Document:

Exhibit 10.6

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of February 3, 2014 but only effective for all purposes as of the Effective Date (as defined below) by and between Dipexium Pharmaceuticals, LLC, a limited liability organized under the laws of the State of Delaware (to be converted into a Delaware corporation and thereafter known as Dipexium Pharmaceuticals, Inc., the “Company”), and Robert G. Shawah, CPA (the “Executive”).

 

WHEREAS, the Company plans: (i) to consummate a conversion to a corporate form from a Delaware limited liability company to a Delaware corporation and (ii) following such conversion, to consummate an initial public offering of its common stock (the “IPO” and such events, the “Conditions,” and the date that both of the Conditions have been satisfied, the “Effective Date”); and

 

WHEREAS, as of the Effective Date, the Company desires to employ the Executive, and the Executive desires to be employed by the Company, on the terms and conditions contained herein.

 

NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants and agreements herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

1.                                      Term of Employment.  Subject to the provisions of Section 5 of this Agreement, the Executive shall be employed by the Company for a period commencing on the Effective Date and ending on the three-year anniversary of the Effective Date (the “Term”).  The Term shall be renewed automatically for additional one year period(s) unless terminated by the Company in writing by notice to Executive delivered no fewer than six (6) months prior to expiration of the then-applicable Term.

 

2.                                      Position.

 

(a)                                   Duties.  The principal duties of the Executive shall be to serve in the position of Chief Accounting Officer and Treasurer of the Company.  As Chief Accounting Officer and Treasurer, the Executive shall develop, implement and administer all accounting policies and earnings releases as well as oversee the Company’s accounting and financial control functions including, without limitation, SEC and regulatory reports and the preparation of corporate trial balances, financial statements (interim and year end), income tax returns and management of the treasury function.  Further responsibilities may include such other duties as would be consistent with those duties and responsibilities normally associated with such positions in corporations of similar size and nature to the Company, and to render such other services as are reasonably necessary or desirable to protect and advance the best interests of the Company.

 

(b)                                   Devotion of Time to Company’s Business.  The Executive shall use his best efforts, skills and abilities to promote and protect the interests of the Company and devote approximately 60% of his working time and energies to the business and affairs of the Company in the first year of the Term and, thereafter, any modification to this commitment will be as may

 

 

be mutually agreed between the Executive and the Company.  Notwithstanding anything to the contrary contained herein, the Executive (i) may serve on the board(s) of additional companies or organizations and receive compensation for such services rendered and (ii) may engage in charitable, civic, fraternal, professional and trade association activities, provided that in each such case the activities engaged in by the Executive do not materially interfere with his primary obligations to the Company and do not materially reduce the amount of his working time devoted to the business and affairs of the Company.

 

(c)                                    Directors and Officers Liability Insurance.  During the Term and for a period of six years thereafter, the Company, or any successor to the Company resulting from a change in control, shall maintain a directors and officers liability insurance policy (or policies) in a minimum amount of $3,000,000 which shall provide comprehensive coverage to Executive.

 

(d)                                   Best Efforts.  The Executive shall use his best efforts to carry out and successfully complete the assignments, tasks and job activities required, from time to time, to be performed to carry out Executive’s duties and responsibilities during the Term.  The Executive’s duties and assignments shall be undertaken at such location(s) as may be determined from time to time by the Company, but in no event shall Executive be required to perform his duties on a regular basis at any location more than 75 miles from the location where Executive regularly performs his duties for the Company immediately prior to the Effective Date.

 

(e)                                    Company Rules, Policies and Regulations.  The Executive shall, at all times, conduct himself in a professional manner and adhere to the standards, ethical obligations, rules, policies, regulations and procedures of the Company which are presently in force or which may be established from time to time by the Company.  Executive shall take no intentional action that violates any law, rule or regulation whatsoever while acting in his capacity as employee.

 

3.                                      Compensation and Benefits.

 

(a)                                Base Salary.  As of the Effective Date, the Executive shall be paid a base salary in consideration for his services provided to the Company at the rate of $165,000 per annum (the “Base Salary”), payable in accordance with the Company’s normal payroll practices.  Increases in Base Salary during the Term shall be determined from time to time in the sole discretion of the Board or any committee of the Board based upon such criteria as they deem relevant, or based on no particular criteria whatsoever.

 

(b)                                Additional Compensation.  The Executive shall have an annual bonus target equal to 25% of the then current Base Salary for each calendar year during the Term (the “Annual Bonus” and, together with the Base Salary, the “Annual Compensation”).  The Annual Bonus shall be fixed for the first year of Executive’s employment hereunder but thereafter shall be determined by consideration of the Board or Compensation Committee, as applicable, in its sole discretion, based upon criteria to be established in their sole discretion.  The Annual Bonus shall be paid to the Executive on or prior to the March 15 following the end of the year for which such Annual Bonus was earned; provided, that if the criteria for determining the Annual Bonus requires a review of the Company’s audited financial statements, the Annual Bonus (if payable) shall be paid on the 20th day after receipt by the Company of the audited financial statements.  The Executive also shall receive a one-time special cash bonus equal to $15,000 payable by the

 

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Company on the Effective Date.  The Executive also shall be entitled to receive additional cash, equity or other compensation or benefits in consideration for his services provided to the Company, at such times and in such amounts as shall be determined in the sole discretion of the Board or Compensation Committee, as applicable, which determines such compensation.  The Board and/or the Compensation Committee, as applicable, shall conduct a review not less than once each year in the month of December, and such additional compensation, if any, shall be based on, among other things, the Executive’s and the Company’s performance; provided, that any such additional compensation shall be structured and/or paid in a manner that avoids or complies with the requirements of Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (“Code”).

 

(c)                                 Equity Awards, etc.

 

(i)                                     On the Effective Date, the Executive shall receive a one-time grant of stock options (the “Initial Option Grant”) to purchase shares of Company common stock in an amount equal to one percent (1.0%) of the primary shares of Company common stock outstanding following the satisfaction of the each of the Conditions.  The Initial Option Grant: (A) shall be issued under and be subject to the terms of the Company’s 2013 Equity Incentive Plan (the “Plan”), (B) will vest in thirty-six (36) equal monthly installments beginning on the one month anniversary of the Effective Date, (C) will have a per share exercise price equal to the Fair Market Value (as defined in the Plan) of a share of Company common stock on the Effective Date, and (D) shall provide for cashless exercise (in accordance with the applicable provisions of the Plan).

 

(ii)                                  In addition to the other compensation payable to the Executive hereunder, the Executive shall be entitled to receive grants of stock options, restricted stock and/or any other equity incentive awards available to senior executives of the Company, under the Plan or any other equity incentive plans adopted by the Company, at such times and in such amounts as shall be determined in the sole discretion of the Board or the Compensation Committee of the Board, as applicable, which determines such equity grants.

 

(d)                                 Upon the occurrence of a Change in Control (as defined below) of the Company, if all or any portion of the payments provided under this Agreement and/or any other payments and benefits that the Executive receives or is entitled to receive from the Company or an affiliate thereof constitutes an “excess parachute payment” within the meaning of Section 280G(b)(1) of the Code (each such payment, a “Parachute Payment”), and would result in the imposition on the Executive of an excise tax under Section 4999 of the Code (“Excise Tax”), then in addition to any other benefits to which the Executive is entitled under this Agreement, the Company shall pay the Executive an additional amount in cash (the “Gross-Up Payment”) such that the net amount received by the Executive in connection with the Change in Control, after payment of any Excise Tax by Executive, shall be equal to the aggregate Parachute Payments payable to the Executive.  For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay Federal income tax at the highest marginal rate of Federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state or locality of the Executive’s residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such

 

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state and local taxes.  Any Gross-Up Payment due to the Executive under this Section 3(d) shall be paid to the Executive no later than the end of the year following the year in which the Executive or the Company paid the related taxes.

