Document:

Exhibit 10.2

 

Portions of this exhibit have been omitted and filed separately with the Secretary of the Securities and Exchange Commission (the “Commission”) pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.  Such portions are marked as indicated below.

 

EXCLUSIVE LICENSE AGREEMENT

 

BETWEEN

 

THE REGENTS OF THE UNIVERSITY OF CALIFORNIA

 

AND

 

FIBROCELL SCIENCE, INC

 

FOR

 

UCLA CASE NO. 2014-142:

 

“Nucleoside Supplementation in HIPSC Culture Medium to Promote Genetic Stability”

 

****** - Material has been omitted and filed separately with the Commission.

 

 

EXCLUSIVE LICENSE AGREEMENT

 

TABLE OF CONTENTS

 

	
 
    	
PAGE NUMBER
    
	
ARTICLE
    	
 
    
	
 
    	
 
    
	
RECITALS
    	
1
    
	
 
    	
 
    
	
1.
    	
DEFINITIONS
    	
1
    
	
2.
    	
GRANT
    	
4
    
	
3.
    	
SUBLICENSES
    	
5
    
	
4.
    	
FEES
    	
6
    
	
5.
    	
ROYALTIES
    	
6
    
	
6.
    	
DILIGENCE
    	
8
    
	
7.
    	
PATENT   FILING, PROSECUTION AND MAINTENANCE
    	
9
    
	
8.
    	
PATENT   INFRINGEMENT
    	
11
    
	
9.
    	
PROGRESS   AND ROYALTY REPORTS
    	
12
    
	
10.
    	
BOOKS   AND RECORDS
    	
13
    
	
11.
    	
LIFE   OF THE AGREEMENT
    	
13
    
	
12.
    	
TERMINATION   BY THE REGENTS
    	
14
    
	
13.
    	
TERMINATION   BY LICENSEE
    	
14
    
	
14.
    	
DISPOSITION   OF LICENSED PRODUCTS ON HAND UPON TERMINATION
    	
14
    
	
15.
    	
PATENT   MARKING
    	
14
    
	
16.
    	
USE   OF NAMES AND TRADEMARKS
    	
.15
    
	
17.
    	
LIMITED   WARRANTY
    	
15
    
	
18.
    	
INDEMNIFICATION
    	
15
    
	
19.
    	
LIMITATION   OF LIABILITY
    	
17
    
	
20.
    	
NOTICES
    	
17
    
	
21.
    	
ASSIGNABILITY
    	
18
    
	
22.
    	
LATE   PAYMENTS
    	
19
    
	
23.
    	
WAIVER
    	
19
    
	
24.
    	
FAILURE   TO PERFORM
    	
19
    
	
25.
    	
GOVERNING   LAWS
    	
19
    
	
26.
    	
GOVERNMENT   APPROVAL OR REGISTRATION
    	
19
    
	
27.
    	
COMPLIANCE   WITH LAWS
    	
20
    
	
28.
    	
FORCE   MAJEURE
    	
20
    
	
29.
    	
CONFIDENTIALITY
    	
20
    
	
30.
    	
MISCELLANEOUS
    	
22
    
	
31.
    	
COUTERPARTS   AND EXECUTION
    	
22
    
	
 
    	
 
    
	
APPENDIX A
    	
 
    
	
APPENDIX B
    	
 
    
	
APPENDIX C
    	
 
    

 

****** - Material has been omitted and filed separately with the Commission.

 

 

EXCLUSIVE LICENSE AGREEMENT

 

THIS EXCLUSIVE LICENSE AGREEMENT AND THE ATTACHED APPENDICES A, B, AND C (collectively, the “Agreement”) is made and is effective this 1st day of June, (the “Effective Date”), by and between THE REGENTS OF THE UNIVERSITY OF CALIFORNIA (“The Regents”), a California corporation having its corporate offices located at 1111 Franklin Street, Oakland, California 94607-5200, acting through The Office of Intellectual Property and Industry Sponsored Research of the University of California, Los Angeles, located at 11000 Kinross Avenue, Suite 200, Los Angeles, CA, 90095-1406, and FIBROCELL SCIENCE, INC. (“Licensee”), a Delaware corporation having a principal place of business at 405 Eagleview Blvd., Exton, PA, 19341.This Agreement refers to The Regents and Licensee collectively as the “Parties” and individually as a “Party.”

 

RECITALS

 

WHEREAS, a certain invention, generally characterized as

 

1)                                     UCLA Case No. 2014-142: “Nucleoside Supplementation in HIPSC Culture Medium to Promote Genetic Stability”

 

(the “Invention”) was made in the course of research at the University of California, Los Angeles by Drs. James Byrne, Caius Radu and Patrick Lee (“Inventors”), and is claimed in Regents’ Patent Rights, as defined below;

 

WHEREAS, Drs. James Byrne, Caius Radu and Patrick Lee are employees of The Regents and as such are obligated to assign his right, title and interest in and to the Invention to The Regents;

 

WHEREAS, the Invention was developed under a sponsored research agreement with Licensee (Research Agreement No. 20103259 dated February 22, 2011); and

 

WHEREAS, The Regents wishes that Regents’ Patent Rights be developed and utilized to the fullest extent so that the benefits can be enjoyed by the general public.

 

The Parties agree as follows:

 

1. DEFINITIONS

 

1.1.                            “Affiliate” means any corporation, company, partnership, joint venture or other entity that controls, is controlled by or is under common control with a Party to this Agreement. For purposes hereof, “control” means (a) in the case of corporate entities, direct or indirect ownership of at least fifty percent (50%) of the stock or shares entitled to vote for the election of directors; and (b) in the case of non-corporate entities, direct or indirect ownership of at least fifty percent (50%) of the equity interest with the power to direct the management and policies of such non-corporate entity.  In any jurisdiction where the applicable law does not permit foreign equity participation of at least fifty percent (50%), then “Affiliate” means any corporation, company, partnership, joint venture or other entity in which Licensee owns or controls, directly or indirectly, the maximum percentage of outstanding stock or voting rights that is permitted by such applicable law.

 

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1.2.                            “Combination Product” means any product that is either (a) a combination of a Licensed Product and another therapeutic product that is not a Licensed Product in a kit form and is intended for sale, transfer, lease or other disposition by Licensee or a Sublicensee or (b) is produced by combining the Licensed Product with another therapeutic product that is not a Licensed Product and is intended for sale, transfer, lease or other disposition by Licensee or a Sublicensee.

 

1.3.                            “Commercialization” has the meaning set forth in Paragraph 6.1 of this Agreement.

 

1.4.                            “Customer” means any third party that receives Licensed Products in exchange for consideration or purchases services that require the practice of Licensed Methods, provided however, that a Sublicensee or a Joint Venture shall be deemed a Customer only if it receives Licensed Products or Licensed Methods that are not intended for further sale, transfer, lease, exchange or other disposition.

 

1.5.                            “Field of Use” means any and all research and commercialization fields.

 

1.6.                            “Final Sale” means any sale, transfer, lease, exchange or other disposition or provision of a Licensed Product and/or a Licensed Method to a Customer by Licensee or its Affiliate (not any other Sublicensee).  A Final Sale will be deemed to have occurred upon the earliest to occur of the following (as applicable):  (a) the transfer of title to such Licensed Product and/or Licensed Method to a Customer, (b) the shipment of such Licensed Product to a Customer, (c) the provision of a Licensed Method to a Customer, (d) the provision of an invoice for such Licensed Product or Licensed Method to a Customer, or (e) payment by the Customer for Licensed Products or Licensed Methods.  Exchange of Licensed Products between Licensee and an Affiliate is not a Final Sale if the Licensed Product is intended for further sale, transfer, lease, exchange or other disposition, in which case the Final Sale will be deemed to have occurred upon payment for the sale, transfer, lease, exchange or other disposition or provision of Licensed Product by Licensee or its Affiliate to a Customer.  If Licensee or its Affiliate transfers Licensed Product at no cost solely for use in, or for purposes of, a clinical study, clinical trial, or as a free sample in product promotion, then such transfers will not be considered a Final Sale and no royalty will be owed hereunder.

 

1.7.                            “First Commercial Sale” means a bona fide transaction for which consideration is earned for the sale of any Licensed Product or the practice of a Licensed Method by Licensee or a Sublicensee, following approval of its marketing by the appropriate governmental agency for the country in which the sale is to be made.  When governmental approval is not required, “First Commercial Sale” means the first bona fide transaction for which consideration is earned for the sale of any Licensed Product or the practice of a Licensed Method by Licensee or a Sublicensee in that country.

 

1.8.                            “Joint Venture” means any separate entity established pursuant to a written agreement between a third party and Licensee and/or a Sublicensee, in which the separate entity manufactures, uses, purchases, sells or acquires Licensed Products from Licensee or a Sublicensee.

 

1.9.                            “Licensed Method” means any process, service, or method covered by a Valid Claim within Regents’ Patent Rights or whose use or practice would, absent the license granted under this Agreement, constitute an infringement, inducement of infringement or contributory infringement of any Valid Claim within Regents’ Patent Rights.

 

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1.10.                     “Licensed Product” means any article, composition, apparatus, substance, chemical, or any other material covered by a Valid Claim within Regents’ Patent Rights and whose manufacture, import use, offer for sale, or sale would, absent the license granted under this Agreement, constitute an infringement, inducement of infringement or contributory infringement of any Valid Claim within Regents’ Patent Rights.  This definition of Licensed Product also includes a service either used by Licensee or a Sublicensee or provided by Licensee or a Sublicensee to a Customer when such service requires the use of Licensed Product or performance of a Licensed Method.

 

1.11.                     “Minimum Annual Royalty” has the meaning set forth in Section 5.3 of this Agreement.

