Document:

UNITED STATES OF AMERICA

DEPARTMENT OF THE TREASURY
FINANCIAL CRIMES ENFORCEMENT NETWORK 

	IN
      THE MATTER OF:	)	
		)	 
		)	Number 2017-01
	Western Union Financial Services, Inc.	)	
	Englewood, Colorado	)	

CONSENT TO THE
ASSESSMENT OF CIVIL MONEY PENALTY 

I. INTRODUCTION

The Financial Crimes
Enforcement Network (FinCEN) has determined that grounds exist to assess a civil
money penalty against Western Union Financial Services, Inc. (WUFSI or the
Company) pursuant to the Bank Secrecy Act (BSA) and regulations issued pursuant
to that Act.1 

WUFSI admits
to the facts set forth below and that its conduct violated the BSA. In order to
resolve this matter, WUFSI consents to the assessment of a civil money penalty
and enters this CONSENT TO THE ASSESSMENT OF CIVIL MONEY PENALTY (CONSENT) with
FinCEN. 

FinCEN has authority to
investigate financial institutions, including money services businesses (MSBs),
for compliance with and violation of the BSA pursuant to 31 C.F.R. § 1010.810,
which grants FinCEN “[o]verall authority for enforcement and compliance,
including coordination and direction of procedures and activities of all other
agencies exercising delegated authority under this chapter. . . .” 

____________________

1 The Bank
Secrecy Act is codified at 12 U.S.C. §§ 1829b, 1951–1959
and 31 U.S.C. §§ 5311–5314, 5316–5332. Regulations
implementing the Bank Secrecy Act appear at 31 C.F.R. Chapter X.

WUFSI is a wholly owned
subsidiary of The Western Union Company (Western Union). WUFSI offers consumer
to consumer remittance services through the branded payment services of Western
Union, Vigo, and Orlandi Valuta, which comprise a network of approximately
500,000 agent locations in approximately 200 countries and territories
worldwide. WUFSI operated as a “financial institution” and a “money services
business” within the meaning of the BSA and its implementing regulations during
the time relevant to this action.2

Resolution with the
United States Department of Justice 

On the same date as this
CONSENT, Western Union entered into a Deferred Prosecution Agreement (DPA) with
the United States Department of Justice, Criminal Division, Money Laundering and
Asset Recovery Section, and the U.S. Attorney’s Offices for the Middle District
of Pennsylvania, Central District of California, Eastern District of
Pennsylvania, and Southern District of Florida.3 The DPA stems from
allegations that during the period of 2004 through 2012, Western Union: failed
to implement and maintain an effective anti-money laundering (AML) program in
violation of the BSA and its regulations; and aided and abetted wire
fraud.4 As part of the
DPA, the Department of Justice acknowledged that since at least September 2012,
Western Union implemented compliance enhancements to continuously improve its
anti-fraud and anti-money laundering programs. Further, Western Union agreed to
continue to enhance its AML and anti-fraud programs, and to pay to the United
States the sum of $586 million for restitution to the victims of the fraud.

____________________

2 31 U.S.C. § 5312(a)(2); 31 C.F.R. § 1010.100(t)(3).
3 United States
v. The Western Union Company, et al., CR-17-__ (M.D. Pa. 2017). This CONSENT is expressly conditioned on the
U.S. District Court for the Middle District of Pennsylvania’s acceptance of the
DPA. If the DPA does not become effective, this CONSENT shall be deemed null and
void.
4 31 U.S.C. §§
5318(h), 5322; 18 U.S.C. §§ 1342, 1343. 

2 

Resolution with the
Federal Trade Commission

On the same date as this
CONSENT, the Federal Trade Commission (FTC) entered into a Stipulated Order for
Permanent Injunction and Final Judgement (Order) with Western Union. The Order
is in resolution of the FTC’s allegations that Western Union failed to take
timely, appropriate, and effective measures to mitigate fraud in the processing
of money transfers sent by consumers. Western Union has neither admitted nor
denied the FTC’s allegations. As part of the Order, Western Union has agreed to
the appointment of an independent compliance auditor to ensure, among other
things, that thorough due diligence is conducted on all prospective and existing
Western Union agents, and that necessary steps are taken to monitor and
investigate agent activity. Western Union has also agreed to a monetary judgment
in the amount of $586 million which will be satisfied by complying with the
payment requirements of its DPA with the United States Department of Justice, as
referenced above in this CONSENT. 

II. DETERMINATIONS

Prior to 2012, WUFSI
willfully violated the BSA’s program, recordkeeping and reporting
requirements.5 As described below, WUFSI failed to adequately
implement and maintain an effective, risk-based AML program by failing to
implement or execute effective policies, procedures, and internal controls
reasonably designed to assure ongoing compliance (in particular, failures to
suspend or terminate certain agent locations in a timely manner); and failing to
conduct adequate due diligence on certain
foreign agents and subagents in Latin America. WUFSI also failed to file timely suspicious activity reports
(SARs).6

____________________

5 In civil
enforcement of the BSA under 31 U.S.C. § 5321(a)(1), to establish that a
financial institution or individual acted willfully, the government need only
show that the financial institution or individual acted with either reckless
disregard or willful blindness. The government need not show that the entity or
individual had knowledge that the conduct violated the BSA, or that the entity
or individual otherwise acted with an improper motive or bad purpose. WUFSI
admits to “willfulness” here only as the term is used in civil enforcement of
the BSA under 31 U.S.C. § 5321(a)(1).
6 Pursuant to WUFSI’s agreement with the states of Arizona,
California, New Mexico and Texas, a court appointed monitor previously
identified recommended program enhancements such as determinations made in this
Section. At all times since the commencement of such agreement, WUFSI has been
working to remediate the recommended program enhancements made pursuant to the
agreement with the states of Arizona, California, New Mexico and Texas, many of
which are reiterated in this CONSENT. WUFSI’s court appointed monitor has
certified that such remediation has been successfully
completed.

3 

A.
Violation of the
Requirement to Implement an Effective Anti-Money Laundering
Program

The BSA and its
implementing regulations require MSBs to develop, implement, and maintain an
effective written AML program that is reasonably designed to prevent the MSB
from being used to facilitate money laundering and the financing of terrorist
activities.7 At a minimum, an MSB is required to implement a written
AML program that: (a) provides for a system of internal controls reasonably
designed to assure ongoing compliance; (b) designates an individual or
individuals responsible for assuring day to day compliance with the program and
BSA requirements; (c) provides training for appropriate personnel, including
training in the detection of suspicious transactions; and (d) provides for
independent review to monitor and maintain an adequate program.8

Prior to 2012, in certain
instances, WUFSI failed to implement or execute effective internal controls
sufficient to reasonably assure that the institution did not facilitate money
laundering transactions including illicit transactions related to fraud.
Specifically, WUFSI failed to maintain adequate policies, procedures, and
internal controls for conducting due diligence on its agents, to terminate or
suspend agent locations involved in potential money laundering and fraud
transactions, and to implement or execute internal controls reasonably designed
to prevent fraud. As a result of WUFSI’s AML failures, certain agent locations
and outlets that WUFSI suspected were
involved in fraud and money laundering were able to continue to use WUFSI’s
money transfer system to facilitate
their activity. 

