Document:

exhibit_4-1.htm

Exhibit 4.1

 

WARRANT AGREEMENT

 

                WARRANT AGREEMENT made as of September 19, 2012 (“Issuance Date”), between Pluristem Therapeutics Inc., a Nevada corporation (“Company”), and American Stock Transfer & Trust Company, LLC, a New York limited liability company (“Warrant Agent”).

 

WHEREAS, the Company has sold units (“Units”), each consisting of one share of common stock (“Common Stock”) of the Company and a warrant to purchase 0.35 shares of Common Stock at an exercise price of $5.00 per share of Common Stock, subject to adjustment as described herein (the “Warrants”), pursuant to an Underwriting Agreement between the Company and Jefferies & Company, Inc., as Representative of the Underwriters (the “Underwriting Agreement”), dated September 13, 2012; and

 

WHEREAS, the Units and the shares issuable upon exercise of the Warrants (“Warrant Shares”) were issued by the Company in a public offering pursuant to an effective shelf registration statement on  Form S-3, Registration No. 333-177009 (“Registration Statement”) filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (“Act”); and

 

WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer, exchange and exercise of the Warrants; and

 

WHEREAS, the Company desires to provide for the form and provisions of the Warrants, the terms upon which they shall be issued and exercised, and the respective rights, limitation of rights, and immunities of the Company, the Warrant Agent, and the holders of the Warrants; and

 

WHEREAS, all acts and things have been done and performed which are necessary to make the Warrants, when executed on behalf of the Company and countersigned by or on behalf of the Warrant Agent, as provided herein, the valid, binding and legal obligations of the Company, and to authorize the execution and delivery of this Warrant Agreement.

 

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

 

1.             Appointment of Warrant Agent.  The Company hereby appoints the Warrant Agent to act as agent for the Company for the Warrants, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with the terms and conditions set forth in this Warrant Agreement.

 

2.             Warrants.

 

2.1        Form of Warrant.  Each Warrant shall be issued in registered form only, shall be in substantially the form of Exhibit A hereto, the provisions of which are incorporated herein, and shall be signed by, or bear the facsimile signature of, the Chairman of the Board or President and Treasurer, Secretary or Assistant Secretary of the Company, and shall bear a facsimile of the Company’s seal, if any. In the event the person whose facsimile signature has been placed upon any Warrant shall have ceased to serve in the capacity in which such person signed the Warrant before such Warrant is issued, it may be issued with the same effect as if he or she had not ceased to be such at the date of issuance.

 

  

  

  

 

2.2.          Effect of Countersignature.  Unless and until countersigned by the Warrant Agent pursuant to this Warrant Agreement, a Warrant shall be invalid and of no effect and may not be exercised by the holder thereof.

 

2.3.          Registration.

 

2.3.1.    Warrant Register.  The Warrant Agent shall maintain books (“Warrant Register”), for the registration of original issuance and the registration of transfer of the Warrants.  Upon the initial issuance of the Warrants, the Warrant Agent shall issue and register the Warrants in the names of the respective holders thereof in such denominations and otherwise in accordance with instructions delivered to the Warrant Agent by the Company.  The Warrants may be represented by definitive Warrant Certificates in physical form or by one or more book-entry warrant certificates (“Book-Entry Warrant Certificates”) deposited with the Depository Trust Company (the “Depository”) and registered in the name of Cede & Co., a nominee of the Depository.  Definitive Warrant Certificates shall be in substantially the form annexed hereto as Exhibit A.  Ownership of beneficial interests in the Book-Entry Warrant Certificates shall be shown on, and the transfer of such ownership shall be effected through, records maintained (i) by the Depository or its nominee for each Book-Entry Warrant Certificate; (ii) by institutions that have accounts with the Depository (such institution, with respect to a Warrant in its account, a “Participant”); or (iii) directly on the book-entry records of the Warrant Agent with respect only to owners of beneficial interests that request such direct registration.

 

If the Depository subsequently ceases to make its book-entry settlement system available for the Warrants, the Company may instruct the Warrant Agent regarding making other arrangements for book-entry settlement within ten (10) days after the Depository ceases to make its book-entry settlement available.  In the event that the Company does not make alternative arrangements for book-entry settlement within ten (10) days or the Warrants are not eligible for, or it is no longer necessary to have the Warrants available in, book-entry form, the Warrant Agent shall provide written instructions to the Depository to deliver to the Warrant Agent for cancellation each Book-Entry Warrant Certificate, and the Company shall instruct the Warrant Agent to deliver to the Depository definitive Warrant Certificates in physical form evidencing such Warrants.

 

2.3.2.    Beneficial Owner; Registered Holder.  The term “beneficial owner” shall mean any person in whose name ownership of a beneficial interest in the Warrants evidenced by (a) a Book-Entry Warrant Certificate is recorded in the records maintained by the Depository or its nominee or (b) a definitive Warrant Certificate is recorded in the book-entry records of the Warrant Agent.  Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the person in whose name such Warrant shall be registered upon the Warrant Register (“registered holder”), as the absolute owner of such Warrant and of each Warrant represented thereby (notwithstanding any notation of ownership or other writing on the Warrant Certificate made by anyone other than the Company or the Warrant Agent), for the purpose of any exercise thereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary.

 

2.4.          Detachability of Warrants.  The securities comprising the Units will be separately transferable immediately upon issuance.

 

2.5          Uncertificated Warrants.  Notwithstanding the foregoing and anything else herein to the contrary, the Warrants may be issued in uncertificated form if so specified by the Company.

 

  

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3.            Terms and Exercise of Warrants.

 

3.1.          Exercise Price.  Each Warrant shall, when countersigned by the Warrant Agent, entitle the registered holder thereof, subject to the provisions of such Warrant and of this Warrant Agreement, to purchase from the Company the number of shares of Common Stock stated therein, at the price of $5 per whole share, subject to the adjustments provided in Section 4 hereof.  The term “Exercise Price” as used in this Warrant Agreement refers to the price per share at which Common Stock may be purchased at the time a Warrant is exercised.

 

3.2.          Duration of Warrants.  A Warrant may be exercised only during the period (“Exercise Period”) commencing on March 19, 2013 and terminating at 5:00 P.M., Eastern time on September 19, 2017 (“Expiration Date”).  Each Warrant not exercised on or before the Expiration Date shall become void, and all rights thereunder and all rights in respect thereof under this Warrant Agreement shall cease at the close of business on the Expiration Date.

 

3.3.          Exercise of Warrants.

 

3.3.1.    Exercise and Payment.  A registered holder may exercise a Warrant by delivering, not later than 5:00 P.M., Eastern time, on any Business Day during the Exercise Period (the “Exercise Date”) to the Warrant Agent at its corporate trust department (i) the Warrant Certificate evidencing the Warrants to be exercised, or, in the case of a Book-Entry Warrant Certificate, the Warrants to be exercised (the “Book-Entry Warrants”) free on the records of the Depository to an account of the Warrant Agent at the Depository designated for such purpose in writing by the Warrant Agent to the Depository from time to time, (ii) an election to purchase the Shares underlying the Warrants to be exercised (“Election to Purchase”), properly completed and executed by the registered holder on the reverse of the Warrant Certificate or, in the case of a Book-Entry Warrant Certificate, properly delivered by the Participant in accordance with the Depository’s procedures, and (iii), except as provided in 3.3.8, the Warrant Price for each Warrant to be exercised in lawful money of the United States of America by certified or official bank check or by bank wire transfer in immediately available funds.

 

If any of (A) the Warrant Certificate or the Book-Entry Warrants, (B) the Election to Purchase, or (C) the Warrant Price therefor, is received by the Warrant Agent after 5:00 P.M., Eastern time, on the specified Exercise Date, the Warrants will be deemed to be received and exercised on the Business Day next succeeding the Exercise Date.  If the date specified as the Exercise Date is not a Business Day, the Warrants will be deemed to be received and exercised on the next succeeding day that is a Business Day. If the Warrants are received or deemed to be received after the Expiration Date, the exercise thereof will be null and void and any funds delivered to the Warrant Agent will be returned to the registered holder or Participant, as the case may be, as soon as practicable.  In no event will interest accrue on funds deposited with the Warrant Agent in respect of an exercise or attempted exercise of Warrants. The validity of any exercise of Warrants will be determined by the Company in its sole discretion and such determination will be final and binding upon the registered holder and the Warrant Agent.  Neither the Company nor the Warrant Agent shall have any obligation to inform a registered holder of the invalidity of any exercise of Warrants.

 

The Warrant Agent shall deposit all funds received by it in payment of the Warrant Price in the account of the Company maintained with the Warrant Agent for such purpose and shall advise the Company at the end of each day on which funds for the exercise of the Warrants are received of the amount so deposited to its account.  The Warrant Agent shall promptly confirm such telephonic advice to the Company in writing.