 

1.12.                     “Net Sales” means the total of the gross amount received (whether consisting of cash or any other forms of consideration) for all Final Sales, less the following deductions (to the extent included in and not already deducted from the gross amount invoiced or otherwise charged):sales, use, tariff, import/export duties or other excise taxes imposed on particular sales, and deductible value added taxes (“VAT”), that is, VAT not refunded, credits, or deducted by a governmental taxing authority; rebates paid or credited to Customers including managed care rebates and chargebacks; outbound transportation prepaid or allowed; and allowances or credits to Customers because of rejections or returns. Income taxes are not an allowed deduction under Net Sales. If a Sublicensee, development partner or Joint Venture is a Customer, then Licensee will pay royalties on Net Sales based on the total gross amount normally charged to other Customers in arm’s length transactions. Notwithstanding the foregoing, in the event a Licensed Product is sold as a Combination Product, Net Sales shall be calculated by multiplying the Net Sales of the Combination Product by the fraction A/(A+B), where A is the gross invoice price of the Licensed Product when sold separately in a country and B is the gross invoice price of the other product(s) included in the Combination Product when sold separately in such country.  In the event no such separate sales are made by Licensee or its Sublicensees, Net Sales of the Combination Product shall be calculated in a manner to be negotiated and agreed upon by the Parties, reasonably and in good faith, prior to any sale of such Combination Product, which shall be based upon the respective cost of goods sold of the therapeutic components of such Combination Product.

 

1.13.                     “Patent Action(s)”means the preparation, filing, prosecution and maintenance of patent applications and patents in Regents’ Patent Rights. Prosecution includes, but is not limited to, reexaminations, interferences, oppositions, and any other ex parte or inter partes matters originating in a patent office.

 

1.14.                     “Patent Costs” means all out-of-pocket costs incurred by The Regents for Patent Actions.

 

1.15.                     “Research Product” means a Licensed Product that is sold for production or manufacture of stem cells lines intended for internal research.

 

1.16.                     “Regents’ Patent Rights” means The Regents’ interest in any of the patent applications and patents listed in Appendix A attached to this Agreement and at least partially assigned or assignable to The Regents; any applications claiming priority thereto including divisionals, continuations and continuations-in-part (but only to the extent of claims that are entirely supported in the specification and entitled to the priority date of the parent application); any patents issuing on these applications including reissues, substitutions, and patent extensions; and any corresponding foreign patents, patent applications and supplemental protection certificates; all of which are automatically incorporated in and added to Appendix A and made a part of this Agreement.

 

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1.17.                     “Side Deal” means an arrangement, understanding, agreement, or transaction (collectively “Deals”) between the Licensee and a Sublicensee and/or its affiliates, which does not include the transfer of a sublicense under this Agreement.

 

1.18.                     “Sublicensee” means any person or entity (including any Affiliate or Joint Venture) to which any of the rights granted to Licensee hereunder are sublicensed.

 

1.19.                     “Sublicensing Income” means amounts received by Licensee or its Affiliates in consideration for a Sublicense or other agreement providing the right to negotiate or obtain a Sublicense. Sublicensing Income includes amounts received by Licensee or its Affiliates in consideration for the sublicensed Regents’ Patent Rights in the form of license issue fees, milestone payments (excluding (i) license issue or upfront fees received by Licensee under any of the Sublicenses described in Sections 4.2.a and 4.2.b and (ii) milestone payments received by Licensee upon achievement of any of the milestones set forth in Sections 4.2.c and 4.2.d) and royalties. Not included in the definition of Sublicensing Income is income received by Licensee as payment or reimbursement for research costs at fair market value applied to the licensed Invention and conducted by or for Licensee, including costs of materials, equipment or clinical testing, or any amount received by Licensee or its Affiliates that could be construed as uncollectible debt.

 

1.20.                     “Supplement” shall mean a Licensed Product comprising ****** used to supplement culture media to ameliorate human induced pluripotent stems cells (hIPSCs) deoxyribonucleotide triphosphate (dNTP) pool deficiency and reduce genomic instabilityinsuch hIPSCs.

 

1.21.                     “Therapeutic Product” means a stem cell line that is grown or maintained with the use of the Supplement, which stem cell line is intended for therapeutic use.

 

1.22.                     “Valid Claim” means (i) a claim of an issued patent that has not expired or been held unenforceable or invalid by a final judgment or decision of a court or other government agency of competent jurisdiction from which no appeal has been or can be taken, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or the like, or (ii) a claim of a pending patent application that has not been abandoned or finally rejected without the possibility of appeal or refiling or been pending for more than ******. For purposes of clarity, both (i) and (ii) are Valid Claims for purposes of this Agreement.

 

2. GRANT

 

2.1.                            Subject to the limitations set forth in this Agreement, The Regents hereby grants to Licensee an exclusive license (the “License”) under Regents’ Patent Rights, in jurisdictions where Regents’ Patent Rights exist, to make, have made, use, have used, sell, offer for sale import and otherwise commercially exploit Licensed Products and to practice Licensed Methods in the Field of Use. Licensee will not make, use, have made, sell, offer for sale, or import Licensed Products outside the Field of Use. For the avoidance of doubt, Affiliates and Joint Ventures have no rights hereunder unless granted a Sublicense.

 

2.2.                            The Regents expressly reserves the right to: (a) use Regents’ Patent Rights and associated technology for educational and research purposes, (b) publicly disclose results of such research, and (c) allow other nonprofit institutions to use Regents’ Patent Rights and associated technology for educational and research purposes; provided that in the case of Section 2.2(c), if The Regents will transfer tangible matters covered by any of Regents’ Patent Rights, then such

 

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transfer will be subject the execution of a written material transfer agreement that does not conflict with the rights granted to Licensee under this Agreement.

 

2.3.                            The Agreement will terminate immediately if Licensee files a claim including in any way the assertion that any portion of Regents’ Patent Rights is invalid or unenforceable where the filing is by Licensee, a third party on behalf of Licensee, or a third party at the written urging of, or with the assistance of, the Licensee.

 

3. SUBLICENSES

 

3.1.                            The Regents grants to Licensee the right to sublicense the rights granted to Licensee hereunder (“Sublicenses”). All Sublicenses will: (i) be issued in writing; (ii) include an express prohibition against issuing further sublicenses under any or all of Regents’ Patent Rights; and (iii) to the extent applicable include all of the rights of The Regents and require the performance of obligations due to The Regents contained in this Agreement. For the purposes of this Agreement, operations of Sublicensees are deemed to be the operations of Licensee, for which Licensee is responsible.

 

3.2.                            Licensee must pay to The Regents, as royalty, ****** of all Sublicensing Income. Licensee must pay such Sublicensing Income to The Regents on or before the following dates:

 

·                  February 28 (for Sublicensing Income received by Licensee on or before the last day of the calendar quarter ending December 31 of the prior year);

·                  May 31 (for Sublicensing Income received by Licensee on or before the last day of the calendar quarter ending March 31);

·                  August 31 (for Sublicensing Income received by Licensee on or before the last day of the calendar quarter ending June 30); and

·                  November 30 (for Sublicensing Income received by Licensee on or before the last day of the calendar quarter ending September 30).

 

3.3.                            Licensee must provide to The Regents a copy of each Sublicense within thirty (30) days of execution and is prohibited from entering into any Side Deal with a third party where such Side Deal intentionally dilutes, diverts, conceals or misrepresents the amount of consideration paid to the Licensee in consideration for a Sublicense.

 

3.4.                            If this Agreement is terminated for any reason, all outstanding Sublicenses not in default will be assigned by Licensee to The Regents. Prior to any such assignment such Sublicensees shall furnish to The Regents the completed licensee contact information form attached hereto as “APPENDIX C” and incorporated herein by this reference. The assigned Sublicenses will remain in full force and effect with The Regents as the licensor or sublicensor instead of Licensee, but the duties of The Regents under the assigned Sublicenses will not be greater than the duties of The Regents under this Agreement, and the rights of The Regents under the assigned Sublicenses will not be less than the rights of The Regents under this Agreement, including all financial consideration and other rights of The Regents.

 

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4. FEES

 

4.1.                            In partial consideration for the License, Licensee will pay to The Regents a license issue fee of ****** within thirty (30) days of the Effective Date. This fee is non- refundable and is not an advance against royalties.

 

4.2.                            For the first Licensed Product reaching any of the milestones indicated below, Licensee must make the following one-time payments (“Milestone Payments”) to The Regents within thirty (30) days of reaching such milestone. For purposes of clarity such Milestone Payments are due from Licensee irrespective of whether the associated milestone listed below was reached by Licensee itself or a third party acting on Licensee’s behalf or by a Sublicensee, Joint Venture or Affiliate.

 

4.2.a                     ****** within ten (10) days of execution of a first Sublicense sublicensing the right to sell Licensed Product under this Agreement.

4.2.b                     ****** within ten (10) days of execution of a second Sublicense sublicensing the right to sell Licensed Product under this Agreement.

4.2.c                      ****** upon the First Commercial Sale of the first Licensed Product that is a Research Product in the United States.

4.2.d                     ****** upon the First Commercial Sale of the first Licensed Product that is a Therapeutic Product in the United States.

 

4.3.                            Licensee must pay to The Regents a license maintenance fee (“License Maintenance Fee”) of ****** beginning on the one-year anniversary date of the Effective Date of this Agreement and continuing annually on each anniversary date of the Effective Date until the anniversary year in which the First Commercial Sale occurs.  The maintenance fee will not be due and payable on any anniversary date of the Effective Date if on that date Licensee or a Sublicensee is commercially selling a Licensed Product. The License Maintenance Fees are non-refundable and are not an advance against royalties.

 

5. ROYALTIES

 

5.1.                            Licensee must pay to The Regents for sales by Licensee an earned royalty at the following rates of Net Sales of Licensed Products (“Earned Royalty”). This Earned Royalty will accrue until expiration or termination of this Agreement:

 

	
Licensed Product Sold In Stated Time Period
    	
 
    	
Percent (%) of
   Net Sales
    	
 
    
	
Supplement
    	
 
    	
******%
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Therapeutic Product
    	
 
    	
******%
    	
 
    

 

5.2.                            Licensee must pay Earned Royalties owed to The Regents on a quarterly basis. Licensee must pay such Earned Royalties on or before the following dates:

 

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·                  February 28 (for any Final Sales that took place on or before the last day of the calendar quarter ending December 31 of the prior year);

·                  May 31 (for any Final Sales that took place on or before the last day of the calendar quarter ending March 31);

·                  August 31 (for any Final Sales that took place on or before the last day of the calendar quarter ending June 30); and

·                  November 30 (for any Final Sales that took place on or before the last day of the calendar quarter ending September 30).