MSBs that do business
through agents or counterparties located outside of the United States must
implement and maintain as part of their AML program risk-based policies,
procedures, and controls reasonably designed to identify and minimize money
laundering and other illicit financing risks associated with such business.
FinCEN guidance has stated that “[t]o the extent [MSBs] utilize relationships
with foreign agents or counterparties to facilitate the movement of funds into
or out of the United States, they must take reasonable steps to guard against
the flow of illicit funds, or the flow of funds from legitimate sources to
persons seeking to use those funds for illicit purposes, through such
relationships.”9

____________________

7 31 U.S.C. §
5318(h); 31 C.F.R. § 1022.210(a). 
8 31 C.F.R. §§ 1022.210(c), (d).
9 FinCEN Guidance (Interpretive Release No. 2004-1),
Anti-Money Laundering Program
Requirements for Money Services Businesses with Respect to Foreign Agents or
Foreign Counterparties, 60 Fed.
Reg. 74,439 (Dec. 14, 2004).

4 

FinCEN has made clear that
the AML programs for MSBs engaged in such transactions should, among other
things, establish: (1) procedures for conducting reasonable, risk-based due
diligence on potential and existing foreign agents and counterparties to help
ensure that such foreign agents and counterparties are not themselves complicit
in illegal activity involving the MSB’s products and services, including
reasonable procedures to evaluate, on an ongoing basis, the operations of those
foreign agents and counterparties; (2) procedures for risk-based monitoring and
review of transactions from, to, or through the United States that are conducted
through foreign agents and counterparties sufficient to enable the MSBs to
identify and, where appropriate, report as suspicious such occurrences as
instances of unusual wire activity; and (3) procedures for responding to foreign
agents or counterparties that present unreasonable risks of money laundering or
the financing of terrorism, including procedures that provide for the
implementation of corrective action on the part of the foreign agent or
counterparty or for the termination of the relationship with any foreign agent
or counterparty that an MSB determines poses an unacceptable risk of money
laundering.10

1. Failure to Conduct Adequate Due Diligence on Foreign
Agents/Outlets 

For certain potential and
existing agent locations within Latin America, WUFSI failed to establish
adequate procedures for conducting reasonable, risk-based due diligence to help
ensure that such foreign agent locations and counterparties are not themselves
complicit in illegal activity involving WUFSI’s products and services, including
reasonable procedures to evaluate, on an ongoing basis, the operations of those
foreign agent locations and counterparties. WUFSI’s failure to conduct adequate
due diligence on these domestic and foreign agent locations included not
conducting adequate reviews (e.g., background checks and on-site reviews) of its
higher-risk new agents, and not conducting enhanced due diligence on Latin
American-based agent locations that were at higher risk for money laundering.
Because of these failures, WUFSI did not have sufficient controls to effectively
mitigate its money laundering risks along the southwest border between the
United States and Mexico.

WUFSI’s failures to conduct
sufficient initial due diligence into certain agent locations resulted in
providing “new agent” agreements to agents owned by individuals who had
previously been terminated by WUFSI for money laundering concerns. For example,
in October 2011, with the assistance of law enforcement, WUFSI identified that
four commonly owned agent locations in Peru accounted for nearly half of the
transactions related to consumer fraud reports in Peru. After these agents
processed transactions for another six months, WUFSI suspended these locations
for this activity in April 2012. Despite these suspensions and WUFSI’s
determination that the commonly-owned locations were high risk for fraud, WUFSI
failed to identify these concerns when it allowed the common owner of these
agents to open another location in December 2012.

WUFSI failed to implement
or execute effective policies and procedures for conducting adequate due
diligence to understand the money laundering risks associated with its subagent
relationships within Mexico. WUFSI used a “master agent” or “master payee”
payment model for remittances. The master agent would in turn contract with
subagents to deliver funds to recipients. WUFSI did not have sufficient policies
and procedures in place to understand the money laundering risks of its
Mexican-based master agents and subagents and conduct ongoing due diligence of
their activity. 

For example, during the
period covered by this CONSENT, WUFSI had a number of master agents and
subagents in Mexico to provide its services along the southwest border of the
United States with Mexico. Despite its knowledge of the money laundering risks
associated with the southwest border and the use of money remittances to send
narcotics proceeds to Mexico, WUFSI did not have sufficient knowledge of the
activities of certain higher-risk subagents and did not itself conduct, or
ensure that its master agents conducted, on-site reviews of certain subagents at
higher-risk of money laundering. This failure prevented WUFSI from ensuring that
its subagents were properly identifying the identification of the person
obtaining money in Mexico. WUFSI’s ability to properly monitor these
relationships was further affected by its use of three different processing
systems for its Mexican-branded remittance services. WUFSI did not transfer the
processing of these payments to one system until August 2012. 

____________________

10
Id.

5

2. Failure to
Terminate High-Risk Agent Locations11

WUFSI failed to establish
or implement sufficient procedures for suspending or terminating foreign agent
locations or counterparties that presented unreasonable risks of money
laundering including procedures that provide for the implementation of
corrective action on the part of the foreign agent or counterparty or for the
termination of the relationship with any foreign agent or counterparty that it
determined posed an unacceptable risk of money laundering. Specifically, WUFSI
applied disciplinary and termination actions inconsistently across its foreign
agent locations. 

For certain WUFSI agent
locations, WUFSI relied on various means to identify agent locations that were
potentially complicit in money laundering and/or fraudulent activity. WUFSI
reviewed consumer fraud reports, which were reports submitted by customers that
were victims of fraud, as well as suspicious activity reporting. WUFSI analysts
also generated “60-day fraud reports” for any agent location that had five or
more consumer fraud reports over a 60-day period. For agent locations that WUFSI
believed were potentially complicit in the activity, WUFSI could implement
remedial and disciplinary actions including temporary suspension, training,
compliance inspections, and termination. Although WUFSI did rely on these
corrective actions, it did not do so on a consistent basis and, at times,
allowed business interests to comment on appropriate corrective actions.

