and any other documentation that required in order to receive the appropriate tax credit. If any Local Taxes withheld by a Party are not creditable by the other Party for U.S. federal income tax purposes, the Party shall pay to the other Party such additional amounts as may be necessary to ensure that any net payment received by the other Party after such withholding of Local Taxes is equal to the amount that the other Party would have received had no such withholding been required.

 

	
(e)

	
Section 12.9 is amended to read as follows:

 

12.9           Application of Payments. Each Party shall have sole discretion to apply any payments from the other Party to any of the other Party’s past due indebtedness or in any other manner the payee Party feels appropriate, with the exception of disputed amounts. The Party applying a payment to past due indebtedness must give the other Party a detailed report of the allocations.

 

 

	
(f)

	
Section 15.3 is amended to read as follows:

 

 

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

15.3           Reports.

 

(a)           By Distributor. No later than the 15th day of each month, Distributor must prepare and provide to Licensor a monthly statement of: (i) Distributor’s Gross Sales for the prior month; (ii) the number of Products sold and the prices charged for such Products; and (iii) Distributor’s expenditures on advertising required by Section 9.4 that were incurred during the prior month (which shall be accompanied by copies of receipts and/or internal reporting for such expenditures). Within 30 days after each anniversary of the Effective Date, Distributor must prepare and provide to Licensor an annual report that includes the following: (i) Distributor’s Gross Sales for the preceding 12 month reporting period; (ii) any corrections to Gross Sales previously reported in any monthly report submitted during the preceding 12 month reporting period, whether due to Customer refunds or for any other reason; (iii) the number of Products sold during the preceding 12 month reporting period and the prices charged for such Products; (iv) a list of all countries into which Products were sold during the preceding 12 month reporting period; and (v) Distributor’s expenditures on advertising, marketing and promotion as required by Section 9.4 that were incurred during the preceding 12 month reporting period. The annual report shall be certified to be true and correct by Distributor’s Chief Financial Officer.

 

(b)           By Licensor. No later than the 16th day of each month, Licensor must prepare and provide to Distributor a monthly statement of: (i) Licensor’s Revenues derived from sales of Products by Licensor and [*] to any and all Key Customers for the prior month and Licensor’s Revenues derived from Key Customers for the prior month; and (ii) the number of garments, Products, and Removable Panels sold and/or provided to Key Customers for the prior month. Within 30 days after each anniversary of the Effective Date, Licensor must prepare and provide to Distributor an annual report that includes the following: (i) Licensor’s Revenues derived from sales of Products by Licensor, [*] and their respective affiliates to any and all Key Customers for the preceding 12 month reporting period and Licensor’s Revenues derived from Key Customers for the preceding 12 month reporting period; (ii) the number of garments, Products, and Removable Panels sold and/or provided to Key Customers for the preceding 12 month reporting period; and (iii) any corrections to Revenues from the sale of Products to Key Customers, Revenues derived from Key Customers and/or the number of garments and Removable Panels sold and/or provided to Key Customers previously reported in any monthly report submitted during the preceding 12 month reporting period, whether due to Customer refunds or for any other reason. The annual report shall be certified to be true and correct by Licensor’s Chief Financial Officer. Distributor agrees that Licensor shall not be deemed to be in breach of its reporting obligations if it is unable to provide a complete report in a timely manner due to a breach by [*] of its reporting obligations to Licensor, provided that Licensor uses commercially reasonable efforts to enforce the breach and provide Distributor with a complete report as soon as reasonably possible.

 

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

(c)           Generally. All reports of Gross Sales and Revenues shall be calculated in conformity with Section 12.2(c), including reasonable detail regarding the method and manner by which such amounts were calculated. The Parties also agree to prepare and provide each other all other reports that are reasonably required in the form and manner reasonably required.