 

  

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3.3.2.    Issuance of Certificates.  The Warrant Agent shall, within a reasonable time, advise the Company and the transfer agent and registrar in respect of (a) the Shares issuable upon such exercise as to the number of Warrants exercised in accordance with the terms and conditions of this Agreement, (b) the instructions of each registered holder or Participant, as the case may be, with respect to delivery of the Warrant Shares issuable upon such exercise, and the delivery of definitive Warrant Certificates, as appropriate, evidencing the balance, if any, of the Warrants remaining after such exercise, (c) in case of a Book-Entry Warrant Certificate, the notation that shall be made to the records maintained by the Depository, its nominee for each Book-Entry Warrant Certificate, or a Participant, as appropriate, evidencing the balance, if any, of the Warrants remaining after such exercise and (d) such other information as the Company or such transfer agent and registrar shall reasonably require.

The Company shall, by 5:00 P.M., Eastern time, on the third Business Day next succeeding the Exercise Date of any Warrant and the clearance of the funds in payment of the Warrant Price (the “Warrant Shares Delivery Date”), execute, issue and deliver to the Warrant Agent, the Warrant Shares to which such registered holder or Participant, as the case may be, is entitled, in fully registered form, registered in such name or names as may be directed by such registered holder or the Participant, as the case may be.  Upon receipt of such Warrant Shares, the Warrant Agent shall, by 5:00 P.M., Eastern Time, on the third Business Day next succeeding such Exercise Date, transmit such Warrant Shares to or upon the order of the registered holder or Participant, as the case may be.

 

In lieu of delivering physical certificates representing the Warrant Shares issuable upon exercise, provided the Company’s transfer agent is participating in the Depository’s Fast Automated Securities Transfer program, the Company shall use its reasonable best efforts to cause its transfer agent to electronically transmit the Warrant Shares issuable upon exercise to the registered holder or the Participant by crediting the account of the registered holder’s prime broker with the Depository or of the Participant through its Deposit Withdrawal Agent Commission system.  The time periods for delivery described in the immediately preceding paragraph shall apply to the electronic transmittals described herein.

 

If the Warrant Agent fails to comply with the preceding paragraphs in this Section 3.3.2 by the Warrant Shares Delivery Date, then the registered holder will have the right to rescind its exercise.

3.3.3.    Valid Issuance.  All shares of Common Stock issued upon the proper exercise of a Warrant in conformity with this Warrant Agreement shall be validly issued, fully paid and nonassessable.

 

3.3.4.    Dividends.  The accrual of dividends, if any, on the Warrant Shares issued upon the valid exercise of any Warrant will be governed by the terms generally applicable to the Common Stock. From and after the issuance of such Warrant Shares, the former holder of the Warrants exercised will be entitled to the benefits generally available to other holders of Common Stock and such former holder’s right to receive payments of dividends and any other amounts payable in respect of the Warrant Shares shall be governed by, and shall be subject to, the terms and provisions generally applicable to the Common Stock.

 

3.3.5     No Fractional Exercise.  No fractional Warrant Shares shall be issued upon the exercise of any Warrant.  As to any fraction of a Warrant Share which the registered holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to such fraction multiplied by the Fair Market Value (as calculated below) less the Exercise Price.  If fewer than all of the Warrants evidenced by a Warrant Certificate are exercised, a new Warrant Certificate for the number of unexercised Warrants remaining shall be executed by the Company and countersigned by the Warrant Agent as provided in Section 2 of this Agreement, and delivered to the holder of this Warrant Certificate at the address specified on the books of the Warrant Agent or as otherwise specified by such registered holder. If fewer than all the Warrants evidenced by a Book-Entry Warrant Certificate are exercised, a notation shall be made to the records maintained by the Depository, its nominee for each Book-Entry Warrant Certificate, or a Participant, as appropriate, evidencing the balance of the Warrants remaining after such exercise. 

 

  

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3.3.6     No Transfer Taxes.  The Company shall not be required to pay any stamp or other tax or governmental charge required to be paid in connection with any transfer involved in the issue of the Warrant Shares upon the exercise of Warrants; and in the event that any such transfer is involved, the Company shall not be required to issue or deliver any Warrant Shares until such tax or other charge shall have been paid or it has been established to the Company’s satisfaction that no such tax or other charge is due.

 

3.3.7     Date of Issuance.  Each person in whose name any such certificate for shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Price was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.

 

3.3.8     Optional Cashless Exercise.  If at any time during the term of this Warrant there is no effective Registration Statement registering, or no current prospectus available for, the issuance or resale of the Warrant Shares by the registered holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the registered holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

	  	
(A)

	
= the VWAP (as defined below) on the Trading Day immediately preceding the date of such election;

	  	
(B)

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

	  	
(X)

	
= the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

             The term “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 (as defined below), 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. (Eastern 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 Sheets, LLC (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 Warrant Agent and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

             The term “Trading Market” means any of the following U.S. markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE, NYSE AMEX, the NASDAQ Capital Market, the NASDAQ Global Market or the NASDAQ Global Select Market (or any successors to any of the foregoing).

 

  

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3.3.9      Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the registered holder the number of Warrant Shares that are not disputed.

 

3.3.10    Limitations on Exercise.  The Warrant Agent shall not effect any exercise of this Warrant, and a registered holder shall not have the right to exercise any portion of this Warrant to the extent that after giving effect to such issuance after exercise as set forth on the applicable exercise notice, the registered holder (together with the registered holder’s Affiliates, and any other person or entity acting as a group together with the registered holder or any of the registered holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the registered holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, non-exercised portion of this Warrant beneficially owned by the registered holder or any of its Affiliates and (B) exercise or conversion of the unexercised or non-converted portion of any other securities of the Company (including, without limitation, any other equity equivalent securities) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the registered holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3.3.10, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder (the “Exchange Act”), it being acknowledged by the registered holder that the Company is not representing to the registered holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the registered holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3.3.10 applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the registered holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the registered holder, and the submission of an exercise notice shall be deemed to be the registered holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the registered holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject the Beneficial Ownership Limitation, and the Company and the Warrant Agent shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act. For purposes of this Section 3.3.10, in determining the number of outstanding shares of Common Stock, a registered holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report as the case may be, (B) a more recent public announcement by the Company or (C) any other notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a registered holder, the Company shall within three (3) Business Days  confirm orally and in writing to the registered holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the registered holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.

The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The registered holder, upon not less than sixty one (61) days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 1(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the registered holder and the provisions of this Section 3.3.10 shall continue to apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this Section 3.3.10 shall be construed, corrected and implemented in a manner so as to effectuate the intended Beneficial Ownership Limitation herein contained. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

  

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3.4.           Buy-in Procedures and Compensation.  If a certificate representing the Warrant Shares is not delivered pursuant to the provisions of Section 3.3.2 on or prior to the Warrant Shares Delivery Date, and if after such date the registered holder is required by its broker to purchase (in an open market transaction or otherwise) or the registered holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the registered holder of the Warrant Shares which the registered holder anticipated receiving upon exercise of the Warrant (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder given by written notice to the Company and the Warrant Agent, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. The registered holder shall provide the Company and the Warrant Agent with written notice of the cash amounts referred to in the preceding sentence and, upon request of the Company, evidence thereof. Nothing herein shall limit a registered holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

4.            Adjustments.

 

4.1.          Adjustment upon Subdivision or Combination of Common Stock. If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased.  If the Company at any time on or after the Subscription Date combines (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 4.1 shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

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

 

  

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

4.4.           Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another person or entity, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another person or entity) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the registered holders of the Warrants each  shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to each registered holder of the Warrants a new warrant consistent with the foregoing provisions and evidencing such registered holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 4.4  and ensuring that the Warrants (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, or the NASDAQ Capital Market, the Company or any successor entity shall pay at each registered holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the Fundamental Transaction, an amount of cash equal to the value of this Warrant as determined in accordance with the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (A) a price per share of Common Stock equal to the VWAP of the Common Stock for the Trading Day immediately preceding the date of consummation of the applicable Fundamental Transaction, (B) a risk-free interest rate corresponding to the U.S. Treasury rate for 30 day period immediately prior to the consummation of the applicable Fundamental Transaction, (C) an expected volatility equal to the 100 day volatility obtained from the “HVT” function on Bloomberg L.P. determined as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, and (D) a remaining option time equal to the time between the date of the public announcement of such transaction and the Termination Date.

 

  

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4.5.          Notices.  

4.5.1.           Notices of Changes in Warrant. Upon every adjustment of the Warrant Price or the number of shares issuable upon exercise of a Warrant, the Company shall give written notice thereof to the Warrant Agent, which notice shall state the Warrant Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.  Upon the occurrence of any event specified in Sections 4.1 through 4.4, then, in any such event, the Company shall give written notice to each registered holder of a Warrant, at the last address set forth for such holder in the Warrant Register, of the record date or the effective date of the event.  Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event.