 

(e)                                  Withholding.  All salaries, bonuses and other benefits payable to the Executive shall be subject to payroll and withholding taxes as may be required by law.

 

4.                                      Employee Benefits; Business Expenses.

 

(a)                                 Employee Benefits.  During the Term, the Executive and his dependents shall be entitled to participate in the Company’s healthcare plans, welfare benefit plans, fringe benefit plans and any qualified or non-qualified retirement plans as in effect from time to time (collectively, the “Employee Benefits”), on the same basis as those benefits are made available to the other senior executives of the Company, in accordance with the Company policy as in effect from time to time and in accordance with the terms of the applicable plan documents (if any).  If at any time the Company does provide a health insurance plan for which the Executive is eligible, the Executive shall be entitled to reimbursement by the Company of the cost of health insurance paid by the Executive for the Executive and his family.  Any such reimbursement shall be paid to the Executive not later than March 15 of the year following the calendar year in which the Executive paid such cost.

 

(b)                                 Perquisites.  During the Term, the Executive shall be entitled to receive such perquisites as are made available to other senior executives of the Company in accordance with Company policies as in effect from time to time.

 

(c)                                  Expenses.  The Executive shall be entitled to reimbursement for reasonable and necessary business expenses incurred by him in the performance of his duties and responsibilities hereunder, in accordance with the Company’s reimbursement and expenses policies, as in effect from time to time.

 

(d)                                 Vacation.  The Executive shall be entitled to five (5) weeks paid vacation per annum; provided, that the Executive shall be paid annually in cash for vacation days not taken by him; provided that any such payment shall be paid to the Executive not later than March 15 of the year following the calendar year in which the unused vacation days accrued.

 

5.                                      Termination.

 

(a)                                Definitions.  For purposes of this Agreement:

 

“Cause” shall mean (i) the Executive’s gross negligence and/or willful misconduct (as such terms are generally understood and applied to the performance of an executive) in the performance of his material duties with respect to the Company as determined, in each case, by a court of competent jurisdiction not subject to further appeal or a final arbitration award, as provided hereunder, (ii) the conviction by the Executive of a crime constituting a felony or (iii) the Executive shall have committed any material act of malfeasance, disloyalty, dishonesty or breach of fiduciary duty against the Company, for which the Executive shall have a ten (10) day cure period following notice thereof from the Company (except for a conviction pursuant to subsection (ii), for which there shall be no cure period).

 

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“Change of Control” means the occurrence of any one or more of the following events (it being agreed that, with respect to paragraphs (i) and (iii) of this definition below, a “Change of Control” shall not be deemed to have occurred if the applicable third party acquiring party is an “affiliate” of the Company within the meaning of Rule 405 promulgated under the Securities Act of 1933, as amended):

 

(i)                                     An acquisition (whether directly from the Company or otherwise) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities and Exchange Act of 1934, as amended (the “1934 Act”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of forty percent (40%) or more of the combined voting power of the Company’s then outstanding Voting Securities; or

 

(ii)                                  The individuals who, as of the Effective Date, are members of the Board cease, by reason of a financing, merger, combination, acquisition, takeover or other non-ordinary course transaction affecting the Company, to constitute at least fifty-one percent (51%) of the members of the Board; or

 

(iii)                               the consummation, in one or a series of related transactions, of:

 

(A)                               A merger, consolidation or reorganization involving the Company, where either or both of the events described in clauses (i) or (ii) above would be the result;

 

(B)                               A liquidation or dissolution of or appointment of a receiver, rehabilitator, conservator or similar person for, or the filing by a third party of an involuntary bankruptcy against, the Company; or

 

(C)                               An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a subsidiary of the Company).

 

“Date of Termination” shall mean the date the Notice of Termination is given to the respective party; provided, however, that with respect to a termination for Cause by the Company, the Date of Termination shall not occur prior to the expiration of any applicable cure period.

 

“Disability” shall mean the Executive has become physically or mentally incapacitated and is therefore unable for a period of four (4) consecutive months to perform any of the material elements of his duties hereunder.  Any question as to whether the Executive has a Disability as to which he (or his legal representative) and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to the Executive (or his legal representative) and the Company.  If the Executive (or his legal representative) and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing.  The determination of whether the Executive has a Disability, as made in writing to the Company and

 

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the Executive by such physician(s), shall be final and conclusive for all purposes of this Agreement.

 

“Good Reason” shall mean (i) a breach by the Company of any of its material obligations or covenants set forth in this Agreement, (ii) a material reduction of the duties, responsibilities or title of the Executive, (iii) the assignment to the Executive of any duties or responsibilities that are inconsistent, in any significant respect, with his position, for which the Company shall have a ten (10) day cure period following notice thereof from Executive to the Company, (iv) an abandonment of, or fundamental change in, the primary business or primary products of the Company, (v) a Change of Control, but only if the Executive’s resignation occurs within twelve (12) months after the occurrence of such Change of Control.

 

“Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated, and shall be communicated, in writing, to the other party hereto in accordance with the provisions of Section 10(g) hereof.

 

(b)                               By the Company for Cause or by the Executive Without Good Reason.

 

(i)                                     The Term and the Executive’s employment hereunder may be terminated by the Company for Cause, immediately upon the delivery of a Notice of Termination by the Company to the Executive (except where the Executive is entitled to a cure period, in which case such Date of Termination shall be upon the expiration of such cure period if such matter constituting Cause is not cured) and shall terminate automatically upon the Executive’s resignation (other than for Good Reason or due to the Executive’s death or Disability).

 

(ii)                                  If the Executive’s employment is terminated by the Company for Cause, or if the Executive resigns other than for Good Reason, the Executive shall be entitled to receive:

 

(A)                             any earned but unpaid Base Salary and/or accrued but unused vacation, all vested equity, and any earned but unpaid bonus awards through the Date of Termination,

 

(B)                             reimbursement for any unreimbursed business expenses incurred by the Executive in accordance with the Company’s policy prior to the Date of Termination (with such reimbursements to be paid promptly after the Executive provides the Company with the necessary documentation of such expenses to the extent required by such policy but in no event later than the end of the second calendar month following the year in which the Date of Termination occurred), and

 

(C)                             such Employee Benefits, if any, as to which he may be entitled upon termination of employment under the terms of the plan documents and applicable law (including under the applicable provisions of Consolidated Omnibus Budget Reconciliation Act of 1985, as amended).

 

Following the Executive’s termination of employment by the Company for Cause or if he resigns other than for Good Reason, except as set forth above or as required by applicable law, the

 

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Executive shall have no further rights to any compensation or any other benefits or perquisites under this Agreement and all unvested option or restricted stock grant awards shall immediately be cancelled without the need for any action by the Company.

 

(c)                                By the Company Other Than for Cause or by the Executive for Good Reason.

 

(i)                                     The Term and the Executive’s employment hereunder may be terminated by the Company other than for Cause, immediately upon the delivery of a Notice of Termination by the Company to the Executive and shall terminate automatically and immediately upon the Executive’s resignation for Good Reason at the end of any applicable cure period if the circumstances giving rise to Good Reason are not cured.