 

5.3.                            Licensee must pay to The Regents a minimum annual royalty under Section 3.2 of ****** (referred to below as “Minimum Annual Royalty”) during each calendar year (measured relative to the calendar year in which there was a First Commercial Sale, and referred to below as “Calendar Years after FCS”) until expiration or termination of this Agreement.  Licensee must pay the Minimum Annual Royalty for a given Calendar Year after FCS to The Regents on or before February 28 of such Calendar Year after FCS. The Minimum Annual Royalty for a given Calendar Year after FCS will be credited against the royalty due under Section 3.2 for the calendar year in which such Minimum Annual Royalty was paid. By way of example, if First Commercial Sale took place on February 1, 2015, the first Calendar Year After FCS would be 2016 and the Minimum Annual Royalty would be due on or before February 28, 2016. Such Minimum Annual Royalty would be credited against the royalty due under Section 3.2 for 2016.  If the Agreement is terminated prior to expiration of the Agreement in a given calendar year, any payment due to the Regents for the Minimum Annual Royalty in any subsequent year will be waived and Licensee will only pay royalty under Section 3.2until any remaining inventories of Licensed Product are sold subject to the terms of this Agreement.

 

5.4.                            If Licensee is obligated to pay a non-Affiliate third party (other than The Regents) royalties on Net Sales (“Third Party Royalty”) in consideration for patent rights owned or controlled by such non- Affiliate third party without a license to which Licensee would infringe such third party patent rights in the manufacture, use, import, offer for sale, or sale of a Licensed Product, then Licensee will have the right, upon Licensee’s execution of a license with such third party for such third party patent rights, to credit ****** of any earned royalty payment made to such third party in any given year in consideration for such third party patent rights, against the Earned Royalty due The Regents under this Agreement, provided that:

 

(i)                           The sum of such Third Party Royalty rate and the Earned Royalty rate set forth in this Agreement is equal to, or greater than, ******.

 

(ii)                        Prior to reduction of any Earned Royalty due The Regents under this Agreement for a given calendar quarter, Licensee first provides written evidence to The Regents of Licensee’s royalty obligations to such third party and must thereafter provide written evidence of any payment made to such third party;

 

(iii)                     In no event shall royalties or other amounts due to The Regents under this Agreement in any reporting period be so reduced to less than fifty percent (50%) of the amount that would otherwise be due The Regents under this Agreement.

 

5.5.                           All monies due The Regents must be paid in United States funds. With respect to Sublicensing Income paid in a currency other than United States Dollars, the amount due The Regents will first be determined in the foreign currency received by Licensee and, second, converted into equivalent United States Funds by using the applicable conversion rates for buying and selling

 

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United States dollars for such foreign currency as published by Reuters on the final business day of the quarter in which such sales were made.

 

5.6.                            Any tax for the account of The Regents required to be withheld by Licensee under the laws of any foreign country must be promptly paid by Licensee for and on behalf of The Regents to the appropriate governmental authority. Licensee will use its best efforts to furnish The Regents with proof of payment of any tax. Licensee is responsible for all bank transfer charges. All payments made by Licensee in fulfillment of The Regents’ tax liability in any particular country will be credited against fees or royalties due The Regents for that country.

 

5.7.                            If at any time legal restrictions prevent the acquisition or prompt remittance of United States Dollars by Licensee with respect to any country where a Licensed Product is sold, Licensee shall pay royalties due to The Regents from Licensee’s other sources of United States Dollars.

 

5.8.                            If any patent or any claim included in Regents’ Patent Rights is held invalid or unenforceable in a final decision by a court of competent jurisdiction from which no appeal has or can be taken, all obligation to pay royalties based on that patent or claim or any claim patentably indistinct from it will cease as of the date of that final decision. Licensee will not, however, be relieved from paying any royalties that accrued before that decision or that is based on another of the Regents’ Patent Rights or claim of the Regents’ Patent Rights not involved in that decision.

 

5.9.                            If no Valid Claim has issued on The Regents’ Patent Rights after ****** from the earliest priority date to which The Regents’ Patent Rights are entitled, royalties and the portion of Sublicensing Income payable to University under this Agreement shall be reduced by ****** until such time as a Valid Claim so issues on The Regents Patent Rights.  Licensee shall not be entitled to a refund of amounts paid prior to the running of the aforementioned ****** period, and University shall not be entitled to any “catch up” payment in respect of amounts due during the period between the running of the aforementioned ****** period and the date on which a Valid Claim does issue on The Regents’ Patent Rights.

 

6. DILIGENCE

 

6.1.                            Upon execution of this Agreement, Licensee must earnestly and diligently (a) develop Licensed Products or Licensed Methods; (b) market Licensed Products and Licensed Methods to the extent they are adequately developed in accordance with Section 6.1(a); and (c) manufacture and sell Licensed Products and Licensed Methods in quantities sufficient to meet the market demands for them (all of the foregoing collectively “Commercialization”).  For purposes of clarity, the requirements under the foregoing subsection (b) and (c) shall continue to apply after a First Commercial Sale.

 

6.2.                            The Regents has the right and option to either terminate this Agreement or reduce Licensee’s exclusive license to a nonexclusive license if Licensee fails to perform any of the terms in Paragraph 6.1 or this Paragraph 6.2. This right, if exercised by The Regents, supersedes the rights granted in Article 2 (GRANT).

 

(a)                                 Licensee grants rights under this Agreement to a Sublicensee pursuant to a first sublicense agreement by the third anniversary of the Effective Date.

 

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(b)                                 Licensee grants rights under this Agreement to a Sublicensee pursuant to a second sublicense agreement by the fourth anniversary of the Effective Date.

 

(c)                                  A First Commercial Sale of a Research Product occurs by the fifth anniversary of the Effective Date.

 

(d)                                 A First Commercial Sale of a Therapeutic Product occurs by the fifth anniversary of the Effective Date.

 

Without limiting Licensee’s obligations under Paragraphs 6.1 and 6.2 of this Agreement, Licensee has the sole discretion for making all decisions as to how to commercialize any Licensed Product.

 

7. PATENT FILING, PROSECUTION AND MAINTENANCE

 

7.1.                            Patent Prosecution

 

7.1.a                     Regents’ Patent Rights will be held in the name of The Regents and obtained with counsel of The Regents’ choice. The Regents shall control all Patent Actions and all decisions with respect to Patent Actions but will consider any comments or suggestions by Licensee or its appointed counsel with respect to Patent Actions. The Regents is entitled to take action to preserve rights and minimize costs whether or not Licensee has commented, and will use reasonable efforts not to allow any Regents’ Patent Rights for which Licensee is licensed and is underwriting the costs of to lapse or become abandoned without Licensee’s written authorization under this Article 7, except for the filing of continuations, divisional, or the like that substitute for the lapsed application. The Regents shall have no requirement to file, prosecute, or maintain Regents’ Patent Rights if Licensee is not current with its Patent Cost obligations as set forth in this Article 7.

 

7.1.b                     The Regents will provide Licensee with copies of all documentation related to prosecution of the Regent’s Patent Rights including each patent application, office action, response to office action, request for terminal disclaimer, and request for reissue or reexamination of any patent or patent application under Regents’ Patent Rights.

 

7.1.c                      As long as the Licensee has paid Patent Prosecution Costs as provided for in this Article 7, The Regents will diligently prosecute and maintain the United States and foreign patents comprising the Regents’ Patent Rights using counsel of its choice.  The Regents’ counsel will take instructions only from The Regents, however, The Regents agree to consult in good faith with Licensee in respect to Licensee recommendations and requests concerning the patent prosecution (each recommendation or request a “Patent Prosecution Request”).  The Regents will provide the Licensee with copies of all relevant documentation so that Licensee will be informed of the continuing prosecution and Licensee may comment upon such documentation sufficiently in advance of any initial deadline for filing a response; provided that, if the Licensee has not commented upon such documentation in a reasonable time for The Regents to sufficiently consider the Licensee’s comments prior to a deadline with the relevant government patent office or if The Regents must act to preserve the Patent Rights, The Regents will be free to respond without consideration of the Licensee’s comments. If Licensee does not provide a Patent Prosecution Request in relation to filing a particular patent application by a non-

 

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9

 

extendible deadline in a particular jurisdiction, The Regents will have the right to file patent applications at its own expense in any territory which Licensee has not identified in written notice pursuant to this Paragraph 7.1 and such patent application(s) and patent(s) will not be part of Regents’ Patent Rights and therefore not subject to this Agreement, and Licensee will have no further rights or license to them.

 

7.2.                            Past Patent Costs

 

Licensee will bear all Patent Costs incurred prior to the term of this Agreement (“Past Patent Costs”) in an amount not to exceed ******. Licensee must send payment for such Past Patent Costs to The Regents within thirty (30) days of Licensee’s receipt of an invoice for these costs.

 

7.3.                            Ongoing Patent Costs

 

Licensee will bear all Patent Costs incurred during the term of this Agreement (“Ongoing Patent Costs”) and shall pay in advance The Regents’ patent counsel’s estimated costs for undertaking a Patent Action before The Regents authorizes its patent counsel to proceed (“Advanced Payment”).  Fees and expenses that are due to incidentals (for example photocopy charges or long distance phone charges) are not included within such estimate unless expressly so stated, nor is Licensee’s interaction with The Regents’ counsel such as by phone calls, e-mails, and in person meetings. The absence of this Advanced Payment will be considered an election not to secure the patent rights associated with the specific phase of patent prosecution in such territory, and such patent application(s) and patent(s) will not be part of Regents’ Patent Rights and therefore not subject to this Agreement and Licensee will have no further rights or license to them.

 

7.4.                            Termination of Patent Prosecution by Licensee

 

Licensee may terminate its obligations with respect to any or all of Regents’ Patent Rights by providing written notice to The Regents (“Patent Termination Notice”). Termination of Licensee’s obligations with respect to such patent application or patent will be effective three (3) months after receipt of such Patent Termination Notice by The Regents. The Regents will use reasonable efforts to curtail Patent Costs chargeable to Licensee under this Agreement after this Patent Termination Notice is received by The Regents. The Regents may continue prosecution or maintenance of these application(s) or patent(s) at its sole discretion and expense, and such application(s) and patent(s) will not be part of Regents’ Patent Rights and therefore not subject to this Agreement, and Licensee will have no rights or license to them.

 

7.5.                            Patent Extensions

 

7.5.a                     Licensee will apply for an extension of the term of any patent included within The Regents’ Patent Rights, if appropriate, under the Drug Price Competition and Patent Term Restoration Act of 1984 and/or European, Japanese and other foreign counterparts. Licensee shall prepare all documents and The Regents agrees to execute the documents and to take additional action as Licensee reasonably requests in connection therewith. Licensee will be liable for all costs relating to such application.