 

4.      Minimum Revenues to Distributor.

(a)           Notwithstanding anything to the contrary in this Agreement, within 30 days after the expiration of the [*] ([*]) month after the First Amendment Effective Date, Licensor shall calculate and send Distributor a report identifying: (i) the total royalties paid by Licensor to Distributor pursuant to the Agreement (as amended by this Amendment) during the [*] ([*]) month period after the First Amendment Effective Date (“Royalty Revenues”); and (ii) the total licensing fees and royalty fees paid by [*] (whether directly or through an affiliate of [*]) to Licensor or any affiliate of Licensor during the [*] ([*]) month period after the First Amendment Effective Date (“Licensing Revenues”). For purposes of Section 4 of this Amendment, the terms licensing fees and royalty fees are intended by the Parties to include all fees that are the functional equivalent to a license fee or royalty fee, even if given a different name. For example, “licensing fees” would include licensing fees, initial franchise fees, grant fees, set-up fees and any other fees that are paid for the right to conduct the business, and “royalty fees” would include royalty fees and any other fees that are paid based on the volume of sales or are paid as a percentage of revenues, other than fees that Licensor collects but is not entitled to keep, such as contributions to a marketing fund. If the Royalty Revenues are less than [*]% of the Licensing Revenues, Licensor agrees to pay Distributor the difference between the two amounts within ten (10) days after delivery of the report. Any amount paid by Licensor to Distributor pursuant to the preceding sentence will be [*]. By way of example, assume Licensor pays Distributor $2,000,000 in Royalty Revenues and [*] pays Licensor $15,000,000 in Licensing Revenues during the [*] ([*]) month period. Because the Royalty Revenues (i.e., $2,000,000) are less than [*]% of the Licensing Revenues (i.e., $[*]), Licensor will pay Distributor the sum of $[*] (i.e., the difference between [*]% of the Licensing Revenues and the Royalty Revenues). In such event, the $[*] paid by Licensor will be [*] of the Agreement (as amended by this Amendment).

 

(b) Notwithstanding anything to the contrary in this Agreement, within 30 days after the [*], Licensor shall calculate and send Distributor a report identifying: (i) the [*] royalties paid by Licensor to Distributor pursuant to the Agreement (as amended by this Amendment) during the [*] (“[*] Royalty Revenues”); and (ii) the [*] licensing fees and royalty fees paid by [*] (whether directly or through an affiliate of [*]) to Licensor or any affiliate of Licensor during the [*] (“[*] Licensing Revenues”). If the [*] Royalty Revenues are less than [*]% of the [*] Licensing Revenues, Licensor agrees to pay Distributor the difference between the two amounts (subtracting from that total the amount paid to and received by Distributor, if any, pursuant to sub-section (a) of this section) within ten (10) days after delivery of the report.

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

5.      Assignment of LDA. The Parties hereby acknowledge that, pursuant to Section 19 of the Agreement, EYELEVEL INTERACTIVETM, LLC, as the original “Licensor” under the LDA, has assigned the LDA to EYELEVEL INTERACTIVETM North America, LLC (“EINA”), a Delaware limited liability company, immediately preceding the execution of this Amendment. Accordingly, EINA shall be deemed the “Licensor” for all purposes of the Agreement. Notwithstanding the assignment from EYELEVEL INTERACTIVETM, LLC to EINA, EYELEVEL INTERACTIVETM, LLC, which is an affiliate of EINA, remains liable to Distributor for any and all monetary amounts owed to Distributor pursuant to the Agreement that EINA cannot or does not satisfy either as a consequence of its breach of the Agreement or for lack of sufficient funds.

	
  

	
* * *

The Parties have executed this First Amendment to the License and Distribution Agreement effective as of the First Amendment Effective Date first above written herein. This Amendment shall not be valid or binding on either Party unless and until signed by both Parties.