 

(ii)                                  If the Executive’s employment is terminated by the Company other than for Cause, or if the Executive resigns for Good Reason, the Executive shall receive and the Company shall pay to Executive on the Date of Termination:

 

(A)                             any earned but unpaid Base Salary and/or accrued but unused vacation, all vested equity, and any earned but unpaid bonus awards through the Date of Termination, plus an additional twelve (12) months of Base Salary, together in a lump sum payment; provided, however, that the Executive shall not be entitled to any such additional Base Salary or earned but unpaid cash bonuses in the event such termination or resignation is due solely to the Company’s inability to pay its debts as they generally come due;

 

(B)                             acceleration of any then unvested stock options, restricted stock grants or other equity awards;

 

(C)                             payment or reimbursement, as applicable, of the full health insurance costs for the Executive and his family under a Company-provided group health plan or otherwise for twenty four (24) following termination by the Company other than for Cause or resignation by Executive for Good Reason, provided that any such payment or reimbursement which constitutes deferred compensation under Section 409A shall be made annually within thirty (30) days after the end of the calendar year in which the health insurance costs were incurred;

 

(D)                             reimbursement for any accrued but unused vacation days and/or unreimbursed business expenses incurred by the Executive in accordance with the Company’s policy prior to the Date of Termination (with such reimbursements to be paid promptly after the Executive provides the Company with the necessary documentation of such expenses to the extent required by such policy but in no event later than the end of the second calendar month following the year in which the Date of Termination occurred); and

 

(E)                              such other Employee Benefits, if any, as to which he may be entitled upon termination of employment hereunder.

 

Following the Executive’s termination of employment by the Company other than for Cause or if he resigns for Good Reason, except as set forth above or as required by applicable law, the

 

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Executive shall have no further rights to any compensation or any other benefits under this Agreement.  Notwithstanding the foregoing, in order to be eligible for any of the severance payments and benefits under this Section 5(c), the Executive must execute and deliver to the Company a general release in a form reasonably satisfactory to the Board.  If the payments to be made under this Section 5(c) are otherwise subject to Section 409A, they shall be made, or commence to be made, on the first pay period following the date that is thirty (30) days after the Executive’s employment terminates.  If the payments are not otherwise subject to Section 409A, they shall be made, or commence to be made, on the first business day after the release becomes effective.  The initial payment shall include any unpaid amounts from the date the Executive’s employment terminated, subject to the Executive’s executing and delivering the release on the terms as set forth above.

 

(d)                               Death or Disability.  The Executive’s employment hereunder shall terminate upon the Executive’s death and may be terminated by the Company, within ten (10) days after the delivery of a Notice of Termination by the Company to the Executive (or his legal representative) in the event of the Executive’s Disability.  Upon termination of the Executive’s employment hereunder for either Disability or death, the Executive shall be entitled to receive the same payments and other items as set forth in clause (ii) of Section 5(b) hereof, except that Executive (in case of Disability) or the estate (in the event of death) shall have the right to exercise any unexercised and vested options for a period of 90 days, and, in addition, to receive payment for accrued but unpaid vacation time, if any.  Following the Executive’s termination of employment due to death or Disability, except as set forth herein or as required by applicable law, the Executive (nor his estate) shall have no further rights to any compensation or any other benefits under this Agreement.

 

(e)                                Payment of Amounts Owed upon Termination of Employment.  Unless otherwise provided herein, any amounts payable to the Executive for earned but unpaid Base Salary and cash, equity or other bonus awards through the Date of Termination shall be paid within ten (10) business days after the Date of Termination.

 

6.                                      Restrictive Covenants.

 

(a)                                 Definitions.

 

(i)                                     “Confidential Information” means all confidential and proprietary of, about, or relating to the Company and the Company Business, including, without limitation, any and all documents received or generated by Executive, existing and potential customer lists, trade secrets (as defined under applicable state law), pricing, financial, corporate, and personnel information, customer data, methods of operation, business plans, techniques, prototypes, sketches, drawings, models, inventions, know-how, processes, apparatus, software programs, computer codes, source codes, equipment, algorithms, source documents, formulae, methods, data, descriptions relating to current, future, and proposed products and services, information concerning research, experimental work, development, specifications, engineering, procurement requirements, purchasing, agents and suppliers, business forecasts, marketing plans and information received from third parties (including customers) that is subject to a duty on Executive’s part to maintain its confidentiality.  Confidential Information does not include information that is generally known to the public, provided it is generally known to the public

 

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other than as a result of disclosure of such information by Executive in violation of this Agreement.

 

(ii)                                  “Commercial Partner” means each third party person or entity with whom Executive interacts on behalf of the Company during the term of his employment with the Company, whether pursuant to this Agreement or otherwise, including, without limitation, licensors, licensees, contract research organizations, contract sales organizations and joint venture partners; provided that, on the date of the termination of Executive’s employment with the Company, Commercial Partner shall mean those third party persons and entities with whom Executive interacted on behalf of the Company during the Lookback Period.

 

(iii)                               “Company Business” means the business(es) engaged in by the Company, from time to time during the term of Executive’s employment with the Company, whether pursuant to this Agreement or otherwise; provided that, on the date of the termination of Executive’s employment with the Company, the Company Business shall be the business(es) engaged in by the Company during the Lookback Period.

 

(iv)                              “Former Employee” means any person who has been employed or engaged as an independent contractor by the Company during the Look Back Period.

 

(v)                                 “Former Commercial Partner” means each third party person or entity who is not a Commercial Partner but was a Commercial Partner during the Look Back Period.

 

(vi)                              “Look Back Period” means the two (2) year period immediately preceding the earlier of: (1) the date on which the definition in question is being determined; or (2) the date when Executive is no longer employed by the Company, whether pursuant to this Agreement or otherwise.

 

(vii)                           “Prospect” means each person or entity who is not a Commercial Partner, and for whom, at any time during the Look Back Period, the Company, whether through its employees, contractors or vendors, expended directed marketing efforts or undertook other business development efforts which resulted in at least an indication of interest from such person or entity of becoming a Commercial Partner.

 

(viii)                        “Territory” means the United States and Canada.

 

(b)                                 Non-Solicitation, Non-Competition and Non-Piracy.  For the term of Executive’s employment, whether under this Agreement or otherwise, and for a period of one (1) year after the cancellation, termination or expiration of Executive’s employment with the Company (the “Restriction Period”), by whatever means and for whatever reason, Executive shall not, directly or indirectly, individually, or jointly with others, for the benefit of Executive or any third party:

 

(i)                                     have any equity or other ownership interest in, or become a director or manager of, or be otherwise associated with, or engaged or employed by, any Commercial Partner, Prospect or Former Commercial Partner or their subsidiary or parent entities or affiliates in any job or career that relates to or concerns any activity substantially similar, in whole or in part, to the Company Business;

 

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(ii)                                  solicit, render services to, or accept business from any Commercial Partner or Prospect or any of their subsidiary or parent entities or affiliates for any business activity that relates to or concerns any activity substantially similar, in whole or in part, to the Company Business; provided that Executive shall not be bound by the foregoing with respect to persons to whom Executive has made sales or otherwise provided products and services prior to the date hereof; and provided further, however, if this Agreement is terminated pursuant to Section 5(c), the restrictive covenant contained in this subsection shall only apply if Employee had ever received the Base Salary and then only for so long as Employee receives payments under Section 5(c) in a timely manner; and

 

(iii)                               solicit, hire, compensate or engage as an employee, agent, contractor, shareholder, member, joint venturer, or consultant, whether or not for consideration, any of the Company’s employees or otherwise induce any of the Company’s employees, subcontractors or vendors to change their relationship with the Company.