 

7.5.b                     If either Party (in the case of The Regents, the licensing officer responsible for administration of this Agreement) receives notice pertaining to the infringement or potential infringement of any issued patent included with Regents’ Patent Rights under the Drug Price Competition and Patent Term Restoration Act of 1984 (and/or foreign

 

****** - Material has been omitted and filed separately with the Commission.

 

10

 

counterparts of this law) then that Party shall within ten (10) days notify the other Party after receipt of such notice of infringement.

 

8. PATENT INFRINGEMENT

 

8.1.                            In the event that The Regents (to the extent of the actual knowledge of the licensing professional responsible for the administration of this Agreement) or Licensee learns of infringement of potential commercial significance of any patent licensed under this Agreement, the knowledgeable Party will provide the other with (i) written notice of such infringement and (ii) evidence of such infringement available to it (the “Infringement Notice”). During the period in which, and in the jurisdiction where, Licensee has exclusive rights under this Agreement, neither The Regents nor Licensee will notify a third party (including the infringer) of infringement or put such third party on notice of the existence of any Regents’ Patent Rights without first obtaining the written consent of the other. If Licensee puts such infringer on notice of the existence of any Regents’ Patent Rights with respect to such infringement without first obtaining the written consent of The Regents and if a declaratory judgment action is filed by such infringer against The Regents, then Licensee’s right to initiate a suit against such infringer for infringement under Paragraph 8.2 below will terminate immediately without the obligation of The Regents to provide notice to Licensee. Both The Regents and Licensee will use their diligent efforts to cooperate with each other to terminate such infringement without litigation.

 

8.2.                            If infringing activity of potential commercial significance by the infringer has not been abated within ninety (90) days following the date the Infringement Notice takes effect, then Licensee may institute suit for patent infringement against the infringer. The Regents may voluntarily join such suit at its own expense, but may not thereafter commence suit against the infringer for the acts of infringement that are the subject of Licensee’s suit or any judgment rendered in the suit. If, in a suit initiated by Licensee, The Regents is involuntarily joined by a party other than Licensee, then Licensee will pay the reasonable and documented costs incurred by The Regents arising out of such suit, including but not limited to, reasonable and documented legal fees of counsel that The Regents selects and retains to represent it in the suit.

 

8.3.                            If, within one hundred and twenty (120) days following the date the Infringement Notice takes effect, infringing activity of potential commercial significance by the infringer has not been abated and if Licensee has not brought suit against the infringer, then The Regents may institute suit for patent infringement against the infringer; provided that before The Regents proceed with such suit, The Regents will consult in good faith with Licensee concerning the reason(s) that Licensee declined to file suit against the infringer and only proceed with the infringement suit if the infringer’s infringing product or service holds market share of ****** or more of the relevant market in the field of use.  If The Regents has the right to institute an infringement suit (as set forth in this Section 8.3) and institutes such a suit, then Licensee may not join such suit without The Regents’ consent and may not thereafter commence suit against the infringer for acts of infringement that are subject to The Regents’ suit or any judgment rendered in that suit.

 

8.4.                            Any recovery or settlement received in connection with any suit will first be shared by The Regents and Licensee equally to cover any litigation costs each incurred and next shall be paid to The Regents or Licensee to cover any litigation costs it incurred in excess of the litigation costs of the other. In any suit initiated by The Regents in compliance with this Agreement, any recovery in excess of litigation costs will belong to The Regents. The Regents will receive at least ****** of any recovery if The Regents is a party in the litigation.  The Regents and Licensee agree to be

 

****** - Material has been omitted and filed separately with the Commission.

 

11

 

bound by all final and non-appealable determinations of patent infringement, validity and enforceability (but no other issue) resolved by any adjudicated judgment in a suit brought in compliance with this Article 8 (PATENT INFRINGEMENT).

 

8.5.                            Any agreement made by Licensee for purposes of settling litigation or other dispute shall comply with the requirements of Article 3 (SUBLICENSES) of this Agreement.

 

8.6.                            Each Party will cooperate with the other in litigation proceedings instituted hereunder but at the expense of the Party who initiated the suit, unless such suit is being jointly prosecuted by the Parties.

 

8.7.                            Any litigation proceedings will be controlled by the Party bringing the suit, except that The Regents may be represented by counsel of its choice in any suit brought by Licensee.

 

9. PROGRESS AND REPORTS

 

9.1.                            Beginning January 31, 2015, and for the term of this Agreement, Licensee must submit to The Regents semiannual progress reports covering Licensee’s (and any Affiliates’, Joint Ventures’, and Sublicensees’) activities related to the development and testing of all Licensed Products and the obtaining of the governmental approvals necessary for marketing.

 

9.2.                            Each progress report must include all of the following for each semiannual period:

 

	
9.2.a
    	
 
    	
Summary of work completed.
    
	
 
    	
 
    	
 
    
	
9.2.b
    	
 
    	
Key scientific discoveries.
    
	
 
    	
 
    	
 
    
	
9.2.c
    	
 
    	
Summary of work in progress.
    
	
 
    	
 
    	
 
    
	
9.2.d
    	
 
    	
Current schedule of anticipated events or milestones.
    
	
 
    	
 
    	
 
    
	
9.2.e
    	
 
    	
Market plans for introduction of Licensed Products.
    
	
 
    	
 
    	
 
    
	
9.2.f
    	
 
    	
An updated listing of any and all Sublicenses granted by Licensee or   any Sublicensees.
    
	
 
    	
 
    	
 
    
	
9.2.g
    	
 
    	
The names and addresses of all Sublicensees, and a current and valid   phone number and e-mail address for a principal point of contact at each such   Sublicensee who is responsible for administering the Sublicense.
    

 

9.3.                            After the grant of the first Sublicense, Licensee must submit quarterly reports to The Regents by February 28, May 31, August 31 and November 30 of each year (i.e., within sixty (60) days from the end of each calendar quarter). Each report must cover Sublicensing Income received by Licensee.

 

9.4.                            The Regents shall have the right to terminate this Agreement in accordance with Article 12 (TERMINATION BY THE REGENTS) if Licensee does not provide progress reports and reports in accordance with this Article 9.

 

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10. BOOKS AND RECORDS

 

10.1.                     Licensee must keep accurate books and records of all Licensed Products developed, manufactured, used or sold and all Sublicenses, collaboration agreements and joint venture agreements entered into by Licensee that involve Regents’ Patent Rights. Licensee must preserve these books and records for at least five (5) years from the date of the royalty payment to which they pertain. These books and records will be open to examination by representatives or agents of The Regents during regular office hours to determine their accuracy and assess Licensee’s compliance with the terms of this Agreement. Licensee will pay fees and expenses of these inspections if an underpayment of more than five percent (5%) of the total payments due The Regents within a given year under this Agreement is discovered or any material term of this Agreement is discovered to have been breached, otherwise The Regents will pay the fees and expenses of inspections. Payment owed by Licensee hereunder for underpayment of royalties will be due within thirty (30) days of the examination result and payment by Licensee for any examination costs incurred by The Regents will be due within thirty (30) days from the date of The Regents’ invoice.

 

11. LIFE OF THE AGREEMENT

 

11.1.                     Unless otherwise terminated by operation of law or by acts of the Parties in accordance with the terms of this Agreement, this Agreement is in force from the Effective Date recited on page one and remains in effect until the expiration or abandonment of the last-to-expire patent or last to-be-abandoned patent application in Regents’ Patent Rights..

 

11.2.                     Upon termination of this Agreement, Licensee will have no further right to make, have made, use or sell any Licensed Product except as provided in Article 14 (DISPOSITION OF LICENSED PRODUCTS ON HAND UPON TERMINATION).

 

11.3.                     Any expiration or termination of this Agreement will not affect the rights and obligations set forth in the following Articles:

 

Article 1 DEFINITIONS;

 

Paragraph 3.6       Survival of Sublicenses;

 

Article 10                                            BOOKS AND RECORDS;

 

Article 11                                            LIFE OF THE AGREEMENT;

 

Article 14                                            DISPOSITION OF LICENSED PRODUCTS ON HAND UPON 
 TERMINATION;

 

Article 16                                            USE OF NAMES AND TRADEMARKS;

 

Article 17                                            LIMITED WARRANTY;

 

Article 18                                            INDEMNIFICATION;

 

Article 19                                           LIMITATION OF LIABILITY;

 

Article 24                                            FAILURE TO PERFORM;

 

Article 25                                            GOVERNING LAWS; and

 

****** - Material has been omitted and filed separately with the Commission.

 

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Article 29               CONFIDENTIALITY.

 

12. TERMINATION BY THE REGENTS

 

12.1.                     If Licensee violates or fails to perform any material term of this Agreement, then The Regents may give written notice of the default (“Notice of Default”) to Licensee. If Licensee does not repair the default within sixty (60) days after the effective date of the Notice of Default (“Period to Cure”), then The Regents has the right to terminate this Agreement and the License by a second written notice (“Notice of Termination”) to Licensee. If The Regents sends a Notice of Termination to Licensee, then this Agreement automatically terminates on the effective date of this notice. Termination does not relieve Licensee of its obligation to pay any monies owed on the Termination Effective Date, and does not impair any accrued right of The Regents.

 

13. TERMINATION BY LICENSEE

 

13.1.                     Licensee has the right at any time to terminate this Agreement in whole or with respect to any portion of Regents’ Patent Rights by giving written notice to The Regents. This notice of termination will be subject to Article 20 (NOTICES) and will be effective ninety (90) days after the effective date of the notice (“Termination Effective Date”).

 

13.2.                     Any termination in accordance with Paragraph 13.1 does not relieve Licensee of any obligation or liability accrued prior to termination. Nor does termination rescind anything done by Licensee or any payments made to The Regents prior to the effective date of termination. Termination does not affect in any manner any rights of The Regents arising under this Agreement prior to termination.

 

14. DISPOSITION OF LICENSED PRODUCTS
 ON HAND UPON TERMINATION

 

14.1.                     Upon termination of this Agreement by Licensee, Licensee may continue to sell any previously made Licensed Products during the one hundred eighty (180) days following the Termination Effective Date.

 

14.2.                     Licensee must submit reports on the sale of Licensed Products allowed under this Article 14 in accordance with Article 9 (PROGRESS AND REPORTS) and must pay The Reagents the portion of the Sublicensing Income received by Licensee, as specified in Paragraph 3.2, in respect of such sales.

