Document:

Exhibit 10.22

 

Execution version

 

 

 

Dated 4 July 2016

 

 

TIGENIX SAU

 

and

 

TAKEDA PHARMACEUTICALS INTERNATIONAL AG

 

 

LICENSE AGREEMENT

 

 

A31950799

 

 

Table of contents

 

	
1
    	
Interpretation
    	
4
    
	
 
    	
 
    	
 
    
	
2
    	
Territory
    	
15
    
	
 
    	
 
    	
 
    
	
3
    	
License Grant to Licensee
    	
16
    
	
 
    	
 
    	
 
    
	
4
    	
License Grant to Licensor
    	
17
    
	
 
    	
 
    	
 
    
	
5
    	
Sub-contracting and Sub-licensing
    	
19
    
	
 
    	
 
    	
 
    
	
6
    	
Commercialisation, Diligence   Obligations and Minimum Commitments
    	
20
    
	
 
    	
 
    	
 
    
	
7
    	
Compliance
    	
23
    
	
 
    	
 
    	
 
    
	
8
    	
Governance
    	
24
    
	
 
    	
 
    	
 
    
	
9
    	
Financial Terms
    	
30
    
	
 
    	
 
    	
 
    
	
10
    	
Accounting and Payment
    	
37
    
	
 
    	
 
    	
 
    
	
11
    	
New Indications
    	
38
    
	
 
    	
 
    	
 
    
	
12
    	
Development and Regulatory Matters
    	
39
    
	
 
    	
 
    	
 
    
	
13
    	
Adverse Event Reporting and Safety   Data Exchange
    	
42
    
	
 
    	
 
    	
 
    
	
14
    	
Quality Agreement and Recalls
    	
43
    
	
 
    	
 
    	
 
    
	
15
    	
Trade Mark and Marketing
    	
44
    
	
 
    	
 
    	
 
    
	
16
    	
Manufacturing
    	
45
    
	
 
    	
 
    	
 
    
	
17
    	
Supply and Distribution
    	
47
    
	
 
    	
 
    	
 
    
	
18
    	
Non-compete Covenants
    	
48
    
	
 
    	
 
    	
 
    
	
19
    	
Foreground IP
    	
49
    
	
 
    	
 
    	
 
    
	
20
    	
Maintenance of Intellectual   Property Rights
    	
50
    
	
 
    	
 
    	
 
    
	
21
    	
Infringement
    	
50
    
	
 
    	
 
    	
 
    
	
22
    	
Third Party obligations
    	
53
    
	
 
    	
 
    	
 
    
	
23
    	
Insurance
    	
53
    

 

2

 

	
24
    	
Confidentiality
    	
53
    
	
 
    	
 
    	
 
    
	
25
    	
Press Releases and Publications
    	
54
    
	
 
    	
 
    	
 
    
	
26
    	
Representations and Warranties
    	
55
    
	
 
    	
 
    	
 
    
	
27
    	
Indemnities
    	
58
    
	
 
    	
 
    	
 
    
	
28
    	
Term and termination
    	
61
    
	
 
    	
 
    	
 
    
	
29
    	
Notices
    	
66
    
	
 
    	
 
    	
 
    
	
30
    	
Waiver
    	
67
    
	
 
    	
 
    	
 
    
	
31
    	
Whole Agreement and Non-reliance
    	
67
    
	
 
    	
 
    	
 
    
	
32
    	
Variation
    	
68
    
	
 
    	
 
    	
 
    
	
33
    	
Expenses
    	
68
    
	
 
    	
 
    	
 
    
	
34
    	
No Partnership
    	
68
    
	
 
    	
 
    	
 
    
	
35
    	
Further Assurance
    	
68
    
	
 
    	
 
    	
 
    
	
36
    	
Severance
    	
68
    
	
 
    	
 
    	
 
    
	
37
    	
Assignment of Rights and   Obligations
    	
68
    
	
 
    	
 
    	
 
    
	
38
    	
Force Majeure
    	
69
    
	
 
    	
 
    	
 
    
	
39
    	
Governing Law
    	
69
    
	
 
    	
 
    	
 
    
	
40
    	
Arbitration
    	
69
    
	
 
    	
 
    	
 
    
	
Schedule 1 – Licensor Patents
    	
73
    
	
 
    	
 
    	
 
    
	
Schedule 2 – Principal Trade Mark
    	
76
    
	
 
    	
 
    	
 
    
	
Schedule 3 – Back-Up Trade Mark
    	
77
    
	
 
    	
 
    	
 
    
	
Schedule 4 – Licensor Know-how
    	
78
    

 

3

 

This license agreement is made on 4 July 2016 between:

 

(1)                                 TiGenix SAU, whose registered office is at Marconi 1, 28760 Tres Cantos, Madrid (Spain), registered with the commercial registry of Madrid under volume number 20117, page 81, sheet M-355159, and with tax identification number (CIF) A-84008986, (“Licensor”);

 

and

 

(2)                                 Takeda Pharmaceuticals International AG, whose registered office is at Thurgauerstrasse 130, 8152 Glattpark-Opfikon, Zurich (Switzerland), registered with the commercial registry of Canton of Zurich under number CHE-113.444.401, (“Licensee”).

 

Whereas:

 

(A)                             Licensor is engaged, among others, in various innovative activities relating to the generation of stem cells and other pharmaceutical products; it is also the owner or licensee of certain Intellectual Property Rights (as defined below) relating to the Product (as defined below) also referred to as the product Cx601, a suspension of allogeneic expanded adipose-derived stem cells for local administration.

 

(B)                             Licensor is active, among others, in the manufacturing and distribution of pharmaceutical products and interested in entering into a license and commercialisation arrangement with Licensee in respect of such Product.

 

(C)                             On 24 March 2016, the parties concluded a Terms Proposal for a License and Distribution Agreement, setting out the basis on which they could consider formalizing such license arrangement.

 

(D)                             Licensor and Licensee have now agreed that Licensor would grant Licensee a license under the Intellectual Property Rights which allow for the manufacture, development, supply, commercialisation and distribution of the Product(s) in the Field (as defined below) in the Territory (as defined below), under the terms and conditions set out below.

 

It is agreed as follows:

 

1                                      Interpretation

 

Whenever used in this Agreement with an initial capital letter, the terms defined in this Clause 1 shall have the meanings specified below.

 

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1.1                              Definitions

 

“Adverse Events” or “AEs” has the meaning given to it in Clause 13.1;

 

“Affiliate” means, with respect to a particular party, a person, corporation, partnership, or other entity that controls, is controlled by or is under common control with such party. For the purposes of this definition, the word “control” (including, with correlative meaning, the terms “controlled by” or “under the common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such entity, whether by the ownership of fifty percent (50%) or more of the voting stock of such entity, or by contract or otherwise;

 

“Agreement” means this license agreement between the parties;

 

“Alliance Manager” has the meaning given to it in Clause 8.9;

 

“Applicable Laws” means all federal, state, local, national and supra-national laws, statutes, rules and regulations, including any rules, regulations or orders of Regulatory Authorities or Payers, major national securities exchanges or major securities listing organizations, that may be in effect from time to time during the Term and applicable to a particular activity or exercise of rights hereunder;

 

“Asia Pacific” means Australia, India, Indonesia, Singapore, Thailand, The Philippines, South Korea, Taiwan, Malaysia and Vietnam;

 

“Back-Up Trade Mark” means the brand “Ontaril®”, as covered by the applications and/or registrations set out in Schedule 3 hereto;

 

“Business Day” means a day, other than a Saturday or a Sunday, on which banking institutions in Spain, Poland and Switzerland are open for business;

 

“cGMP” means the then current good manufacturing practices as described by Applicable Laws for each country in which the Product is distributed;

 

“Change of Control” with respect to a party means: (i) the acquisition (directly or indirectly, whether by merger, consolidation, purchase and sale, share exchange or otherwise) by a Third Party (other than any trust or fund created under a profit-sharing or other benefit plan for employees of a party) of a beneficial interest in the shares of a party representing more than fifty percent (50%) of the combined voting power of a party’s then outstanding shares; or (ii) the transfer, sale or assignment of more than fifty percent (50%) of the assets of a party to a Third Party;

 

“CIS” means Russian Federation, Belarus, Moldova, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Azerbaijan, Armenia, Turkmenistan, Ukraine, Georgia and Mongolia:

 

“Code(s) of Conduct” has the meaning given to it in Clause 7.1.

 

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“Commercialisation” means any undertakings relating to the commercialisation of the Product in the Field in the Territory, including pricing and market access activities, pre-launch and launch activities, promotion, marketing, distribution, import, medical affairs and selling of the Product; “Commercialise” shall be construed accordingly;

 

“Commercialisation Plan” means a written plan for the Commercialisation of the Product in the Field in the Territory, including the items listed in Clause 6.9, as such plan may be amended or updated from time to time;

 

“Commercially Reasonable Efforts” means with respect to the efforts to be expended, or considerations to be undertaken, by a party or its Affiliate with respect to any objective, activity or decision to be undertaken hereunder, reasonable, good faith efforts to accomplish such objective, activity or decision as such party would normally use to accomplish a similar objective, activity or decision under similar circumstances, it being understood and agreed that, with respect to the Commercialization of the Product, such efforts and resources shall be consistent with those efforts and resources commonly used by a party under similar circumstances for similar products owned by it or to which it has similar rights, which product, as applicable, is at a similar stage in its development or product life and is of similar market potential taking into account efficacy, safety, approved labelling, the competitiveness of alternative products sold by Third Parties in the marketplace, the patent and other proprietary position of the compound or product, the likelihood of Regulatory Approval given the regulatory structure involved, the profitability of the product taking into considerations, among other factors, Third Party costs and expenses including among other things any royalties, milestone and other payments required under this Agreement, and the pricing and market access relating to the product. Commercially Reasonable Efforts shall be determined on a market-by-market and indication-by-indication basis for the Product, as applicable, and it is anticipated that the level of effort will change over time, reflecting changes in the status of the Product, as applicable, and the market(s) involved;

 

“Confidential Information” means any and all information or material, whether oral, visual, in writing or in any other form, that has been disclosed to the receiving party or any of its Affiliates by or on behalf of the disclosing party or any of its Affiliates pursuant to this Agreement or in connection with the transactions and activities contemplated hereby or any discussions or negotiations with respect thereto, including pursuant to the Confidential Disclosure Agreement after-mentioned, including all data, documents, drawings, test reports, operating and testing procedures, manufacturing practices and know-how, instruction manuals, materials, recipes and formulae, tables of operating conditions, corporate organisation, business plans, unpublished patent applications, marketing and sales reports, forecasts, pricing information, customer lists and the like and not as a whole readily available to the public, including the respective subject matter of (i) the Confidential Disclosure 

 

6

 

Agreement dated 17 June 2013 (and supplemented by an addendum on 29 February 2016) between TiGenix NV and Licensee and (ii) the Common Interest Agreement, effective as of 15 February 2016 between the parties;

 

“Consejo” has the meaning given to it in Clause 22;

 

“Current COGS” has the meaning given to it in Clause 9.3;

 

“Development” means any activities that involve creative work undertaken on a systematic basis in order to increase the stock of knowledge, and the use of this stock of knowledge to devise new applications or support existing Product registrations, including for the avoidance of doubt pre-clinical work and clinical trials and formulation, manufacturing process and test method development and stability studies; “Develop” shall be construed accordingly;

 

“Development Plan” means a written rolling three (3) Year plan for the Development of the Product in the Field in the applicable country in the Territory, as such plan may be amended or updated from time to time. The Development plan will comprise any pre-clinical and clinical activities and those activities required to obtain or maintain Regulatory Approval in an applicable country in the Territory, but will not cover the manufacturing process.

 

“Disputed Matter(s)” has the meaning given to it in Clause 8.7;

 

“Distributors” means any Third Party appointed by Licensee to Commercialise in the applicable country in the Territory the Product purchased from Licensee or its Affiliates;

 

“Domain Name(s)” means any internet domain name, uniform resource locator or similar sign allowing the locating and identifying of websites on the internet;

 

“Early Termination” has the meaning given to it in Clause 18.

 

“Effective Date” means the date on which this Agreement is signed by both parties;

 

“European Economic Area” or “EEA” means all states currently part of the European Economic Area, namely all states currently part of the European Union (as at the Effective Date, Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK) and the three (3) following countries: Iceland, Lichtenstein and Norway;

 

“Ex Works” has the meaning given to it under the “Incoterms 2010 Rules”;

 

“FDS Manufacturing” means the manufacturing of FDS from MCS;

 

“Field” means the treatment of human diseases in the Primary Indication;

 

7

 

“Foreground IP” means any Intellectual Property Rights relating to the Product, generated during the Term, whereby the Product may be manufactured or used more advantageously or more economically; for the sake of clarifying the intent of the parties, any Intellectual Property Rights relating to New Indications shall not be considered as Foreground IP and will be treated by the parties in a separate agreement;

 

“FP Dose” means a quantity of finished Product equivalent to a single treatment dose of 120 million cells of the Product; as per the Effective Date, the FP Dose is presented as 4 vials of 6 ml (30 million cells) each.

 

“FP Manufacturing” means the manufacturing of the FP Dose from FDS.