For example, prior to 2012,
WUFSI failed to sufficiently take corrective action against an agent location in
the United Kingdom that had over 73 60-day fraud reports and over 2,000 consumer
fraud reports sent to WUFSI. From 2005 through 2010, WUFSI identified this agent
location as a high fraud risk and potentially complicit in fraud over five
times. In each instance, WUFSI failed to
terminate the relationship and relied on corrective actions that proved
insufficient — including compliance reviews, training, and partial suspension.
In 2010, WUFSI compliance staff recommended termination or suspension of this
agent location in five separate instances as WUFSI analysts continued to
identify significant potential fraudulent activity through the agent location.
These recommendations did not result in termination of the relationship. WUFSI
only issued partial suspensions from engaging in U.S.-originated transfers and
then full reinstatement despite the continued presence of potentially fraudulent
activity. Despite over seven years of significant potential fraudulent activity,
WUFSI did not terminate this relationship until February of 2012.

In another example, WUFSI
failed to take sufficient corrective action with respect to four agent locations
that allowed customers to send remittances to China that displayed
characteristics of structuring. From 2003 to 2012, WUFSI filed over 31,000
suspicious activity reports (SARs) on remittances processed by four agent
locations that sent funds to China. For one of these agent locations, WUFSI
filed over 11,000 SARs. Between 2005 and 2010, WUFSI identified that this agent
had multiple compliance deficiencies including failure to file all currency
transaction reports (CTRs) and failure to monitor all transactions for
suspicious activity. Specifically, WUFSI repeatedly identified that this agent
location facilitated transactions of $2,500, just below the $3,000 recordkeeping
threshold, but above Western Union’s identification threshold, only minutes
apart. Despite continually identifying this activity, WUFSI implemented
insufficient corrective action and never suspended this agent location’s
relationship and this agent location continued to be one of WUFSI’s top accounts
for sending money to China. Despite the repeated identification of compliance
deficiencies, potential structuring activity, and the filing of over 11,000
SARs, WUFSI did not terminate this agent location until its owner was arrested in September of
2010. 

____________________

11 The items set
forth in this Section are contained in in the DPA with the U.S. Department of
Justice.

6

3. Failure to Implement
Sufficient Policies to Prevent Fraud

Prior to 2012, WUFSI failed to
implement a sufficient and adequately adhered to policy for disciplining agent
locations that WUFSI personnel should have known or suspected were involved in
fraud and/or money laundering. As early as 2004, WUFSI security and compliance
staff identified the need to implement additional discipline policies to take
corrective remedial action for agent locations that facilitated a high volume of
fraud and/or money laundering transactions.

In the years following
FinCEN’s Interpretative Release,12 various WUFSI compliance staff
also drafted or recommended additional policies for the company to reduce the
number of fraudulent transactions and discipline foreign agents engaged in fraud
or money laundering activity. However, WUFSI had unreasonable delays in
implementing some of the policies.

B. Violations of the Requirement to Report Suspicious
Activity

The BSA and its implementing
regulations require MSBs to report transactions that the MSB “knows, suspects,
or has reason to suspect” are suspicious, if the transaction is conducted or
attempted by, at, or through the MSB, and the transaction involves or aggregates
to at least $2,000 in funds or other assets.13 A transaction is
“suspicious” if the transaction: (a) involves funds derived from illegal
activity; (b) is intended or conducted in order to hide or disguise funds or
assets derived from illegal activity, or to disguise the ownership, nature,
source, location, or control of funds or assets derived from illegal activity;
(c) is designed, whether through structuring or other means, to evade any
requirement in the BSA or its implementing regulations; (d) serves no business
or apparent lawful purpose, and the MSB knows of no reasonable explanation for
the transaction after examining the
available facts, including the background and possible purpose of the transaction; or (e) involves use of the MSB
to facilitate criminal activity.14

Like other BSA filings,
suspicious activity reports (SARs) play an important role in detecting possible
criminal activity. FinCEN and law enforcement use SARs to, among other things,
investigate money laundering, terrorist financing and other serious criminal
activity. 

WUFSI’s failure to develop and
implement policies and procedures that could be reasonably expected to detect
and cause the reporting of suspicious transactions led to unreasonable delay in
filing thousands of SARs. Before 2012, in many cases, WUFSI took over 90 days to
investigate activity for which it had facts to constitute the basis for filing a
SAR. Additionally, although WUFSI filed thousands of SARs on customers of its
agent locations, it rarely filed SARs on its agent locations. WUFSI’s practice
was not to identify agent locations as “subjects” of SARs unless it found the
agent location to be complicit. WUFSI typically only found an agent to be
complicit if the agent was arrested, publicly identified to be implicated in
illicit transactions, or if WUFSI’s own investigation determined that the agent
location was complicit. By not filing these SARs in a timely manner, WUFSI
unnecessarily delayed reporting. 

____________________

12 See
supra, n.9.
13 31 C.F.R. § 1010.320(a)(2).
14
Id.

7

III. CIVIL MONEY PENALTY

FinCEN has determined that
WUFSI willfully violated the program and reporting requirements of the BSA and
its implementing regulations. FinCEN has also determined that grounds exist to
assess a civil money penalty for these violations.15

FinCEN has determined that the
penalty in this matter will be $184 million based on WUFSI’s AML program
failures and violations of its SAR filing obligations during the period before 2012. The U.S. Department of Justice will
collect $586 million from WUFSI. The U.S. Department of Justice has stated that
the funds collected through civil asset forfeiture will be used for restitution
of victims of fraud. In recognition of this arrangement, FinCEN will deem its
penalty fully satisfied by WUFSI’s payment to the U.S. Department of Justice as
required by the Deferred Prosecution Agreement. 

IV. UNDERTAKINGS

By executing this CONSENT,
WUFSI agrees to provide FinCEN with any reports required by the DPA. 

V. CONSENT TO ASSESSMENT

To resolve this matter, and
only for that purpose, WUFSI consents to the assessment of a civil money penalty
in the sum of $184 million and admits that it willfully violated the BSA’s
program, recordkeeping, and reporting requirements. 

WUFSI recognizes and states
that it enters into this CONSENT freely and voluntarily and that no offers,
promises, or inducements of any nature whatsoever have been made by FinCEN or
any employee, agent, or representative of FinCEN to induce WUFSI to enter into
the CONSENT, except for those specified in the CONSENT. 

WUFSI understands and agrees
that the CONSENT embodies the entire agreement between WUFSI and FinCEN relating
to this enforcement matter, as described in Section II above. WUFSI further
understands and agrees that there are no express or implied promises,
representations, or agreements between WUFSI and FinCEN other than those
expressly set forth or referred to in this document and that nothing in this
CONSENT or in the ASSESSMENT OF CIVIL MONEY PENALTY (ASSESSMENT) is binding on
any other agency of government, whether Federal, State or local. 

____________________

15 31 U.S.C. §
5321; 31 C.F.R. § 1010.820.