 

14.3.                     Except as set forth in this Article 14, Licensee will not otherwise make, sell, offer for sale, or import Licensed Products after termination of this Agreement by Licensee or The Regents.

 

15. PATENT MARKING

 

15.1.                     Licensee must mark all Licensed Products made, used or sold under the terms of this Agreement, or their containers, in accordance with the applicable patent marking laws. Licensee shall be responsible for all monetary and legal liabilities arising from or caused by (i) failure to abide by applicable patent marking laws and (ii) any type of incorrect or improper patent marking.

 

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16. USE OF NAMES AND TRADEMARKS

 

16.1.                     Each Party will not use any name, trade name, trademark or other designation of the other Party or its employees (including contraction, abbreviation or simulation of any of the foregoing) in advertising, publicity or other promotional activity without the consent of the Party. Unless required by law, Licensee is expressly prohibited from using the name “The Regents of the University of California” or the name of any campus of the University of California in advertising, publicity, or other promotional activity, without written permission of The Regents.

 

17. LIMITED WARRANTY

 

17.1.                     The Regents warrants that it has the lawful right to grant this license to Licensee and does not violate or breach any agreement with any third party by entering into this Agreement and granting the rights granted by this Agreement and to the extent of the actual knowledge of the licensing professional responsible for administration of this Agreement as of the Effective Date, is the sole and exclusive owner of Regents’ Patent Rights set forth in clause (i) of the definition of Regents’ Patent Rights.

 

17.2.                     This License and the associated Invention are provided WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY THAT ANY LICENSED PRODUCT WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.

 

17.3.                     Nothing in this Agreement will be construed as:

 

17.3.a              A warranty or representation by The Regents as to the validity or scope of any Regents’ Patent Rights.

 

17.3.b              A warranty or representation that anything made, used, sold or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents, copyrights, trademarks or any other forms of intellectual property rights or tangible property rights of third parties.

 

17.3.c               Obligating The Regents to bring or prosecute actions or suits against third parties for patent, copyright or trademark infringement except as provided in Article 8 (PATENT INFRINGEMENT).

 

17.3.d              Conferring by implication, estoppel or otherwise any license or rights under any patents of The Regents other than Regents’ Patent Rights as defined herein, regardless of whether such patents are dominant or subordinate to Regents’ Patent Rights.

 

17.3.e               Obligating The Regents to furnish any know-how not provided in Regents’ Patent Rights.

 

18. INDEMNIFICATION

 

18.1.                     To the maximum extent permitted by law, including California Civil Code Sec. 2773, Licensee will, and will require its Sublicensees to, indemnify, hold harmless and defend

 

****** - Material has been omitted and filed separately with the Commission.

 

15

 

The Regents, The Regents’ officers, employees, and agents, the sponsors of the research that led to the Invention, the inventors of the patents and patent applications in Regents’ Patent Rights and their respective employers (the “Indemnitees”) from and against any and all liability, claims, suits, losses, damages, costs, fees, and expenses(the “Claims”) arising out of Licensee’s activities or exercise of obligations under this Agreement, except for any of those Claims arising from The Regents’ own breach of contract, representation,  covenant, or warranty.  Indemnification includes but is not limited to products liability. If The Regents make a reasonable determination that there will be a conflict of interest or it will not otherwise be adequately represented by counsel chosen by Licensee to defend The Regents in accordance with this Paragraph 18.1, then The Regents may retain counsel of its choice to represent it and Licensee will pay all documented expenses for such representation,  provided that, if The Regents believes it will not be adequately represented, The Regents will notify the Licensee in writing of the basis of its belief.  The obligations of this Paragraph 18.1 shall be expressly contingent on: (a) an Indemnitee giving Licensee prompt written notice of the applicable Claim; (b) the Indemnitees allowing Licensee to control the investigation, defense and settlement of the Claim with counsel selected by Licensee and reasonably acceptable to The Regents; and (c) the indemnitees reasonably cooperating with Licensee’s investigation, defense and settlement of the Claim.  Licensee shall have no liability or obligation in respect of any settlement of any Claim entered into by any indemnitee without Licensee’s consent. Licensee may not admit liability or wrongdoing on the part of The Regents without The Regents’ prior express written consent. Licensee shall keep The Regents informed on a current basis of its defense of any claims under this Article 18.

 

18.2.                     Licensee, at its sole cost and expense, must insure its activities in connection with the work under this Agreement and obtain, keep in force and maintain Commercial Form General Liability Insurance (contractual liability included) with limits as follows:

 

	
18.2.a
    	
Each occurrence
    	
 
    	
$
    	
5,000,000.
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
18.2.b
    	
Products/completed operations aggregate
    	
 
    	
$
    	
10,000,000.
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
18.2.c
    	
Personal and advertising injury
    	
 
    	
$
    	
5,000,000.
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
18.2.d
    	
General aggregate
    	
 
    	
$
    	
10,000,000.
    	
 
    

 

18.3.                     If the above insurance is written on a claims-made form, it shall continue for three (3) years following termination or expiration of this Agreement. The insurance shall have a retroactive date of placement prior to or coinciding with the Effective Date of this Agreement.

 

18.4.                     Licensee will obtain, keep in force and maintain Worker’s Compensation Insurance as legally required in the jurisdiction in which Licensee is doing business.

 

18.5.                     Licensee expressly understands, however, that the coverages and limits in Paragraph 18.2 do not in any way limit Licensee’s liability or indemnification obligations. Licensee’s insurance must:

 

18.5.a              Provide for thirty (30) day advance written notice to The Regents of any modification.

 

18.5.b              State that The Regents of the University of California is endorsed as an additional insured under the coverages listed in Paragraph 18.2.

 

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16

 

18.5.c               Include a provision that the coverages will be primary and will not participate with nor will be excess over any valid and collective insurance or program of self-insurance carried or maintained by The Regents.

 

18.6.                     Licensee must furnish The Regents with valid certificates of insurance evidencing compliance with all requirements of this Agreement naming “The Regents of the University of California” as an additional insured. Licensee must furnish the certificates of insurance within thirty (30) days of the execution of the Agreement and once per year thereafter for the duration of this Agreement. The Regents has to issue a Notice of Default in accordance with Article 12 (TERMINATION BY THE REGENTS) should Licensee fail to provide the certificates of insurance.

 

19. LIMITATION OF LIABILITY

 

19.1.                     THE REGENTS WILL NOT BE LIABLE FOR ANY LOST PROFITS, COSTS OF PROCURING SUBSTITUTE GOODS OR SERVICES, LOST BUSINESS, ENHANCED DAMAGES FOR INTELLECTUAL PROPERTY INFRINGEMENT OR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR OTHER SPECIAL DAMAGES SUFFERED BY LICENSEE, SUBLICENSEES, JOINT VENTURES, AFFILIATES OR DEVELOPMENT PARTNERS ARISING OUT OF OR RELATED TO THIS AGREEMENT FOR ALL CAUSES OF ACTION OF ANY KIND (INCLUDING TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY AND BREACH OF WARRANTY) EVEN IF THE REGENTS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE REGENTS WILL NOT BE LIABLE FOR ANY DIRECT DAMAGES SUFFERED BY LICENSEE, SUBLICENSEES, JOINT VENTURES, OR AFFILIATES ARISING OUT OF OR RELATED TO PATENT RIGHTS TO THE EXTENT ASSIGNED OR LICENSED BY THE REGENTS’ INVENTORS TO THIRD PARTIES.

 

20. NOTICES

 

20.1.                     Any notice, progress report, report or payment (except for Advanced Payments due under this Agreement) required to be given to either Party must be sent to the respective address given below and is effective: (a) on the date of delivery if delivered in person, (b) five (5) days after mailing if mailed by first-class certified mail, postage paid, or (c) on the next business day if sent by overnight delivery. Either Party may change its designated address by written notice.

 

	
For   Licensee:
    	
Fibrocell Science, Inc.
    
	
 
    	
405 Eagleview Blvd
    
	
 
    	
Exton, PA 19341
    
	
 
    	
 
    
	
 
    	
Attn: Chief Financial Officer
    
	
 
    	
 
    
	
For   The Regents:
    	
The Regents of the University of California
    
	
 
    	
University of California, Los Angeles
    

 

****** - Material has been omitted and filed separately with the Commission.

 

17

 

	
 
    	
Office of Intellectual Property 11000 Kinross Avenue, Suite 200
    
	
 
    	
Los Angeles, CA 90095-1406
    
	
 
    	
 
    
	
 
    	
Attn: Director of Licensing
    

 

All Advanced Payments due under this Agreement shall be sent via wire transfer as follows:

 

******

 

20.2.                     Licensee shall furnish to The Regents the completed licensee contact information form attached hereto as “APPENDIX C” concurrent to execution of the Agreement and incorporated herein by this reference, showing:

 

20.2.a              The Progress Reports Contact (i.e. the contact responsible for ensuring that such progress reports are submitted to The Regents);

 

20.2.b              The Patent Prosecution Contact to whom patent prosecution correspondence should be sent to; and

 

20.2.c               The Financial Contact (i.e. the contact responsible for ensuring that payments are made under this Agreement to The Regents).

 

21. ASSIGNABILITY

 

21.1.                     Consent to Assign

 

This Agreement is binding upon and inures to the benefit of The Regents, its successors and assignees. This Agreement is personal to Licensee and assignable by Licensee only with the prior written consent of The Regents. The consent of The Regents will not be required if the assignment of this Agreement is in conjunction with the transfer of all or substantially all of the business of Licensee to which this license relates to either (a) a non-Affiliate third party or (b) an Affiliate.

 

Conditions of Assignment

 

No later than thirty (30) days prior to any assignment of this Agreement all of the following terms and conditions shall be met and if they are not then this Agreement and any assignment thereof will be considered null and void with no further notice from The Regents.

 

(i)                           Licensee shall inform The Regents in writing of the identity of the proposed acquirer or successor entity and shall provide updated contact information in writing to The Regents for such acquirer or successor entity by updating and submitting in writing to The Regents Appendix C of this Agreement; and

 

(ii)                        If the successor will not be bound to this Agreement by operation of law, the proposed acquirer or successor entity shall agree in writing to be bound by all the terms and

 

****** - Material has been omitted and filed separately with the Commission.

 

18

 

conditions of this Agreement as if such acquirer or successor entity were the original Licensee and a copy of such written agreement shall be provided to The Regents by Licensee or the proposed acquirer or successor entity.