 

(c)                                  Confidentiality.  Executive shall never: (i) disclose any Confidential Information; and (ii) directly or indirectly give or permit any person or entity to have access to any Confidential Information; and (iii) make any use, commercial or otherwise, of any Confidential Information, except, solely as reasonably required to perform Executive’s employment duties with the Company and solely for the benefit of the Company.

 

(d)                                 Restrictive Covenants Scope.  The parties acknowledge that the provisions of this section are necessary and reasonable to protect the legitimate business interest of the Company and any violation of the provisions of this section will result in irreparable injury to the Company, the exact amount of which will be difficult to ascertain, and that the remedies at law for any such violation would not be reasonable or adequate compensation to the Company for such violation.  Accordingly, Executive agrees that if the provisions of this section are violated, in addition to any other remedy which may be available in equity or at law, the Company shall be entitled to specific performance and injunctive relief, without the necessity of proving actual damages.

 

(e)                                  Tolling of Restriction Period.  In the event of Executive’s breach of one or more of the provisions of this section, the running of the Restriction Period shall be tolled during the continuation of such breach(es) and recommence only upon Executive’s full and complete compliance with the provisions of this Section 6.

 

(f)                                   Judicial Modification.  In the event a court of competent jurisdiction holds one or more of the provisions of the restrictive covenants invalid as to length of time or geographic scope, then this Section 6 shall be amended to reflect a different length of time and/or geographic scope.

 

7.                                      Works for Hire and Intellectual Property. Executive acknowledges and agrees that: (a) all Work Product (as defined below) that so qualifies shall be deemed a work for hire; and (b) he hereby assigns all of his intellectual property and other rights in all other Work Product to the Company.  All right, title and interest in and to, and the right to pursue protection for, Work Product shall vest solely with the Company.  Upon request by the Company,

 

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Executive shall use reasonable efforts, at no additional expense, to assist the Company in securing any intellectual property protection for Work Product and shall execute all documents reasonably necessary to effect an assignment as contemplated herein.  No license is granted to Executive in, to or under any Work Product or other intellectual property (including, but not limited to, patents, trade secrets, copyrighted materials and trademarks) owned, licensed or otherwise assertable by Executive by express or implied grant, estoppel or otherwise, except for a limited right to use any such intellectual property solely in the performance of Executive’s employment duties and solely for the benefit of the Company.  All benefits from the use of any such intellectual property, including Work Product, shall inure solely to the Company.  “Work Product” means all tangible or intangible works: (X) (1) created, produced or modified during or in connection with Executive’s employment by the Company; or (2) which are related to, or that can be utilized in, the Company Business; and (Y) that could qualify as the subject matter of a copyright, patent, trade secret or any other form of intellectual property; and shall include, without limitation, all work produced by or for the benefit of the Company, any Company Affiliated Party, Commercial Partners, Former Commercial Partners and Prospects.

 

8.                                      Company Property.  Executive agrees that all Company Property (as defined below) is the property solely of the Company and Executive waives and relinquishes any and all interests or property rights he or she may have therein in favor of the Company.  Executive shall immediately return all of the Company Property to the Company at the Company’s address or such other location as may be directed by the Company upon: (A) the Company’s request at any time; and (B) upon the termination of Executive’s employment.  “Company Property” includes, but is not limited to: (X) records relating to Commercial Partners, Former Commercial Partners, Prospectus and Confidential Information in whatever form they exist, and by whomever prepared, including, but not limited to, notes of Executive; (Y) tangible embodiments of or containing Work Product or Confidential Information; and (Z) tangible and intangible property pertaining to the Company Business or arising out of or used by Executive in the performance of his duties for the Company.

 

9.                                      Independent Covenant.  Executive acknowledges and agrees that the provisions of sections 6, 7 and 8 hereof are independent covenants and no actual or alleged breach by the Company of any provision of this Agreement or the employment relationship shall be grounds for relieving Executive from his obligations thereunder.

 

10.                               Miscellaneous.

 

(a)                                   Governing Law.  This Agreement shall be construed and governed under and by the laws of the State of New York, without regard to the conflicts of laws principles thereof.

 

(b)                                   Arbitration of Claims.  In the event of any dispute, claim, question or disagreement arising from or relating to this Agreement or the breach thereof, the Company and Executive agree to settle the dispute, claim, question or disagreement by arbitration before a single arbitrator in New York County, New York selected by, and such arbitration to be administered by, the American Arbitration Association (“AAA”) in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.  Each of the Company and Executive hereby agrees and acknowledges that all disputes between or among them are subject to the alternative

 

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dispute resolution procedures of this Section 10(b).  Each of the Company and Executive agrees that any aspect of alternative dispute resolution not specifically covered in this Agreement shall be covered, without limitation, by the applicable AAA rules and procedures.  Each of the Company and Executive further agree that any determination by the arbitrator regarding any dispute, claim, question or disagreement arising from or relating to this Agreement shall be final and binding upon the parties hereto and shall not be subject to further appeal.  Each of the Company and Executive shall bear its own costs and expenses and an equal share of the arbitrator’s fees and administrative fees of arbitration; provided, however, that upon receipt of the determination by the arbitrator the prevailing party shall have all reasonable out-of-pocket fees and expenses reimbursed promptly (in all events within 10 calendar days following delivery to both parties of the arbitrator’s decision) by the non-prevailing party in any such dispute.

 

(c)                                    Entire Agreement; Amendments.  This Agreement sets forth the entire understanding of the parties concerning the subject matter of this Agreement and incorporates all prior negotiations and understandings.  There are no covenants, promises, agreements, conditions or understandings, either oral or written, between them relating to the subject matter of this Agreement other than those set forth herein.  The publication, amendment, supplementation or replacement of an employee handbook by the Company shall not be deemed to alter, amend or modify the terms and conditions of this Agreement.  No alteration, amendment, change or addition to this Agreement shall be binding upon any party unless in writing and signed by the party to be charged.  No purported waiver by any party of any default by another party of any term or provision contained herein shall be deemed to be a waiver of such term or provision unless the waiver is in writing and signed by the waiving party. No such waiver shall in any event be deemed a waiver of any subsequent default under the same or any other term or provision contained herein.  This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto.

 

(d)                                   No Waiver.  No waiver of any of the provisions of this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed or be construed as a further, continuing or subsequent waiver of any such provision or as a waiver of any other provision of this Agreement.  No failure to exercise and no delay in exercising any right, remedy or power hereunder will preclude any other or further exercise of any other right, remedy or power provided herein or by law or in equity.

 

(e)                                    Severability.  If any term or provisions of this Agreement, or the application thereof to any person or circumstance, shall be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances, other than those as to which it is held invalid, shall both be unaffected thereby and each term or provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law.

 

(f)                                     Assignment.  This Agreement, and all of the Executive’s rights and duties hereunder, shall not be assignable or delegable by the Executive; provided, however, that if the Executive shall die, all amounts then payable to the Executive hereunder shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee or other designee or, if there be no such devisee, legatee or designee, to his estate.  The Company and its successors and assigns may, at any time and from time to time, assign its rights and obligations under this Agreement, including, without limitation, the rights arising pursuant to sections 6, 7

 

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and 8, without Executive’s consent to a buyer of all or substantially all of the assets, or a majority of the voting stock, of the Company.  Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such affiliate or successor person or entity.