 

“Frozen Drug Substance” or “FDS” means the intermediary product form between MCS and Product;

 

“Granting Party” has the meaning given to it in Clause 19.3;

 

“Indemnified Party” has the meaning given to it in Clause 27.5;

 

“Indemnifying Party” has the meaning given to it in Clause 27.5;

 

“Intellectual Property Rights” means any and all Know-how, Patents and Trade Marks, as well any other rights, title and interest held in (i) patents, utility models, designs (whether registered or unregistered), trade marks and trade and business names, copyrights (including copyrights in programs and semiconductor topographies), Domain Names, databases, moral rights, trade secrets, confidentiality and other proprietary rights including all rights to know-how and other technical information, rights in the nature of unfair competition rights, rights to sue in passing off; (ii) the benefit of all registrations and applications to register any of the foregoing; and (iii) any and all other rights similar or analogous to any of the foregoing whether arising or granted in any jurisdiction;

 

“Joint Foreground IP” shall refer to such Foreground IP made jointly by employees, agents or independent contractors of Licensor and Licensee during the course of, in furtherance of, and as a direct result of such employees, agents or independent contractors performing an activity pursuant to this Agreement;

 

“Joint Manufacturing Committee” or “JMC” has the meaning given to it in Clause 8;

 

“Joint Operating Committee” or “JOC” has the meaning given to it in Clause 8;

 

“Joint Steering Committee” or “JSC” has the meaning given to it in Clause 8;

 

“Key Markets” means (A) the countries of (i) France, (ii) Germany, (iii) Italy, (iv) Spain, (v) the UK, (vi) Brazil, (vii) Mexico, (viii) Australia, (ix) China, (x) South Korea, (xi) Turkey, (xii) South Africa and (xiii) Russia; (B) subject to Licensee exercising its rights 

 

8

 

under Clause 2 to include this/these country/countries in the Territory, Japan and Canada; and (C) any country so designated by the JSC in writing;

 

“Know-how” means (a) any scientific or technical information, results and data of any type whatsoever, in any tangible or intangible form whatsoever, that is not in the public domain or otherwise publicly known, including databases, practices, methods, techniques, specifications, formulations, formulae, knowledge, know-how, skill, experience, test data, including pharmacological, medicinal chemistry, biological, chemical, biochemical, toxicological and clinical test data, analytical and quality control data, stability data, studies and procedures, and manufacturing process and development information, results and data, and (b) any biological, chemical, or physical materials, and (c) any industrial information that is not in the public domain or otherwise available to the public; all to the extent not claimed or disclosed in a Patent;

 

“Latin America” means Mexico, Colombia, Argentina, Venezuela, Peru, Ecuador, Brazil, Chile, Guatemala;

 

“Licensee Background IP” means Intellectual Property Rights held or controlled by Licensee (i) existing at the Effective Date or (ii) developed by employees, agents or independent contractors of Licensee during the Term but independently of this Agreement;

 

“Licensee Foreground IP” shall refer to such Foreground IP made solely by employees, agents or independent contractors of Licensee during the course of, in furtherance of, and as a direct result of such employees, agents or independent contractors performing an activity pursuant to this Agreement;

 

“Licensee Losses” has the meaning given to it in Clause 27.2;

 

“Licensor Background IP” means Intellectual Property Rights held or controlled by Licensor including the Licensor Know-how, Licensor Patents and Licensor Trade Marks (i) existing at the Effective Date or (ii) developed by employees, agents or independent contractors of Licensor during the Term but independently of this Agreement;

 

“Licensor Foreground IP” shall refer to such Foreground IP made solely by employees, agents or independent contractors of Licensor during the course of, in furtherance of, and as a direct result of such employees, agents or independent contractors performing an activity pursuant to this Agreement;

 

“Licensor Know-how” means the internally documented Know-how of Licensor relating to the Product, which is required and/or relevant to the activities that will be carried out by Licensee in the context of the license granted to it under this Agreement, including the Know-how listed in Schedule 4;

 

“Licensor Losses” has the meaning given to it in Clause 27.3;

 

9

 

“Licensor Patents” means the Patents listed in Schedule 1;

 

“Licensor Trade Marks” means the Principal Trade Mark, the Back-up Trade Mark or any alternative brand as well as the related applications and registrations that the parties may agree upon pursuant to Clause 15.3;

 

“Losses” has the meaning given to it in Clause 27.5;

 

“Manufacturing and Supply Agreement” means the manufacturing and supply agreement with regard to the manufacturing and supply by Licensor to Licensee of MCS, FDS and the Product, to be entered into by the parties as soon as possible after the Effective Date;

 

“Manufacturing Transfer Plan” means a written detailed plan for the transfer of each of the manufacturing steps included in the Product Manufacturing in the Territory, as such plan may be amended or updated from time to time;

 

“MCS” means a master cell stock (bank), from which the cells can be further expanded to manufacture the FDS;

 

“MCS Manufacturing” means the manufacturing of MCS starting from donor identification and selection;

 

“MENA” means Turkey, Iran, Iraq, Saudi Arabia, Yemen, Syria, UAB (United Arab Emirates), Israel, Jordan, Palestine, Lebanon, Oman, Kuwait, Qatar, Bahrain, Egypt, Algeria, Libya, Morocco, Sudan, Tunisia, and Western Sahara.

 

“Module 3” means quality (aka CMC) module, a component of the CTD (common technical document) used for the registration of pharmaceuticals for human use defined by the ICH (International Council for Harmonisation);

 

“Net Sales” means, for any period, the amount of “gross sales” (whereby “gross sales” equals Price times number of Products sold) in the applicable country in the Territory by Licensee or its Affiliates, less the following deductions (specifically excluding any payments made by Licensee or its Affiliates to Licensor pursuant to this Agreement), in each case related specifically to the Product in such country in the Territory and actually allowed and taken by such Third Parties and, in the case of items (i), (ii) and (v) only, not otherwise recovered by or reimbursed to Licensee or its Affiliates:

 

(i)                                      trade, cash and quantity discounts, including in relation to Portfolio Offerings, (other than price discounts granted at the time of invoicing and already included in the gross amount invoiced), albeit capped at a maximum of 1% of Net Sales per Year;

 

(ii)                                   price reductions or rebates, retroactive or otherwise, imposed by, negotiated with or otherwise paid to Regulatory Authorities or Payers;

 

10

 

(iii)                                taxes on sales (such as business tax and VAT), but not including (a) taxes assessed against the income derived from such sales, and (b) import and customs duties;

 

(iv)                               freight, insurance and other transportation and handling charges to the extent added to the sale price and set forth separately as such in the total amount invoiced; and

 

(v)                                  amounts repaid or credited by reason of rejections, defects, one percent (1%) return credits, recalls or returns or because of retroactive price reductions (including rebates or wholesaler charge backs).

 

Where any reduction in the amount of Net Sales is based on sales of a Portfolio Offering of products in which the Product for use in such country in the Territory is included, the reduction in price or deduction therefrom would be allocated as actually credited unless such Product receives a higher than pro rata share of any reduction or deduction that the set of products pertaining to the Portfolio Offering of products receives. In such case, the reduction or deduction therefrom shall be allocated to such Product on a no greater than a pro rata basis based on the sales value (i.e., the SKU average selling price multiplied by the number of SKUs) of such Product relative to the sales value contributed by the other products included in the Portfolio Offering of products with respect to such sale;

 

Subject to the above, Net Sales shall be calculated in accordance with Licensee’s standard internal policies and procedures, which must be in accordance with IFRS;

 

Net Sales shall not include (i) sales, transfers or dispositions between or among Licensee or its Affiliates, unless such Affiliates are end-users, but shall include the subsequent final sales to non-Affiliate Third Parties by any such Affiliates, or (ii) up to a maximum of one percent (1%) of Yearly Net Sales, sampling for preclinical, clinical, promotional or educational purposes conducted by or on behalf of Licensee for the Product in the Field in such country in the Territory in accordance with Licensee’s usual and customary business practices;

 

All Net Sales will be calculated in Euros;

 

If Licensee or its Affiliates appoint Distributors as provided under this Agreement for the Product in the Field in one or more countries in the Territory, Net Sales will include the Net Sales invoiced by Licensee or its Affiliates to such Distributors, but it will not include any sales of the Product in the Field in such countries in the Territory made by any such Distributors;

 

“New Indication” means any indication that is not the Primary Indication, including “extensions of indications”, but excluding for the avoidance of doubt “extension applications” such as changes to the active substance, the strength, the pharmaceutical form and the route of administration;

 

11

 

“Patents” means (a) all patents, patent applications, utility models and design patents in any country or supranational jurisdiction, and (b) any provisionals, substitutions, divisions, continuations, continuations in part, reissues, renewals, registrations, confirmations, reexaminations, extensions, supplementary protection certificates and the like, of any such patents or patent applications;

 

“Payer” means any national or federal institution, including, without limitation, Regulatory Authorities and private health insurance companies, having jurisdiction or influence over the pricing, market access, funding reimbursement or usage restrictions of the Product in the Field in the applicable country in the Territory;

 

“Pharmacovigilance Agreement” or “PVA” has the meaning given to it in Clause 13.1;

 

“Portfolio Offering” means an offering for sale of more than one product from a party’s products, whether owned or licensed-in products;

 

“Price” means the ex-manufacturer price of the Product per FP Dose, applicable for sales by or on behalf of Licensee to an unconnected Third Party in an arm’s length sale;

 

This ex-manufacturer price should be published in an official journal, or a document produced or recognized by the Payer, the government or the main institution determining pricing and market access decisions in a country. For decisions concerning the Price prior to the effective Commercialization, other sources may be acceptable if it is common practice in a country that the price is communicated in a different form prior to the effective Commercialization;

 

If the ex-manufacturer price is not published, but a different price metric such as a public price or wholesale price is published, Licensee will provide Licensor with the ex-manufacturer price based on margins and taxes published in an official journal, or a document produced or recognized by the Payer, the government or the main institution determining pricing and market access decisions in a country;

 

If the ex-manufacturer price is not published and applicable margins are not publicly available in a country, or if no price metric is publicly available, Licensee will provide Licensor with a reasonable estimate of the applicable ex-manufacturer price;

 

If there is no single applicable ex-manufacturer price in a country, the weighted average ex-manufacturer price based on available sales data in this country should be used;

 

For the avoidance of doubt, no discounts potentially granted by Licensee to any Third Party, nor any “mandatory” discounts imposed by, negotiated with or otherwise paid to any Regulatory Authorities or Payers, nor any Taxes relating to the Product, will be deducted from the ex-manufacturing price;

 

12

 

“Primary Indication” means the treatment of refractory, complex perianal fistulas in Crohn’s disease, it being understood that the exact wording of the Primary Indication will depend on the labelling finally approved by the Regulatory Authorities in the EEA;

 

“Principal Trade Mark” means the brand “Alofisel®”, as covered by the applications and registrations set out in Schedule 2 hereto;

 

“Product(s)” means the Cx601 product of Licensor, defined as a suspension of allogeneic expanded adipose-derived stem cells for local administration resulting from the Product Manufacturing, or any other product whose manufacture, use or sale would, in the absence of a license from Licensor, constitute direct, indirect, contributory or any other type of infringement of one or more claims of the Licensor Intellectual Property Rights;

 

“Product Domain Names” has the meaning given to it in Clause 15.7;

 

“Product Manufacturing” means the manufacturing of the Product, starting with MCS Manufacturing followed by FDS Manufacturing and finally FP Manufacturing;

 

“Quality Agreement” means the agreement to be entered into between the parties setting out the quality requirements of the Product Manufacturing and the Product itself, and the parties’ responsibilities in this respect, according to Applicable Laws in the applicable country in the Territory;

 

“Receiving Party” has the meaning given to it in Clause 19.3;

 

“Region” means, including for purposes of Clause 28.4.1, any of the following (groups of) countries: (1) EEA; (2) Canada; (3) Japan; (4) China, (5) Asia Pacific, (6) CIS, (7) Latin America, (8) MENA; (9) South Africa;

 

“Regulatory Approval” means any and all approvals, licenses (including product and establishment licenses), permits, certifications, registrations, or authorizations of any Regulatory Authority necessary to Develop, Manufacture and Commercialise the Product for use in the Field in the applicable country in the Territory, including all INDs, MAAs and the manufacturing license and marketing registration required under the Applicable Laws of such applicable country in the Territory, or any update thereto, as well as pre- and post-approval marketing studies, labelling approvals, technical, medical and scientific licenses;

 

“Regulatory Authority” means any national, supra-national, regional, federal, state, provincial or local regulatory agency, department, bureau, commission, council or other governmental entity (including, without limitation, the EMA and any governmental unit having jurisdiction over the Development, Manufacture, and Commercialization of the Product in the Field in the applicable country in the Territory);

 

“Representative(s)” has the meaning given to it in Clause 24.2;

 

13

 

“Share” has the meaning set out in Clause 9.4;

 

“SKU” means stock keeping unit;

 

“Tax” or “Taxation” means any form of tax or taxation, levy, duty, charge, social security charge, contribution or withholding of whatever nature (including any related fine, penalty, surcharge or interest) imposed by, or payable to, any government, state or municipality, or any local, state, federal or other fiscal, revenue, customs, or excise authority, body or official anywhere in the world;

 

“Tax Authority” means any government, state or municipality, or any local, state, federal or other fiscal, revenue, customs, or excise authority, body or official anywhere in the world, authorized to levy Tax;

 

“Tax Credit” has the meaning given to it in Clause 9.7;

 

“Term” has the meaning given to it in Clause 28.1;

 

“Territory” means the entire world, excluding (i) the United States of America and (ii) subject to Licensee not exercising its rights under Clause 2, Japan and Canada;

 

“Third Party” means any person other than Licensor, Licensee or their respective Affiliates;

 

“Third Party Report” has the meaning given to it in Clause 28.4.1;

 

“Threatened Claim” means a cease and desist letter or a letter or other written communication sent by a Third Party, explicitly and/or inherently alleging that the conduct of development, commercialization or manufacturing activities of the Product in the Territory infringes, misappropriates, violates or makes unauthorised use of such Third Party’s Intellectual Property Rights or requesting a comment about the party’s assumed right to the alleged use of such Third Party’s Intellectual Property Rights or including any written claim offering a license to the party or that the party must license or refrain from using such Third Party’s Intellectual Property Rights.