	
LICENSOR:

 

EYELEVEL INTERACTIVETM North America, LLC, a Delaware limited liability company

 

	 	
LICENSEE:

 

Superior Uniform Group, Inc., a Florida corporation

	By:	/s/ Blair M. Enfield 	 	By:	/s/ Michael Benstock
	 	 	 	 	 
	Name:	Blair M. Enfield 	 	Name:	Michael Benstock
	 	 	 	 	 
	Its:	President 	 	Its:	CEO 

 

 

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

EXHIBIT A

Revised List Attachment D to License and Distribution Agreement

[See Attached]

 

 

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

ATTACHMENT “D”

TO LICENSE AND DISTRIBUTION AGREEMENT

Exclusive Customers

[See Attached]

 

 

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

	
ATTACHMENT “D”

TO LICENSE AND DISTRIBUTION AGREEMENT

EXCLUSIVE CUSTOMERS – TIER 1

	
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 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

	
ATTACHMENT “D"

TO LICENSE AND DISTRIBUTION AGREEMENT

EXCLUSIVE CUSTOMERS – TIER 1

	
Original

Number

	 	 	  

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 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

	
ATTACHMENT “D"

TO LICENSE AND DISTRIBUTION AGREEMENT

EXCLUSIVE CUSTOMERS – TIER 1

	Original 

Number

	 	 	
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231

	 	 	
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 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

	
ATTACHMENT “D"

TO LICENSE AND DISTRIBUTION AGREEMENT

EXCLUSIVE CUSTOMERS – TIER 1

	Original 

Number

	 	 	
Name

	
243

	 	 	
[*]

	
244

	 	 	
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245

	 	 	
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249

	 	 	
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258

	 	 	
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262

	 	 	
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318

	 	 	
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319

	 	 	
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320

	 	 	
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* The use of “Department” to describe the various entities, or portions of the entities, for each company described in this document may not describe accurately the legal or official name of the entity, or portion of the entity.  Variations of the legal or the official name are deemed to be included in this list.

 

  

  

  

 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

ATTACHMENT “D”

TO LICENSE AND DISTRIBUTION AGREEMENT

EXCLUSIVE CUSTOMERS – TIER 2

	
Original

Number

	 	
Name

	
1

	 	
[*]

	
3

	 	
[*]

	
7

	 	
[*]

	
8

	 	
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9

	 	
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12

	 	
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14

	 	
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19

	 	
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27

	 	
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127

	 	
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129

	 	
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133

	 	
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[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

ATTACHMENT “D"

TO LICENSE AND DISTRIBUTION AGREEMENT

EXCLUSIVE CUSTOMERS – TIER 2

	
Original

Number

	 	
Name

	
137

	 	
[*]

	
143

	 	
[*]

	
147

	 	
[*]

	
149

	 	
[*]

	
151

	 	
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156

	 	
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157

	 	
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167

	 	
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169

	 	
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172

	 	
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183

	 	
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262

	 	
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283

	 	
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326

	 	
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332

	 	
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337

	 	
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339

	 	
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359

	 	
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[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

ATTACHMENT “D"

TO LICENSE AND DISTRIBUTION AGREEMENT

EXCLUSIVE CUSTOMERS – TIER 2

	
Original

Number

	 	
Name

	
362

	 	
[*]

	
368

	 	
[*]

	
370

	 	
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371

	 	
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372

	 	
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375

	 	
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[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

ATTACHMENT “D"

TO LICENSE AND DISTRIBUTION AGREEMENT

EXCLUSIVE CUSTOMERS – TIER 2

	
Original

Number

	 	
Name

	
570

	 	
[*]

	
572

	 	
[*]

	
573

	 	
[*]

	
575

	 	
[*]

	
577

	 	
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578

	 	
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581

	 	
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586

	 	
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589

	 	
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590

	 	
[*]

 

  

  

  

 

EXHIBIT B

Key Customers

1.       The following relinquished Tier 1 Exclusive Customers (except as otherwise noted) are subject to possible reversion to Tier 1 Exclusive Customer status pursuant to the Agreement:

(i)                  [*] branded stores worldwide – except that the following [*] departments1 worldwide have always remained Exclusive Customers of Distributor and therefore cannot be subject to reversion: all [*], [*], and [*], including, without limitation, all those in [*] branded stores.  All other retail stores owned by [*] or [*] affiliated entities, including without limitation, [*] and [*], also have always remained Exclusive Customers of Distributor and therefore cannot be subject to reversion.