4.5.2.           Notices of Certain Events to Allow Exercise.  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to each registered holder of a Warrant,  at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. Each registered holder of a Warrant is entitled to exercise its Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

 

  

9

  

 

4.6.          Form of Warrant.  The form of Warrant need not be changed because of any adjustment pursuant to this Section 4, and Warrants issued after such adjustment may state the same Warrant Price and the same number of shares as is stated in the Warrants initially issued pursuant to this Warrant Agreement.  However, the Company may at any time in its sole discretion make any change in the form of Warrant that the Company may deem appropriate and that does not affect the substance thereof, and any Warrant thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant or otherwise, may be in the form as so changed.

 

5.             Transfer and Exchange of Warrants.

 

5.1.          Registration of Transfer.  The Warrant Agent shall register the transfer, from time to time, of any outstanding Warrant upon the Warrant Register, upon surrender of such Warrant for transfer, properly endorsed with signatures properly guaranteed and accompanied by appropriate instructions for transfer.  Upon any such transfer, a new Warrant representing an equal aggregate number of Warrants shall be issued and the old Warrant shall be cancelled by the Warrant Agent.  The Warrants so cancelled shall be delivered by the Warrant Agent to the Company from time to time upon request.

 

5.2.          Procedure for Surrender of Warrants.  Warrants may be surrendered to the Warrant Agent, together with a written request for exchange or transfer, and thereupon the Warrant Agent shall issue in exchange therefor one or more new Warrants as requested by the registered holder of the Warrants so surrendered, representing an equal aggregate number of Warrants; provided, however, that except as otherwise provided herein or in any Book-Entry Warrant Certificate, each Book-Entry Warrant Certificate may be transferred only in whole and only to the Depository, to another nominee of the Depository, to a successor depository, or to a nominee of a successor depository; provided further, however, that in the event that a Warrant surrendered for transfer bears a restrictive legend, the Warrant Agent shall not cancel such Warrant and issue new Warrants in exchange therefor until the Warrant Agent has received an opinion of counsel for the Company stating that such transfer may be made and indicating whether the new Warrants must also bear a restrictive legend.  Upon any such registration of transfer, the Company shall execute, and the Warrant Agent shall countersign and deliver, in the name of the designated transferee a new Warrant Certificate or Warrant Certificates of any authorized denomination evidencing in the aggregate a like number of unexercised Warrants.

 

5.3.          Fractional Warrants.  The Warrant Agent shall not be required to effect any registration of transfer or exchange which will result in the issuance of a warrant certificate for a fraction of a warrant.

 

5.4.          Service Charges.  No service charge shall be made for any exchange or registration of transfer of Warrants.

 

5.5.          Warrant Execution and Countersignature.  The Warrant Agent is hereby authorized to countersign and to deliver, in accordance with the terms of this Warrant Agreement, the Warrants required to be issued pursuant to the provisions of this Section 5, and the Company, whenever required by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed on behalf of the Company for such purpose.

  

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6.             Other Provisions Relating to Rights of Registered Holders of Warrants.

 

6.1.          No Rights as Stockholder.  Except as otherwise specifically provided herein, a registered holder, solely in its capacity as a holder of a Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant Agreement be construed to confer upon a registered holder, solely in its capacity as the registered holder of a Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the registered holder of the Warrant Shares which it is then entitled to receive upon the due exercise of a Warrant. In addition, nothing contained in this Warrant Agreement shall be construed as imposing any liabilities on a registered holder to purchase any securities (upon exercise of a Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. A Warrant does not entitle the registered holder thereof to any of the rights of a stockholder.

 

6.2.          Lost, Stolen, Mutilated, or Destroyed Warrants.  If any Warrant is lost, stolen, mutilated, or destroyed, the Company and the Warrant Agent may on such terms as to indemnity or otherwise as they may in their discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination, tenor, and date as the Warrant so lost, stolen, mutilated, or destroyed.  Any such new Warrant shall constitute a substitute contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated, or destroyed Warrant shall be at any time enforceable by anyone.

 

6.3.          Reservation of Common Stock.  The Company shall at all times reserve and keep available a number of its authorized but unissued shares of Common Stock that will be sufficient to permit the exercise in full of all outstanding Warrants issued pursuant to this Warrant Agreement.

 

6.4.          Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its corporate charter, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants or this Warrant Agreement, and will at all times in good faith carry out all the provisions of the Warrants and this Warrant Agreement. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of the Warrants above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of the Warrants, and (iii) shall, so long as the Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the Warrants, 100% of the number of shares of Common Stock issuable upon exercise of the Warrants then outstanding (without regard to any limitations on exercise).

7.            Concerning the Warrant Agent and Other Matters.

 

7.1.          Payment of Taxes.  The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the issuance or delivery of shares of Common Stock upon the exercise of Warrants, but the Company shall not be obligated to pay any transfer taxes in respect of the Warrants or such shares.

 

  

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7.2.          Resignation, Consolidation, or Merger of Warrant Agent.

 

7.2.1.    Appointment of Successor Warrant Agent.  The Warrant Agent, or any successor to it hereafter appointed, may resign its duties and be discharged from all further duties and liabilities hereunder after giving sixty (60) days’ notice in writing to the Company.  If the office of the Warrant Agent becomes vacant by resignation or incapacity to act or otherwise, the Company shall appoint in writing a successor Warrant Agent in place of the Warrant Agent.  If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation or incapacity by the Warrant Agent or by the holder of the Warrant (who shall, with such notice, submit his Warrant for inspection by the Company), then the holder of any Warrant may apply to the Supreme Court of the State of New York for the County of New York for the appointment of a successor Warrant Agent at the Company’s cost.  Any successor Warrant Agent, whether appointed by the Company or by such court, shall be a corporation organized and existing under the laws of the State of New York, in good standing and having its principal office in the Borough of Manhattan, City and State of New York, and authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authority.  After appointment, any successor Warrant Agent shall be vested with all the authority, powers, rights, immunities, duties, and obligations of its predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder, without any further act or deed; but if for any reason it becomes necessary or appropriate, the predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an instrument transferring to such successor Warrant Agent all the authority, powers, and rights of such predecessor Warrant Agent hereunder; and upon request of any successor Warrant Agent the Company shall make, execute, acknowledge, and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Warrant Agent all such authority, powers, rights, immunities, duties, and obligations.

 

7.2.2.    Notice of Successor Warrant Agent.  In the event a successor Warrant Agent shall be appointed, the Company shall give notice thereof to the predecessor Warrant Agent and the transfer agent for the Common Stock not later than the effective date of any such appointment.

 

7.2.3.    Merger or Consolidation of Warrant Agent.  Any corporation into which the Warrant Agent may be merged  or converted or with which it may be consolidated or any corporation resulting from any merger, conversion, or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to the business of the Warrant Agent, shall be the successor Warrant Agent under this Warrant Agreement without any further act.

 

7.3.          Fees and Expenses of Warrant Agent.

 

7.3.1.    Remuneration.  The Company agrees to pay the Warrant Agent reasonable remuneration for its services as such Warrant Agent hereunder and will reimburse the Warrant Agent upon demand for all expenditures that the Warrant Agent may reasonably incur in the execution of its duties hereunder.

 

7.3.2.    Further Assurances.  The Company agrees to perform, execute, acknowledge, and deliver or cause to be performed, executed, acknowledged, and delivered all such further and other acts, instruments, and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing of the provisions of this Warrant Agreement.

 

  

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7.4.          Liability of Warrant Agent.

 

7.4.1.    Reliance on Company Statement.  Whenever in the performance of its duties under this Warrant Agreement, the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a statement signed by the President or Chairman of the Board of the Company and delivered to the Warrant Agent.  The Warrant Agent may rely upon such statement for any action taken or suffered in good faith by it pursuant to the provisions of this Warrant Agreement.

 

7.4.2.    Indemnity.  The Warrant Agent shall be liable hereunder only for its own gross negligence, willful misconduct or bad faith.  The Company agrees to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done or omitted by the Warrant Agent in the execution of this Warrant Agreement except as a result of the Warrant Agent’s gross negligence, willful misconduct, or bad faith.

 

7.4.3.    Exclusions.  The Warrant Agent shall have no responsibility with respect to the validity of this Warrant Agreement or with respect to the validity or execution of any Warrant (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Warrant Agreement or in any Warrant; nor shall it be responsible to make calculations under 3.3.8 or any adjustments required under the provisions of Section 4 hereof or responsible for the manner, method, or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Warrant Agreement or any Warrant or as to whether any shares of Common Stock will when issued be valid and fully paid and nonassessable.

 

7.5.          Acceptance of Agency.  The Warrant Agent hereby accepts the agency established by this Warrant Agreement and agrees to perform the same upon the terms and conditions herein set forth and among other things, shall account promptly to the Company with respect to Warrants exercised and concurrently account for, and pay to the Company, all moneys received by the Warrant Agent for the purchase of shares of Common Stock through the exercise of Warrants.