8

VI. PUBLIC STATEMENTS

WUFSI expressly agrees that it
shall not, nor shall its attorneys, agents, partners, directors, officers,
employees, affiliates, or any other person authorized to speak on its behalf,
make any public statement contradicting either its acceptance of responsibility
set forth in the CONSENT or any fact in the DETERMINATIONS section of the
CONSENT. FinCEN has sole discretion to determine whether a statement is
contradictory and violates the terms of the CONSENT. If WUFSI, or anyone
claiming to speak on behalf of WUFSI, makes such a contradictory statement,
WUFSI may avoid a breach of the agreement by repudiating such statement within
48 hours of notification by FinCEN. If FinCEN determines that WUFSI did not
satisfactorily repudiate such statement(s) within 48 hours of notification,
FinCEN may void, in its sole discretion, the releases contained in the CONSENT
and reinstitute enforcement proceedings against WUFSI. WUFSI expressly agrees to
waive any statute of limitations defense to the reinstituted enforcement
proceedings and further agrees not to contest any admission or other findings
made in the CONSENT. This paragraph does not apply to any statement made by any
present or former officer, director, employee, or agent of WUFSI in the course
of any criminal, regulatory, or civil case initiated against such individual,
unless WUFSI later ratifies such claims, directly or indirectly. WUFSI further
agrees that, upon notification by FinCEN, it will repudiate such statement to
the extent it contradicts either its acceptance of responsibility or any fact in
the CONSENT. 

VII. RELEASE 

Execution of this CONSENT, and
compliance with the terms of the ASSESSMENT and this CONSENT, settles all claims
that FinCEN may have against WUFSI for the conduct described in Section II of
this CONSENT. Execution of this CONSENT, and compliance with the terms of the
ASSESSMENT and this CONSENT, does not release any claim that FinCEN may have for conduct by WUFSI other than the
conduct described in Section II of this CONSENT, or any claim that FinCEN may
have against any party other than WUFSI. Upon request, WUFSI shall truthfully
disclose to FinCEN all factual information not protected by a valid claim of
attorney-client privilege or work product doctrine with respect to the
participation of parties other than WUFSI, including employees or agents of
WUFSI, or others, regarding the conduct described in Section II of this CONSENT.

If FinCEN determines, in its
sole judgment, that WUFSI has breached any portion of this agreement, FinCEN may
void, in its sole discretion, the releases contained in this CONSENT and
reinstitute enforcement proceedings against WUFSI, subject to written notice to
WUFSI and an opportunity to cure. WUFSI expressly agrees to waive any statute of
limitations defense to the reinstituted enforcement proceedings regarding the
conduct described in Section II of this CONSENT, and further agrees not to
contest any admission or other findings made in this CONSENT. 

9

VIII. WAIVERS

Nothing in this CONSENT or the
ASSESSMENT shall preclude any proceedings brought by FinCEN to enforce the terms
of this CONSENT or the ASSESSMENT, nor shall it constitute a waiver of any
right, power, or authority of any other representatives of the United States or
agencies thereof, including but not limited to the U.S. Department of Justice.

In executing this CONSENT,
WUFSI stipulates to the terms of this CONSENT and waives: 

	       	a.	       	All defenses to this
      CONSENT and the ASSESSMENT which can be waived;
		 
		b.		Any claim of double
      jeopardy based upon the execution of this CONSENT or the ASSESSMENT, or
      the payment of any civil money penalty herein or therein;
		 

	       	c.	       	Any claim that this
      CONSENT, the ASSESSMENT or the civil money penalty is unlawful or invalid,
      or violates the Constitution of the United States of America;
    and,
		 
		d.		All rights to seek in
      any way to contest the validity of this CONSENT, the ASSESSMENT, or
      payment of the civil money penalty, on any
grounds.

	/s/
      John R. Dye	January
      19, 2017
	John R. Dye	Date
	General Counsel and
      Assistant Secretary
	 	
	 	
	Western Union Financial Services, Inc.
	 
	 
	 
	 
	Accepted
      by:	
	 
	/s/
      Jamal El-Hindi	1/19/17
	Jamal El-Hindi	Date
	Acting Director	
	 
	FINANCIAL CRIMES ENFORCEMENT NETWORK
	U.S.
      Department of the Treasury	

10

UNITED STATES OF
AMERICA
DEPARTMENT OF THE TREASURY 
FINANCIAL CRIMES ENFORCEMENT NETWORK

	IN
      THE MATTER OF:	)	
	 	)	
	 	)       	Number 2017-01
	Western Union Financial Services, Inc.	)	
	Englewood, Colorado	)	

ASSESSMENT OF CIVIL
MONEY PENALTY

I. INTRODUCTION

The Financial Crimes
Enforcement Network (FinCEN) has determined that grounds exist to assess a civil
money penalty against Western Union Financial Services, Inc. (WUFSI or the
Company) pursuant to the Bank Secrecy Act (BSA) and regulations issued pursuant
to that Act.1

WUFSI admits to the facts set
forth below and that its conduct violated the BSA. In order to resolve this
matter, WUFSI consents to this assessment of a civil money penalty and entered
the CONSENT TO THE ASSESSMENT OF CIVIL MONEY PENALTY (CONSENT) with FinCEN.

The CONSENT is incorporated
into this ASSESSMENT OF CIVIL MONEY PEANLTY (ASSESSMENT) by reference. 

FinCEN has authority to
investigate financial institutions, including money services businesses (MSBs),
for compliance with and violation of the BSA pursuant to 31 C.F.R. § 1010.810,
which grants FinCEN “[o]verall authority for enforcement and compliance,
including coordination and direction of
procedures and activities of all other agencies exercising delegated authority
under this chapter. . . .” 

WUFSI is a wholly owned subsidiary of The Western
Union Company (Western Union). WUFSI offers consumer to consumer remittance
services through the branded payment services of Western Union, Vigo, and
Orlandi Valuta, which comprise a network of approximately 500,000 agent
locations in approximately 200 countries and territories worldwide. WUFSI
operated as a “financial institution” and a “money services business” within the
meaning of the BSA and its implementing regulations during the time relevant to
this action.2

____________________

1 The Bank Secrecy
Act is codified at 12 U.S.C. §§ 1829b, 1951–1959 and 31 U.S.C. §§ 5311–5314,
5316–5332. Regulations implementing the Bank Secrecy Act appear at 31 C.F.R.
Chapter X.
2 31 U.S.C. §
5312(a)(2); 31 C.F.R. § 1010.100(t)(3).