(ii)                  [*]– except that all [*] and [*] have always remained Exclusive Customers of Distributor and therefore cannot be subject to reversion.

(iii)                  [*] branded stores– except that all [*] have always remained Exclusive Customers of Distributor and therefore cannot be subject to reversion.

(iv) [*] - [*] branded stores - except that all [*] and [*] stores have always remained Exclusive Customers of Distributor and therefore cannot be subject to reversion.

2.       The following relinquished Tier 2 Exclusive Customer (except as otherwise noted) is subject to possible reversion to Tier 2 Exclusive Customer status pursuant to the Agreement:

(i)                  [*] Holdings - [*] branded stores - except that all separate [*] stores have always remained Exclusive Customers of Distributor and therefore cannot be subject to reversion.

 

 

  

	
1

	
The use of “department” to describe the various entities, or portions of the entities, for each company described in this Exhibit B may not describe accurately the legal or official name of the entity, or portion of the entity.  Variations of the legal or the official name are deemed to be included in this list.ex4-1.htm

Exhibit 4.1

 

	
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

 

 

COMMON STOCK PURCHASE WARRANT

 

CATASYS, INC.

 

	Warrant Shares:	Initial Exercise Date:  April 17, 2012

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, [________] or its, his or her assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after April 17, 2012 (the “Initial Exercise Date”) and on or prior to the close of business on the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Catasys, Inc., a Delaware corporation (the “Company”), up to ______ shares (the “Warrant Shares”) of Common Stock.  The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1              Definitions.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated April 17, 2012, among the Company and the purchasers signatory thereto.

 

Section 2              Exercise.

 

a)           Exercise of Warrant.  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto; and, within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company.  Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases.  The Company shall deliver any objection to any Notice of Exercise Form within 2 Business Days of receipt of such notice.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

  

  

  

 

b)           Exercise Price.  The exercise price per share of the Common Stock under this Warrant shall be $0.16, subject to adjustment hereunder (the “Exercise Price”).

 

c)           Cashless Exercise.  At the option of the Holder, this Warrant may be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

	
  

	
(A) =

	
the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;

 

	
  

	
(B) =

	
the Exercise Price of this Warrant, as adjusted hereunder; and

 

	
  

	
(X) =

	
the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies:  (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m.  (New York City time), (b) if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Market, Inc.  (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

  

2

  

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d)           Mechanics of Exercise.

 

i           Delivery of Certificates Upon Exercise.  Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise Form, (B) surrender of this Warrant (if required) and (C) payment of the aggregate Exercise Price as set forth above (including by cashless exercise, if permitted) (such date, the “Warrant Share Delivery Date”).  This Warrant shall be deemed to have been exercised on the first date on which all of the foregoing have been delivered to the Company.  The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid.

 

ii          Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii         Rescission Rights.  If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2 (d)(i) by the Warrant Share Delivery Date, then, the Holder will have the right to rescind such exercise.

 

iv         No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

  

3

  

 

v          Charges, Taxes and Expenses.  Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

 

vi         Closing of Books.  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

e)           Reserved

 

Section 3              Certain Adjustments.

 

a)           Stock Dividends and Splits.  If the Company, at any time while this Warrant is outstanding:  (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)           Certain Diluting Issuances.

 

i           If the Company shall, at any time or from time to time, issue or distribute any shares of Common Stock, or be deemed to have issued shares of Common Stock as provided herein, other than an Exempt Issuance (each such event, including any event described in paragraphs (ii)(3) and (ii)(4) below, being herein called a “Common Stock Distribution”), without consideration or for a consideration per share less than the Exercise Price on the date of such Common Stock Distribution or on the first date of the announcement of such Common Stock Distribution, whichever is greater (the “New Issuance Price”), then, effective immediately after the open of business on the day following such Common Stock Distribution, the Exercise Price as in effect immediately prior to such Common Stock Distribution shall be reduced to an amount equal to the New Issuance Price.