7.6.           Limitation on Liability of Warrant Agent.  In no event shall the Warrant Agent have any liability for any incidental, special, statutory, indirect or consequential damages, or for any loss of profits, revenue, data or cost of cover.

 

8.             Miscellaneous Provisions.

 

8.1.          Successors.  All the covenants and provisions of this Warrant Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns.

 

8.2.          Notices.  Any notice, statement or demand authorized by this Warrant Agreement to be given or made by the Warrant Agent or by the holder of any Warrant to or on the Company shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows:

 

Pluristem Therapeutics Inc.

MATAM Advanced Technology Park

Building No. 20

Haifa, 31905, Israel

Attn: Chief Executive Officer

 

  

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Any notice, statement or demand authorized by this Warrant Agreement to be given or made by the holder of any Warrant or by the Company to or on the Warrant Agent shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company), as follows:

 

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, New York 11219

Attn:  Compliance Department

 

with a copy in each case to:

 

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, New York 11219

Attn:  General Counsel

 

and

 

Jefferies & Company, Inc.

520 Madison Avenue

New York, New York 10022

Facsimile:  (646) 619-4437

Attention:  General Counsel

 

8.3.       Applicable law.  The validity, interpretation, and performance of this Warrant Agreement and of the Warrants shall be governed in all respects by the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction.  The Company hereby agrees that any action, proceeding or claim against it arising out of or relating in any way to this Warrant Agreement shall be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.  The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenience forum.  Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8.2 hereof.  Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim.

 

8.4.       Persons Having Rights under this Warrant Agreement.  Nothing in this Warrant Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties hereto and the registered holders of the Warrants, any right, remedy, or claim under or by reason of this Warrant Agreement or of any covenant, condition, stipulation, promise, or agreement hereof.  All covenants, conditions, stipulations, promises, and agreements contained in this Warrant Agreement shall be for the sole and exclusive benefit of the parties hereto and their successors and assigns and of the registered holders of the Warrants.

 

  

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8.5.       Examination of the Warrant Agreement.  A copy of this Warrant Agreement shall be available at all reasonable times at the office of the Warrant Agent in the Borough of Manhattan, City and State of New York, for inspection by the registered holder of any Warrant.  The Warrant Agent may require any such holder to submit his Warrant for inspection by it.

 

8.6.       Counterparts.  This Warrant Agreement may be executed in any number of original or facsimile counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

8.7.       Effect of Headings.  The Section headings herein are for convenience only and are not part of this Warrant Agreement and shall not affect the interpretation thereof.

 

8.8        Amendments.  This Warrant Agreement may be amended by the parties hereto without the consent of any registered holder: (i) for the purpose of curing any ambiguity or (ii) of curing, correcting or supplementing any defective provision contained herein or (iii) adding or for the purpose of changing any other provisions with respect to matters or questions arising under this Warrant Agreement as the parties may deem necessary or desirable and that the parties deem shall not materially adversely affect the interest of the registered holders.  Any modifications or amendments to Section 3.3.10 shall require the written consent of all the registered holders.  All other modifications or amendments, including any amendment to increase the Warrant Price or shorten the Exercise Period, shall require the written consent of the registered holders of Warrants equal to at least 67% of the Warrant Shares issuable upon exercise of all then outstanding Warrants.

8.9        Severability. This Warrant Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Warrant Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Warrant Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.

 

9.             Certain Definitions. For purposes of this Warrant, the following terms shall have the following meanings:

 

9.1      “Affiliate” means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries Controls, is controlled by, or is under common control with, such Person.

 

9.2      “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law or executive order to remain closed.

 

9.3      “Common Stock” means (i) the Company’s shares of Common Stock and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

                                9.4      “Control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

  

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9.5      “Expiration Date” means the date that is the fifth year anniversary of the Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday, as the same may be extended pursuant to Section 3.3.7.

 

 9.6     “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

[Signature page follows.]

 

  

16

  

 

IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the parties hereto as of the day and year first above written.

 

PLURISTEM THERAPEUTICS INC.

By: /s/ Yaky Yanay

Name: Yaky Yanay

Title: Chief Financial Officer

AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC

By: /s/ Michael A. Nespoli

Name: Michael A. Nespoli

Title: Senior Vice President

 

  

17

  

 

EXHIBIT A

WARRANT NUMBER:______________

 

PLURISTEM THERAPEUTICS INC.

 

WARRANT

THIS CERTIFIES THAT, for value received  

 

__________________________________

is the registered holder of a Warrant or Warrants (the “Warrant”) expiring on September 19, 2017, subject to extension in certain events (“Expiration Date”), to purchase [___] fully paid and non-assessable share[s] of Common Stock, par value $0.00001 per share (“Shares”), of Pluristem Therapeutics Inc., a Nevada corporation (the “Company”).  The Warrant entitles the holder thereof to purchase from the Company such number of Shares of the Company at the price of $5 per share (subject to adjustment), upon surrender of this Warrant Certificate and payment of the Warrant Price to the Warrant Agent, American Stock Transfer & Trust Company, LLC at its corporate trust department, but only subject to the conditions set forth herein and in the Warrant Agreement between the Company and American Stock Transfer & Trust Company (as may be amended from time to time, the “Warrant Agreement”).  The Warrant Agreement provides that upon the occurrence of certain events the Warrant Price and the number of Shares purchasable hereunder, set forth on the face hereof, may, subject to certain conditions, be adjusted.  The term “Warrant Price” as used in this Warrant Certificate refers to the price per Share at which Shares may be purchased at the time the Warrant is exercised.  Capitalized terms used and not defined herein shall have the meanings set forth in the Warrant Agreement.

 

No fraction of a Share will be issued upon any exercise of a Warrant.  If the holder of a Warrant would be entitled to receive a fraction of a Share upon any exercise of a Warrant, the Company shall, upon such exercise, pay a cash adjustment in accordance with the Warrant Agreement.

 

Upon any exercise of the Warrant for less than the total number of full Shares provided for herein, there shall be issued to the registered holder hereof or the registered holder’s assignee a new Warrant Certificate covering the number of Shares for which the Warrant has not been exercised.

 

Upon surrender of the Warrant Certificate for transfer, properly endorsed with signatures properly guaranteed and accompanied by appropriate instructions for transfer, the Warrant Agent shall register the transfer.  A new Warrant Certificate or Warrant Certificates evidencing in the aggregate a like number of Warrants shall be issued and the old Warrant Certificate shall be canceled.

 

Warrant Certificates, when surrendered to the Warrant Agent, may be transferred or exchanged in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates evidencing in the aggregate a like number of Warrants.

 

The Company and the Warrant Agent may deem and treat the registered holder as the absolute owner of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary.

 

  

  

  

 

This Warrant does not entitle the registered holder to any of the rights of a stockholder of the Company.

 

	
By:

	  
	  	  
	
__________________________________________

	
___________________________________________

	
President

	
Secretary

COUNTERSIGNED:

AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC,

as Warrant Agent

By: ________________________

       Authorized Officer                                                                          

 

  

  

  

 

SUBSCRIPTION FORM

(to be executed by the registered holder in order to exercise Warrants)

The undersigned registered holder irrevocably elects to exercise ______________ Warrants represented by this Warrant Certificate, and to purchase the shares of Common Stock issuable upon the exercise of such Warrants, and requests that Certificates for such shares shall be issued in the name of

 

	
(PLEASE TYPE OR PRINT NAME AND ADDRESS)

	  
	  

 (SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER)

 

and be delivered to:

(PLEASE PRINT OR TYPE NAME AND ADDRESS)

and, if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the registered holder at the address stated below:

Dated: _____________________________________

                              

(SIGNATURE)

 

___________________________________________

 

___________________________________________

(ADDRESS)

___________________________________________

 

___________________________________________

(TAX IDENTIFICATION NUMBER)

 

  

  

  

ASSIGNMENT

(to be executed by the registered holder in order to assign Warrants)

For Value Received, _______________________ hereby sells, assigns, and transfers unto

 

	
(PLEASE TYPE OR PRINT NAME AND ADDRESS)

	  
	  

 (SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER)

 

and be delivered to

(PLEASE PRINT OR TYPE NAME AND ADDRESS)

______________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints _________________________________ Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises.

 

	
Dated:  __________________________________________

	
___________________________________________

	
 

	
(SIGNATURE)

                                                                                                          

The signature to the assignment of the Subscription Form must correspond to the name written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, and must be guaranteed by a commercial bank or trust company or a member firm of the American Stock Exchange, New York Stock Exchange, Pacific Stock Exchange or Chicago Stock Exchange.Exhibit 10.1

 Exhibit 10.1 
 EXECUTION COPY 
 EMPLOYMENT AGREEMENT 

This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of September 7, 2012, by and between PEPCO HOLDINGS, INC.
(the “Company”) and Kevin C. Fitzgerald (the “Executive”). 
 RECITALS: 

The Company wishes to employ the Executive in the position of Executive Vice President and General Counsel and the Executive wishes to be
so employed. 
 The Compensation and Human Resources Committee of the Board of Directors (including any successor that performs
its functions, the “Committee”) has recommended, and the Board of Directors of the Company (the “Board of Directors”) has approved, the entry by the Company into this Agreement with the Executive. 

NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings contained in this Agreement, the parties agree as follows:

 1. Term of this Agreement. The term of this Agreement shall begin on September 17, 2012 (the “Effective
Date”) and shall end on the day immediately preceding the third anniversary of the Effective Date (the “Term of this Agreement”). 
 2. Duties. While employed during the Term of this Agreement, the Executive shall serve as an Executive Vice President and as the General Counsel of the Company. The Executive (i) will devote
his knowledge, skill and best efforts on a full-time basis to performing his duties and obligations to the Company in accordance with the terms of this Agreement (with the exception of (A) absences on account of illness and vacations taken in
accordance with the Company’s policies and (B) professional, civic and charitable undertakings and commitments that do not conflict with the business of the Company and its subsidiaries or impair the ability of the Executive to perform his
duties under this Agreement) and (ii) will comply with the directions and orders of the Board of Directors and the Company’s President and Chief Executive Officer with respect to the performance of his duties. 

3. Employment by a Successor. Employment by any successor to the Company will be considered employment by the Company for purposes
of this Agreement, and the Executive’s employment with the Company shall be considered terminated only if the Executive is no longer employed by the Company or its successor. Unless the context otherwise requires, the term “Company”
as used in this Agreement includes any successor to the Company. For purposes of this Agreement, (i) the term “successor” means any (A) any corporation or other form of business organization into which the Company is merged or
with which the Company is consolidated or (B) any corporation or other form of business organization that acquires all or substantially all of the Company’s assets and (ii) the term “Board of Directors” shall include the
board of directors, or any governing body performing a similar function, of a successor. 

 4. Compensation and Benefits. 

(a) During the Term of this Agreement, while the Executive is employed by the Company: 

(i) The Company will pay to the Executive an annual salary in the amount of $550,000. If during the Term of this
Agreement, the annual salary of the Executive is increased (any such increase being in the sole discretion of the Board of Directors), it shall not thereafter be decreased during the Term of this Agreement. 

(ii) The Executive shall be a participant in the Pepco Holding, Inc. 2012 Amended and Restated Annual Executive Incentive
Compensation Plan (together with any successor plan, the “EICP”), with a target annual incentive award opportunity equal to 60% of base salary, commencing on the Effective Date, and shall be entitled to receive annual incentive awards
thereunder if and to the extent that the Board of Directors or a committee thereof determines in good faith that the Executive’s performance merits payment of such awards in accordance with the terms of the EICP. Any award payable for 2012
shall be prorated by multiplying the amount of the award by a fraction (i) the numerator of which is the number of days elapsed from and including the Effective Date through December 31, 2012, and (ii) the denominator of which is 366.

 (iii) The Executive shall be a participant in the Pepco Holdings, Inc. 2012 Long-Term Incentive Plan (together
with any successor plan, the “LTIP”), with a target long-term incentive award opportunities equal in the aggregate to 125% of base salary, and shall be entitled to receive incentive awards thereunder, commencing with the three-year
performance period beginning in 2012, if and to the extent that the Board of Directors or a committee thereof determines in good faith that the Executive’s performance merits payment of such awards in accordance with the terms of the LTIP. Any
award payable for the 2012 - 2014 performance cycle shall be prorated by multiplying the amount of the award by a fraction (i) the numerator of which is the number of days elapsed from and including the Effective Date through the last date of
the applicable service or performance period, and (ii) the denominator of which is the number of days in the performance period. 
 (iv) The Executive shall be a participant in the Pepco Holdings, Inc. Change-In-Control Severance Plan for Certain Employees (the “CICSP”), with a Service Factor (as defined by the CICSP) of 3.0
and a Benefit Factor (as defined by the CICSP) of 3.0; provided, however, that the Executive hereby agrees that he shall not be entitled to receive a payment under Section 6 of the CICSP. 

(v) The Executive will be eligible to participate in a manner similar to other senior executives of the Company of
comparable rank in retirement plans, 

  
 2 

 
supplemental retirement benefit plans (including the Pepco Holdings, Inc. 2011 Supplemental Executive Retirement Plan), savings plans, deferred compensation plans, health, welfare and insurance
plans and other plans and programs provided by the Company from time to time for its senior executives of comparable rank. 
 (vi) The Executive will be entitled to receive such perquisites and other personal benefits as are provided by the Company from time to time to its senior executives of comparable rank. 

(b) During the Term of this Agreement, the Board of Directors will conduct an annual review of the Executive’s total compensation,
including salary and incentive awards, and, subject to the preceding terms of this Section 4 (including the provision with regard to decreasing the Executive’s annual salary during the Term of the Agreement) and the other terms of this
Agreement, may make such changes in the compensation of the Executive as the Board of Directors deems appropriate in its sole discretion. 
 5. Retention Award 
 As an inducement for the Executive to enter into this
Agreement: 
 (a) As of the Effective Date, the Company shall execute and deliver to the Executive a Service-Based Restricted
Stock Unit Award Agreement in the form of Attachment A hereto, pursuant to which the Company shall make an award of restricted stock units (“RSUs”) to the Executive under the LTIP (i) of a number equal to $750,000, divided by the
closing market price of the Company’s common stock (“Common Stock”) on the last trading day prior to the Effective Date, (ii) except as otherwise provided in Attachment A, with 4/15 of the total number of RSUs vesting on each of
the first and second anniversaries of the Effective Date and the balance vesting on the third anniversary of the Effective Date, so long as the Executive remains employed by the Company on such anniversary date, and (iii) having such other
terms and conditions set forth in Attachment A. 
 (b) On or as soon as practicable after January 1, 2013, and on or as
soon as practicable after each of the first and second anniversaries thereof, if the Executive is an employee of the Company on such date, but in each case in no event later than 90 days following the commencement of the one-year Retention Award
Performance Period (as defined below) with respect to each award, the Company shall execute and deliver to the Executive a Performance-Based Restricted Stock Unit Award Agreement in the form of Attachment B hereto (each a “Retention Performance
Award Agreement”). Under the terms of each Retention Performance Award Agreement, the Company shall agree to make an award of RSUs under the LTIP to the Executive (i) in a number equal to $166,666.67, divided by the closing market price of
the Common Stock on the last trading day prior to the first day of the Retention Award Performance Period, (ii) the vesting of which will (A) depend on the extent to which the performance goal(s) set forth in the Retention Performance
Award Agreement are achieved during a performance period that coincides with the calendar year in which the Retention Performance Award Agreement is executed and delivered (a “Retention Award Performance Period”) and (B) be contingent
on the Executive remaining an employee of the 

  
 3 

 
Company through the end of the Retention Award Performance Period, except as otherwise provided in Attachment B, and (iii) having such other terms and conditions as are set forth in
Attachment B. 
 6. Termination of Employment. The Company may terminate the employment of the Executive at any time,
with or without cause, or the Executive may resign as an employee at any time and for any reason. In either event, (i) the Executive shall not be entitled to any further compensation under this Agreement effective as of the date of the
termination of the Executive’s employment and (ii) the Executive’s rights in respect of all awards and benefits to which the Executive may be entitled, including the retention award contemplated by Section 5 of this Agreement,
shall be determined in accordance with the terms and conditions of the Company plans, agreements or arrangements under which such awards or benefits are provided. 
 7. Excise Taxes. Notwithstanding any provision of this Agreement to the contrary: 
 (a) If the Company’s independent registered public accounting firm (the “Independent Accountant”) determines that if the payments and benefits to be provided under this Agreement (and any
other payments or benefits provided or to be provided to the Executive under any applicable plan, program, agreement or arrangement maintained, contributed to or entered into by the Company or any group or entity whose actions result in a change of
ownership or effective control (as those terms are defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder) or any affiliate of the Company) (a
“Payment” or collectively “Payments”) were provided to the Executive (A) the Executive would incur an excise tax under Section 4999 of the Code (such excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the “Excise Tax”), and (B) the net after tax benefits to the Executive attributable to the Payments would not be at least $10,000 greater than the net after tax benefits that would accrue to the Executive
if the Payments that would otherwise cause the Executive to be subject to the Excise Tax were not provided, the Payments shall be reduced so that the Payments provided to the Executive are the greatest (as determined by the Independent Accountant)
that may be provided without any such Payment being subject to the Excise Tax. If the Payments are to be reduced under this Section 7, then (1) Payments not subject to Section 409A of the Code shall be reduced in the order
designated by the Executive and (2) if and to the extent necessary after the reductions in clause (1), Payments subject to Section 409A shall be reduced in reverse chronological order (such that Payments due later are reduced before
Payments due earlier). 
 (b) If the Executive receives reduced Payments pursuant to this Section 7, or if it had been
determined that no such reduction was required, but it nonetheless is established pursuant to the final determination of a court or an Internal Revenue Service proceeding that, notwithstanding the good faith of the Executive and the Company in
applying the terms of this Section 7, the aggregate Payments to the Executive would result in any Payment being subject to the Excise Tax, and that a reduction pursuant to this Section 7 should have occurred, then the Executive shall be
deemed for all purposes to have received a loan made on the date of the 