 

22. LATE PAYMENTS

 

22.1.                     For each payment or fee not received by The Regents when due, Licensee must pay to The Regents a simple interest charge of Ten Percent (10%) per annum to be calculated from the date payment was due until it was actually received by The Regents. For purposes of clarity, this Article 22 (LATE PAYMENTS) does not limit any rights of The Regents under this Agreement arising from the failure by Licensee to make such payments when due.

 

23. WAIVER

 

23.1.                     The waiver of any breach of any term of this Agreement does not waive any other breach of that or any other term.

 

24. FAILURE TO PERFORM

 

24.1.                     If either Party takes legal action against the other because of a failure of performance due under this Agreement, then the prevailing Party is entitled to reasonable attorney’s fees in addition to costs and necessary disbursements.

 

25. GOVERNING LAW

 

25.1.                     THIS AGREEMENT IS TO BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any patent or patent application will be governed by the applicable laws of the country of the patent or patent application.

 

26. GOVERNMENT APPROVAL OR REGISTRATION

 

26.1.                     If this Agreement or any associated transaction is required by the law of any nation to be either approved or registered with any governmental agency, Licensee will assume all legal obligations to do so. Licensee will notify The Regents if it becomes aware that this Agreement is subject to a United States or foreign government reporting or approval requirement. Licensee will make all necessary filings and pay all costs including fees, penalties, and all other out-of-pocket costs associated with such reporting or approval process.

 

****** - Material has been omitted and filed separately with the Commission.

 

19

 

27. COMPLIANCE WITH LAWS

 

27.1.                     Licensee will comply with all applicable laws and regulations in performing its obligations hereunder and in its use, manufacture, offer for sale, sale or import of Licensed Products or practice of Licensed Methods, including, but not limited to, obtaining and maintaining all necessary governmental approvals for the commercialization of Licensed Products and Licensed Methods. Licensee will observe all applicable United States and foreign laws with respect to the transfer of Licensed Products and related technical data and the provision of services using Licensed Methods to foreign countries, including and without limitation, the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations. Licensee will manufacture Licensed Products and practice the Licensed Methods in compliance with all applicable government importation laws and regulations of a country into which Licensed Products are imported.

 

28. FORCE MAJEURE

 

28.1.                     Except for Licensee’s obligation to make any payments to The Regents hereunder, the Parties shall not be responsible for any failure to perform due to the occurrence of any events beyond their reasonable control that render their performance impossible or onerous, including, but not limited to: accidents (environment, toxic spill, etc.); acts of God; biological or nuclear incidents; casualties; earthquakes; fires; floods; governmental acts; orders or restrictions; inability to obtain suitable and sufficient labor, transportation, fuel and materials; local, national or state emergency; power failure and power outages; acts of terrorism; strike; and war.

 

28.2.                     Either Party to this Agreement, however, will have the right to terminate this Agreement upon thirty (30) days’ prior written notice if either Party is unable to fulfill its obligations under this Agreement due to any of the causes specified in Paragraph 29.1 for a period of one (1) year.

 

29. CONFIDENTIALITY

 

29.1.                     If either Party discloses confidential information to the other Party, the disclosing Party will designate this information as confidential by appropriate legend or instruction and the receiving Party will:

 

29.1.a              Use the same degree of care to maintain the secrecy of the confidential information as it uses to maintain the secrecy of its own information of like kind.

 

29.1.b              Use the confidential information only to accomplish the purposes of this Agreement or for audit or management purposes.

 

29.1.c               Ensure that any employees, customers, distributors and other agents to whom the confidential information is disclosed are bound to it by similar obligations of confidence and to make such disclosure only as required to accomplish the purposes of this Agreement.

 

29.2.                     Neither Party will have any confidentiality obligation with respect to the confidential information belonging to or disclosed by the other Party that:

 

****** - Material has been omitted and filed separately with the Commission.

 

20

 

29.2.a              the receiving Party can demonstrate by written records was previously known to it under no obligation of confidentiality;

 

29.2.b              the receiving Party lawfully obtained from sources under no obligation of confidentiality; and

 

29.2.c               is or becomes publicly available other than through an act or omission of the receiving Party or any of its employees.

 

29.3.                     In the event a receiving Party is requested by oral questions, interrogatories, requests for information or documents, subpoena, civil investigate demand or similar process or is required by law (including the California Public Records Act) or the rules of any stock exchange on which receiving Party’s securities are traded to disclose any part of the confidential information, the receiving Party shall notify the other Party promptly of such request(s) and requirement(s), and (if applicable) the documents requested thereby, so that the other Party may seek an appropriate protective order and/or waive in writing receiving Party’s obligation not to disclose the confidential information.  The receiving Party further agrees that, if in the absence of a protective order or the receipt of a waiver hereunder, the receiving Party is nonetheless, based on the advice of its counsel, compelled to disclose all or part of the Confidential Information or be in breach of its obligations under law, or else stand liable for contempt or suffer other censure or penalty from any tribunal or governmental or similar authority or the aforementioned security exchange, the receiving Party may disclose such confidential information without liability hereunder; provided, however, that the receiving Party shall deliver to the other Party written notice of the confidential information to be disclosed as far in advance of its disclosure as is practicable,  So that the disclosing party may seek relief, if available.

 

29.4.                     The provisions of this Article 29 (CONFIDENTIALITY) will continue in effect for five (5) years after expiration or termination of this Agreement.

 

29.5.                     The Regents is free to release to the Inventors and senior administrators employed by The Regents the terms and conditions of this Agreement. If such release is made, then The Regents shall give notice of the confidential nature and shall request that the recipient not disclose such terms and conditions to others.

 

29.6.                     If a third party inquires whether a license to Regents’ Patent Rights is available, then The Regents may disclose the existence of this Agreement and the extent of the grant in Article 2 (GRANT) and Article 3 (SUBLICENSES) to such third party, but will not disclose the name of Licensee or any other negotiated terms or conditions of this Agreement to such third party, except where The Regents is required to release information under the California Public Records Act, a governmental audit requirement or other applicable law.

 

29.7.                     Licensee hereby grants permission for The Regents (including UCLA) to include Licensee’s name and a link to Licensee’s website annual reports and websites that showcase technology transfer-related stories as well as links to any publicly-available news stories about Licensee on such websites.

 

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21

 

30. MISCELLANEOUS

 

30.1.                     The headings of the several sections are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement.

 

30.2.                     This Agreement is not binding upon the Parties until it has been signed below on behalf of each Party, in which event it becomes effective as of the date recited on page one.

 

30.3.                     No amendment or modification of this Agreement will be valid or binding upon the Parties unless made in writing and signed by each Party.

 

30.4.                     This Agreement and Appendix A (REGENTS’ PATENT RIGHTS) embodies the entire understanding of the Parties and supersedes all previous communications, representations or understandings, either oral or written, between the parties relating to the subject matter hereof.

 

30.5.                     If any part of this Agreement is for any reason found to be unenforceable, all other parts nevertheless remain enforceable as long as a Party’s rights under this Agreement are not materially affected. In lieu of the unenforceable provision, the Parties will substitute or add as part of this Agreement a provision that will be as similar as possible in economic and business objectives as was intended by the unenforceable provision.

 

30.6.                     No provisions of this Agreement are intended or shall be construed to confer upon or give to any person or entity other than The Regents and the Licensee any rights, remedies or other benefits under, or by reason of, this Agreement.

 

30.7.                     In performing their respective duties under this Agreement, each of the Parties will be operating as an independent contractor. Nothing contained herein will in any way constitute any association, partnership, or joint venture between the Parties, or be construed to evidence the intention of the Parties to establish any such relationship. Neither Party will have the power to bind the other Party or incur obligations on the other Party’s behalf without the other Party’s prior written consent.

 

31. COUNTERPARTS AND EXECUTION

 

31.1.                     This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Delivery of executed copies of this Agreement by facsimile, Portable Document Format (PDF) or other electronic means will have the same legal validity as delivery of ink-signed original documents.

 

(SIGNATURE PAGE TO FOLLOW)

 

****** - Material has been omitted and filed separately with the Commission.

 

22

 

Both The Regents and Licensee have executed this Agreement in duplicate originals by their authorized officers on the dates written below:

 

	
FIBROCELL   SCIENCE, INC. 
    	
THE   REGENTS OF THE UNIVERSITY OF CALIFORNIA 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
By:    
    	
/s/   David Pernock 
    	
 
    	
By:   
    	
/s/   Emily Loughran 
    
	
Signature
    	
 
    	
 
    	
Signature  
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Name:  
    	
David Pernock 
    	
 
    	
Name:   
    	
Emily   Loughran 
    
	
Title:  
    	
Chief Executive Officer 
    	
 
    	
Title:   
    	
Director,   Licensing 
    
	
Date:  
    	
June 06, 2014
    	
 
    	
Date:   
    	
June 13,   2014
    

 

****** - Material has been omitted and filed separately with the Commission.

 

23

 

APPENDIX A

 

REGENTS’ PATENT RIGHTS

 

1)             UCLA CASE NO. 2014-142: “Nucleoside Supplementation in HIPSC Culture Medium to Promote Genetic Stability”

 

Provisional Patent Application No. 61/891,846 entitled, “Nucleoside Supplementation In Stem Cell Culture Medium To Promote Genetic Stability,” filed on October 16, 2013 (UCLA Case No. 2014-142-1) by Drs. James A. Byrne, Caius G. Radu and Patrick C. Lee, and assigned to The Regents.

 

****** - Material has been omitted and filed separately with the Commission.

 

24

 

APPENDIX B

 

[INTENTIONALLY DELETED]

 

****** - Material has been omitted and filed separately with the Commission.

 

25

 

APPENDIX C

 

LICENSEE CONTACT INFORMATION

 

	
Licensee   Name:     FIBROCELLSCIENCE, Inc.
    	
UC   Control No.:
    
	
 
    	
 
    
	
PATENT   PROSECUTION CONTACT:
    	
 
    
	
 
    	
 
    
	
LAST   NAME:      Legaard
    	
TELEPHONE:          610.640.7859
    
	
 
    	
 
    
	
FIRST   NAME:    Paul K.
    	