 

  

4

  

 

The provisions of this paragraph (b), including by operation of subsections (3) or (4) of paragraph (ii) below, shall not operate to adjust in any manner the number of shares of Common Stock subject to purchase upon exercise of this Warrant, or to result in an increase in the Exercise Price.

 

ii           For the purposes of any adjustment of the Exercise Price pursuant to paragraph (i) above, the following provisions shall be applicable:

 

1.           In the case of the issuance, sale or distribution of Common Stock for cash in a public offering or private placement, the consideration received therefor shall be deemed to be the amount received by the Company therefor before deducting therefrom any discounts, commissions or placement fees payable by the Company to any underwriter or placement agent in connection therewith;

 

2.           In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash received by the Company shall be deemed to be the fair market value of such consideration, as determined in good faith by the Board of Directors of the Company, irrespective of any accounting treatment;

 

3.           In the case of the issuance, sale, distribution or granting (whether directly or by assumption in a merger or otherwise) of any rights to subscribe for or to purchase, or any warrants or options for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (such rights, warrants or options being herein called “Options” and such convertible or exchangeable stock or securities being herein called “Convertible Securities”), whether or not such Options or the rights to convert or exchange any such Convertible Securities are immediately exercisable, then, for purposes of paragraph (i) above, the aggregate maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities and subsequent conversion or exchange thereof shall be deemed to have been issued as of the date of issuance of such Options, Convertible Securities or rights and thereafter shall be deemed to be outstanding; and the Company shall be deemed to have received as consideration the amount equal to the consideration, if any, received by the Company upon the issuance of such Options, Convertible Securities or rights plus the minimum additional consideration, if any, to be received by the Company upon the conversion or exchange of such Convertible Securities or the exercise of Options or rights (such consideration in each case to be determined in the manner provided in Sections 3(b) (ii)(1) and 3(b)(ii)(2));

 

  

5

  

 

4.           If the purchase price provided for in any Option, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock shall change at any time (other than under or by reason of provisions designed to protect against, and having the effect of protecting against, dilution upon an event which results in a related adjustment pursuant to this Section 3), then, the Exercise Price then in effect shall forthwith be readjusted (effective only with respect to any exercise of this Warrant after such readjustment) to the Exercise Price which would then be in effect had the adjustment made upon the issue, sale, distribution or grant of such Options or Convertible Securities been made based upon such changed purchase price, additional consideration or conversion rate, as the case may be; provided, however, that such readjustment shall give effect to such change only with respect to such Options and Convertible Securities as then remain outstanding;

 

5.           In the case of the issuance, sale, distribution or granting of any Options as part of a unit consisting of Options and Common Stock and/or Convertible Securities, then for purposes of calculating any adjustment pursuant to this Section 3, no value shall be attributed to such Options in allocating the price paid for the unit among the securities comprising such unit; and

 

6.           Provided that no such Options or Convertible Securities have been exercised or converted, upon the expiration of any such Options or the termination of any rights, Convertible Securities or exchangeable securities, the applicable Exercise Price shall forthwith be readjusted to such Exercise Price as would have been in effect at the time of such expiration or termination had such Options, rights, Convertible Securities or exchangeable securities, to the extent outstanding immediately prior to such expiration or termination, never been issued.

 

iii           For purposes of determining whether any adjustment is required pursuant to this Section 3(b), any security of the Company having rights substantially equivalent to the Common Stock as to dividends or upon liquidation, dissolution or winding up of the Company shall be treated as if such security were Common Stock.  No further adjustment of the Exercise Price adjusted upon the issuance of any such options, rights, convertible securities or exchangeable securities shall be made as a result of the actual issuance of Common Stock on the exercise of any such rights or Options or any conversion or exchange of any such securities.