  
 4 

 
receipt of the Payments in an amount such that, after taking into consideration such loan, no portion of the aggregate Payments would be subject to the Excise Tax. The Executive shall have
an obligation to repay such loan to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the Executive’s receipt of such loan until the
date of such repayment. 
 (c) If the Payments are reduced or are to be reduced pursuant to this Section 7, and it is
subsequently determined that the Payments were or are to be reduced pursuant to this Section 7 to a greater extent than was or is necessary to avoid the Excise Tax or it is subsequently determined that the Payments should not be or should not
have been reduced pursuant to this Section 7, then the Company shall promptly pay to the Executive the amount necessary so that, after such adjustment, the Executive will have received or be entitled to receive the maximum Payments payable
under this Section 7, together with interest at the applicable Federal rate (as defined in Section 1274(d) of the Code) on amounts that were incorrectly reduced pursuant to this Section 7, except that no Payments shall be made under
this subparagraph to the extent that such Payments would impermissibly change the time and form of deferred compensation subject to Section 409A of the Code. 
 8. Fees and Expenses. The Company shall reimburse the Executive for all reasonable fees and expenses (including, without limitation, legal fees and expenses) incurred by the Executive in connection
with any proceeding commenced by the Executive (i) to enforce any provision of this Agreement or (ii) to enforce any right of the Executive under any employee benefit plan of the Company in which the Executive is a participant, but only
if, in either case, the decision-maker in such proceeding determines that the Executive has substantially prevailed on the claim(s) asserted by the Executive in the proceeding. 

9. Tax Withholding. The Company may withhold from any payment due the Executive under this Agreement any amount necessary, as
determined by the Company, in order to enable the Company to satisfy all applicable federal, state or local income and payroll tax withholding obligations, but in no event shall such amount exceed, solely with respect to any stock-based compensation
granted or to be granted under or pursuant to this Agreement, the minimum applicable statutory federal, state and/or local taxes (collectively, “withholding obligations”). In connection with the vesting of the awards received by the
Executive under Section 5 of this Agreement, the Executive may elect to require the Company to reduce the number of RSUs to which the Executive otherwise would be entitled in a number sufficient to offset all or any portion (as specified by the
Executive) of the withholding obligations that the Executive otherwise would be obligated to satisfy in the form of a cash payment to the Company, with each RSU and each share of Common Stock being deemed to have a value for this purpose equal to
the closing market price per share of the Common Stock on the day on which the withholding is effected. 
 10.
Non-Competition and Non-Solicitation. 
 (a) Following the termination of his employment by the Company for any reason,
whether during or after the Term of this Agreement, the Executive shall not, for a period of two years or, if the employment of the Executive terminates more than two years 

  
 5 

 
prior to last day of the Term of this Agreement, for the remainder of the Term of this Agreement, directly or indirectly solicit or hire, or encourage the solicitation or hiring of, any person
who, at the time of such solicitation or hiring, is an executive officer of the Company or any of its subsidiaries to serve as an employee of, or an independent contractor or consultant to, any company other than the Company or any of its
subsidiaries; provided that this restriction shall not prevent the Executive from serving as reference for any such employee with regard to the employment of that employee by a company with which the Executive is not affiliated. 

(b) Following the termination of his employment by the Company under circumstances in which the vesting of any portion of the award
contemplated by Section 5(a) of this Agreement is accelerated, the Executive shall not, for the remainder of the Term of this Agreement, own (other than the ownership of the common stock of a publicly-held company not in excess of 1% of the
shares outstanding), control, become employed by or act as a consultant to any company that, directly or through one or more subsidiaries, (i) competes with Pepco Energy Services, Inc. or (ii) is engaged in the distribution or transmission
of electricity anywhere in the United States; provided, however, that this Section 10(b) shall not prohibit the Executive from (A) owning, controlling, becoming employed by or acting as a consultant to a law firm engaged in the private
practice of law or (B) providing legal services as a member of a law firm engaged in the private practice of law to any company that, directly or through one or more subsidiaries, (x) competes with Pepco Energy Services, Inc. or
(y) is engaged in the distribution or transmission of electricity anywhere in the United States, except that the Company and the Executive understand and agree that this proviso does not constitute a Company waiver or consent with respect any
representation by the Executive, or by any law firm with which the Executive is affiliated, if such representation requires such a waiver or consent under any applicable law or code of professional responsibility. 

11. Confidentiality. 
 (a) Following the termination of the Executive’s employment by the Company for any reason (whether during or after the Term of this Agreement), the Executive shall not, without the prior written
consent of the Company, disclose any Confidential Information other than to the Company or its subsidiaries, except that the Executive may disclose Confidential Information (i) to the extent reasonably necessary in order to enforce his rights
under this Agreement or to defend himself against any claim asserted against the Executive by the Company or (ii) to comply with any court order, subpoena or governmental inquiry. Unless otherwise prohibited by law, the Executive shall promptly
notify the Company of the receipt by the Executive of any court order, subpoena or governmental inquiry pursuant to which the Executive is required or has been requested to disclose Confidential Information. 

(b) The term “Confidential Information” shall mean all financial, economic, business, operational, strategic, regulatory,
technical or other information belong to, used by or in the possession of the Company or any of its subsidiaries, including, but not limited to, business plans and strategies, financial information, projections, forecasts, budgets, pricing
information, marketing and sales programs and strategies, customer and prospective customer lists, trade secrets, engineering plans, inventions and other intellectual property, whether or not 

  
 6 

 
reduced to writing and regardless of the form of media in which the information is maintained, other than such information that is in the public domain prior to any disclosure by the Executive.

 12. Litigation and Dispute Cooperation. For a period of three years following the termination of the Executive’s
employment by the Company, the Executive agrees, if requested by the Company, and subject to reimbursement for out-of-pocket expenses reasonably incurred (including, but not limited to, meals, accommodations, travel and other incidental expenses)
and compensation at the hourly rate of $500, to cooperate with and assist the Company in pursuing or defending of any litigation, claims, grievances, arbitrations or disputes involving the Company or any of its subsidiaries and concerning any matter
that was within the scope of Executive’s responsibilities while employed by the Company. 
 13. Assignment. The
rights and obligations of the Company under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of the Company. The Executive’s obligations under this Agreement may not be assigned or transferred
in whole or in part, and the rights and benefits of the Executive under this Agreement cannot be assigned, anticipated, sold, encumbered or pledged and shall not be subject to the claims of the Executive’s creditors, except that the personal
representative of the Executive’s estate shall be entitled to receive any amounts payable under this Agreement after the death of the Executive. 
 14. Rights of the Executive Are Those of a General Creditor. This Agreement shall not confer upon the Executive any proprietary interest in the Company or any of its assets. All benefits under this
Agreement shall be payable from the general assets of the Company, and there shall be no requirement that the Company prefund or escrow any amounts that are or that may become payable under this Agreement. The Executive for all purposes under this
Agreement shall be a general creditor of the Company. 
 15. Notices. All notices and other communications under this
Agreement shall be in writing and shall be given by hand or by registered or certified mail, return receipt requested, postage prepaid, and (i) if to the Executive, shall be addressed to the Executive at the last address furnished by the
Executive to the Company in writing and (ii) if to the Company, shall be addresses to the headquarters of the Company for the attention of the Chief Executive Officer. 
 16. Governing Law, Equitable Relief and Arbitration. 
 (a) To the extent
not governed by federal law, this Agreement shall be governed and construed in accordance with the laws of the District of Columbia, without reference to its conflict of laws rules. 

(b) The Executive acknowledges that, in the event that the Executive breaches the provisions of Section 10 and 11 of this Agreement,
the Company shall suffer irreparable harm for which money damages are not an adequate remedy, and the Executive agrees that the Company shall be entitled to equitable relief, including but not limited to, a

  
 7 

 
temporary restraining order or a preliminary or permanent injunction, with respect to any such breach or threatened breach by the Executive in any court of competent jurisdiction. However,
nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available at law or equity for such breach or threatened breach. In the event that the Company initiates any legal action for the breach,
threatened breach or enforcement of any of the provisions of either Section 10 or 11 and the Company does not prevail in such action, the Company shall reimburse the Executive for the costs, including attorney’s fees, reasonably incurred
by the Executive in defending such action.
 (c) Except with respect to equitable relief provided for in paragraph (b), any
dispute between the Company and the Executive over the validity, interpretation, effect or violation or alleged violation of this Agreement shall be resolved by confidential binding arbitration to be held in Washington, D.C., in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction. Except as otherwise provided in this Section 10, each of the
Company and the Executive shall be responsible for own costs and expenses incurred in connection with such arbitration proceeding. 
 17. Amendments and Waivers. This Agreement may only be amended, modified, altered or supplemented in a writing signed by the Executive and on behalf of the Company by a duly authorized officer
other than the Executive. No obligation under this Agreement shall be waived or discharged unless such waiver or discharge is signed by the party granting such waiver or discharge. Except where this Agreement establishes an express deadline, no
failure on the part of either party to exercise any right under this Agreement, and no delay on the part of either party in exercising any right under this Agreement, shall operate as a waiver of such right. 