 

“TiGenix NV” means the company whose registered office is at Romeinse straat 12 box 2, 3001 Leuven (Belgium), registered with the Belgian Crossroads Bank of Enterprises under number 0471.340.123;

 

“Top Line Data” means total sales per country, number of products sold per country, as well as reference to the fact whether sales are being realized through Licensee directly or via a Distributor;

 

“Trade Mark” means any trade marks, services marks, corporate, trade and business names, and other signs, whether registered or unregistered, able to distinguish a certain undertaking’s products or services from that of another undertaking;

 

“Universidad” has the meaning given to it in Clause 22;

 

14

 

“VAT” means, within the EU, such Tax as may be levied in accordance with (but subject to derogations from) Directive 2006/112/EC and, outside the EU, value added tax or any form of consumption tax levied by a relevant Tax Authority, as well as all other forms of consumption taxes levied by the relevant Tax Authority on the purchase of a good or a service, including sales tax and good and service tax;

 

“Year” means each twelve (12) month period commencing on 1 January throughout the Term of this Agreement except that the first Year shall commence on the Effective Date and end on 31 December and the last Year shall commence on 1 January and end on the date of termination of this Agreement.

 

1.2                            Modification and re-enactment of statutes

 

References to a statutory provision include that provision as from time to time modified or re-enacted.

 

1.3                            Information

 

References to books, records or other information mean books, records or other information in any form including paper, electronically stored data, magnetic media, film and microfilm.

 

1.4                            Non-limiting effect of words

 

The words “including” and “include” and words of similar effect shall not be deemed to limit the general effect of the words which precede them.

 

2                                      Territory

 

2.1                            By 31 December 2016 at the latest, Licensee must notify to Licensor in writing whether Canada and/or Japan are to be included in the scope of this Agreement. In the absence of such notification (for either of these two countries) by such date, or if Licensee expressly indicates by such date that either or both of these countries are to be excluded, then this/these country/countries shall be definitely excluded from the scope of this Agreement and shall thus not be part of the Territory. If Licensee notifies Licensor in writing by 31 December 2016 at the latest that either or both of these countries are to be in the scope of this Agreement, this/these country/countries shall be included in the Territory and shall also constitute Key Markets, as of the moment of notice pursuant to Clause 29.

 

2.2                            The parties explicitly acknowledge and agree that, regardless of the decision made by Licensee under Clause 2, Licensor shall be entitled to remove Japan and Canada from the Territory and the Key Markets if by the second anniversary of the EEA Regulatory Authority’s decision to grant a marketing authorisation (either conditional or standard) for the Product for the EEA, a plan has not been agreed by Licensee with the Regulatory Authorities in Canada (Health Canada) and Japan (PDMA) respectively to file application for Regulatory Approval in those two (2) countries.

 

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3                                      License Grant to Licensee

 

3.1                            Licensor hereby grants to Licensee, and Licensee hereby accepts, a license to (i) the Licensor Background IP on or in relation to the Product in the Field and (ii) the Licensor Foreground IP and the Licensor’s interest in Joint Foreground IP on, or in relation to, the Product in the Field generated during the Term of the Agreement, allowing Licensee:

 

3.1.1                  on an exclusive basis, to use and Commercialise the Product in the Field in the Territory during the Term under the Licensor Trade Marks;

 

3.1.2                  on an exclusive basis, to register the Product in the Field in any country of the Territory that is outside of the EEA, during the Term;

 

3.1.3                  from the date of the transfer of the Regulatory Approval to the Licensee in the EEA, on an exclusive basis, to register the Product in the Field in any country of the Territory that is within the EEA, during the Term;

 

3.1.4                  on an exclusive basis, to carry out Development in relation to the Product in the Field in the Territory during the Term;

 

3.1.5                  on a non-exclusive basis, to carry out Development (except that for the purposes of this Clause, Development shall not include clinical development) in relation to the Product in the Field outside the Territory for Commercialisation of the Product in the Field in the Territory during the Term;

 

3.1.6                  on an exclusive basis, to manufacture the Product in the Territory for Commercialisation of the Product in the Field in the Territory during the Term;

 

3.1.7                  on an non-exclusive basis, to manufacture the Product outside of the Territory, for Commercialisation of the Product in the Field in the Territory during the Term; and

 

3.1.8                  on a non-exclusive basis, to use the corporate name of Licensor for the purposes and in accordance with the terms set out in Clause 15.5.

 

3.2                            Except as set out in Clause 3.3, Licensor shall not, during the Term (i) itself exercise; or (ii) grant any license to any Third Party to exercise the exclusive rights granted to Licensee under Clause 3.1.

 

3.3                            The parties acknowledge that the license grant set out in Clause 3.1 is subject to the limitations and exceptions as set out in this Agreement, including:

 

3.3.1                  Licensor retaining those rights not explicitly granted to Licensee under Clause 3.1;

 

3.3.2                  by exception to Clauses 3.1.1, 3.1.2 and 3.1.3, Licensor retaining the right to (have) register(ed), use(d) and Commercialise(d) the Product, including in the Field, in countries of the Territory where Licensee decides not to do so, subject 

 

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to the JSC having approved such right of Licensor (such approval not to be unreasonably withheld) and such countries to be agreed in writing between the parties. In such case, Licensor shall be entitled to use the relevant Licensor Trade Marks for the Commercialisation of the Product in such countries. In addition, Licensor may use Licensee Foreground IP and Licensee Background IP in such specific countries in accordance with Clause 4. For the sake of clarity, such countries will remain in the Territory and the Commercialisation of the Product by Licensor in such countries shall be part of the scope of review and/or approval by the JSC;

 

3.3.3                  by exception to Clause 3.1.4, Licensor retaining the right to (have) carry(-ied) out Development in relation to the Product in or outside the Territory and in or outside the Field, including for the avoidance of doubt the right to (have) carry(-ied) out clinical trials or any preparatory activities for such clinical trials in relation to the Product in or outside the Territory, including with a view of supporting any US regulatory filing; to the extent Licensor would carry out a clinical trial in the Field in any European sites, such use of European sites shall be discussed at the JOC and approved by the JSC;

 

3.3.4                  by exception to Clauses 3.1.6 and 3.1.7, Licensor retaining the right to (have) manufacture(d) MCS, FDS or the Product in the Territory:

 

(i)                                  as required pursuant to Clause 16; and

 

(ii)                               for Commercialisation of the Product in such countries in the Territory where Licensor will Commercialise the Product in accordance with Clause 3.3.2;

 

Licensor retaining the right to use the Licensor Trade Marks on the Product in the framework of supplying and/or packaging the Product to the benefit of Licensee.

 

3.4                            Licensor and Licensee shall each bear their own costs of and incidental to the negotiation and conclusion of this Agreement and the registration of this Agreement (if any) on any intellectual property register or other register.

 

4                                      License Grant to Licensor

 

4.1                            Licensee Foreground IP

 

4.1.1                  Licensee shall grant a non-exclusive, royalty-free, worldwide, sub-licensable license to Licensor to any and all Licensee Foreground IP and Licensee’s interest in Joint Foreground IP for use for or in relation to the Product, except that if the Licensee Foreground IP or the Licensee’s interest in Joint Foreground IP relates to manufacturing processes, the license granted under this Clause 4.1.1 is not limited to use for or in relation to the Product.

 

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4.1.2                  Notwithstanding Clause 4.1.1, in case of Licensee Foreground IP related to Trade Marks, designs, Domain Names or other documents subject to copy rights, relating not exclusively to the Product, Licensee has no obligation to grant a license to Licensor to use such Licensee Foreground IP and shall decide at its sole discretion, upon discussion between the parties, whether or not to grant such rights to Licensor.

 

4.2                            Licensee Background IP

 

4.2.1                  Subject to the parties reaching an agreement on the conditions of such license, as the case may be as discussed in the Joint Operating Committee, Licensee shall grant a non-exclusive license to Licensor to use such Licensee Background IP which Licensor deems useful in order to allow Licensor to benefit from and exercise the rights granted to Licensor under Clauses 3.3.2, 3.3.3 and 3.3.4. The parties shall negotiate in good faith the (additional) terms under which such right shall be granted to Licensor.

 

4.2.2                  Notwithstanding Clause 4.2.1, in case Licensee intends to implement any royalty-free Licensee Background IP within the processes and other technologies relating to the manufacturing of the Product, which use by Licensor to benefit from and exercise the rights granted to Licensor under Clauses 3.3.2, 3.3.3 and 3.3.4 would in the absence of a license from Licensee, constitute direct, indirect, contributory or any other type of infringement of such Licensee Background IP, Licensee shall grant a non-exclusive, royalty-free license to Licensor to such Licensee Background IP in order to allow Licensor to benefit from and exercise the rights granted to Licensor under Clauses 3.3.2, 3.3.3 and 3.3.4.

 

4.2.3                  Notwithstanding Clause 4.2.1, in case Licensee intends to implement any royalty-bearing Licensee Background IP within the processes and other technologies relating to the manufacturing of the Product, which use by Licensor to benefit from and exercise the rights granted to Licensor under Clauses 3.3.2, 3.3.3 and 3.3.4 would in the absence of a license from Licensee, constitute direct, indirect, contributory or any other type of infringement of such Licensee Background IP, Licensee will inform Licensor accordingly, and the parties will discuss in good faith the additional terms under which Licensee would grant a license to Licensor in order to allow Licensor to benefit from and exercise the rights granted to Licensor under Clauses 3.3.2, 3.3.3 and 3.3.4. Only in case of agreement upon such additional terms, Licensor shall implement such royalty-bearing Licensee Background IP into the processes and other technologies relating to the manufacturing of the Product.

 

4.3                            Parties shall cooperate in good faith, including by documenting the licenses set out in this Clause 4, in order to allow Licensor the full benefit of these license rights.

 

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5                                      Sub-contracting and Sub-licensing

 

5.1                            Sub-contracting by Licensee.

 

5.1.1                  Licensee may perform all or part of its obligations hereunder through any of its Affiliates or through any Third Parties without Licensor’s consent. The Licensee shall not be obliged to notify the Licensor of the appointment of any subcontractors for its activities under this Agreement.

 

5.1.2                  Notwithstanding Clause 5.1.1, in case such subcontracting to a Third Party would imply a transfer of Licensor Know-how to the potential subcontractor, the Licensee shall obtain Licensor’s prior written approval before entrusting such Third Party with the concerned subcontracted activities and obligations, such prior approval not to be unreasonably withheld, delayed or conditioned.

 

5.1.3                  For the specific case where the Licensee decides to perform some of its Commercialisation obligations through Distributors in the Territory, Licensee will select such Distributor in accordance with the criteria defined by the Licensor and approved by the JSC in accordance with Clause 8.2.10.

 

5.1.4                  Licensee shall not be relieved of its obligations pursuant to this Agreement as a result of such appointment of any subcontractors and shall remain fully responsible and liable for any action or omission of such subcontractors, including those which would constitute a breach of this Agreement if committed by the Licensee as if Licensee had committed such action or inaction itself.

 

5.1.5                  Where under Applicable Laws, such subcontracting requires that Licensee sublicenses its rights, it shall be entitled to do so without Licensor’s (additional) consent. For the avoidance of doubt, in such event, Clauses 5.3 to 5.8 shall apply.

 

5.2                            Except as set out in Clause 5.1.5, Licensee may not without the consent of Licensor sub-license any part of the rights granted to it under Clause 3.1 or any part of its obligations under this Agreement to a Third Party.

 

5.3                            If any subcontracting or sublicensing by Licensee in accordance with Clauses 5.1 or 5.2 triggers a negative Tax impact on Licensor, Licensee shall compensate Licensor for such negative Tax impact by applying mutatis mutandis the principles set out in Clause 9.7.

 

5.4                            Licensee is acting on its own behalf and not for the benefit of any Third Party.

 

5.5                            All sub-licenses granted pursuant to this Agreement, whether or not to Affiliates of Licensee, shall contain the limitations set out in this Agreement. Licensee shall be and remain responsible as between itself and Licensor for the observance by its sub-licensees of the obligations contained in this Agreement as if such sub-licensees were party to this Agreement.

 

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5.6                            Upon termination of this Agreement, all sub-licenses granted under this Agreement shall automatically terminate. Afterwards, Licensor is free to, at its discretion, conclude a separate agreement with any Third Party which was a sub-licensee of Licensee for activities under this Agreement.