FAX:                        610.640.7835
    
	
 
    	
 
    
	
TITLE:          Attorney-at-Law
    	
EMAIL:          legaardp@pepperlaw.com
    
	
 
    	
 
    
	
COMPANY   NAME:    Pepper Hamilton LLP
    	
 
    
	
 
    	
 
    
	
ADDRESS:          400   Berwyn Park
    	
 
    
	
 
    	
 
    
	
ADDRESS:        899   Cassatt Road
    	
 
    
	
 
    	
 
    
	
CITY,   STATE,   ZIP:          Berwyn, PA   19312-1183
    	
 
    
	
 
    	
 
    
	
COUNTRY;              USA
    	
 
    
	
 
    	
 
    
	
PROGRESS   REPORTS CONTACT:
    	
 
    
	
 
    	
 
    
	
LAST   NAME:            Campbell
    	
TELEPHONE:        484.713.6059
    
	
 
    	
 
    
	
FIRST   NAME:            Laura
    	
FAX:                      484.713.6001
    
	
 
    	
 
    
	
TITLE:        VP,   Human Resources & Business Process
    	
EMAIL:      lcampbell@fibrocellscience.com
    
	
 
    	
 
    
	
COMPANY   NAME:    Fibrocell Science, Inc.
    	
 
    
	
 
    	
 
    
	
ADDRESS:        405   Eagleview Blvd.
    	
 
    
	
 
    	
 
    
	
ADDRESS:
    	
 
    
	
 
    	
 
    
	
CITY,   STATE, ZIP:        Exton, PA 19341
    	
 
    
	
 
    	
 
    
	
COUNTRY;                  USA
    	
 
    
	
 
    	
 
    
	
FINANCIALS   CONTACT:
    	
 
    
	
 
    	
 
    
	
LAST   NAME:          Weaver
    	
TELEPHONE:      484.713.6022
    
	
 
    	
 
    
	
FIRST   NAME:        Greg
    	
FAX:        484.713.6001
    
	
 
    	
 
    
	
TITLE:              CFO
    	
EMAIL:    gweaver@fibrocellscience.com
    
	
 
    	
 
    
	
COMPANY   NAME:    Fibrocell Science, Inc.
    	
 
    
	
 
    	
 
    
	
ADDRESS:        405   Eagleview Blvd.
    	
 
    
	
 
    	
 
    
	
ADDRESS:
    	
 
    
	
 
    	
 
    
	
CITY,   STATE, ZIP:        Exton, PA 19341
    	
 
    
	
 
    	
 
    
	
COUNTRY;                  USA
    	
 
    

 

****** - Material has been omitted and filed separately with the Commission.

 

26ecobexh10_1.htm

Exhibit 10.1

 

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of September 16, 2014, between Eco Building Products Inc., a Colorado corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchaser, and the Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agree as follows:

 

 

ARTICLE I.

DEFINITIONS

 

1.1           Definitions.  In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Notes (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

“Board of Directors” means the board of directors of the Company.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

“Closing Date” means the Trading Day(s) on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto in connection with a Closing, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount as to such Closing and (ii) the Company’s obligations to deliver the Securities as to such Closing, in each case, have been satisfied or waived.

 

“Closing(s)” means the one or more closings of the purchase and sale of the Securities pursuant to Section 2.2.

 

 

  

1

  

 

 

 “Closing Statement” means the Closing Statement in the form on Annex A attached hereto.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Company Counsel” means Szaferman Lakind Blumstein & Blader, PC.

 

“Conversion Price” shall have the meaning ascribed to such term in the Notes.

 

“Conversion Shares” shall have the meaning ascribed to such term in the Notes.

 

“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

 

“Effective Date” means the earliest of the date that (a) the initial Registration Statement has been declared effective by the Commission, (b) all of the Registrable Securities have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of the Closing Date provided that a holder of Registrable Securities is not an Affiliate of the Company, all of the Registrable Securities may be sold pursuant to an exemption from registration under Section 4(1) of the Securities Act without volume or manner-of-sale restrictions and Company counsel has delivered to such holders a standing written unqualified opinion that resales may then be made by such holders of the Registrable Securities pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.

 

“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities, and (c) securities issued 

 

 

  

2

  

 

 

pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

 

“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

 “Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

 

“Notes” means the 10% Original Issue Discount Senior Secured Convertible Promissory Notes due, subject to the terms therein, 18 months from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

 

“Participation Maximum” shall have the meaning ascribed to such term in Section 4.12(a).

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

 

  

3

  

 

 

“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12(b).

 

“Principal Amount” means, as to the Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto next to the heading “Principal Amount,” in United States Dollars, which shall equal such Purchaser’s Subscription Amount as to the applicable Closing multiplied by 1.1.

 

“Pro Rata Portion” shall have the meaning ascribed to such term in Section 4.12(e).

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Public Information Failure” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

 

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants or conversion in full of all Notes (including Underlying Shares issuable as payment of interest on the Notes), ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.

 

“Robinson Brog” means Robinson Brog Leinwand Greene Genovese & Gluck P.C., with offices located at 875 Third Avenue, New York, New York 10022.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

 

  

4

  

 

 

“Securities” means the Notes, the Warrants, the Warrant Shares and the Underlying Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Security Agreement” means the Security Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit B attached hereto.

“Security Documents” shall mean the Security Agreement, the Subsidiary Guarantees and any other documents and filing required thereunder in order to grant the Purchasers a first priority security interest in the assets of the Company and the Subsidiaries as provided in the Security Agreement, including all UCC-1 filing receipts.

 

 “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

 

 “Subscription Amount” means, as to the Purchaser, the aggregate amount to be paid for Notes and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.12(a).

 

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.12(b).

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

 

“Subsidiary Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor of the Purchasers, in the form of Exhibit C attached hereto.

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).

 

“Transaction Documents” means this Agreement, the Notes, the Warrants, the Security Agreement, the Subsidiary Guarantee, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

 

  

5

  

 

 

“Transfer Agent” means Fidelity Transfer Company, the current transfer agent of the Company, with a mailing address of 8915 South 700 East. Suite 102, Sandy, UT 84070, and a phone number of 801-562-1300, and any successor transfer agent of the Company.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Notes and upon exercise of the Warrants and issued and issuable in lieu of the cash payment of interest on the Notes in accordance with the terms of the Notes.

 

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if 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 Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.3(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to four (4) years, in the form of Exhibit D attached hereto.

 

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

 

 

ARTICLE II.

PURCHASE AND SALE

 

2.1           Purchase.  The Purchasers will purchase $750,000 in Subscription Amount corresponding to an aggregate of up to $833,333.34 in Principal Amount of the Note.

 

 

  

6

  

 

 

2.2           Closing.  On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchaser, severally and not jointly, agrees to purchase, such Purchaser’s Closing Subscription Amount as set forth on the signature page hereto executed by such Purchaser (an aggregate of up to $750,000 in Subscription Amount corresponding to an aggregate of up to $833,333.34 in Principal Amount of the Note.  At the Closing, the Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to the Purchaser its Note and a Warrant, as determined pursuant to Section 2.3(a), and the Company and the Purchaser shall deliver the other items set forth in Section 2.3 deliverable at the Closing.  Upon satisfaction of the covenants and conditions set forth in Sections 2.3 and 2.4 for the Closing, the Closing shall occur at the offices of Robinson Brog or such other location as the parties shall mutually agree.

 

2.3           Deliveries.

 

(a)           On or prior to the Closing Date (except as noted), the Company shall deliver or cause to be delivered to the Purchaser the following:

 

(i)          this Agreement duly executed by the Company;

 

(ii)         a Note with a principal amount equal to the Purchaser’s Principal Amount, registered in the name of such Purchaser;

 

(iii)        a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 400% of the Principal Amount of the Note issuable to such Purchaser at the applicable Closing divided by the Conversion Price, with an exercise price equal to $0.001; and

 

(iv)        as to the Closing, the Security Agreement, duly executed by the Company and each Subsidiary, along with all of the Security Documents, including the Subsidiary Guarantee, duly executed by the parties thereto.

 

2.4           Closing Conditions.

 

(a)             The obligations of the Company hereunder in connection with each Closing are subject to the following conditions being met:

 

(i)          the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii)         all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

 

(iii)        the delivery by the Purchaser of the items set forth in Section 2.3(a) of this Agreement.

 

 

  

7

  

 

 

(b)             The respective obligations of the Purchasers hereunder in connection with each Closing are subject to the following conditions being met:

 

(i)          the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein);

 

(ii)         all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 

(iii)        the delivery by the Company of the items set forth in Section 2.3(a) of this Agreement;

 

(iv)        there is no existing Event of Default (as defined in the Notes) and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default;

 

(v)         there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 

(vi)        from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission  or the Company’s principal Trading Market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the applicable Closing.

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and Warranties of the Company.  Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to the Purchaser:

 

 

  

8

  

 

 

(a)           Subsidiaries.  All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.  If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.

 

(b)           Organization and Qualification.  The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c)           Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals.  This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

 

  

9

  

 

 

(d)           No Conflicts.  The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e)           Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6 of this Agreement, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Conversion Shares and Warrant Shares for trading thereon in the time and manner required thereby and (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”).

 

(f)           Issuance of the Securities.  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to 400% of the Required Minimum on the date hereof.

 

 

  

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(g)           Capitalization.  The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act.  No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.  Except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

(h)           SEC Reports; Financial Statements.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have 

 

 

  

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been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

(i)           Material Changes; Undisclosed Events, Liabilities or Developments.  Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information.  Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.

 

(j)           Litigation.  There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

 

  

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(k)           Labor Relations.  No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect.  None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good.  To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.  The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l)           Compliance.  Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m)           Regulatory Permits.  The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

 

  

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(n)           Title to Assets.  The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties.  Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

(o)           Intellectual Property.  The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement.  Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect.  To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.  The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(p)           Insurance.  The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount.  Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

(q)           Transactions With Affiliates and Employees.  Except as set forth in the SEC Reports, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring 

 

  

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payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

 

(r)            Sarbanes-Oxley; Internal Accounting Controls.  The Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date.  The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.  The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.

 

(s)           Certain Fees.  Other than as set forth on Schedule 3.1(s), no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiaries to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.  The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

 

  

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(t)           Private Placement.  Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

 

(u)           Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 

(v)           Registration Rights.  Other than the Purchaser, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiaries.

 

(w)           Listing and Maintenance Requirements.  The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.  The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

 

(x)           Application of Takeover Protections.  The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

(y)           Disclosure.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information.  The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company.  All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact 

 

 

  

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or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.   The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading.  The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 

(z)            No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

 

(aa)          Solvency.  Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).  The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.  Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments.  For 

 

 

  

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the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

(bb)         Tax Status.  Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.