18. Invalidity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part, the remaining provisions of this Agreement (including any portion of the provision not held to be
invalid or unenforceable) shall remain valid and enforceable and continue in full force and effect to the fullest extent permitted by law. 
 19. Execution in Counterparts. This Agreement may be executed in counterparts, which taken together shall be considered one and the same agreement. 

20. Entire Agreement. This Agreement constitutes the entire agreement between the Executive and the Company with respect to the
Executive’s employment. 
 21. Section 409A. 

(a) This Agreement shall be interpreted to ensure that the payments contemplated hereby to be made by Company to the Executive are exempt
from, or comply with, Section 409A of the Code (“Section 409A”); provided, however, that nothing in this Agreement shall be interpreted or construed to transfer any liability for any tax (including a tax or penalty due as a result of
a failure to comply with Section 409A) from the Executive to the Company or to any other individual or entity. 

  
 8 

 (b) Notwithstanding any other provision of this Agreement, any payment or benefit under this
Agreement that is considered a reimbursement under Section 409A must be made no later than the last day of the Executive’s taxable year following the Executive’s taxable year in which the expense subject to the reimbursement was
incurred and shall comply with Treas. Reg. § 1.409A-3(i)(1)(iv), except that any payment for legal expenses and attorney fees that would otherwise be subject to Section 409A shall be made no later than the deadline for short-term deferrals
under Section 409A.  
 22. Clawback. The Executive agrees to be bound by and comply with the provisions of
(i) Section 304 of the Sarbanes-Oxley Act of 2002 and (ii) the policies adopted by the Company in accordance with any rules that may be promulgated by the Securities and Exchange Commission pursuant to Section 10D of the
Securities Exchange Act of 1934, as amended, in each case insofar as such provisions, policies or rules are by their terms applicable to the Executive. 
 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer and the Executive has executed this Agreement, each as of the date first above written, 

 

											
	PEPCO HOLDINGS, INC.	 		 	EXECUTIVE
					
	By:	 	 /s/ JOSEPH M. RIGBY
	 		 	By:	 	 /s/ KEVIN C. FITZGERALD

		 	Name:	 	Joseph M. Rigby	 		 		 	Kevin C. Fitzgerald
		 	Title:	 	Chairman of the Board, President and Chief Executive Officer	 		 		 	

  
 9 

 Attachment A 
 PEPCO HOLDINGS, INC. 
 Service-Based Restricted Stock Unit Award Agreement

 This Service-Based Restricted Stock Unit Award Agreement (the “Agreement”) is made as of the 17th day of September
2012 (the “Grant Date”), by and between Pepco Holdings, Inc. (the “Company”) and Kevin C. Fitzgerald (the “Executive”). 
 WHEREAS, the Company has adopted the Pepco Holdings, Inc. 2012 Long-Term Incentive Plan (the “Plan”). 
 WHEREAS, in accordance with the terms of an Employment Agreement, dated September 7, 2012, between the Company and the Executive (the “Employment Agreement”), the Company has agreed to make
an award to the Executive of restricted stock units under the Plan on the terms and conditions hereinafter set forth. 
 NOW,
THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the Company and the Executive agree as follows: 
 1. Restricted Stock Unit Award. The Company hereby grants to the Executive, upon the terms and subject to the conditions set forth herein, an award of
                     (            ) restricted stock units (each an “RSU”),
each representing a contractual right to receive at the time of the settlement thereof one share of common stock (“Common Stock”) of the Company (the “Award”). 
 2. Vesting of the Award. Four-fifteenths of the Award shall vest on each of the first and second anniversaries of the Grant Date and balance shall vest on the third anniversary of the Grant Date
(the three-year period beginning on the Grant Date being referred to as the “Vesting Period”), in each case contingent upon the continued employment of the Executive by the Company as of the applicable the vesting date. If the employment
of the Executive by the Company terminates prior to the end of the Vesting Period, the unvested portion of the Award shall be forfeited, except that, if during the Vesting Period, (i) the Executive voluntarily terminates his employment for Good
Reason (as defined in Section 9 of this Agreement), (ii) the Company terminates the Executive’s employment, other than a termination for Cause (as defined in Section 9 of this Agreement, or (iii) the employment of the
Executive terminates due to death or Disability (as defined in Section 9 of this Agreement), the Award, to the extent not previously vested, shall vest in full as of the date the Executive’s employment terminates. 

3. Settlement of the Award. The settlement of the Award, to the extent it has become vested and subject to Section 10 hereof, shall occur on
or as soon as practicable after the day immediately following the last day of the Executive’s employment by the Company, regardless of the reason for the termination of the Executive’s employment and regardless of whether the termination
of the Executive’s employment occurs during or after the expiration of the three-year term of the Employment Agreement, and shall be effected by the delivery to the Executive a number of shares of Common Stock equal to the number of vested
RSUs; provided, however, that the delivery of the shares may be postponed (i) if the Company reasonably anticipates that 

  
 A-1

 
such postponement is necessary to enable the Company to comply with any law or with any applicable procedures, regulations or listing requirements of any governmental agency or stock exchange and
(ii) such delay shall comply with Treas. Reg. § 1.409A-2(b)(7)(ii) (or any applicable successor regulation). 
 4. Dividend
Equivalents. During the period subsequent the vesting of RSUs as contemplated by Section 2 of this Agreement and prior to the settlement thereof as contemplated by Section 3 of this Agreement, on the date the Company pays a dividend on
the Common Stock, the Company shall credit to the account of the Executive an additional number of vested RSUs (rounded the nearest whole number) equal to (i) the product of (A) the number of vested RSUs credited to the account of the
Executive pursuant to this Award (including RSUs previously credited to the account of the Executive in accordance with this Section 4) as of the day immediately prior to the dividend payment date and (B) the per share amount of the
dividend, divided by (ii) the closing market price of the Common Stock on the lasting trading day immediately prior to the ex-dividend date in respect of such dividend. 
 5. Nontransferability of Award. The Award is not assignable or transferable and shall not be subject to attachment or other legal process of whatever nature. 

6. Terms and Conditions of the Plan. The terms and conditions included in the Plan are incorporated herein by reference, and to the extent that
any conflict exists between the terms and conditions of this Agreement and the terms and conditions of the Plan, the terms and conditions of the Plan shall control. By execution of this Agreement, the Executive acknowledges receipt of a copy of the
Plan and further agrees to be bound thereby and by the actions of the Compensation and Human Resources Committee of the Board of Directors (including any successor that performs its functions, the “Committee”) and the Board of Directors
pursuant to the Plan. 
 7. Other Plans and Agreements. Any gain realized by the Executive pursuant to the Award shall not be taken into
account as compensation in the determination of the Executive’s benefits under any pension, savings, group insurance or other benefit plan maintained by the Company or a Subsidiary. The Executive acknowledges that receipt of the Award shall not
entitle the Executive to any other benefits under the Plan or any other plans maintained by the Company or a Subsidiary. 
 8. Committee
Authority. The Committee shall have complete discretion in the exercise of its rights, powers and duties under this Agreement and the Plan. Any interpretation or construction of any provision of, and the determination of any question arising
under, this Agreement shall be made by the Committee in its sole discretion and shall be final, conclusive and binding on all concerned. The Committee may designate any individual or individuals to perform any of its functions under this Agreement.

 9. Definition of Terms. 
 (a) As used in this Agreement, the term “Good Reason” shall mean (i) the Company reduces the Executive’s base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other 

  
 A-2

 
senior executives of the Company), (ii) the Executive is not in good faith considered for incentive awards in violation of Section 4(a)(ii) and (iii) of the Employment Agreement,
(iii) the Company fails to provide the benefits contemplated by Section 4(a)(v) and (vi) of the Employment Agreement, (iv) the Company relocates the Executive’s primary place of employment to a location outside of the
Washington, D.C. metropolitan areas and further than 50 miles from the Executive’s primary place of employment on the first day of the Term of this Agreement, or (v) the Board of Directors removes the Executive from the position of
Executive Vice President and General Counsel other than for Cause or on account of the Disability of the Executive. 
 (b) As
used in this Agreement, the term “Cause” shall mean (i) intentional fraud or material misappropriation with respect to the business or assets of the Company, (ii) the persistent refusal or willful failure of the Executive to
perform substantially his duties and responsibilities to the Company, which continues after the Executive receives notice of such refusal and is afforded a period of not less than 45 days to remedy the refusal or failure to the satisfaction of the
Board of Directors, or (iii) conduct that constitutes disloyalty to the Company or that materially damages the property, business or reputation of the Company. 
 (c) As used in this Agreement, the term “Disability” shall mean circumstances in which the Executive is entitled immediately to receive long-term disability benefits under the Company’s
disability plan in which the Executive participates. 
 (d) Each other capitalized term used in this Agreement, and not defined
or referenced herein, has the meaning ascribed to that term in the Plan. 
 10. Section 409A. This Agreement shall be interpreted to
ensure that the payment contemplated hereby complies with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”). Settlement of the Award shall be made no later than 30 days after the Executive’s
separation from service, except that if, upon separation from service, the Executive is a “specified employee” within the meaning of Section 409A, settlement will instead be paid in the seventh month following the Executive’s
separation from service (to the extent required by Section 409A(a)(2)(B)(i)). 
 IN WITNESS WHEREOF, the Company has caused
this Agreement to be executed by a duly authorized officer and the Executive has executed this Agreement, each as of the date first above written. 
  