 

(g)                                    Notices.  For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or internationally recognized courier service addressed to the respective addresses set forth below in this Agreement, or via facsimile to the number set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

 

If to the Company:

 

Dipexium Pharmaceuticals, Inc.

 

Attention: President

Fax:

 

If to the Executive:

 

Robert G. Shawah, CPA

 

Fax:

 

To the most recent address of the Executive set forth in the personnel records of the Company.

 

(h)                                 Prior Agreements.  This Agreement supersedes all prior agreements and understandings (including verbal agreements) between the Executive and the Company regarding the terms and conditions of the Executive’s employment with the Company.

 

(i)                                    Cooperation.  The Executive shall provide his reasonable cooperation in connection with any action or proceeding (or any appeal from any action or proceeding) which relates to events occurring during the Executive’s employment hereunder, but only to the extent the Company requests such cooperation with reasonable advance notice to the Executive and in respect of such periods of time as shall not unreasonably interfere with the Executive’s ability to perform his duties with any subsequent employer; provided, however, the Company shall pay any reasonable travel, lodging and related expenses that the Executive may incur in connection with providing all such cooperation, to the extent approved by the Company prior to incurring such expenses.

 

(j)                                      Execution and Counterparts.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to

 

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the other party, it being understood that the parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

(k)                                Survival.  Sections 6, 7, 8 and 10 shall survive the termination, cancellation or expiration of this Agreement by whatever means for whatever reason.

 

(l)                                    Fees and Expenses.  In the event the Company shall fail or refuse to make or authorize any payment of any amount otherwise due to the Executive hereunder within the appropriate period of time, then the Company shall reimburse the Executive for all reasonable expenses (including reasonable counsel fees and expenses) incurred by him in enforcing the terms hereof, within five (5) business days after demand accompanied by evidence of fees and expenses incurred.  With regard to any dispute pursuant to this Agreement, the Company and Executive agree that the non-prevailing party shall promptly reimburse any and all reasonable attorneys’ fees to the prevailing party in connection therewith.  Any reimbursement hereunder shall be paid promptly and in no event later than the end of his taxable year next following the taxable year in which the expense was incurred.

 

(m)                            Section 409A.

 

(i)                                     The parties intend that the payments and benefits provided for in this Agreement either be exempt from Section 409A, or be provided in a manner that complies with Section 409A and any ambiguity herein shall be interpreted so as to be consistent with the intent of this paragraph.  In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on the Executive by Section 409A or damages for failing to comply with Section 409A.  Notwithstanding anything contained herein to the contrary, all payments and benefits which are payable upon a termination of employment hereunder shall be paid or provided only upon those terminations of employment that constitute a “separation from service” from the Company within the meaning of Section 409A (determined after applying the presumptions set forth in Treas. Reg. Section 1.409A-1(h)(1)).  Further, if the Executive is a “specified employee” as such term is defined under Section 409A at the time of a termination of employment and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated recognition of income or additional tax under Section 409A, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in payments or benefits ultimately paid or provided to the Executive) until the date that is at least six (6) months following the Executive’s termination of employment with the Company (or the earliest date permitted under Section 409A, e.g., immediately upon the Executive’s death), whereupon the Company will promptly pay the Executive a lump-sum amount equal to the cumulative amounts that would have otherwise been previously paid to the Executive under this Agreement during the period in which such payments or benefits were deferred.  Thereafter, payments will resume in accordance with this Agreement.

 

(ii)                                  Notwithstanding anything to the contrary in this Agreement, in-kind benefits and reimbursements provided hereunder during any calendar year shall not affect in-

 

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kind benefits or reimbursements to be provided in any other calendar year, other than an arrangement providing for the reimbursement of medical expenses referred to in Section 105(b) of the Code, and are not subject to liquidation or exchange for another benefit.  Notwithstanding anything to the contrary in this Agreement, reimbursement requests must be timely submitted by the Executive and, if timely submitted, reimbursement payments shall be promptly made to the Executive following such submission, but in no event later than December 31st of the calendar year following the calendar year in which the expense was incurred.  In no event shall the Executive be entitled to any reimbursement payments after December 31st of the calendar year following the calendar year in which the expense was incurred.  This paragraph shall only apply to in-kind benefits and reimbursements that would result in taxable compensation income to the Executive.

 

(iii)                               Additionally, in the event that following the date hereof the Company or the Executive reasonably determines that any compensation or benefits payable under this Agreement may be subject to Section 409A, the Company and the Executive shall work together to adopt such amendments to this Agreement or adopt other policies or procedures (including amendments, policies and procedures with retroactive effect), or take any other commercially reasonable actions necessary or appropriate to (x) exempt the compensation and benefits payable under this Agreement from Section 409A and/or preserve the intended tax treatment of the compensation and benefits provided with respect to this Agreement or (y) comply with the requirements of Section 409A.

 

[Signature Page Follows]

 

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

 

 

	
 
    	
DIPEXIUM   PHARMACEUTICALS, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   David P. Luci
    
	
 
    	
 
    	
Name:
    	
David   P. Luci
    
	
 
    	
 
    	
Title:
    	
Managing   Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
EXECUTIVE:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Robert G. Shawah
    
	
 
    	
Robert   G. Shawah, CPA
    

 

16Exhibit 10.7

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of July 23, 2010, is made by and among Dipexium Pharmaceuticals, LLC, a limited liability company organized under the laws of Delaware (the “Company”), and the investors listed on the Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

 

WHEREAS:

 

A.            The Company and each Buyer is executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rules 504 and/or 506, as applicable, of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.

 

B.            Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, (i) that aggregate number of Class A Membership Interests of the Company (the “Class A Membership Interests”) set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers (which aggregate amount of Class A Membership Interests for all Buyers together shall collectively be referred to herein as the “Membership Interests”) and (ii) warrants, in substantially the form attached hereto as Exhibit A (the “Warrants”), to acquire up to that number of additional Class A Membership Interests set forth opposite such Buyer’s name in column (4) of the Schedule of Buyers (as exercised, collectively, the “Warrant Interests”).

 

C.            Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering an Investor Rights Agreement, substantially in the form attached hereto as Exhibit B (the “Investor Rights Agreement”) pursuant to which the Company has agreed to provide certain registration rights with respect to the Membership Interests, and the Warrant Interests under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

D.            The Membership Interests, the Warrants and the Warrant Interests collectively are referred to herein as the “Securities”.

 

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

 

1.              PURCHASE AND SALE OF MEMBERSHIP INTERESTS AND WARRANTS.

 

(a)                                 Purchase of Membership Interests and Warrants.  Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees to purchase from the Company on the Closing Date (as defined below), (A) the number of Membership Interests as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, along with (B) Warrants to acquire up to that number of Warrant Interests as is set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers.  The Closing shall occur on the Closing Date at the offices of Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New York, New York 10105 or remotely via the electronic exchange of documents and facsimile signatures.

 

 

(b)                                 Purchase Price.  The purchase price for the Membership Interests and related Warrants to be purchased by each Buyer at the Closing shall be the amount set forth opposite such Buyer’s name in column (5) of the Schedule of Buyers (the “Purchase Price”) which shall be equal to the amount of $50 per Membership Interest and the related Warrants.