 

(cc)          No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising.  The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(dd)          Foreign Corrupt Practices.  Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is  in violation of law or (iv) violated in any material respect any provision of FCPA.

 

(ee)          Accountants.  The Company’s accounting firm is set forth on Schedule 3.1(ee) of the Disclosure Schedules.  To the knowledge and belief of the Company, such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal year ending December 31, 2013.

 

(ff)           Seniority.  Except as disclosed on Schedule 3.1(ff), as of the Closing Date, no Indebtedness or other claim against the Company is senior to the Notes in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

 

 

  

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(gg)          No Disagreements with Accountants and Lawyers.  There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

 

(hh)          Acknowledgment Regarding Purchasers’ Purchase of Securities.  The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby.  The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities.  The Company further represents to the Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

(ii)           Acknowledgment Regarding Purchaser’s Trading Activity.  Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) the Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction.  The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

 

 

  

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(jj)           Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

 

(kk)          Stock Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company’s stock option plan has been backdated.  The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.

 

(ll)           Office of Foreign Assets Control.  Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 

(mm)        U.S. Real Property Holding Corporation.  The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request.

 

(nn)          Bank Holding Company Act.  Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).  Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.  Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(oo)          Money Laundering.  The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.

 

 

  

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3.2           Representations and Warranties of the Purchaser.    The Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):

 

(a)           Organization; Authority.  Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser.  Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b)           Own Account.  Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws).  Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

(c)           Purchaser Status.  At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants or converts any Notes it will be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.

 

 

  

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(d)           Experience of Such Purchaser.  Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e)           General Solicitation.  Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

(f)            Certain Transactions and Confidentiality.  Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.  Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect Short Sales or similar transactions in the future.

 

The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.

 

 

  

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ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1           Transfer Restrictions.

 

(a)           The Securities may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.  As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of a Purchaser under this Agreement.

 

(b)           The Purchaser agrees to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.

 

 

  

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(c)           Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after any of the events described in (i)-(iv) in the preceding sentence if required by the Transfer Agent to effect the removal of the legend hereunder (with a copy to the applicable Purchaser and its broker).  If all or any portion of a Note is converted or Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends.  The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4.  Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

(d)           In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend.  Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

 

  

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4.2           Acknowledgment of Dilution.  The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions.  The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

 

4.3           Furnishing of Information; Public Information.

 

(a)           If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60th calendar day following the date hereof. Until the earliest of the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act.

 

(b)           At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required  for the Purchaser to transfer the Underlying Shares pursuant to Rule 144.  The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.”  Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured.  In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

 

  

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4.4           Integration.  The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

 

4.5           Conversion and Exercise Procedures.  Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Notes set forth the totality of the procedures required of the Purchaser in order to exercise the Warrants or convert the Notes.  Without limiting the preceding sentences, no ink-original Notice of Exercise or Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise or Notice of Conversion form be required in order to exercise the Warrants or convert the Note.  No additional legal opinion, other information or instructions shall be required of the Purchaser to exercise their Warrants or convert their Notes.  The Company shall honor exercises of the Warrants and conversions of the Notes and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

4.6           Securities Laws Disclosure; Publicity.  The Company shall (a) by 9:30 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act.  From and after the issuance of such press release, the Company represents to the Purchaser that it shall have publicly disclosed all material, non-public information delivered to the Purchaser by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. The Company and the Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of the Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.  Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchaser with prior notice of such disclosure permitted under this clause (b).

 

4.7           Shareholder Rights Plan.  No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchaser.

 

 

  

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4.8           Non-Public Information.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have entered into a written agreement with the Company regarding the confidentiality and use of such information.  The Company understands and confirms that the Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

4.9           Use of Proceeds.  The Company shall use the net proceeds hereunder as set forth on Schedule 4.9 attached hereto and utilizing the Holder’s attorney’s escrow for payment and satisfaction of all amounts due and owing under the Note.

 

4.10          Indemnification of Purchaser.   Subject to the provisions of this Section 4.10, the Company will indemnify and hold the Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such  Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party.  Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel.  The Company will not be liable to any Purchaser Party under this Agreement (y) for any 

 

 

  

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settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.  The indemnification required by this Section 4.10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred.  The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

 

4.11          Reservation and Listing of Securities.

 

(a)           The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.

 

(b)           If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than 400% of the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least 400% of the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.

 

(c)           The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchaser evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market.

 

4.12          Participation in Future Financing.

 

(a)           From the date hereof until the date that is the 24-month anniversary of the last Closing, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents or debt for cash consideration, Indebtedness or a combination of units hereof (a “Subsequent Financing”), the Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

 

 

  

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(b)           At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to the Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).  Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser.  The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

 

(c)           Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company that such Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice.

 

(d)           If notifications by the Purchaser of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

 

(e)           If the Company receives responses to a Subsequent Financing Notice from Purchaser seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts of Securities purchased by the Purchaser participating under this Section 4.12.

 

(f)           The Company must provide the Purchaser with a second Subsequent Financing Notice, and the Purchaser will again have the right of participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days after the date of the initial Subsequent Financing Notice.

 

(g)           The Company and the Purchaser agree that if any Purchaser elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include any term or provision whereby such Purchaser shall be required to agree to any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent of such Purchaser.

 

 

  

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(h)           Notwithstanding anything to the contrary in this Section 4.12 and unless otherwise agreed to by such Purchaser, the Company shall either confirm in writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Purchaser will not be in possession of any material, non-public information, by the tenth (10th) Business Day following delivery of the Subsequent Financing Notice.  If by such tenth (10th) Business Day, no public disclosure regarding a transaction with respect to the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received by such Purchaser, such transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries.    

 

(i)            Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance.

 

4.13          Subsequent Equity Sales.

 

(a)           From the date hereof until ninety (90) days after the Effective Date, neither the Company nor any Subsidiary shall issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents.

 

(b)           From the date hereof until such time as no Purchaser holds any of the Warrants, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.   Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 

(c)           Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

 

 

  

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4.14          Equal Treatment of Purchaser.  Reserved.

 

4.15          Certain Transactions and Confidentiality. The Purchaser covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will (i) execute any Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.6 and (ii) execute any Short Sales of the Common Stock from the date hereof until the earlier of (x) 5 month anniversary of the date hereof and (y) the date that the Notes are no longer outstanding (provided that this provision shall not prohibit any sales made where a corresponding Notice of Conversion or Notice of Exercise is tendered to the Company and the shares received upon such conversion or exercise are used to close out such sale) (a “Prohibited Short Sale”).  The Purchaser covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules.  Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.6, (ii) except for a Prohibited Short Sale, no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.6.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

4.16          Form D; Blue Sky Filings.  The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchaser at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

 

4.17          Capital Changes.  Unless in connection with an uplisting to a Trading Market that is an exchange, until the 12-month anniversary of the Closing, the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchaser.

 

 

  

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ARTICLE V.

MISCELLANEOUS

 

5.1           Termination.  This Agreement may be terminated by the Purchaser if the Closing has not been consummated on or before September 24, 2014.

 

5.2           Fees and Expenses.  At the Closing, the Company has agreed to reimburse Dominion Capital, LLC (“Dominion”) a fee of $10,000 as an expedited funding fee, as well as other accounting and diligence related expenses equal to $2,500. Additionally, the Company has agreed to reimburse Dominion up to $35,000 for its legal fees incurred prior to and including the Closing, which shall be memorialized in a note in form or substance substantially similar to the Note.  Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any conversion or exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

 

5.3           Entire Agreement.  The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.4           Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

5.5           Amendments; Waivers.  No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 67% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

 

  

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5.6           Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser (other than by merger).  Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

5.8           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

 

5.9           Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any 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 improper or is an inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.   If either party shall commence an action, suit or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

5.10          Survival.  The representations and warranties contained herein shall survive the Closings and the delivery of the Securities.

 

 

  

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5.11          Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.12          Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13          Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion of a Note or exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).

 

5.14          Replacement of Securities.  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction.  The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.15          Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

 

  

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5.16          Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

5.17          Usury.  To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document.  Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate.  It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof forward, unless such application is precluded by applicable law.  If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

 

5.18          Independent Nature of Purchasers’ Obligations and Rights.  The obligations of the Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Purchaser shall be entitled to independently protect and enforce its rights, including, 

 

 

  

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without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.  The Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents.  For reasons of administrative convenience only, the Purchaser and its respective counsel have chosen to communicate with the Company through Robinson Brog.  Robinson Brog does not represent any of the Purchasers and only represents Dominion.  The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.

 

5.19          Liquidated Damages.  The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

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

 

5.21          Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

5.22          WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

 

(Signature Pages Follow)

 

 

 

 

 

 

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

	
ECO BUILDING PRODUCTS INC.

 

 

 

	
Address for Notice:

	
By:__________________________________________

	
Fax:

	       Name: Steve Conboy	  
	       Title:   President & CEO	 
	With a copy to (which shall not constitute notice):	 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

 

 

 

 

 

 

 

  

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[PURCHASER SIGNATURE PAGES TO ITEN SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

 

Name of Purchaser: ________________________________________________________

 

Signature of Authorized Signatory of Purchaser: __________________________________

 

Name of Authorized Signatory: ____________________________________________________

 

Title of Authorized Signatory: _____________________________________________________

 

Email Address of Authorized Signatory: _____________________________________________

 

Facsimile Number of Authorized Signatory: __________________________________________

 

Address for Notice to Purchaser:

 

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

 

Closing Subscription Amount: _____________

Closing Principal Amount: _____________

Warrant Shares: _________________

EIN Number: _______________________

 

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

  

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Annex A

CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the Purchasers shall purchase Notes and Warrants from Eco Building Products Inc. (the “Company”).  All funds will be wired into an account maintained by the Company.  All funds will be disbursed in accordance with this Closing Statement.

	
Disbursement Date:

	
September 16, 2014

	
I.      PURCHASE PRICE

	  
	 	 
	  	
Gross Proceeds to be Received

	
$

	  	  
	
II.     DISBURSEMENTS

	  
	 	 
	  	
 

	
$

	  	
 

	
$

	  	  	
$

	  	  	
$

	  	  	
$

	  	  
	
Total Amount Disbursed:

	
$

	  	  
	  	  
	  	  
	
WIRE INSTRUCTIONS:

	  
	 	 
	  	  
	
To: _____________________________________

 

 

Duly executed this 16th day of September, 2014:

 

Eco Building Products Inc.

 

By: ___________________

Name:

Title:

	  

 

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