					
	PEPCO HOLDINGS, INC.
		
	By:	 	  

		 	Name:	 	Joseph M. Rigby
		 	Title:	 	Chairman of the Board, President and Chief Executive Officer
	
	KEVIN C. FITZGERALD
	
	  

  
 A-3

 Attachment B 
 PEPCO HOLDINGS, INC. 
 Performance-Based Restricted Stock Unit Award Agreement

 This Performance-Based Restricted Stock Unit Award Agreement (the “Agreement”) is made this
     day of                      201  , by and between Pepco Holdings, Inc. (the “Company”) and Kevin C.
Fitzgerald (the “Executive”). 
 WHEREAS, the Company has adopted the Pepco Holdings, Inc. 2102 Long-Term Incentive
Plan (the “Plan”). 
 WHEREAS, in accordance with the terms of an Employment Agreement, dated September 7, 2012,
between the Company and the Executive (the “Employment Agreement”), the Company has agreed to make an award to the Executive of restricted stock units under the Plan subject to the terms and conditions hereinafter set forth. 

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the Company
and the Executive agree as follows: 
 1. Restricted Stock Unit Award. The Company hereby agrees to grant to the Executive, upon the
terms and subject to the conditions set forth herein,                      (            )
restricted stock units (each an “RSU”), each representing a contractual right to receive at the time of the settlement thereof one share of common stock (“Common Stock”) of the Company (the “Award”). 

2. Vesting of the Award. 

a. The vesting of the Award, which may range from zero to 100% of the Award, shall be contingent on the extent to which the Executive is
successful in achieving, during period beginning January 1, 201     and ending December 31, 201     (the “Performance Period”), the performance goals set forth on Schedule A hereto (the
“Performance Goals”), as determined by the Compensation and Human Resources Committee of the Board of Directors (including any successor that performs its functions, the “Committee”) in its sole discretion as soon as practicable
after the end of the Performance Period. 
 b. If the employment of the Executive by the Company terminates prior to the end of
the Performance Period, the Award shall be forfeited in its entirety, except that, if during the Performance Period, (i) the Executive voluntarily terminates his employment for Good Reason (as defined in Section 9 of the Agreement),
(ii) the Company terminates the Executive’s employment, other than a termination for Cause (as defined in Section 9 of the Agreement), or (iii) the employment of the Executive terminates due to death or Disability (as defined in
Section 9 of the Agreement), the Award shall vest at the end of the Performance Period to the extent the Performance Goals are achieved as determined by the Committee in its sole discretion after the end of the Performance Period. 

3. Settlement of the Award. The settlement of the Award, to the extent it has become vested and subject to Section 10 hereof, shall occur as
soon as practicable after (i) the day immediately following the last day of the Executive’s employment by the Company, regardless of the reason 

  
 B-1

 
for the termination of the Executive’s employment and regardless of whether the termination of the Executive’s employment occurs during or after the expiration of the three-year term of
the Employment Agreement or (ii) if later, the day after the Committee determines the extent to which the Award has vested in the calendar year following the completion of the Performance Period, and shall be effected by the delivery to the
Executive a number of shares of Common Stock equal to the number of vested RSUs; provided, however, that the delivery of the shares may be postponed (A) if the Company reasonably anticipates that such postponement is necessary to enable the
Company to comply with any law or with any applicable procedures, regulations or listing requirements of any governmental agency or stock exchange and (B) such delay shall comply with Treas. Reg. § 1.409A-2(b)(7)(ii) (or any
applicable successor regulation). 
 4. Dividend Equivalents. During the period subsequent the vesting of RSUs as contemplated by
Section 2 of this Agreement and prior to the settlement thereof as contemplated by Section 3 of this Agreement, on the date the Company pays a dividend on the Common Stock, the Company shall credit to the account of the Executive an
additional number of vested RSUs (rounded the nearest whole number) equal to (i) the product of (A) the number of vested RSUs credited to the account of the Executive pursuant to this Award (including RSUs previously credited to the
account of the Executive in accordance with this Section 4) as of the day immediately prior to the dividend payment date and (B) the per share amount of the dividend, divided by (ii) the closing market price of the Common Stock on the
lasting trading day immediately prior to the ex-dividend date in respect of such dividend. 
 5. Nontransferability of Award. The Award
is not assignable or transferable and shall not be subject to attachment or other legal process of whatever nature. 
 6. Terms and
Conditions of the Plan. The terms and conditions included in the Plan are incorporated herein by reference, and to the extent that any conflict exists between the terms and conditions of this Agreement and the terms and conditions of the Plan,
the terms and conditions of the Plan shall control. By execution of this Agreement, the Executive acknowledges receipt of a copy of the Plan and further agrees to be bound thereby and by the actions of the Committee and the Board of Directors
pursuant to the Plan. 
 7. Other Plans and Agreements. Any gain realized by the Executive pursuant to the Award shall not be taken into
account as compensation in the determination of the Executive’s benefits under any pension, savings, group insurance or other benefit plan maintained by the Company or a Subsidiary. The Executive acknowledges that receipt of the Award shall not
entitle the Executive to any other benefits under the Plan or any other plans maintained by the Company or a Subsidiary. 
 8. Committee
Authority. The Committee shall have complete discretion in the exercise of its rights, powers and duties under this Agreement and the Plan. Any interpretation or construction of any provision of, and the determination of any question arising
under, this Agreement shall be made by the Committee in its sole discretion and shall be final, conclusive and binding on all concerned. The Committee may designate any individual or individuals to perform any of its functions hereunder. 

9. Definition of Terms. 

(a) As used in this Agreement, the term “Good Reason” shall mean (i) the Company reduces the Executive’s base salary
(except a reduction consistent and proportional with an 

  
 B-2

 
overall reduction, due to extraordinary business conditions, in the compensation of all other senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards in violation of Section 4(a)(ii) and (iii) of the Employment Agreement, (iii) the Company fails to provide the benefits contemplated by Section 4(a)(v) and (vi) of the Employment Agreement, (iv) the
Company relocates the Executive’s primary place of employment to a location outside of the Washington, D.C. metropolitan areas and further than 50 miles from the Executive’s primary place of employment on the first day of the Term of this
Agreement, or (v) the Board of Directors removes the Executive from the position of Executive Vice President and General Counsel other than for Cause or on account of the Disability of the Executive. 

(b) As used in this Agreement, the term “Cause” shall mean (i) intentional fraud or material misappropriation with respect
to the business or assets of the Company, (ii) the persistent refusal or willful failure of the Executive to perform substantially his duties and responsibilities to the Company, which continues after the Executive receives notice of such
refusal and is afforded a period of not less than 45 days to remedy the refusal or failure to the satisfaction of the Board of Directors, or (iii) conduct that constitutes disloyalty to the Company or that materially damages the property,
business or reputation of the Company. 
 (c) As used in this Agreement, the term “Disability” shall mean
circumstances in which the Executive is entitled immediately to receive long-term disability benefits under the Company’s disability plan in which the Executive participates. 

(d) Each other capitalized term used in this Agreement, and not defined or referenced herein, has the meaning ascribed to that term in
the Plan. 
 10. Section 409A. This Agreement shall be interpreted to ensure that the payment contemplated hereby complies with
Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”). Settlement of the Award shall be made no later than 30 days after the Executive’s separation from service, except that if, upon separation from
service, the Executive is a “specified employee” within the meaning of Section 409A, settlement will instead be paid in the seventh month following the Executive’s separation from service (to the extent required by
Section 409A(a)(2)(B)(i)). 
 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized
officer and the Executive has executed this Agreement, each as of the date first above written. 
  

					
	PEPCO HOLDINGS, INC.
		
	By:	 	  

		 	Name:	 	Joseph M. Rigby
		 	Title:	 	Chairman of the Board, President and Chief Executive Officer
	
	KEVIN C. FITZGERALD
	
	  

  
 B-3

 Schedule A 
 Performance Goals 

  
 B-4

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