Resolution with the
United States Department of Justice 

On the same date as the
CONSENT, Western Union entered into a Deferred Prosecution Agreement (DPA) with
the United States Department of Justice, Criminal Division, Money Laundering and
Asset Recovery Section, and the U.S. Attorney’s Offices for the Middle District
of Pennsylvania, Central District of California, Eastern District of
Pennsylvania, and Southern District of Florida.3 The DPA stems from
allegations that during the period of 2004 through 2012, Western Union: failed
to implement and maintain an effective anti-money laundering (AML) program in
violation of the BSA and its regulations; and aided and abetted wire
fraud.4 As part of the DPA, the Department of Justice acknowledged
that since at least September 2012, Western Union implemented compliance
enhancements to continuously improve its anti-fraud and anti-money laundering
programs. Further, Western Union agreed to continue to enhance its AML and anti-fraud programs, and to pay to the
United States the sum of $586 million for restitution to the victims of the fraud. 

Resolution with the
Federal Trade Commission

On the same date as the
CONSENT, the Federal Trade Commission (FTC) entered into a Stipulated Order for
Permanent Injunction and Final Judgement (Order) with Western Union. The Order
is in resolution of the FTC’s allegations that Western Union failed to take
timely, appropriate, and effective measures to mitigate fraud in the processing
of money transfers sent by consumers. Western Union has neither admitted nor
denied the FTC’s allegations. As part of the Order, Western Union has agreed to
the appointment of an independent compliance auditor to ensure, among other
things, that thorough due diligence is conducted on all prospective and existing
Western Union agents, and that necessary steps are taken to monitor and
investigate agent activity. Western Union has also agreed to a monetary judgment
in the amount of $586 million which will be satisfied by complying with the
payment requirements of its DPA with the United States Department of Justice, as
referenced above in this CONSENT. 

II. DETERMINATIONS

Prior to 2012, WUFSI willfully
violated the BSA’s program, recordkeeping and reporting
requirements.5 As described below, WUFSI failed to adequately
implement and maintain an effective, risk-based AML program by failing to
implement or execute effective policies, procedures, and internal controls
reasonably designed to assure ongoing compliance (in particular, failures to
suspend or terminate certain agent locations in a timely manner); and failing to
conduct adequate due diligence on certain
foreign agents and subagents in Latin America. WUFSI also failed to file timely suspicious activity reports
(SARs).6

____________________

3 United States
v. The Western Union Company, et al., CR-17-__ (M.D. Pa. 2017). The CONSENT is expressly conditioned on the
U.S. District Court for the Middle District of Pennsylvania’s acceptance of the
DPA. If the DPA does not become effective, the CONSENT shall be deemed null and
void.
4 31 U.S.C. §§
5318(h), 5322; 18 U.S.C. §§ 1342, 1343.
5 In civil enforcement of the BSA under 31 U.S.C. §
5321(a)(1), to establish that a financial institution or individual acted
willfully, the government need only show that the financial institution or
individual acted with either reckless disregard or willful blindness. The
government need not show that the entity or individual had knowledge that the
conduct violated the BSA, or that the entity or individual otherwise acted with
an improper motive or bad purpose. WUFSI admits to “willfulness” here only as
the term is used in civil enforcement of the BSA under 31 U.S.C. §
5321(a)(1).
6 Pursuant
to WUFSI’s agreement with the states of Arizona, California, New Mexico and
Texas, a court appointed monitor previously identified recommended program
enhancements such as determinations made in this Section. At all times since the
commencement of such agreement, WUFSI has been working to remediate the
recommended program enhancements made pursuant to the agreement with the states
of Arizona, California, New Mexico and Texas, many of which are reiterated in
the CONSENT. WUFSI’s court appointed monitor has certified that such remediation
has been successfully completed.

2

	       A.	 	Violation of the Requirement to Implement an Effective
      Anti-Money Laundering Program

The BSA and its implementing
regulations require MSBs to develop, implement, and maintain an effective
written AML program that is reasonably designed to prevent the MSB from being
used to facilitate money laundering and the financing of terrorist
activities.7 At a minimum, an MSB is required to implement a written
AML program that: (a) provides for a system of internal controls reasonably
designed to assure ongoing compliance; (b) designates an individual or
individuals responsible for assuring day to day compliance with the program and
BSA requirements; (c) provides training for appropriate personnel, including
training in the detection of suspicious transactions; and (d) provides for
independent review to monitor and maintain an adequate
program.8

Prior to 2012, in certain
instances, WUFSI failed to implement or execute effective internal controls
sufficient to reasonably assure that the institution did not facilitate money
laundering transactions including illicit transactions related to fraud.
Specifically, WUFSI failed to maintain adequate policies, procedures, and
internal controls for conducting due diligence on its agents, to terminate or
suspend agent locations involved in potential money laundering and fraud
transactions, and to implement or execute internal controls reasonably designed
to prevent fraud. As a result of
WUFSI’s AML failures, certain agent locations and outlets that WUFSI suspected
were involved in fraud and money laundering were able to continue to use WUFSI’s
money transfer system to facilitate their activity.

____________________

7 31 U.S.C. §
5318(h); 31 C.F.R. § 1022.210(a).
8 31 C.F.R. §§ 1022.210(c), (d).

3

MSBs that do business
through agents or counterparties located outside of the United States must
implement and maintain as part of their AML program risk-based policies,
procedures, and controls reasonably designed to identify and minimize money
laundering and other illicit financing risks associated with such business.
FinCEN guidance has stated that “[t]o the extent [MSBs] utilize relationships
with foreign agents or counterparties to facilitate the movement of funds into
or out of the United States, they must take reasonable steps to guard against
the flow of illicit funds, or the flow of funds from legitimate sources to
persons seeking to use those funds for illicit purposes, through such
relationships.”9

FinCEN has made clear that
the AML programs for MSBs engaged in such transactions should, among other
things, establish: (1) procedures for conducting reasonable, risk-based due
diligence on potential and existing foreign agents and counterparties to help
ensure that such foreign agents and counterparties are not themselves complicit
in illegal activity involving the MSB’s products and services, including
reasonable procedures to evaluate, on an ongoing basis, the operations of those
foreign agents and counterparties; (2) procedures for risk-based monitoring and
review of transactions from, to, or through the United States that are conducted
through foreign agents and counterparties sufficient to enable the MSBs to
identify and, where appropriate, report as suspicious such occurrences as
instances of unusual wire activity; and (3) procedures for responding to foreign
agents or counterparties that present unreasonable risks of money laundering or
the financing of terrorism, including procedures that provide for the
implementation of corrective action on the part of the foreign agent or
counterparty or for the termination of the relationship with any foreign agent
or counterparty that an MSB determines poses an unacceptable risk of money
laundering.10

____________________

9 FinCEN
Guidance (Interpretive Release No. 2004-1), Anti-Money Laundering Program Requirements for
Money Services Businesses with Respect to Foreign Agents or Foreign
Counterparties, 60 Fed. Reg.
74,439 (Dec. 14, 2004).