 

(c)                                  Closing Date.  The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New York City Time, on the date hereof (or such other date and time as is mutually agreed to by the Company and each Buyer).  Each Buyer acknowledges and agrees that the Company may, in its sole discretion, conduct multiple closings for such amounts and Membership Interests and Warrants as the Company may, in its sole discretion, determine provided that any such closing(s) must occur within sixty (60) days of the Closing Date.

 

(d)                                 Form of Payment.  On the Closing Date, (i) each Buyer shall pay its respective Purchase Price to the Company for the Membership Interests and Warrants to be issued and sold to such Buyer at the Closing by wire transfer of immediately available funds in accordance with the Company’s written wire instructions and (ii) the Company shall deliver to each Buyer (A) one or more stock certificates, evidencing the number of Membership Interests such Buyer is purchasing as is set forth opposite such Buyer’s name in column (3) of the Schedule of Buyers, and (B) a Warrant pursuant to which such Buyer shall have the right to acquire such number of Warrant Interests as is set forth opposite such Buyer’s name in column (4) of the Schedule of Buyers in all cases duly executed on behalf of the Company and registered in the name of such Buyer or its designee.

 

(e)                                  Joinder.  Each Buyer, by their execution hereof, and as of the Closing Date on which such Buyer purchases Membership Interests and Warrants, hereby agrees to become a party to the Operating Agreement and to be bound by all of the provisions thereof as a Class-A Member (as defined in the Operating Agreement) as if a signatory thereto.

 

2.              BUYER’S REPRESENTATIONS AND WARRANTIES.  Each Buyer, severally and not jointly, represents and warrants with respect to only itself that, as of the date hereof and as of the Closing Date:

 

(a)                                 No Public Sale or Distribution.  Such Buyer is (i) acquiring the Membership Interests and the Warrants and (ii) upon exercise of the Warrants (other than pursuant to a Cashless Exercise (as defined in the Warrants) will acquire the Warrant Interests issuable upon exercise thereof for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act and such Buyer does not have a present arrangement to effect any distribution of Securities to or through any person or entity; provided, however, that by making the representations herein, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.  Such Buyer is acquiring the Securities hereunder in the ordinary course of its business.  Such Buyer does not presently have any agreement or understanding, directly or indirectly, with any Person (as defined in Section 3(s) to distribute any of the Securities.

 

(b)                                 Accredited Investor Status.  Such Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D or a “sophisticated” investor as defined in Regulation D.

 

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(c)                                  Reliance on Exemptions.  Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the Securities.

 

(d)                                 Information.  Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Buyer.  Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company.  Such Buyer understands that its investment in the Securities involves a high degree of risk and is able to afford a complete loss of such investment.  Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities.

 

(e)                                  No Governmental Review.  Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

 

(f)                                   Transfer or Resale.  Such Buyer understands that except as provided in the Investor Rights Agreement: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company an opinion of counsel, in a form reasonably satisfactory to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person) through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.  Notwithstanding the foregoing, the Securities may be pledged in connection with a bona fide margin account or other loan or financing arrangement secured by the Securities and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document (as defined in Section 3(b)), including, without limitation, this Section 2(f).

 

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(g)                                  Legends.  Such Buyer understands that the certificates or other instruments representing the Membership Interests and the Warrant Interests and, until such time as the resale of the Membership Interests and the Warrant Interests have been registered under the 1933 Act as contemplated by the Investor Rights Agreement, the stock certificates representing the Warrant Interests, except as set forth below, shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped if, unless otherwise required by state securities laws, (i) such Securities are registered for resale under the 1933 Act, (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel reasonably satisfactory to the Company to the effect that such sale, assignment or transfer of the Securities may be made without registration under the applicable requirements of the 1933 Act and that such legend is no longer required, or (iii) such holder provides the Company with reasonable assurance that the Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A without limitation.  The Company shall be responsible for the fees, if any, of its transfer agent associated with such issuance.

 

(h)                                 Validity; Enforcement.  This Agreement and the Investor Rights Agreement have been duly and validly authorized, executed and delivered on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

(i)                                     No Conflicts.  The execution, delivery and performance by such Buyer of this Agreement and the Investor Rights Agreement and the consummation by such Buyer of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event

 

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which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.

 

(j)                                    Residency.  Such Buyer is a resident of that jurisdiction specified below its address on the Schedule of Buyers.

 

(k)                                 General Solicitation.  Such Buyer is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television, radio or via the Internet or presented at any seminar or, to such Buyer’s knowledge, any other general solicitation or general advertisement.

 

3.              REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  The Company represents and warrants to each of the Buyers that, as of the date hereof and as of the Closing Date:

 

(a)                                 Organization and Qualification.  The Company is an entity duly organized and validly existing in good standing under the laws of Delaware and has the requisite power and authorization to carry on their business as now being conducted.  The Company is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a Material Adverse Effect.  As used in this Agreement, “Material Adverse Effect” means any material adverse effect on the business, properties, assets, operations, results of operations or condition (financial or otherwise) of the Company, taken as a whole, or on the transactions contemplated hereby or on the other Transaction Documents or by the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined below).  The Company has no subsidiaries.

 

(b)                                 Authorization; Enforcement; Validity.  The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Investor Rights Agreement, the Warrants and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the “Transaction Documents”) and to issue the Securities in accordance with the terms hereof and thereof.  The execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Membership Interests and the Warrants and the reservation for issuance and the issuance of the Warrant Interests issuable upon exercise of the Warrant have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders.  This Agreement and the other Transaction Documents have been duly executed and delivered by the Company, and constitute the legal, valid and binding obligations of the Company, enforceable

 

5

 

against the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

(c)                                  Issuance of Securities.  The Membership Interests and the Warrants are duly authorized and, upon issuance in accordance with the terms hereof, shall be validly issued and free from all taxes, liens and charges with respect to the issue thereof and the Membership Interests shall be fully paid and nonassessable with the holders being entitled to all rights accorded to a holder of Class A Membership Interests.  As of the Closing Date, the Company shall have duly authorized and reserved for issuance a number of Membership Interests which equals the maximum number of Warrant Interests issuable upon exercise of the Warrants.  The Company shall, so long as any of the Warrants are outstanding, take all action necessary to reserve and keep available for issuance, solely for the purpose of effecting the exercise of the Warrants, 100% of the number of Membership Interests issuable upon exercise of the Warrants.  Upon exercise in accordance with the Warrants, the Warrant Interests will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Class A Membership Interests.  The offer and issuance by the Company of the Securities is exempt from registration under the 1933 Act.

 

(d)                                 No Conflicts.  The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Membership Interests and the Warrants and the reservation for issuance and issuance of the Warrant Interests) will not (i) result in a violation of the Certificate of Formation (as defined below) or limited liability company operation agreement of the Company (as amended, the “Operating Agreement”), or other constituent documents of the Company, any capital stock of the Company or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company is a party.

 

(e)                                  Consents.  The Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents, in each case in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the Closing Date.  The Company is unaware of any facts or circumstances that might prevent the Company from obtaining or effecting any of the registration, application or filings pursuant to the preceding sentence.

 

(f)                                   Acknowledgment Regarding Buyer’s Purchase of Securities.  The Company acknowledges and agrees that each Buyer is acting solely in the capacity of arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that, except as set forth on Schedule 3(f), no Buyer is (i) an officer or director of the Company, (ii) an “affiliate” of the Company or (iii) to the knowledge of the Company, a “beneficial owner” of more than 10% of the Membership Interests (as defined for

 

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purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”)).  The Company further represents to each Buyer that the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

 

(g)                                  No General Solicitation; Placement Agent’s Fees.  Neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities.  The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than for persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby.  The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, attorney’s fees and out-of-pocket expenses) arising in connection with any such claim.  Except as set forth in Schedule 3(g), the Company has not engaged any placement agent or other agent in connection with the sale of the Securities.