 

5.7                            A sub-license granted under this Agreement by Licensee to an Affiliate shall terminate immediately if such Affiliate ceases to be an Affiliate.

 

5.8                            In no event shall Licensor have any obligation to assume any obligations or liabilities, or be under any obligation or requirement of performance, under any such sublicense or appointment to sub-contractors extending beyond Licensor’s obligations and liabilities under this Agreement.

 

6                                      Commercialisation, Diligence Obligations and Minimum Commitments

 

6.1                            Without prejudice to Clause 3.3.2, Licensee is solely responsible for and shall use Commercially Reasonable Efforts to Commercialise the Product in the Field in the Territory. In the countries of the Territory where Licensee decides not to Commercialise the Product, Licensor may decide to Commercialise the Product in accordance with Clause 3.3.2. For the sake of clarity, Licensee may decide not to Commercialise the Product in one or more countries in the Territory, if — amongst other - in such country/countries the Product would have to be sold at a Price lower than or equal to EUR 22,000 per Product, based on a pricing, market access or funding decision by a Payer allowing usage of the Product in any patient in the Field in the respective country. For countries not applying the euro currency (including the UK, Canada and Japan), the converted equivalent of EUR 22,000 will be applied, based on the exchange rate that applies at the time of the decision of the competent Payer.

 

6.2                            Licensee shall not grant any commercial concessions (including financial discounts) to Payers on the Product in order to obtain a better price, access, reimbursement or funding for other products in Licensee’s portfolio.

 

6.3                            Licensee hereby agrees that to the extent it, its Affiliates or Distributors provide a discount on the Product as part of a Portfolio Offering, such discount on the Product shall be reasonably proportionate to other discounts that Licensee has provided on other products in its portfolio.

 

6.4                            The costs related to Commercialisation activities relating to the Product in the EEA shall be borne:

 

6.4.1                  by Licensee, in relation to all activities to be initiated as from the Effective Date; and

 

6.4.2                  by Licensor, in relation to all activities launched and committed to by Licensor prior to the Effective Date.

 

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6.5                            The costs related to Commercialisation activities relating to the Product in the Field in the Territory outside of the EEA shall be borne by Licensee, except to the extent Licensor Commercialises in a certain country in accordance with Clauses 2 or 3.3.2.

 

6.6                            Promotional Materials.

 

6.6.1                  In the context of the Commercialisation of the Product, Licensee shall among others be responsible for creating, preparing and disseminating educational and promotional materials and programmes. The content of such materials and programmes shall be in compliance with all Applicable Laws, including the latest version of the IFPMA Code of Pharmaceutical Marketing Practices. For the avoidance of doubt, the Intellectual Property Rights held by Licensee on the materials and programmes created or prepared by or on behalf of Licensee in accordance with this Clause 6.6 shall remain the exclusive property of Licensee or its Affiliates during and after the Term of this Agreement. If such Intellectual Property Right qualify as Licensee Foreground IP the provisions of this Agreement and in particular Clause 4 shall apply thereto.

 

6.6.2                  In the countries where Licensor Commercialises the Product in accordance with Clause 3.3.2 and where Licensee is the holder of the Regulatory Approval, Licensor shall communicate to Licensee its promotional materials and programmes prior to their release to the public, Licensee’s consent for Licensor to use such promotional materials not to be unreasonably delayed or withheld.

 

6.6.3                  The parties agree that it is in the interest of the Product to elaborate a global promotional approach to the Product and will collaborate to align on the content of promotional materials.

 

6.7                            Although any final decision pertaining to Commercialisation activities in the Territory will be made by Licensee, Licensor shall be informed of said Commercialisation activities in the Territory through the Joint Steering Committee.

 

6.8                            Licensee shall provide Licensor with a Commercialisation Plan for all Key Markets, as well as with Top Line Data for any other countries part of the Territory on Licensor’s request.

 

6.9                            This Commercialisation Plan shall include the following items:

 

6.9.1                  12-16 months before launch:

 

(i)                                  Changes made to the commercial strategy in consideration of the regulatory and pricing strategy;

 

(ii)                               Sales forecasts and volume forecasts for the Key Markets (for a period of 3 Years);

 

(iii)                            Summary of the overall market dynamics;

 

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6.9.2                  4-12 months before launch:

 

(i)                                  Customers and hospitals mapping;

 

(ii)                               Pricing and market access strategy and initiatives — scenarios and mitigation plans;

 

(iii)                            Value proposition and key messages;

 

(iv)                           Pre-marketing commercial/medical activities (6 months before);

 

(v)                              Top line summary of marketing plan, messaging, positioning;

 

(vi)                           Launch activities;

 

(vii)                        Sales forecasts and volume forecasts;

 

6.9.3                  Post-launch:

 

(i)                                  Planned promotional initiatives;

 

(ii)                               Sales report (last twelve (12) months)

 

(iii)                            Revised sales and volume forecast (3 Years);

 

(iv)                           KPIs;

 

(v)                              Market challenges, opportunities and mitigation plans.

 

6.10                     Licensee shall use Commercially Reasonable Efforts to Commercialise the Product in the Field in accordance with the Commercialisation Plan. If Licensee expects that it will not reach the sales forecast included in the Commercialisation Plan for a particular Year, it will bring this to the attention of the JSC and propose a mitigation strategy to be discussed in the JSC.

 

6.11                     In the event of modification of the territorial scope of the EU and/or the EEA (e.g. by means of the accession of a new country to the EU and/or the EEA) in the course of the Term, the parties shall jointly consider in good faith the impact of such modification on this Agreement and, as the case may be, enter into an amendment to this Agreement, addressing such impact to the satisfaction of both parties.

 

6.12                     Licensee shall not be obligated to Develop, seek Regulatory Approval or Commercialise the Product: (i) which, in its reasonable opinion after discussion with Licensor, caused or is likely to cause a fatal, life-threatening or other adverse safety event that is reasonably expected, based upon then available data, to preclude obtaining Regulatory Approval for such Product, or, if Regulatory Approval of such Product has already been obtained, to preclude continued marketing of such Product; or (ii) in a manner inconsistent with Applicable Laws. In such event, both parties may terminate the Agreement by giving the other party thirty (30) days written notice.

 

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7                                      Compliance

 

7.1                            Compliance with Laws. Each party shall take such steps as are necessary, including implementing and maintaining (at a minimum) a robust internal compliance program, so as to ensure that its business and practices and the Commercialization it shall perform under this Agreement are carried out in accordance with all Applicable Laws and applicable codes of conduct and any reasonable ethical and compliance principles, including the standards and principles as set out in the Licensee’s and the Licensor’s codes of conduct to be shared between the parties (hereinafter the “Codes of Conduct” and each a “Code of Conduct”).

 

7.2                            Anti-Corruption. Without limiting the generality of Clause 7.1, in performing this Agreement, each party and its employees and agents (i) shall not offer to make, make, promise, authorize or accept any payment or giving anything of value, including bribes, either directly or indirectly to any public official, Regulatory Authority, Payer or anyone else for the purpose of influencing, inducing or rewarding any act, omission or decision in order to secure an improper advantage, or obtain or retain business; and (ii) shall comply with all applicable anti-corruption and anti-bribery laws and regulations, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and all other applicable anti-corruption laws, such as the UN Convention Against Corruption and the OECD Convention. Each party and its employees and agents shall not make any payment or provide any gift to a Third Party in connection with such party’s performance under this Agreement, except as may be expressly permitted in this Agreement, without first identifying the intended Third Party recipient to the other party and obtaining the other party’s prior written approval.

 

7.3                            Training. Each party shall require its employees and its subcontractors (if any) who will perform any activity related to the Agreement to participate in an anti-corruption training and/or a training on such party’s Code of Conduct and/or any related applicable company policy.

 

7.4                            Company Assistance and Notice of Government Inspection. Each party shall promptly comply with any request from the other party for information and assistance to enable such other party to ensure, audit and confirm compliance with Applicable Laws, regulations and standards. Each party shall immediately notify the other party upon becoming aware of any governmental or regulatory review, audit or inspection of items related to the other party or any other activities in connection with this Agreement.

 

7.5                            Certification. Each party shall certify to the other party in the first quarter of each Year that it has not engaged in any conduct that would violate this Clause 7 nor that it is aware of any such conduct. As part of its certification, each party shall certify that all relevant employees and management working in connection with this Agreement have been trained on Applicable Laws, regulations and such party’s Code of Conduct.

 

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7.6                            Records. Each party shall ensure that it has kept and will keep complete and accurate records of all transactions and expenses related to their business related to the Product in accordance with any and all Applicable Laws and standards. Each party shall have the right to ask for specific details of the other party’s compliance program and each party shall further have the right to conduct an audit of the other party’s compliance program. The audited party shall assist the other party in any such audit that the other party may wish to perform at the auditing party’s expense, provided that the auditing party has given reasonable notice, and in no event less than three (3) months. Notwithstanding the foregoing, each party assumes no duty or obligation to audit or review the other party’s compliance with this Clause 7.

 

8                                      Governance

 

8.1                            The parties agree to set up the following governance committees:

 

8.1.1                  the “Joint Steering Committee” (or “JSC”), which shall be responsible for overseeing Commercialisation-related activities, overseeing the JOC and JMC, addressing issues that have been escalated to it from those other committees, as well as considering issues and making decisions on matters entrusted to it under this Agreement;

 

8.1.2                  the “Joint Operating Committee” (or “JOC”), which shall be responsible for considering issues and making decisions pertaining to Development, material Intellectual Property Rights matters, regulatory approach and filing strategy designed to generate successful submissions and market authorisations of the Product as well as any lifecycle plan; and

 

8.1.3                  the “Joint Manufacturing Committee” (or “JMC”), which shall be responsible for considering issues and for making decisions pertaining to Product Manufacturing or supply of the Products and the manufacturing and supply strategy as well as the Manufacturing Transfer Plan to enable Licensee to perform Product Manufacturing;

 

The JOC and the JMC shall meet as provided hereunder but the parties may agree that the frequency or the existence of the relevant committee shall be modified to suit the lifecycle of activities for the Product.

 

8.2                            The Joint Steering Committee is composed out of four (4) voting members, each party appointing two (2) persons, at least one of which having a position at senior or executive management or equivalent level. The initial members of the JSC will be determined by each party within thirty (30) days from the Effective Date of this Agreement. Each party shall designate one of its members of the JSC as the co-chair.

 

The JSC shall meet twice per Year and as often as requested by one (1) or more members of the JOC and/or JMC. Meetings may be held in person, by telephone or videoconference, provided that at least one meeting per Year shall be held in person.

 

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The JSC shall have the responsibilities set forth in Clause 8.1.1, including to:

 

8.2.1                  Oversee and discuss strategies for Commercialisation of the Product in the Field in the Territory and review and comment on the Commercialisation Plan for Key Markets and any material updates, amendments, modifications;

 

8.2.2                  Review progress under the Commercialisation Plan;

 

8.2.3                  Oversee the activities and monitor the progress of the JOC and JMC;

 

8.2.4                  Review and endorse the Development Plan and any material updates, amendments, modifications and any budget related to it;

 

8.2.5                  Review any product lifecycle plans for the Product including New Indications and label extension, new dosage forms and new formulations or delivery systems;

 

8.2.6                  Endorse the manufacturing and supply strategy to, among others reduce risk and maximize cost reduction;

 

8.2.7                  Endorse the Manufacturing Transfer Plan;

 

8.2.8                  Review and approve the transfer plan for the Regulatory Approvals and related activities in the EEA;

 

8.2.9                  Resolve any Disputed Matters referred to the JSC by the JMC or the JOC;

 

8.2.10           Discuss and approve a particular set of validation criteria for Distributors as defined by Licensor;

 

8.2.11           Following the JOC’s review under Clause 8.3.10, approve the inclusion by Licensor of EEA centers to perform clinical trials relating to the Product in the Field;

 

8.2.12           Review any material Intellectual Property Rights matters related to the Product in the Field in the Territory as requested by the JOC; and

 

8.2.13           Perform such other functions as the parties may mutually agree in writing, except where in conflict with any provision of this Agreement.

 

8.3                            The Joint Operating Committee is composed out of six (6) voting members, each party appointing three (3) persons. The initial members of the JOC will be determined by each party within thirty (30) days from the Effective Date of this Agreement. Each party shall designate one of its members of the JOC as the co-chair.

 

The JOC shall meet at least once per quarter, starting as of the Effective Date, and as often as required to support the Development and the Commercialisation of the Products in the Field. Meetings may be held in person, by telephone or videoconference, provided that at least one meeting per Year shall be held in person.