10 Id.

4

1. Failure to Conduct
Adequate Due Diligence on Foreign Agents/Outlets 

For certain potential and
existing agent locations within Latin America, WUFSI failed to establish
adequate procedures for conducting reasonable, risk-based due diligence to help
ensure that such foreign agent locations and counterparties are not themselves
complicit in illegal activity involving WUFSI’s products and services, including
reasonable procedures to evaluate, on an ongoing basis, the operations of those
foreign agent locations and counterparties. WUFSI’s failure to conduct adequate
due diligence on these domestic and foreign agent locations included not
conducting adequate reviews (e.g., background checks and on-site reviews) of its
higher-risk new agents, and not conducting enhanced due diligence on Latin
American-based agent locations that were at higher risk for money laundering.
Because of these failures, WUFSI did not have sufficient controls to effectively
mitigate its money laundering risks along the southwest border between the
United States and Mexico.

WUFSI’s failures to conduct
sufficient initial due diligence into certain agent locations resulted in
providing “new agent” agreements to agents owned by individuals who had
previously been terminated by WUFSI for money laundering concerns. For example,
in October 2011, with the assistance of law enforcement, WUFSI identified that
four commonly owned agent locations in Peru accounted for nearly half of the
transactions related to consumer fraud reports in Peru. After these agents
processed transactions for another six months, WUFSI suspended these locations
for this activity in April 2012. Despite these suspensions and WUFSI’s
determination that the commonly-owned locations were high risk for fraud, WUFSI
failed to identify these concerns when it allowed the common owner of these
agents to open another location in December 2012. 

5 

WUFSI failed to implement
or execute effective policies and procedures for conducting adequate due
diligence to understand the money laundering risks associated with its subagent
relationships within Mexico. WUFSI used a “master agent” or “master payee”
payment model for remittances. The master agent would in turn contract with
subagents to deliver funds to recipients. WUFSI did not have sufficient policies
and procedures in place to understand the money laundering risks of its
Mexican-based master agents and subagents and conduct ongoing due diligence of
their activity. 

For example, during the
period covered by the CONSENT, WUFSI had a number of master agents and subagents
in Mexico to provide its services along the southwest border of the United
States with Mexico. Despite its knowledge of the money laundering risks
associated with the southwest border and the use of money remittances to send
narcotics proceeds to Mexico, WUFSI did not have sufficient knowledge of the
activities of certain higher-risk subagents and did not itself conduct, or
ensure that its master agents conducted, on-site reviews of certain subagents at
higher-risk of money laundering. This failure prevented WUFSI from ensuring that
its subagents were properly identifying the identification of the person
obtaining money in Mexico. WUFSI’s ability to properly monitor these
relationships was further affected by its use of three different processing
systems for its Mexican-branded remittance services. WUFSI did not transfer the
processing of these payments to one system until August 2012. 

6

2. Failure to
Terminate High-Risk Agent Locations11

WUFSI failed to establish
or implement sufficient procedures for suspending or terminating foreign agent
locations or counterparties that presented unreasonable risks of money
laundering including procedures that provide for the implementation of
corrective action on the part of the foreign agent or counterparty or for the
termination of the relationship with any foreign agent or counterparty that it
determined posed an unacceptable risk of money laundering. Specifically, WUFSI
applied disciplinary and termination actions inconsistently across its foreign
agent locations. 

For certain WUFSI agent
locations, WUFSI relied on various means to identify agent locations that were
potentially complicit in money laundering and/or fraudulent activity. WUFSI
reviewed consumer fraud reports, which were reports submitted by customers that
were victims of fraud, as well as suspicious activity reporting. WUFSI analysts
also generated “60-day fraud reports” for any agent location that had five or
more consumer fraud reports over a 60-day period. For agent locations that WUFSI
believed were potentially complicit in the activity, WUFSI could implement
remedial and disciplinary actions including temporary suspension, training,
compliance inspections, and termination. Although WUFSI did rely on these
corrective actions, it did not do so on a consistent basis and, at times,
allowed business interests to comment on appropriate corrective actions.

____________________

11 The items set
forth in this Section are contained in in the DPA with the U.S. Department of
Justice.

7

For example, prior to 2012,
WUFSI failed to sufficiently take corrective action against an agent location in
the United Kingdom that had over 73 60-day fraud reports and over 2,000 consumer
fraud reports sent to WUFSI. From 2005 through 2010, WUFSI identified this agent
location as a high fraud risk and potentially complicit in fraud over five
times. In each instance, WUFSI failed
to terminate the relationship and relied on corrective actions that proved
insufficient — including compliance reviews, training, and partial suspension.
In 2010, WUFSI compliance staff recommended termination or suspension of this
agent location in five separate instances as WUFSI analysts continued to
identify significant potential fraudulent activity through the agent location.
These recommendations did not result in termination of the relationship. WUFSI
only issued partial suspensions from engaging in U.S.-originated transfers and
then full reinstatement despite the continued presence of potentially fraudulent
activity. Despite over seven years of significant potential fraudulent activity,
WUFSI did not terminate this relationship until February of 2012. 

In another example, WUFSI
failed to take sufficient corrective action with respect to four agent locations
that allowed customers to send remittances to China that displayed
characteristics of structuring. From 2003 to 2012, WUFSI filed over 31,000
suspicious activity reports (SARs) on remittances processed by four agent
locations that sent funds to China. For one of these agent locations, WUFSI
filed over 11,000 SARs. Between 2005 and 2010, WUFSI identified that this agent
had multiple compliance deficiencies including failure to file all currency
transaction reports (CTRs) and failure to monitor all transactions for
suspicious activity. Specifically, WUFSI repeatedly identified that this agent
location facilitated transactions of $2,500, just below the $3,000 recordkeeping
threshold, but above Western Union’s identification threshold, only minutes
apart. Despite continually identifying this activity, WUFSI implemented
insufficient corrective action and never suspended this agent location’s
relationship and this agent location continued to be one of WUFSI’s top accounts
for sending money to China. Despite the repeated identification of compliance
deficiencies, potential structuring activity, and the filing of over 11,000
SARs, WUFSI did not terminate this agent location until its owner was arrested in September of
2010.

8

3. Failure to
Implement Sufficient Policies to Prevent Fraud

Prior to 2012, WUFSI failed
to implement a sufficient and adequately adhered to policy for disciplining
agent locations that WUFSI personnel should have known or suspected were
involved in fraud and/or money laundering. As early as 2004, WUFSI security and
compliance staff identified the need to implement additional discipline policies
to take corrective remedial action for agent locations that facilitated a high
volume of fraud and/or money laundering transactions.