 

(h)                                 No Integrated Offering.  None of the Company, its affiliates, or any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act, whether through integration with prior offerings or otherwise, or cause this offering of the Securities to require approval of stockholders of the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated.  The Company, its affiliates and any Person acting on their behalf has taken any action or steps referred to in the preceding sentence that would require registration of any of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with other offerings for purposes of any such applicable stockholder approval provisions.

 

(i)                                     Dilutive Effect.  The Company acknowledges that its obligation to issue the Warrant Interests upon exercise of the Warrants in accordance with this Agreement and the Warrants, in each case, is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

 

(j)                                    Application of Takeover Protections.  The Company has not adopted a equity holder rights plan or similar arrangement relating to accumulations of beneficial ownership of Membership Interests or a change in control of the Company.

 

(k)                                 Absence of Certain Changes.  Since June 30, 2010, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), results of operations or prospects of the Company.  The Company has not taken any steps to seek protection pursuant to any bankruptcy law and the Company does not have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so.

 

(l)                                     No Undisclosed Events, Liabilities, Developments or Circumstances.  No event, liability, development or circumstance has occurred or exists, or is contemplated to occur, with respect to the Company or its respective business, properties, prospects, operations or

 

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financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Membership Interests and which has not been publicly announced.

 

(m)                             Conduct of Business; Regulatory Permits.  The Company is not in violation of any term of its Certificate of Formation (the “Certificate of Formation”) or limited liability company Operating Agreement (the “Operating Agreement”).  The Company is not in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company and the Company will not conduct its business in violation of any of the foregoing, except for possible violations which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  The Company possesses all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

 

(n)                                 Foreign Corrupt Practices.  The Company has not, nor has any director, officer, agent, employee or other Person acting on behalf of the Company, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

(o)                                 Transactions With Affiliates.  None of the officers, directors or employees of the Company is presently a party to any transaction with the Company (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner.

 

(p)                                 Equity Capitalization.  As of the date hereof, the Company has issued an aggregate of 500,000 Class A Membership Interests which remain issued and outstanding and 0 Class B Membership Interests.  All of such outstanding Class A Membership Interests have been, or upon issuance will be, validly issued and are fully paid and nonassessable.  No Class A Membership Interests or Class B Membership Interests are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. In addition, except as set forth on Schedule 3(p), there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any Class A Membership Interests or Class B Membership Interests of the Company, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional Class A

 

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Membership Interests or Class B Membership Interests or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any class of membership interests of the Company.  The Company has furnished or made available to the Buyer upon such Buyer’s request, true, correct and complete copies of the Company’s Certificate of Formation and Operating Agreement, in each case, in effect on the date hereof.

 

(q)                                 Indebtedness and Other Contracts.  The Company (i) has no outstanding Indebtedness (as defined below), (ii) is not in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iii) is not a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect.  For purposes of this Agreement:  (x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including, without limitation, “capital leases” in accordance with United States generally accepted accounting principles (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (z) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

 

(r)                                    Absence of Litigation.  There is no action, suit, proceeding, inquiry or investigation before any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of the Company’s officers or directors, whether of a civil or criminal nature or otherwise.

 

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(s)                                   Insurance.  The Company has no insurance. The Company has not been refused any insurance coverage sought or applied for.

 

(t)                                    Intellectual Property Rights.  The Company owns or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (“Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted.  The Company does not have any knowledge of any infringement by the Company of Intellectual Property Rights of others.  There is no claim, action or proceeding being made or brought, or to the knowledge of the Company, being threatened, against the Company regarding its Intellectual Property Rights.  The Company is not aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings.  The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.

 

(u)                                 Environmental Laws.  The Company (i) is in compliance with any and all Environmental Laws (as hereinafter defined), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.  The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

 

(v)                                 Tax Status.  The Company was formed in February 2010 and, accordingly, has not filed any U.S. federal and/or state income or other tax returns, reports and declarations and does not anticipate doing so until after completion of its first fiscal year on December 31, 2010.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

 

(w)                               Off Balance Sheet Arrangements.  There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that would be reasonably likely to have a Material Adverse Effect.

 

(x)                                 Transfer Taxes.  On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid

 

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or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.

 

(y)                                 Investment Company Status.  The Company is not, and upon consummation of the sale of the Securities, and for so long any Buyer holds any Securities, will not be, an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

 

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

 

(aa)                          Bank Holding Company Act.  The Company is not subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).  The Company does not own or control, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.  The Company does not exercise a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(bb)                          No Additional Agreements.  The Company does not have any agreement or understanding with any Buyer with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.

 

(cc)                            Disclosure.  The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company.  With respect to each Buyer severally, all written disclosure provided to such Buyer regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.

 

4.              COVENANTS.

 

(a)                                 Best Efforts.  Each party shall use its best efforts timely to satisfy each of the covenants and the conditions to be satisfied by it as provided in Sections 5, 6 and 7 of this Agreement.

 

(b)                                 Form D and Blue Sky.  To the extent applicable, the Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing.  The Company, on or before the Closing Date, shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so

 

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taken to the Buyers on or prior to the Closing Date.  The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of the United States following the Closing Date.

 

(c)                                  Use of Proceeds.  The Company will use the proceeds from the sale of the Securities for general corporate and for working capital purposes and not for (i) the repayment of any outstanding Indebtedness of the Company or (ii) the redemption or repurchase of any of its equity securities.

 

(d)                                 Fees.  The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby, including, without limitation, fees or commissions, if any, payable to the placement agents set forth on Schedule 3(g).  The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment.

 

(e)                                  Change of Control.  So long as any Buyer beneficially owns any Warrants, the Company shall not be party to any Change of Control (as defined in the Warrants) unless the Company is on compliance with the applicable provisions governing a Change of Control set forth in the Warrants.

 

(f)                                   Additional Issuances of Securities.

 

(i)                                     From the Closing Date until the one year anniversary of the Closing Date, the Company will not, directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of any equity or equity equivalent securities, including without limitation any debt, preferred membership interest or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for any class of Membership Interests (any such offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”) unless the Company shall have first complied with this Section 4(f).

 

(ii)                                  The Company shall deliver to each Buyer an irrevocable written notice (the “Offer Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”) of the securities being offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the persons or entities (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with such Buyers such number of Securities as would cause the Buyers to avoid any dilution in their ownership of Membership Interests immediately prior to such Subsequent Placement (the “Basic Amount”).

 

(iii)                               To accept an Offer, in whole or in part, such Buyer must deliver a written notice to the Company prior to the end of the fifth (5th) Business Day (as defined below) after such Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of such Buyer’s Basic Amount that such Buyer elects to purchase (the “Notice of Acceptance”).  Notwithstanding anything to the contrary contained herein, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the

 

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Company may deliver to the Buyers a new Offer Notice and the Offer Period shall expire on the fifth (5th) Business Day after such Buyer’s receipt of such new Offer Notice.  As used herein, “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(iv)                              The Company shall have sixty (60) Business Days from the expiration of the Offer Period above to consummate the Subsequent Placement.