 

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The JOC shall coordinate operational activities of the parties in the performance of the Development Plan and conduct those activities as directed by the JSC and shall have the responsibilities set forth in Clause 8.1.2, including to:

 

8.3.1                  Establish, review and approve the Development Plan and any material updates, amendments, and modifications to the Development Plan for endorsement by the JSC;

 

8.3.2                  Where costs are shared between the parties as provided under this Agreement, review and compile the applicable budgets with a presentation of the budget by items versus actual expenses for the JSC;

 

8.3.3                  Review and evaluate progress under the Development Plan, including without limitation all health, safety and quality concerns;

 

8.3.4                  Discuss plans and protocols for all pre-clinical, CMC and clinical studies prepared in support of obtaining or maintaining Regulatory Approvals for the Product;

 

8.3.5                  Share and discuss each of the party’s clinical trial data in the Field in and outside of the Territory to the extent needed to substantiate or support each other’s filings before any Regulatory Authority or communications with the Regulatory Authorities pursuant to the requests of such Regulatory Authorities;

 

8.3.6                  Discuss and review the regulatory filing strategy, the regulatory transfer plan for EEA and any material regulatory matter,

 

8.3.7                  Review a high level integrated regulatory plan for all submissions to Regulatory Authorities as well as a launch plan in the Territory outside the EEA;

 

8.3.8                  Discuss and review any material Intellectual Property Rights matters related to the Product in the Field in the Territory;

 

8.3.9                  Discuss and review Licensee’s clinical development plans relating to the Product in the Field, review and discuss protocols, and monitor the progress of related clinical studies and other development activities for the Product in the Field in the Territory; and

 

8.3.10           Discuss and review Licensor’s site selection plans in relation to intended clinical trial plans relating to the Product in the Field in centres in the Territory (with a view to supporting any US regulatory filing) in preparation for approval by JSC.

 

8.4                            The Joint Manufacturing Committee is composed out of six (6) voting members, each party appointing three (3) persons. The initial members of the JMC will be determined by each party within thirty (30) days from the Effective Date of this Agreement. Each party shall designate one of its members of the JMC as the co-chair.

 

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The JMC shall meet at least once per quarter, starting as of the Effective Date, and as often as requested to support the Manufacturing of the Product. Meetings may be held in person, by telephone or videoconference, provided that at least one meeting per Year shall be held in person.

 

When the Product Manufacturing responsibilities will have been fully transferred to Licensee and no further supplies from Licensor to Licensee are required, parties will discuss in good faith whether or not it is reasonable to keep the JMC operational, as the case may be with less meetings per Year, in view of a potential further collaboration and coordination between the parties in respect of Product Manufacturing.

 

The JMC shall oversee Product Manufacturing and supply implementation and operational activities of the parties as agreed in the Manufacturing and Supply Agreement and conduct those activities as directed by the JSC, and shall have the responsibilities set forth in Clause 8.1.3, including to:

 

8.4.1                  Establish, review and approve the Manufacturing and supply strategy to increase capacity, to reduce risk and maximize cost reduction and any material updates, amendments, and modifications to the strategy for endorsement by the JSC;

 

8.4.2                  Establish, review and approve the Manufacturing Transfer Plan (to be endorsed by the JSC) including the budget for transfer costs and any material updates, amendments, and modifications to the plan;

 

8.4.3                  Where costs are shared between the parties as provided under this Agreement, review and compile the applicable budgets with a presentation of the budget by items versus actual expenses for the JSC;

 

8.4.4                  Review and evaluate progress under the manufacturing and supply strategy;

 

8.4.5                  Review regional Manufacturing and supply chain activities, with regard to the regulatory strategy to leverage a global supply chain network;

 

8.4.6                  Suggest and review any strategies for cost improvement to the Manufacturing and supply chain activities or any other improvement of the Product;

 

8.4.7                  Developing and reviewing the Product Manufacturing specifications, quality control and assurance plans; and

 

8.5                            A party may replace one or more of its appointees on one or more committees, at any time, by notifying the same in writing to the other party.

 

8.6                            Committee Meetings. The co-chairs (or their designees) of each committee shall be responsible for organizing the committee meetings and to prepare and circulate to each committee member an agenda for each committee meeting reasonably in advance of each meeting. Documentation to be presented by each party in the 

 

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committee meetings and any other relevant information that is necessary to guide support decision-making in each of the committees shall be shared with each of the members of the respective committee at least five (5) Business Days prior to the meeting date. At each committee meeting, the presence of at least one (1) member designated by each party shall constitute a quorum. Each party may invite non-voting employees to attend any meeting and shall notify the other party reasonably in advance, but no later than two (2) Business Days prior to the meeting date. Each party shall bear its own costs associated with holding and attending committee meetings. The co-chairs (or their designees) of each committee shall keep minutes of their meetings that record all decisions and all actions recommended or taken in reasonable detail. The co-chairs (or their designee) shall alternate in terms of responsibilities for preparing the minutes of the meetings that record all decisions taken and actions agreed. The co-chair responsible for the minutes of a committee shall circulate a draft of the minutes no later than ten (10) Business Days after each meeting and each member of the committee shall have the opportunity to comment on the draft minutes. The minutes shall be approved, disapproved or revised as necessary within thirty (30) days of each meeting; provided, however, that if the parties cannot agree as to the content of the minutes, such minutes will be finalized to reflect such disagreement. Co-chairs (or their designees) of each committee shall circulate final minutes of each meeting to each committee member.

 

8.7                            Decision-Making.  Except as otherwise provided herein, decisions of each committee shall be made by consensus with each party having one (1) single vote. Each committee shall use Commercially Reasonable Efforts to reach agreement on any and all matters for which it is responsible. In the event that, despite such Commercially Reasonable Efforts, agreement on a particular matter cannot be reached by a committee within fifteen (15) Business Days after the committee first meets to consider such matter (each such matter, a “Disputed Matter”), then the following procedure shall apply:

 

8.7.1                  JOC and JMC Disputed Matters.  Disputed Matters arising from the JOC or the JMC shall be referred for resolution to the JSC. The JSC shall initiate discussions in good faith to resolve each Disputed Matter within ten (10) Business Days of receipt of the notice of such Disputed Matter. In the event that the JSC does not reach agreement on such Disputed Matter within fifteen (15) Business Days from the date of initiation of such discussions, such Disputed Matter shall be referred to senior management for resolution in accordance with Clause 8.8; and

 

8.7.2                  JSC Disputed Matters.  Disputed Matters first arising in the JSC or not resolved by the JSC which had first arisen in the JMC or the JOC shall be referred to senior management for resolution in accordance with Clause 8.8.

 

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8.8                            Management Negotiations.  In the event that the JSC cannot resolve a Disputed Matter, either party may, by written notice to the other, refer such Disputed Matter to the parties’ respective senior management or board of directors for good faith negotiations. In the event that, despite good faith efforts, resolution of such Disputed Matter cannot be reached by senior management or the board of directors of the parties within thirty (30) Business Days of its referral then, without prejudice to each party’s right to seek recourse under Clause 40:

 

8.8.1                  with respect to any Disputed Matter that relates to the Commercialization of the Product in the Field in the Territory, Licensee shall have final decision-making authority, except for those countries where Licensor Commercialises the Product pursuant to Clause 3.3.2, in which case Licensor shall have final decision-making authority (unless the Licensee is the holder of the applicable Regulatory Approval in such country, in which case the decision making shall be made by both parties acting reasonably);

 

8.8.2                  with respect to any Disputed Matter that relates to Development of the Product in order to Commercialise the Product in the Field in the Territory, the final decision-making authority shall rest with Licensee;

 

8.8.3                  with respect to any Disputed Matter that relates to Intellectual Property Rights of the Product, the final decision-making authority shall rest with Licensor for Licensor Background IP and Licensor Foreground IP and shall rest with Licensee for Licensee Background IP and Licensee Foreground IP;

 

8.8.4                  with respect to any Disputed Matter that relates to New Indications, the final decision-making authority shall rest with Licensor; and

 

8.8.5                  with respect to any Disputed Matter that relates to the Manufacturing of the Product in the Field in the Territory, the final decision-making authority shall rest with Licensor as long as Licensor is responsible for Product Manufacturing, and with Licensee as from the time Licensee is responsible for Product Manufacturing.

 

8.9                            Alliance Manager. Each of the parties shall appoint one representative who possesses a general understanding of development, regulatory and commercialization issues to act as its “Alliance Manager”. The role of the Alliance Manager is to act as a first point of contact between the parties. The Alliance Managers shall have the right to attend all meetings of any committees that the parties may decide to form hereunder and may act as designees of the co-chairs of the JSC to organize and facilitate JSC meetings. The Alliance Managers shall also work together to facilitate the communication and coordination between the parties solely related to matters that the JSC has the authority to oversee under Clause 8.2, as well as to resolve any disputes and to guide discussions between the parties to the relevant governance committee and facilitate a resolution of a dispute at the level of 

 

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the relevant governance committee. Each party may change its designated Alliance Manager from time to time upon written notice to the other party.

 

8.10                     None of the committees has the power or right to modify or delete the terms of this Agreement, or to make decisions contradicting or impeding the terms of this Agreement.

 

9                                      Financial Terms

 

9.1                            In consideration for the license rights granted to it in Clause 3.1 to the Licensor Background IP, the Licensor Foreground IP and Licensor’s interest to the Joint Foreground IP, as well as in consideration for the market benefit margin over the Product supply and in consideration for the participation of Licensor in the governance committees pursuant to Clause 8, Licensee shall make the following payments to Licensor upon receipt of a proper invoice, which payments shall be (i) non-refundable; (ii) net of any withholding Taxes or Tax deductions; (iii) non-returnable, nor available for credit against any other sums payable by Licensee hereunder:

 

9.1.1                  An upfront payment in the amount of EUR 25,000,000, covering the Territory, to be paid by Licensee within fifteen (15) days of receipt of a proper invoice following the Effective Date.

 

9.1.2                  Approval milestone payments payable once for the following regions/countries of the Territory:

 

(i)                                An approval milestone for the EEA in the amount of EUR 15,000,000, payable by Licensee in the event of issuance of the written EU Commission decision to grant Regulatory Approval for the Product;

 

(ii)                             Subject to Japan being in the Territory pursuant to Clause 2, an approval milestone for Japan in the amount of EUR 1,500,000, payable by Licensee in the event of the issuance of a written decision by the relevant Regulatory Authority, including a decision on an early access program or conditional approval, allowing the Product to be sold to patients in Japan; and

 

(iii)                          Subject to Canada being in the Territory pursuant to Clause 2, an approval milestone for Canada in the amount of EUR 1,500,000, payable by Licensee in the event of the issuance of a written decision by the relevant Regulatory Authority, including a decision on an early access program or conditional approval, allowing the Product to be sold to patients in Canada.

 

No approval milestones are due in any other country of the Territory.

 

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Any payment of Regulatory Approval milestones mentioned above shall be made by Licensee within thirty (30) days of receipt of a proper invoice following the occurrence of the relevant Regulatory Approval milestone.

 

9.1.3                  Price reimbursement milestones within EEA, payable once in the event of the issuance of a written positive pricing and market access decision in each of the Key Markets in the EEA (i.e. France, Germany, Italy, Spain and the United Kingdom), as follows:

 

(i)                                In the event of a decision by a Payer, allowing usage of the Product in any patient in the Field at a Price of EUR 30,000 or more, the amount payable for each relevant country by Licensee is EUR 2,000,000;

 

(ii)                             In the event of a decision by a Payer, allowing usage of the Product in any patient in the Field at a Price between EUR 26,000 and up to EUR 30,000 (excluded), the amount payable for each relevant country by Licensee is EUR 1,000,000.

 

For the UK, the converted equivalent of the EUR amounts of the Prices set out in Clause 9.1.3(i) and 9.1.3(ii) above will be applied, based on the exchange rate that applies at the time of the decision of a Payer.

 

Any payment of price reimbursement milestones mentioned above shall be made by Licensee within thirty (30) days of receipt of a proper invoice following the occurrence of the relevant price reimbursement milestone.

 

9.1.4                  Price reimbursement milestones outside EEA, subject to Japan and/or Canada being in the Territory pursuant to Clause 2, in the event of the issuance of a written positive pricing and market access decision by a Payer in either Japan and/or Canada, allowing usage of the Product in any patient in the Field at a Price equivalent to EUR 30,000 or more, based on the exchange rate that applies at the time of the decision of a Payer, the amount payable for each relevant country by Licensee is EUR 1,000,000.

 

Any payment of price reimbursement milestones mentioned above shall be made by Licensee within thirty (30) days of receipt of a proper invoice following the occurrence of the relevant price reimbursement milestone.

 

9.1.5                  The aforementioned decision by a Payer is defined as follows for the Key Markets:

 

(i)                                France: Acceptance of price by CEPS;

 

(ii)                             Germany: Reimbursement price accepted by GKV-SV or determined by arbitration board;

 

(iii)                          Italy: Pricing and reimbursement decision by AIFA;

 

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(iv)                         Spain: Price proposed by CIPM;

 

(v)                            UK: Positive appraisal by NICE or funding decision by NHS England;

 

(vi)                         Canada: Positive CDR recommendation; and

 

(vii)                      Japan: Chuikyo General Assembly approves pricing decision.

 

9.1.6                  In the event that there is a change in the role or relevance of a Payer in any of the Key Markets, the JCC will revise the aforementioned definition of the relevant Payer in the respective country.

 

9.1.7                  Royalties, computed on Net Sales for the Product per FP Dose, on a country per country basis in the Territory where the Product is sold and on a quarterly basis, considering the Price of the Product in the relevant country and the relevant quarter, as follows:

 

(i)                                If the Price of the Product is equal to or higher than EUR 30,000, the royalty rate shall amount to 18%;

 

(ii)                             If the Price of the Product is lower than EUR 30,000 but equal to or higher than EUR 28,000, the royalty rate shall amount to 16%;

 

(iii)                          If the Price of the Product is lower than EUR 28,000 but equal to or higher than EUR 26,000, the royalty rate shall amount to 14%;

 

(iv)                         If the Price of the Product is lower than EUR 26,000 but equal to or higher than EUR 24,000, the royalty rate shall amount to 12%;

 

(v)                            If the Price of the Product is lower than EUR 24,000 but equal to or higher than EUR 20,000, the royalty rate shall amount to 10%; and

 

(vi)                         If the Price of the Product is lower than EUR 20,000, the JSC shall decide on the applicable royalty rate (which the parties confirm cannot be null).