In the years following
FinCEN’s Interpretative Release,12 various WUFSI compliance staff
also drafted or recommended additional policies for the company to reduce the
number of fraudulent transactions and discipline foreign agents engaged in fraud
or money laundering activity. However, WUFSI had unreasonable delays in
implementing some of the policies. 

B.
Violations of the
Requirement to Report Suspicious Activity 

The BSA and its
implementing regulations require MSBs to report transactions that the MSB
“knows, suspects, or has reason to suspect” are suspicious, if the transaction
is conducted or attempted by, at, or through the MSB, and the transaction
involves or aggregates to at least $2,000 in funds or other assets.13
A transaction is “suspicious” if the transaction: (a) involves funds derived
from illegal activity; (b) is intended or conducted in order to hide or disguise
funds or assets derived from illegal activity, or to disguise the ownership,
nature, source, location, or control of funds or assets derived from illegal
activity; (c) is designed, whether through structuring or other means, to evade
any requirement in the BSA or its implementing regulations; (d) serves no
business or apparent lawful purpose, and the MSB knows of no reasonable
explanation for the transaction after examining the available facts, including
the background and possible purpose of the transaction; or (e) involves use of
the MSB to facilitate criminal activity.14

____________________

12 See
supra, n.9.

13 31 C.F.R. §
1010.320(a)(2).

14 Id.

9

Like other BSA filings,
suspicious activity reports (SARs) play an important role in detecting possible
criminal activity. FinCEN and law enforcement use SARs to, among other things,
investigate money laundering, terrorist financing and other serious criminal
activity.

WUFSI’s failure to develop
and implement policies and procedures that could be reasonably expected to
detect and cause the reporting of suspicious transactions led to unreasonable
delay in filing thousands of SARs. Before 2012, in many cases, WUFSI took over
90 days to investigate activity for which it had facts to constitute the basis
for filing a SAR. Additionally, although WUFSI filed thousands of SARs on
customers of its agent locations, it rarely filed SARs on its agent locations.
WUFSI’s practice was not to identify agent locations as “subjects” of SARs
unless it found the agent location to be complicit. WUFSI typically only found
an agent to be complicit if the agent was arrested, publicly identified to be
implicated in illicit transactions, or if WUFSI’s own investigation determined
that the agent location was complicit. By not filing these SARs in a timely
manner, WUFSI unnecessarily delayed reporting.

III. CIVIL MONEY PENALTY

FinCEN has determined that
WUFSI willfully violated the program and reporting requirements of the BSA and
its implementing regulations. FinCEN has also determined that grounds exist to
assess a civil money penalty for these violations.15

____________________

15 31 U.S.C. §
5321; 31 C.F.R. § 1010.820.

10

FinCEN has determined that
the penalty in this matter will be $184 million based on WUFSI’s AML program
failures and violations of its SAR filing obligations during the period before
2012. The U.S. Department of Justice will collect $586 million from WUFSI. The
U.S. Department of Justice has stated that the funds collected through civil
asset forfeiture will be used for restitution of victims of fraud. In
recognition of this arrangement, FinCEN will deem its penalty fully satisfied by
WUFSI’s payment to the U.S. Department of Justice as required by the DPA.

IV. UNDERTAKINGS

By executing the CONSENT,
WUFSI agreed to provide FinCEN with any reports required by the DPA. 

V. CONSENT TO
ASSESSMENT 

To resolve this matter, and
only for that purpose, WUFSI consented to this ASSESSMENT of a civil money
penalty in the sum of $184 million and admits that it willfully violated the
BSA’s program, recordkeeping, and reporting requirements. 

WUFSI recognizes and states
that it entered into the CONSENT freely and voluntarily and that no offers,
promises, or inducements of any nature whatsoever have been made by FinCEN or
any employee, agent, or representative of FinCEN to induce WUFSI to enter into
the CONSENT, except for those specified in the CONSENT. 

WUFSI understands and
agrees that the CONSENT embodies the entire agreement between WUFSI and FinCEN
relating to this enforcement matter, as described in Section II above. WUFSI
further understands and agrees that there are no express or implied promises,
representations, or agreements between WUFSI and FinCEN other than those
expressly set forth or referred to in this document and that nothing in the
CONSENT or in this ASSESSMENT OF CIVIL MONEY PENALTY (ASSESSMENT) is binding on
any other agency of government, whether
Federal, State or local. 

11

VI. PUBLIC STATEMENTS

WUFSI expressly agrees that
it shall not, nor shall its attorneys, agents, partners, directors, officers,
employees, affiliates, or any other person authorized to speak on its behalf,
make any public statement contradicting either its acceptance of responsibility
set forth in the CONSENT or any fact in the DETERMINATIONS section of the
CONSENT. FinCEN has sole discretion to determine whether a statement is
contradictory and violates the terms of the CONSENT. If WUFSI, or anyone
claiming to speak on behalf of WUFSI, makes such a contradictory statement,
WUFSI may avoid a breach of the agreement by repudiating such statement within
48 hours of notification by FinCEN. If FinCEN determines that WUFSI did not
satisfactorily repudiate such statement(s) within 48 hours of notification,
FinCEN may void, in its sole discretion, the releases contained in the CONSENT
and reinstitute enforcement proceedings against WUFSI. WUFSI expressly agrees to
waive any statute of limitations defense to the reinstituted enforcement
proceedings and further agrees not to contest any admission or other findings
made in the CONSENT. This paragraph does not apply to any statement made by any
present or former officer, director, employee, or agent of WUFSI in the course
of any criminal, regulatory, or civil case initiated against such individual,
unless WUFSI later ratifies such claims, directly or indirectly. WUFSI further
agrees that, upon notification by FinCEN, it will repudiate such statement to
the extent it contradicts either its acceptance of responsibility or any fact in
the CONSENT. 

12 

VII. RELEASE

Execution of the CONSENT,
and compliance with the terms of this ASSESSMENT and the CONSENT, settles all claims that FinCEN may
have against WUFSI for the conduct described in Section II of the CONSENT. Execution of the CONSENT, and
compliance with the terms of this ASSESSMENT and the CONSENT, does not release
any claim that FinCEN may have for conduct by WUFSI other than the conduct
described in Section II of the CONSENT, or any claim that FinCEN may have
against any party other than WUFSI. Upon request, WUFSI shall truthfully
disclose to FinCEN all factual information not protected by a valid claim of
attorney-client privilege or work product doctrine with respect to the
participation of parties other than WUFSI, including employees or agents of
WUFSI, or others, regarding the conduct described in Section II of the CONSENT.