 

(v)                                 The restrictions contained in this Section 4(f) shall not apply in connection with the issuance of any Excluded Securities.  As used herein, (A) “Excluded Securities” means any Membership Interests issued or issuable: (i) to management, members of the Board of Directors or consultants to the Company in consideration of the performance of services; (ii) upon the exercise of the Warrants; (iii) in connection with a bona fide strategic transaction approved by the Board of Directors, or a committee if the Board of Directors, of the Company, the primary purpose of which is not to provide financing to the Company, (iv) pursuant to a bona fide firm commitment underwritten public offering or any equity line of credit which generates gross proceeds to the Company in excess of $7,500,000.

 

(g)                                  Closing Documents.  On or prior to thirty (30) calendar days after the Closing Date, the Company agrees to deliver, or cause to be delivered, to each Buyer a complete closing set of the Transaction Documents, Securities and any other document required to be delivered to any party pursuant to Section 7 hereof or otherwise.

 

5.              REGISTER; TRANSFER AGENT INSTRUCTIONS.  The Company shall maintain at its principal executive offices (or such other office or agency of the company as it may designate by notice to each holder of securities), a register for the Membership Interests and the Warrants, in which the Company shall record the name and address of the person in whose name the Membership Interests and the Warrants have been issued (including the name and address of each transferee), the number of Membership Interests held by such person, the number of Warrant Interests issuable upon exercise of the Warrants held by such person and the number of Membership Interests held by such person.  The Company shall keep the register open and available at all times during normal business hours for inspection of any Buyer or its legal representatives.

 

6.              CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Membership Interests and the related Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof:

 

(a)                                 Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.

 

(b)                                 Such Buyer shall have delivered to the Company the Purchase Price for the Membership Interests and the related Warrants being purchased by such Buyer and each other Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company.

 

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(c)                                  The representations and warranties of such Buyer shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality or Material Adverse Effect, which are true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date which shall be true and correct as of such specified date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date.

 

7.              CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase the Membership Interests and the related Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:

 

(a)                                 The Company shall have executed and delivered to such Buyer (i) each of the Transaction Documents and (ii) the Membership Interests (in such amounts as such Buyer shall request) and the related Warrants (in such amounts as such Buyer shall request) being purchased by such Buyer at the Closing pursuant to this Agreement.

 

(b)                                 Such Buyer shall have received the opinion of Ellenoff Grossman & Schole LLP, the Company’s outside counsel (“Company Counsel”), dated as of the Closing Date, as to the due authorization and valid issuance of the Securities (but which shall not include a “10b-5” opinion) substantially in the form attached as Exhibit C hereto.

 

(c)                                  The Company shall have delivered to such Buyer a certificate evidencing the formation and good standing of the Company in the State of Delaware issued by the Secretary of State (or comparable office) of such jurisdiction as of a date within ten (10) days of the Closing Date.

 

(d)                                 The Company shall have delivered to such Buyer a certificate, executed by a Managing Partner of the Company and dated as of the Closing Date, certifying as to (i) the resolutions as duly adopted by the Company’s Board of Directors relating to the transactions contemplated hereby as in effect at the Closing, (ii) the Operating Agreement and the Certificate of Formation, each as in effect at the Closing and (iii) the matters set forth in Section 7(e), in the form attached hereto as Exhibit D.

 

(e)                                  The representations and warranties of the Company shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality or Material Adverse Effect, which are true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date which shall be true and correct as of such specified date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date.

 

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(f)                                   The Company shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.

 

8.              TERMINATION.  In the event that the Closing shall not have occurred with respect to a Buyer on or before ten (10) Business Days from the date hereof due to the Company’s or such Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching party’s failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party.

 

9.              MISCELLANEOUS.

 

(a)                                 Governing Law; Jurisdiction; Waiver of Jury Trial.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b)                                 Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile or other electronic signature delivered by fax or e-mail transmission shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.

 

(c)                                  Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

 

(d)                                 Severability.  If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended

 

15

 

to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties.  The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

(e)                                  Entire Agreement; Amendments.  This Agreement and all other Transaction Documents supersede all other prior oral or written agreements between the Buyers, the Company, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement, the other Transaction Document and the instruments referenced herein and therein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the holders of Membership Interests and Warrants representing at least a majority of the number of the Membership Interests together with the number of Membership Interests underlying the Warrants then held by the Buyers and any of their respective successors or assigns.  No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought.  No such amendment shall be effective to the extent that it applies to less than all of the holders of the Membership Interests then outstanding.

 

(f)                                   Notices.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

Dipexium Pharmaceuticals, LLC

 

Address:

Telephone:

Facsimile:                                         
 Attention:                                         Managing Partner

 

with a copy (for informational purposes only) to:

 

David P. Luci

 

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Address:

Telephone:

Facsimile:

 

If to a Buyer, to its address, facsimile number and email address set forth on the Schedule of Buyers.

 

or to such other address, facsimile number and/or email address and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.

 

(g)                                  Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Membership Interests or the Warrants.  The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of Membership Interests representing at least a majority of the number of the Membership Interests together with the number of Membership Interests underlying the Warrants then held by the Buyers and any of their respective successors or assigns including by way of a Change of Control (as defined in the Warrants) (unless the Company is in compliance with the applicable provisions governing Change of Control set forth in the Warrants).  A Buyer may assign some or all of its rights hereunder without the consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.

 

(h)                                 No Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

 

(i)                                     Survival.  Unless this Agreement is terminated under Section 8, the representations and warranties of the Company and the Buyers contained in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing and the delivery and exercise of Securities, as applicable, for a period of one (1) year.  Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

 

(j)                                    Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

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(k)                                 Indemnification.  In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby.

 

(l)                                     No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

(m)                             Remedies.  Each Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law.  Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law.  Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers.  The Company therefore agrees that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages and without posting a bond or other security.

 

(n)                                 Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

18

 

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

 

(p)                                 Independent Nature of Buyers’ Obligations and Rights.  The obligations of each Buyer under any Transaction Document are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as, and the Company acknowledges that the Buyers do not so constitute, a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Buyers are in any way acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or the transactions contemplated by the Transaction Documents and the Company acknowledges that the Buyers are not acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Company acknowledges and each Buyer confirms that it has independently participated in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors.  Each Buyer shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose.

 

[Signature Page Follows]

 

19

 

IN WITNESS WHEREOF, each Buyer and the Company have caused its respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above.

 

	
 
    	
COMPANY:
    
	
 
    	
 
    
	
 
    	
DIPEXIUM PHARMACEUTICALS,   LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ David P. Luci
    
	
 
    	
 
    	
Name:
    	
David P. Luci
    
	
 
    	
 
    	
Title:
    	
Managing Partner
    

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above.

 

	
 
    	
 BUYERS:
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Investment Amount:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
No. of Shares:
    	
 
    
					

 

 

DIPEXIUM WIRE INSTRUCTIONS:

 

Bank Name:

Account No.

ABA Routing No.:

Bank Address:

 

 

EXHIBITS

 

	
Exhibit A
    	
 
    	
Form of Warrant
    
	
Exhibit B
    	
 
    	
Form of Investor Rights Agreement
    
	
Exhibit C
    	
 
    	
Form of Company Counsel Opinion
    
	
Exhibit D
    	
 
    	
Form of Managing Partner’s Certificate
    

 

 

Exhibit A

 

Form of Warrant

 

 

Exhibit B

 

Form of Investor Rights Agreement

 

 

Exhibit C

 

Form of Company Counsel Opinion

 

 

Exhibit D

 

Form of Managing Partners’ Certificate

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