 

In the event aggregate Net Sales over a given Year exceed EUR 500,000,000, each percentage of royalties set out above shall be increased by 2% for the sales of the Year concerned.

 

In order to enable Licensor to prepare proper invoices for the above royalties, Licensee shall issue, within ten (10) Business Days after the end of each quarter, an overview of Net Sales on a country by country basis.

 

For countries not applying the euro currency, the converted equivalent of the EUR amounts of the Prices set out in Clause 9.1.7(i) through 9.1.7(vi) will be applied, based on the exchange rate that applies at the time of the decision of the competent Payer.

 

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Any payment of royalties mentioned above shall be made by Licensee within thirty (30) days of receipt of a proper invoice.

 

9.1.8                  Sales milestones, payable once after first occurrence, if aggregate Net Sales over one (1) given Year reach the following amounts:

 

(i)                                  If Net Sales reach EUR 150,000,000, a payment of EUR 15,000,000;

 

(ii)                               If Net Sales reach EUR 250,000,000, a payment of EUR 25,000,000;

 

(iii)                            If Net Sales reach EUR 400,000,000, a payment of EUR 40,000,000;

 

(iv)                           If Net Sales reach EUR 650,000,000, a payment of EUR 65,000,000;

 

(v)                              If Net Sales reach EUR 800,000,000, a payment of EUR 80,000,000; and

 

(vi)                           If Net Sales reach EUR 1,000,000,000, a payment of EUR 100,000,000.

 

Any payment of sales milestones mentioned above shall be made by Licensee within thirty (30) days of receipt of a proper invoice following the occurrence of the relevant sales milestones achieved.

 

9.1.9                  Any consideration to be received by Licensor under Clause 9.1.1 will be allocated as follows:

 

(i)                                2.24% (two point twenty-four percent) will be allocated to the technical assistance to be provided by Licensor to Licensee through the governance committees pursuant to Clause 8; and

 

(ii)                             the remaining 97.76% (ninety-seven seventy-six percent) will be allocated to the specific group of Intellectual Property Rights licensed by Licensor to Licensee as follows:

 

(a)                       4.84% (four point eighty-four percent) will be allocated to the license by Licensor of the Licensor Patents;

 

(b)                       92.32% (ninety two point thirty-two percent) will be allocated to the license by Licensor of the Licensor Know-how;

 

(c)                        0.60% (zero point sixty percent) will be allocated to the license by Licensor of the Licensor Trade Marks and any other Intellectual Property Rights, if any.

 

For the sake of clarity, this allocation of amounts is purely internal to Licensor (it has been set by Licensor according to market value of the technical assistance and the Intellectual Property Rights mentioned above) and shall have no impact whatsoever to Licensee, either from a tax, financial, reporting obligations, payments, or administrative perspective (and the Licensor shall

 

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hold harmless and indemnify the Licensee for all Licensee Losses which may arise directly as a result of such allocation).

 

9.1.10           Any consideration to be received by Licensor under Clauses 9.1.2, 9.1.3, 9.1.4, 9.1.7 and/or 9.1.8, will be allocated to the specific group of Intellectual Property Rights licensed by Licensor to Licensee as follows:

 

(i)                                  4.98% (four point ninety-eight percent) will be allocated to the license by Licensor of the Licensor Patents; and

 

(ii)                               95.02% (ninety-five point zero two percent) will be allocated to the license by Licensor of the Licensor Know-how,

 

it being understood that prior to the allocation in accordance with this Clause 9.1.10 of the royalties to be received by Licensor under Clause 9.1.7, first the fair market rates referred to in Clause 9.3 are deducted from such royalties.

 

For the sake of clarity, this allocation of amounts is purely internal to Licensor (it has been set by Licensor according to market value of the Intellectual Property Rights mentioned above) and shall have no impact whatsoever to Licensee, either from a tax, financial, reporting obligations, payments, or administrative perspective (and the Licensor shall hold harmless and indemnify the Licensee for all Licensee Losses which may arise directly as a result of such allocation).

 

9.2                            The amounts set out in Clause 9.1 shall be payable in respect of the Commercialisation, manufacture and/or sale of Products by or on behalf of Licensee and/or its Affiliates to Third Parties, while no amounts shall be payable to Licensor on transfers of Products between Licensee and its Affiliates.

 

9.3                            Further to Clause 17, Licensor shall supply MCS and/or FDS and/or Products to Licensee at cost. Such costs have been evaluated on the Effective Date at EUR 8,434 Ex Works per FP Dose (“Current COGS”) before optimization investment up to 1,200 FP Doses per Year (whereby parties and the JMC undertake best efforts to complete such optimization investment by the end of 2017). Payments for the supply of Product shall be made by Licensee within sixty (60) days of receipt of a proper invoice. Upon request of Licensee, Licensor shall provide all relevant documentation for such costs and Licensee may have the right to audit records of Licensor relating to such costs in accordance with the procedures set out in Clause 10. In return for not charging to Licensee a margin on the “at cost” price for the Product, Licensor is compensated, at fair market rates, by the royalties as per Clause 9.1.7.

 

9.4                            Upon the terms of a subscription agreement to be negotiated in good faith, taking into account market practice in connection with private placements (also with reference to representations and warranties released by TiGenix NV concerning the valid 

 

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incorporation and existence of TiGenix NV, the valid issuance and transfer of title to shares, as well as TiGenix NV’s financial status and ability confirming that TiGenix NV is not in a situation as described in Clause 9.4.4 below at the subscription date) and to be agreed upon between the Licensee and TiGenix NV (the “Subscription Agreement”), the Licensee irrevocably commits to invest EUR 10,000,000 in shares of TiGenix NV, within twelve (12) months from the Effective Date, by way of subscribing to new shares to be issued in a private placement at a subscription price per share which shall be equal to the average of the closing share prices of TiGenix NV on Euronext Brussels during the period of thirty (30) calendar days immediately preceding the date on which the issuance of the new shares commenced (“Shares”).

 

The subscription commitment of Licensee set out in this Clause 9.4 shall terminate:

 

9.4.1                  in case the subscription process has not been initiated by TiGenix NV within eleven (11) months after the Effective Date and the relevant capital increase has not been completed within twelve (12) months after the Effective Date (including the execution of the Subscription Agreement);

 

9.4.2                  upon termination of the Agreement;

 

9.4.3                  in case such investment would breach or is reasonably likely to breach applicable anti-trust regulations;

 

9.4.4                  in case TiGenix NV or any of its Affiliates is, or are reasonably likely to be, insolvent or declared bankrupt or liquidated or if proceedings to that effect have been initiated or threatened by TiGenix NV or a Third Party; and

 

9.4.5                  in case such investment in TiGenix NV is reasonably likely to result in a reputational damage for the Licensee or any of its Affiliates.

 

Within seven (7) Business Days from the Effective Date, Licensee and TiGenix NV will enter into a binding Subscription Agreement, based on which TiGenix NV will be entitled to request Licensee to pay up the EUR 10,000,000 within ten (10) Business Days following the written request thereto by TiGenix NV.

 

Licensee acknowledges and agrees that TiGenix NV may disclose Licensee’s investment commitment as required by Applicable Laws provided that, to the extent practically feasible and not prohibited by Applicable Laws, Licensor shall inform Licensee about such intended disclosure.

 

TiGenix NV will request Euronext Brussels to admit the Shares to trading on Euronext Brussels. The Shares will be subject to a twelve (12) months lock-up as from their issuance. However, in case of the occurrence of a major change at TiGenix NV or its Affiliates, or a series of changes at TiGenix NV or its Affiliates, that have a material impact on the business of TiGenix NV or its share price (which will include an overall decrease of the price of the Shares by more than fifteen (15) percent compared to the price at which the Licensee subscribed to the Shares pursuant to this Clause), the 

 

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Shares acquired by the Licensee pursuant to this Clause shall be immediately released from the lock-up, it being understood that also after the release of the Shares from the lock-up any applicable insider dealing restrictions shall continue to apply in accordance with Applicable Laws.

 

9.5                            Unless otherwise stated, any consideration payable under this Agreement shall be exclusive of VAT. If a party makes a supply pursuant to this Agreement, and VAT is payable on that supply, the consideration for the supply (VAT exclusive consideration) is increased by an amount equal to the VAT exclusive consideration multiplied by the rate of VAT prevailing at the time the supply is made (additional VAT amount). VAT (if any) will become due and payable upon presentation of a valid VAT invoice (or, where there is no provision in the legislation for the jurisdiction concerned that a VAT invoice is required to be issued, a written demand containing such information as is customary in that jurisdiction).

 

9.6                            All other Taxes, such as income taxes, withholding taxes, etc., imposed on any consideration payable to Licensor pursuant to this Agreement shall be the sole responsibility of Licensor. The parties shall use Commercially Reasonable Efforts to cooperate and coordinate with each other in completing and filing documents required under the provisions of any applicable laws and regulations (including Tax treaties) in connection with the making of any required Tax payment or withholding payment, in connection with a claim of exemption from, or entitlement to, a reduced or zero rate of withholding or in connection with any claim to a refund of or credit for any such payment. Licensor shall provide Licensee with a current and valid tax residency certificate issued by its competent Tax office as of Effective Date and annually thereafter.

 

9.7                            The parties have mutually assessed that under the Tax laws and regulations of Switzerland at the Effective Date, no withholding Taxes are due on any of the payments due by Licensee to Licensor under this Agreement. If, at any time after the Effective Date, withholding Taxes would become due on any of the payments due by Licensee to Licensor under this Agreement as a result of Licensor being established in Spain and Licensee being established in Switzerland, the amount of such payments due by Licensee shall be grossed up by the amount of such withholding Taxes, so that Licensor shall receive such amounts which Licensor would have received if no withholding Taxes would apply. In such case, Licensor shall (1) use all Commercially Reasonable Efforts to apply for any available reduction of withholding Taxes available under a double Tax treaty and provide Licensee with relevant certificates and documentation necessary to facilitate such reduction of withholding Taxes, (2) apply for any Tax refund, Tax reduction or Tax credit (together, for purposes of this Clause, “Tax Credit”) that may be available to it under applicable Spanish Tax laws, and if subsequently Licensor effectively benefits from any such Tax Credit, Licensor shall refund Licensee with the amount of such effective Tax Credit within 

 

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thirty (30) days of having effectively received or benefited from such Tax Credit. Once per Year, Licensor shall provide Licensee with an overview, such overview to be confirmed by Licensor’s external tax advisor, of the amount of Tax Credits that Licensor has applied for, the amount of Tax Credits that is still potentially available to Licensor, as well as with an estimate of when these Tax Credits become effectively available to Licensor. Licensee may, at its own discretion and cost, hire an external tax advisor with a professional duty of confidentiality to inspect on behalf of Licensee the underlying Tax and accounting files of Licensor in order to verify the annual reporting obligations of Licensor.

 

9.8                            For calculations of payments due under this Clause, Licensee shall use the currency exchange rate used within the Licensee group, which is the currency exchange rate as published by Bloomberg end of business last day of the previous month.

 

10                               Accounting and Payment

 

10.1                     The timelines for Licensee to pay the upfront payment, the approval milestones, the Price reimbursement milestones, the sales milestones and the royalties are specified in the relevant sections of Clause 9.

 

10.2                     Any amounts due under this Agreement shall be paid by Licensee by wire transfer in euros to Licensor’s bank account IBAN ES46 0128 7681 9801 0004 6487 (Beneficiary: TiGenix SAU; Bank: Bankinter; Swift: BKBKESMMXXX) or any other bank account notified to Licensee in accordance with Clause 29. If any royalties are calculated based on Net Sales which are not expressed in euros, the amounts of such Net Sales shall be converted to euros based on the exchange rate mentioned in Clause 9.7 and applicable at the end of the quarter to which the Net Sales relate.

 

10.3                     A single amount shall be payable to Licensor regardless of the number of Patents which cover the Product.

 

10.4                     Licensee shall keep records of account sufficient to enable accurate calculations of any amounts due under this Agreement to Licensor and shall produce a statement thereof no later than thirty (30) days after the last day of each quarter.. If there is a dispute as to the amounts to be paid, the parties shall select an independent accountant to be agreed between them or in default of agreement to be appointed by the President of the “Instituto de Censores Jurados de Cuentas de España” to audit the records of Licensee, on reasonable notice and during regular business hours, and to verify Licensee’s statements and payments due under this Agreement. In case of such audit, Licensee shall make available all relevant records (either in hard or soft copy) at any (physical or virtual) place at or close to Licensee’s usual place of business. If the audit reveals that any statement or payment has not been rendered or made in accordance with this Agreement, or that any statement rendered or payment made by Licensee was inaccurate by more than two (2) per cent, then Licensee shall pay the cost of the inspection without any prejudice to any other remedies or claims of 

 

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Licensor under the Agreement or Applicable Laws. The independent accountant shall not be authorised to disclose to Licensor any information other than information relating to any amounts owed by Licensee under this Agreement. Licensor shall maintain in confidence and shall oblige the independent accountant to maintain in confidence all information received under this Clause. The decision of the independent accountant as to the amounts to be paid under the Agreement shall, in the absence of manifest error, be final and binding upon the parties.