If FinCEN determines, in
its sole judgment, that WUFSI has breached any portion of this agreement, FinCEN
may void, in its sole discretion, the releases contained in the CONSENT and
reinstitute enforcement proceedings against WUFSI, subject to written notice to
WUFSI and an opportunity to cure. WUFSI expressly agrees to waive any statute of
limitations defense to the reinstituted enforcement proceedings regarding the
conduct described in Section II of the CONSENT, and further agrees not to
contest any admission or other findings made in the CONSENT.

	Accepted by:		
	  
	  
	  
	/s/ Jamal
    El-Hindi	 	January 19, 2017	 
	Jamal El-Hindi	 	Date	 
	Acting Director		
	   
	FINANCIAL CRIMES ENFORCEMENT
      NETWORK
	U.S. Department of the Treasury		

13Exhibit 4.1

COMMON STOCK PURCHASE WARRANT

 

PLURISTEM THERAPEUTICS INC.

 

	Warrant Shares: [_______	Initial Exercise Date: July [__, 2017

Issue Date: January [_, 2017

 

THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that, for value received, _____________ or its assigns (the "Holder") is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time following six (6) months from the date hereof (the "Initial Exercise Date") and on or prior to the close of business on the five (5) year anniversary of the Initial Exercise Date (the "Termination Date") but not thereafter, to subscribe for and purchase from Pluristem Therapeutics Inc., a Nevada corporation (the "Company"), up to ______ shares (as subject to adjustment hereunder, the "Warrant Shares") of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). 

Section 1.                Definitions.  In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:

 

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

 

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

 

"Commission" means the United States Securities and Exchange Commission.

 

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

 

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

 

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

 

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

 

"Trading Day" means a day on which the Common Stock is traded on a Trading Market.

 

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

 

"Transfer Agent" means American Stock Transfer & Trust Company, LLC, the current transfer agent of the Company, with a mailing address of 6201 15th Avenue, Brooklyn, NY 11219[ and a facsimile number of (718) 765-8712, and any successor transfer agent of the Company.

 

Section 2.                      Exercise.

a) Exercise of Warrants.  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto.  Within the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier's check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise.  No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

2

b) Exercise Price.  The exercise price per share of the Common Stock under this Warrant shall be $1.40, subject to adjustment hereunder (the "Exercise Price").

c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a "cashless exercise" in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) the last VWAP immediately preceding the time of delivery of the Notice of Exercise giving rise to the applicable "cashless exercise", as set forth in the applicable Notice of Exercise (to clarify, the "last VWAP" will be the last VWAP as calculated over an entire Trading Day such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the prior Trading Day's VWAP shall be used in this calculation);

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

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

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised.  The Company agrees not to take any position contrary to this Section 2(c).

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

3

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

d)            Mechanics of Exercise.

i.                Delivery of Warrant Shares Upon Exercise.  The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder's or its designee's balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system ("DWAC") if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company's share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the "Warrant Share Delivery Date.   Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. As used herein, "Standard Settlement Period" means the standard settlement period, expressed in a number of Trading Days, on the Company's primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

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

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

4

iv.              Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise.  In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company shall (A) pay in cash to the Holder the amount, if any, 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, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) 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.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a 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 shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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

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vi. Charges, Taxes and Expenses.  Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.  The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

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

 

e)            Holder's Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder's Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder's Affiliates (such Persons, "Attribution Parties")), 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 Holder and its Affiliates and Attribution Parties 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 (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other  Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith.   To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company 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 and the rules and regulations promulgated thereunder.  For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a 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 filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the 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 Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported.  The "Beneficial Ownership Limitation" shall be [9.99/4.99%] 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 Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), 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 Holder and the provisions of this Section 2(e) shall continue to apply.  Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

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Section 3.                           Certain Adjustments.

 

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

 

b)                     Subsequent Rights Offerings.  In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

 c)                    Pro Rata Distributions.  During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

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d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a "Fundamental Transaction"), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder's option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction.  "Black Scholes Value" means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the "OV" function on Bloomberg, L.P. ("Bloomberg") determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date.  The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five (5) Business Days of the Holder's election (or, if later, on the effective date of the Fundamental Transaction).  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "Successor Entity") to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

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

f)             Notice to Holder.

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, 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 delivered by facsimile or email to the Holder at its last facsimile number or email 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 deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

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Section 4.                              Transfer of Warrant.

 

a) Transferability.  This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full.  The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

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

 

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

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Section 5.                               Miscellaneous.

 

a) No Rights as Stockholder Until Exercise.  This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.  

 

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

 

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

 

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

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

 

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

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

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

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

a) Notices.  Any notices, consents, waivers or other document or communications required or permitted to be given or delivered under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, if delivered personally; (ii) when sent, if sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (iii) when sent, if sent by e-mail (provided that such sent e-mail is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient's e-mail server that such e-mail could not be delivered to such recipient) and (iv) if sent by overnight courier service, one (1) Trading Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses, facsimile numbers and e-mail addresses for such communications shall be:

 

If to the Company:

 

Pluristem Therapeutics Inc.

MATAM Advanced Technology Park, Building No. 5

Haifa, Israel 31905

Facsimile: +972-74-710-8787

E-mail: zami@pluristem.com

Attention: Zami Aberman, Chief Executive Officer

 

With a copy (for informational purposes only) to:

 

Zysman, Aharoni, Gayer and Sullivan & Worcester, LLP

1633 Broadway

New York, NY  10019

Facsimile: (212) 660-3001

E-mail: ohareven@sandw.com

Attention: Oded Har-Even, Esq.

 

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If to a Holder, to its address, facsimile number or e-mail address set forth herein or on the books and records of the Company.

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

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

d) Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

e) Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

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

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

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

(Signature Page Follows)

14

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

 

	
 

	

PLURISTEM THERAPEUTICS INC.

 

By:__________________________________________

 

      Name:

 

      Title:

15

 

NOTICE OF EXERCISE

TO:      PLURISTEM THERAPEUTICS INC.

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

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

    [  ] in lawful money of the United States; or

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

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

    _______________________________

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

    _______________________________

    _______________________________

    _______________________________

 

[SIGNATURE OF HOLDER]

Name of Investing Entity:

________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: 

_________________________________________________

Name of Authorized Signatory: 

___________________________________________________________________

Title of Authorized Signatory: 

____________________________________________________________________

Date: 

______________________________________________________________________________

 

EXHIBIT B

 

ASSIGNMENT FORM

 (To assign the foregoing Warrant, execute this form and supply required information.  Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

	
Name:

	 
	 	
(Please Print)

	
Address:

	 
	
 

Phone Number:

Email Address:

	
(Please Print)

______________________________________

______________________________________

	
Dated: _______________ __, ______

 

	 
	
Holder's Signature:

 

	 
	
Holder's Address:

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