 

  

6

  

 

c)           Subsequent Rights Offerings.  If the Company, at any time while the Warrant is outstanding, shall issue rights, options or warrants to all holders of Common Stock (but not in respect of this Warrant) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP on the record date mentioned below, then, the Exercise Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP.  Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

 

d)           Pro Rata Distributions.  If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (but not in respect of this Warrant) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock, then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

  

7

  

 

e)           Fundamental Transaction.  If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.    The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Warrant, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder.  Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

f)           Reverse Split.  In the event that the Company effectuates a Reverse Split:

 

  

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i           if such Reverse Split results in the issuance of Adjustment Shares to the Holder pursuant to Section 4.10 of the Purchase Agreement, then the Warrant Shares shall be increased by the number of such Adjustment Shares in the manner contemplated by Section 4.10 of the Purchase Agreement; and

 

ii          separate from any adjustment contemplated by Section 3(f)(i), if the volume weighted average price (as determined pursuant to Section 4.10 of the Purchase Agreement) during the VWAP Period decreases below the then current Exercise Price, then the Exercise Price shall be reduced to equal such volume weighted average price.

 

g)           Calculations.  All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

h)           Notice to Holder.

 

i           Adjustment to Exercise Price.  Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii          Notice to Allow Exercise by Holder.  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, or (F) otherwise propose to engage in any offering, distribution transaction or matter described in any of the foregoing Sections 3(b) through 3(f), then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 10 business days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein

 

  

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Section 4              Transfer of Warrant.

 

a)           Transferability.  This Warrant may only be transferred pursuant to Section 4.1 of the Purchase Agreement.

 

b)           New Warrants.  This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.  All Warrants issued on transfers or exchanges shall be dated the initial issuance date set forth on the first page of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c)           Warrant Register.  The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d)           Representation by the Holder.  The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5              Miscellaneous.

 

a)           No Rights as Stockholder Until Exercise.  This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).

 

  

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b)           Loss, Theft, Destruction or Mutilation of Warrant.  The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c)           Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d)           Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

 

  

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Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e)           Jurisdiction.  All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f)           Restrictions.  The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g)           Nonwaiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies.  Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h)          Notices.  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i)           Limitation of Liability.  No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j)           Remedies.  The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k)          Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.  The Holder may assign, in whole or in part, all or any portion of this Warrant, provided that such assignment complies with all applicable securities laws.

 

  

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l)           Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and holders holding Warrants (as defined in the Purchase Agreement and not herein) at least equal to 67% of the Warrant Shares (as defined in the Purchase Agreement and not herein) issuable upon exercise of all then outstanding Warrants (as defined in the Purchase Agreement and not herein.

 

m)         Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n)          Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Pages Follow)

 

  

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

	 	
CATASYS, INC.

 

	 
	 	 	 	 
	 	
By: 

	 	 
	 	 	Name:	 
	 	 	Title:	 

  

14

  

NOTICE OF EXERCISE

 

TO:           CATASYS, INC.

 

(1)           The undersigned hereby elects to purchase __________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2)           Payment shall take the form of (check applicable box):

 

[ ] in lawful money of the United States; or

 

[ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3)           Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

_______________________________

 

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

 

_______________________________

 

_______________________________

 

_______________________________

 

[SIGNATURE OF HOLDER]

 

Name of Investing

Entity:                                                                                                                                                         

 

Signature of Authorized Signatory of

Investing Entity:                                                                                                                                       

 

Name of Authorized

Signatory:                                                                                                                                                  

 

Title of Authorized

Signatory:                                                                                                                                                  

 

Date:                                                                                                                                                           

 

  

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ASSIGNMENT FORM

 

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

 

FOR VALUE RECEIVED, [________] all of or [________] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

_________________________________________________ whose address is

 

_________________________________________________

 

_________________________________________________ 

 

Dated:   ______ , ______ 

 

Holder’s Signature: ___________________________________________ 

 

Holder’s Address: ____________________________________________ 

 

  ____________________________________________ 

 

 

Signature

Guaranteed:                                                                                             

 

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

 

 

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