 

10.5                     If any undisputed amounts payable under this Agreement are not paid to Licensor by the due date then (without prejudice to any other claim or remedy of Licensor) Licensee shall pay Licensor interest on the amount due at an annual rate as provided under Swiss law (with a minimum of 3%) in respect of the period starting on the due date of payment and ending on the actual date of payment, it being understood that an amount will only qualify as disputed in case a written notice is sent within 20 (twenty) Business Days following receipt of the relevant invoice.

 

11                               New Indications

 

11.1                     In case Licensee wants to develop a New Indication for the Product in the Territory, at Licensee’s cost, Licensee shall propose so to the JOC. Licensee shall undertake such development only after (i) the JOC has duly reviewed such proposed development; (ii) the JSC has duly approved such proposed development; and (iii) the parties have agreed in good faith upon the terms of a license agreement which shall, among others, address the ownership of newly created Intellectual Property Rights in the context of such development.

 

11.2                     In the event a New Indication is approved in the same therapeutic area as the Product, i.e. in the therapeutic area of fistula treatment in the gastrointestinal tract, sales by Licensee of the Product relating to such New Indication shall count towards the sales milestones as set out in Clause 9.1.8, the royalties applicable to the Net Sales of the Product relating to such New Indication shall be as set out in Clause 9.1.7 and no additional upfront payment will be due. In the event such New Indication is developed solely by Licensee and such development costs are borne solely by Licensee, no additional milestone payments will be payable by Licensee to Licensor.

 

11.3                     Licensor has the right to freely develop New Indications for the Product both in and outside the Territory. In case Licensor has developed a New Indication for the Product and wants to license out such New Indication, Licensee will have a right of first offer to be awarded a license grant in the Territory for such New Indication of the Product developed by Licensor. The terms of such license grant (including applicable new upfront payments, royalties, and development and/or sales milestones) shall be negotiated in good faith by the parties.

 

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12                               Development and Regulatory Matters

 

12.1                     Promptly following the Effective Date, the JOC shall prepare a detailed plan of all Development activities to be performed by the parties under this Agreement, including the estimated budget for such activities required to obtain and/or maintain Regulatory Approval in any applicable country in the Territory. The JSC shall review and approve the initial Development Plan and on a regular basis review and approve the amended Development Plan (including the related budget if shared by both parties).

 

12.2                     The parties shall perform their respective obligations under the Development Plan in a good scientific manner and in accordance with the terms and conditions of this Agreement, current Good Clinical Practices (as issued by ICH) and all Applicable Laws.

 

12.3                     The Parties shall maintain records of their Development activities under the Development Plan in sufficient detail in good scientific manner appropriate for Patent application and regulatory purposes and in accordance with all Applicable Laws and otherwise in a manner that reflects all work done and results achieved in the performance of the Development Plan.

 

12.4                     The activities under the Development Plan relating to obtaining or maintaining Regulatory Approval, will be allocated between the parties as follows:

 

12.4.1           in the EEA:

 

(i)                                  Licensor shall be responsible for conducting any pre-authorization study or test and provide all data as required to EMA prior to the Commission decision to grant a (standard or conditional) marketing authorisation. To the extent practicable in view of the timelines granted to communicate with EMA or other Regulatory Authorities, Licensor shall take into consideration Licensee’s comments on the protocol of any study or test, including any comments relating to a potential impact on activities relating to the Product outside the respective country;

 

(ii)                               Studies and tests required to convert a conditional marketing authorisation into a standard marketing authorisation shall be under the responsibility of Licensor if conducted prior to the transfer of the conditional marketing authorisation to Licensee, or under responsibility of Licensee if conducted after the transfer of the conditional marketing authorisation to Licensee. Each party shall take into consideration the other party’s comments on the protocol of any study or test;

 

(iii)                            After having obtained a standard marketing authorisation and after transfer of such marketing authorisation to Licensee, Licensee shall be responsible for conducting any studies or post-authorisation studies in its sole discretion until completed. Licensee shall take into consideration 

 

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Licensor’s comments on the protocol of any post-authorisation study, including any comments relating to a potential impact on activities relating to the Product in a country outside of the Territory;

 

12.4.2           Licensee is responsible for conducting Development as required to obtain or maintain Regulatory Approval in a country in the Territory outside the EEA. Licensee shall take into consideration Licensor’s comments on the protocol of any clinical study, including any comments relating to a potential impact on activities relating to the Product in a country outside of the Territory;

 

it being understood that all costs relating to the activities for obtaining or maintaining Regulatory Approval will be borne by the parties as described in Clause 12.10.

 

12.5                     Subject to this/these countries being part of the Territory under Clause 2, Licensee shall apply reasonable efforts to carry out such Development activities as are required for purposes of obtaining Regulatory Approval in Japan and Canada.

 

12.6                     Licensor shall support Licensee by providing relevant scientific, clinical (including if required by the Regulatory Authorities information on clinical studies performed outside of the Territory like study plans or reports) and technical information, knowledge or data in its possession to support submission for and maintenance of Regulatory Approvals and Commercialization of the Product.

 

12.7                     Licensor shall be responsible for filing the Regulatory Approval application for the Product in the Field in the EEA and shall promptly transfer the Regulatory Approval to Licensee if and once such Regulatory Approval has been granted. Up until such transfer, any final decision on the regulatory filing in the EEA will be made by Licensor, while Licensee shall be informed in a timely manner on the progress of the submission for the Regulatory Approval and shall be involved through the Joint Operating Committee on the regulatory strategy for the Product in the EEA. Until the transfer of the Regulatory Approval to Licensee is completed, Licensor shall provide Licensee in a timely manner with copies of all material regulatory documents and communications submitted or received from the Regulatory Authorities in each country of the EEA. To the extent practicable in view of the timelines granted to communicate with Regulatory Authorities, Licensor shall give the opportunity to Licensee to review and comment on documents in response to Regulatory Authorities during the procedure and will consider Licensee’s comments in good faith. For the sake of clarity, after transfer of the aforementioned Regulatory Approval any final decision on regulatory filing or communication to Regulatory Authorities in the EEA will be made by Licensee.

 

12.8                     Without prejudice to any other obligations of Licensee, Licensee shall, at its sole discretion, register the Product in the Field in the rest of the Territory (excluding the EEA) and hold and maintain the Regulatory Approvals for the Product in the rest of the Territory. Any final decision on the regulatory filing in the rest of the Territory will be 

 

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made by Licensee, while Licensor shall be informed and involved through the Joint Operating Committee on the regulatory strategy for the Product in the rest of the Territory and on the status and progress of the Regulatory Approvals applied for and/or renewed. Licensor shall provide Licensee in a timely manner, (a) at no costs for Licensee, with all relevant information, documents and data, including clinical data, and (b) at cost and depending on availability, with samples, standards and disposable items as the transfer of analytical methods, necessary for local laboratory control, as are required by Regulatory Authorities for obtaining or maintaining (including amending) Regulatory Approvals in the Territory and to the extent this information and documentation is in its possession. Licensor shall do its best efforts to obtain and provide to Licensee, in compliance with Applicable Laws and subject to (other) applicable legal restrictions, any of the above elements that would be in the possession of Third Parties.

 

12.9                     In the event Licensee decides, in accordance with the terms of this Agreement, not to register the Product in any given country and Licensor decides to register the Product in such country in accordance with Clause 3.3.2, parties shall agree in good faith who will act as marketing authorisation holder for any country outside of the EEA. In the event that Licensor would be the holder of the Regulatory Approval for any such country, Licensor shall provide Licensee promptly with copies of the communications with Regulatory Authorities that are reasonably likely to affect Licensee.

 

12.10              The costs relating to obtaining or maintaining Regulatory Approvals, including costs related to clinical trials and other measures, will be borne by the parties as follows:

 

12.10.1       in the EEA:

 

(i)                                  the costs for providing any pre-authorisation data, including any required paediatric study, which would need to be carried out pre-authorisation, i.e. data required to be provided to EMA prior to the Commission decision to grant a conditional marketing authorisation or a standard marketing authorisation for the Product, including any regulatory filing costs associated with this, will be borne by Licensor;

 

(ii)                               in the event of a conditional marketing authorisation, and until the conditional marketing authorisation is converted into a standard marketing authorisation, any external costs (i.e. costs invoiced to Licensee in relation to the studies preceding the issuance of such marketing authorisation, excluding any costs incurred by Licensee’s staff that would be involved in such work) shall be borne equally by both parties (Licensor: 50%; Licensee: 50%), it being understood that Licensor acknowledges that any such studies would be conducted and coordinated by Licensee after completion of transfer of the conditional 

 

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marketing authorisation; any regulatory filing costs associated with the above, will be borne by Licensee,

 

(iii)                            the costs for providing any post-authorisations data (i.e. data required to be provided to a Regulatory Authority after the decision to grant a standard marketing authorisation for the Product or after an initial conditional marketing authorisation has been converted into a standard marketing authorisation), including any regulatory filing costs associated with this, will be borne by the Licensee; and

 

(iv)                           the costs for the paediatric investigation plan for the Product, for which EMA issued a positive opinion in 2014 and which will not start before 2020, will be borne by Licensee.

 

12.10.2       In the Territory except for the EEA, such costs shall be borne exclusively by Licensee.

 

12.10.3       For the avoidance of doubt, any costs related to changes to manufacturing processes required by the Regulatory Authority as a condition to obtain conditional or standard Regulatory Approval prior to Regulatory Approval transfer as provided herein will be borne by the Licensor.

 

13                               Adverse Event Reporting and Safety Data Exchange

 

13.1                     Pharmacovigilance Agreement and Safety Data Exchange. Within one hundred twenty (120) days after the Effective Date, or as soon as possible thereafter, the parties shall execute a Pharmacovigilance Agreement (or “PVA”) that will define the responsibilities of the parties in respect of pharmacovigilance in relation to the Product in the framework of this Agreement, including with regard to the process for the transfer and exchange of safety data and contacts with Regulatory Authorities, in accordance with Applicable Laws. The parties shall enter into the PVA on terms no less stringent than those required by ICH or other applicable guidelines. From the Effective Date of this Agreement, parties shall exchange safety data relating to the Product within appropriate timeframes and in an appropriate format to ensure compliance with the reporting requirements of all applicable Regulatory Authorities on a worldwide basis. In no case shall exchange of Adverse Events (or “AEs”) occur later than five (5) calendar days for fatal/life threatening AEs, nine (9) calendar days for other related serious AEs, twenty-four (24) calendar days for non-serious AEs for post marketing cases, and in addition to the timelines for fatal and related serious AEs, twelve (12) calendar days for other serious, unrelated AE cases, twenty-four (24) calendar days for pregnancy and overdose with no AE, and twenty-seven (27) calendar days for serious ICSR following the end of study unblinding for clinical trials.

 

13.2                     Transfer of Responsibilities. Licensor shall transfer to Licensee the global safety database for the Product as such time as to be agreed between the parties in the 

 

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PVA. At the time of transfer, Licensor shall confirm in writing that all safety data related to the Product is accurately reflected in the global safety database. Licensee shall be the holder and sole responsible of the global safety database upon transfer of Regulatory Approvals. Upon the transfer of the marketing authorisation for the Product, Licensee shall assume responsibility for the monitoring of all clinical experiences it will conduct, maintaining the global safety database, safety monitoring, pharmacovigilance surveillance, compliance and filing of all required safety reports to Regulatory Authorities in the Territory, including annual safety reports, throughout the Development and Commercialization of the Product. Any costs related to the maintenance of the global safety database shall be borne solely by Licensee. Licensee shall provide Licensor, upon Licensor’s first request, with any and all required safety reports to be issued to any Regulatory Authorities in any and all countries outside the Territory.

 

13.3                     The parties will also implement in the PVA appropriate reconciliation procedures to ensure adequate and compliant exchange of safety data. Other timelines for exchange of safety data will be agreed to and specified in the PVA.

 

13.4                     Regulatory Reporting. The parties shall work together to achieve consensus with respect to safety issues and to report said opinion to safety boards, appropriate investigators and, in accordance with Applicable Laws, to the applicable Regulatory Authorities. In the event that, after reasonable medical and scientific consultation, the parties cannot achieve consensus with respect to safety issues to be reported to any applicable Regulatory Authority, including individual Adverse Events or other matters affecting the health, safety or welfare of a patient, then the party that is the holder of the Regulatory Approval in the concerned country of the Territory shall have the final decision making authority.

 

14                               Quality Agreement and Recalls

 

14.1.1           Quality Agreement

 

A Quality Agreement shall be executed between the parties within the timelines specified in the Manufacturing and Supply Agreement and in any event no later than at the time of the first order of the Product.

 

14.1.2           Recalls

 

(i)                                  Notification.  Each party shall make every reasonable effort to notify the other party promptly upon its determination that any event, incident or circumstance has occurred that may result in the need for a recall of the Product in any country in the Territory, and include in such notice the reasoning behind such determination and any supporting facts. The timelines for such notification will be mutually agreed by the parties in the Quality Agreement.

 

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(ii)                               Initiation.

 

(a)                       Both parties shall jointly discuss whether to voluntarily implement any recall in the applicable country in or outside the Territory; provided that notwithstanding the foregoing the party that is the holder of the Regulatory Approval in the concerned country of the Territory shall have the final decision making authority.

 

(b)                       If a recall is mandated by a Regulatory Authority in a particular country in the Territory, the party that is the holder of the Regulatory Approval in the concerned country of the Territory shall be responsible for initiating such recall to be in compliance with Applicable Laws in such country.

 

(c)                        In the event of any recall of the Product in the applicable country in the Territory, each party shall provide, and cause its Affiliates and other sub-licensees to provide, any and all assistance and support required by Applicable Laws in such country, or reasonably requested by the other party.

 

(iii)                            Responsibility.  The recall shall be carried out as described in the Quality Agreement. Costs for the recalls, including expenses and other costs relating to Third Parties, and any Product destruction costs should be borne by Licensee except if the recall is made because of a defect of the Product due to Product Manufacturing under the responsibility of Licensor.

 

15                               Trade Mark and Marketing

 

15.1                     The Product shall be Commercialised by Licensee in the Field exclusively under the Principal Trade Mark.

 

15.2                     Licensor shall use Commercially Reasonable Efforts to ensure that the Principal Trade Mark is validly registered in all countries of the Territory where Licensee indicates that it will effectively Commercialise the Product, at Licensor’s sole cost and expense.

 

15.3                     In the event Licensee is prevented from using the Principal Trade Mark in any country of the Territory, Licensee shall use the Back-Up Trade Mark or, only in the event Licensee is also prevented from using the Back-Up Trade Mark in such country, any alternative brand name designated by Licensor at its discretion, upon consultation with Licensee. Licensor shall grant an exclusive license to Licensee to use the Intellectual Property Rights in relation to the Back-Up Trade Mark, or – as the case may be – the alternative brand name, in the respective country, on the condition that Licensee will effectively Commercialise the Product in the Field in such country, and shall ensure that the brand name underlying the Back-Up Trade Mark, or – as the 

 

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case may be – the alternative brand name, is validly registered in such country at Licensor’s sole cost and expense.

 

15.4                     Licensee will market the Products under the relevant Licensor Trade Mark, in such packages and with such labels as it deems in conformity with local regulations applicable in the territories of sale.

 

15.5                     Subject to Applicable Laws, Licensee shall, unless notified by Licensor in writing to the contrary, mark or cause to be marked on each package pack, leaflet, label, tangible advertisement, instruction manual and other suitable document relating to the Products a notice in a form to be approved by Licensor stating that the Products are under license of TiGenix.

 

15.6                     Licensee shall not otherwise use on or in relation to Products any Trade Mark or name identical with or similar to any Licensor Trade Marks or corporate name of Licensor.

 

15.7                     Licensee shall have the right to register in its own name or in its Affiliates’ name, use or abandon Domain Names to be used to Commercialise and promote the Product at its sole discretion and at Licensee’s sole cost and expense. In addition, Licensee shall have the right and license but not the obligation to register in its own name or in its Affiliates’ name, use or abandon Domain Names that include the Licensor Trade Marks or parts thereof at Licensee’s cost and expense (“Product Domain Names”). If required by the respective authorities Licensor will provide assistance to Licensee to obtain registration of the respective Product Domain Name. If, for any reason, the Agreement expires or is terminated (whether or not for one or more given countries), Licensee shall transfer to Licensor, at terms to be agreed upon in good faith between the parties at the time of such transfer, the relevant Product Domain Names existing at the expiration or termination date and corresponding to the countries no longer covered under the Agreement. All other Domain Names shall remain Licensee’s or its Affiliates’ property after the Term of this Agreement.

 

16                               Manufacturing

 

16.1                     As regards the EEA and Switzerland:

 

16.1.1           As from the Effective Date, Licensor shall be responsible for Product Manufacturing;

 

16.1.2           Within one hundred eighty (180) days after the Effective Date, or as soon as possible thereafter, the parties shall enter into a separate Manufacturing and Supply Agreement to agree on specific aspects relating to the Product Manufacturing and supply, including the terms and conditions of forecasting, ordering and delivery of MCS, FDS and Product to Licensee.

 

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16.1.3           The full manufacturing responsibilities relating to the Product Manufacturing shall be transferred from Licensor to Licensee or to a Third Party manufacturer agreed between the parties but under the responsibility of Licensee. Both parties shall do best efforts to complete such transfer by 1 January 2021 or such other time as parties may agree. Twelve (12) months and six (6) months before such date of 1 January 2021, the JMC shall discuss the feasibility of complying with such deadline. If the JMC concludes that this is not feasible, the parties shall discuss in good faith the conditions under which Licensor will continue to be responsible for the Product Manufacturing (such new conditions to be confirmed by the JMC). The parties hereby agree and acknowledge that neither the Licensee nor any of it Affiliates shall be liable for any employee related costs that may arise in relation to and/or be triggered as a result of the aforementioned transfer. For the avoidance of doubt, after such aforementioned transfer is completed the Licensee shall (whether itself or through an Affiliate) be fully entitled to reasonably improve, amend and/or optimise the manufacturing process in such a way as it reasonably deems appropriate (the JMC shall be informed by the Licensee prior to such improvement, amendment and/or optimisation being made).

 

16.1.4           With a view to transferring such manufacturing responsibilities as set out in Clause 16.1.3, Licensor agrees to perform such technology transfer as is required to perform such transfer of responsibilities.

 

16.1.5           Promptly after the Effective Date, the members of the JMC shall meet to start discussions and work in relation to the Product Manufacturing and supply strategy and the Manufacturing Transfer Plan to be agreed between the parties in good faith. The Manufacturing Transfer Plan shall include the timing, the costs and the modalities relating to the transfer of the manufacturing responsibilities from Licensor to Licensee, and shall be endorsed by the JSC. Licensor shall invoice Licensee for fifty (50) percent of such Licensor’s employee’s time and costs directly associated with the technology transfer (such costs to be reasonably documented by the Licensor and evidenced to the Licensee by such documents if so requested by the Licensee).

 

16.2                     As regards the Territory outside the EEA and Switzerland, Licensee shall be responsible for Product Manufacturing as from the Effective Date. For the avoidance of doubt, the provisions of Clause 16.1.5 shall also apply to transfers occurring outside the EEA.

 

16.3                     Licensor shall support such transfer of technology to Licensee as is required to enable Licensee to perform the Product Manufacturing. This shall include providing all relevant documents, training and knowledge in its possession, to the extent material to operate such transfer.

 

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16.4                     As regards the EEA and Switzerland, before the Product Manufacturing is fully transferred to Licensee, the JMC shall review and approve regional manufacturing and supply strategy, authorize leveraging a global supply network to reduce supply risk and maximize cost reduction. The JMC shall also review and approve cost improvements to manufacturing and supply chain for further endorsement by the JSC.

 

16.5                     The parties agree that an expansion of the capacity of the current plant (in Calle Marconi 1, 28760 Tres Cantos, Spain) is instrumental in achieving a substantial reduction in COGS and safeguard supply, and agree to share the capital investment for such increased manufacturing capacity to reach a capacity of 1,200 FP Doses per Year targeted by the end of 2017 (estimated at around EUR 3,000,000 to EUR 3,500,000) on an equal (50%-50%) basis (the JMC shall use its best efforts to agree and implement such investment and reach the above and shall further use its best efforts to agree and apply COGS reduction measures to reduce COGS by at least 15% compared to Current COGS). Any further investment or outsourcing costs required to increase capacity beyond the level of 1,200 FP Doses per Year shall be borne exclusively by Licensee.

 

17                               Supply and Distribution

 

17.1                     As regards the EEA and Switzerland:

 

17.1.1           For as long as Licensor shall be responsible for any part of the Product Manufacturing, Licensor shall sell and supply to Licensee, Ex Works (incoterm ®) Licensor facilities in Madrid, Spain, at conditions as set out in Clause 9.3, such quantities of MCS, FDS and the Product as ordered by Licensee in accordance with the Manufacturing and Supply Agreement or in accordance with such other terms as parties may mutually agree upon. To the extent Licensee’s requirements of the Product, including for Licensee’s Development activities, would extend beyond the quantities agreed between the parties, in the Manufacturing and Supply Agreement or otherwise, Licensor shall use Commercially Reasonable Efforts to supply Licensee with Licensee’s requirements of the Product, without, however, being liable to Licensee if Licensor cannot comply with such extended Licensee’s requirements.

 

17.1.2           The Product to be supplied by Licensor to Licensee shall have been manufactured and released in accordance with then cGMP, Applicable Laws and any applicable Product specifications.

 

17.1.3           All deliveries of MCS, FDS or Product shall be supplied to Licensee in accordance with the terms and conditions of the Manufacturing and Supply Agreement and this Agreement.

 

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17.1.4           As from such time as all parts of the Product Manufacturing are transferred to Licensee, Licensor shall no longer have any supply obligations with regard to MCS, FDS or the Product.

 

17.2                     As regards the Territory outside the EEA and Switzerland, Licensee shall be responsible for supply of the Product. For the avoidance of doubt, should the Licensee exercise its option under Clause 2 regarding rights in relation to Japan and/or Canada, the Licensee shall be entitled – pursuant to agreement with the JMC and subject to capacity availability – to obtain product from the Licensor as per agreement at the JMC.

 

17.3                     In the entire Territory, Licensee shall be responsible for the distribution of the Product.

 

18                               Non-compete Covenants

 

18.1                     Subject to Applicable Laws and what is set out below, Licensee shall not, directly or indirectly, (i) during the Term, and (ii) in case of termination of this Agreement pursuant to Clauses 28.3, 28.4 or 28.5 (for purposes of this Clause 18 “Early Termination”), for a period of two (2) years after termination of this Agreement:

 

18.1.1           manufacture, use or Commercialise, in the Territory:

 

(i)                                  any products or therapies for which the principal application is or will be the treatment of the Primary Indication; or

 

(ii)                               any adipose derived stem cell products other than the Product;

 

18.1.2           carry out any clinical development in relation to a product or therapy referred to under 18.1.1(i) or 18.1.1(ii) in any country of the Territory before the Product is Commercialised in such country; for the avoidance of doubt, if Licensee did not start the Commercialisation of the Product in any country of the Territory before Early Termination, then Licensee shall not carry out any clinical development in relation to a product or therapy referred to under 18.1.1(i) or 18.1.1(ii) in such country for a period of two (2) years after Early Termination.

 

18.2                     Subject to Applicable Laws, once the JSC has agreed to pursue the Product in a New Indication, Clause 18.1 above shall apply mutatis mutandis to such New Indication.

 

18.3                     For avoidance of doubt:

 

18.3.1           Any non-compete obligation included in this Agreement shall not restrict Licensee from developing and commercialising Vedolizumab for the treatment of indications other than the Primary Indication in the Territory; and

 

18.3.2           Any product competing with the Product that, during the Term, is developed or acquired by Licensor shall be first offered to Licensee for Commercialisation in the Field in the Territory.

 

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19                               Foreground IP

 

19.1                     To the extent that they have the right to do so, Licensor and Licensee shall each promptly disclose to the other all Foreground IP which they may put into practice in their own manufacture or use of Products or which they may recommend their Affiliates or other authorized Third Parties to adopt in relation to the Products.

 

(a)                              “Licensor Foreground IP” shall be owned by Licensor.  Licensor will be solely responsible and use Commercially Reasonable Efforts to file for, prosecute, maintain, keep in force and defend the Licensor Foreground IP, at its expense. For all Licensor Foreground IP where a license has been granted to Licensee according to Clause 3.1, if Licensor decides not to file for a specific patent application, or if Licensor decides to abandon or to not further defend an Intellectual Property Right as part of the Licensor Foreground IP, it will notify Licensee thirty (30) days in advance, and Licensee shall decide at its own discretion whether or not to file for a patent application or take over such Intellectual Property Rights or responsibility and all associated costs. In this case, Licensor shall at Licensee’s request and expense, do and procure the doing of all things necessary to enable Licensee to apply and to prosecute such rights and Licensor will still have a royalty-free license under such assigned rights for the duration of such rights;

 

(b)                              “Licensee Foreground IP” shall be owned by Licensee. Licensee will be solely responsible and use Commercially Reasonable Efforts to file for, prosecute, maintain, keep in force and defend the Licensee Foreground IP, at its expense. For all Licensee Foreground IP where a license has been granted to Licensor according to Clause 4.1.1, if Licensee decides not to file for a specific patent application, or if Licensee decides to abandon or to not further defend an Intellectual Property Right as part of the Licensee Foreground IP, it will notify Licensor thirty (30) days in advance, and Licensor shall decide at its own discretion whether or not to file for a patent application or take over such Intellectual Property Rights or responsibility and all associated costs. In this case, Licensee shall at Licensor’s request and expense, do and procure the doing of all things necessary to enable Licensor to apply and to prosecute such rights and Licensee will still have a royalty-free license under such assigned rights for the duration of such rights; and

 

(c)                               “Joint Foreground IP” shall be owned jointly by the parties. The parties will decide, which party will be responsible to file for, prosecute, maintain, keep in force and defend the Joint Foreground IP in the name of both parties, while keeping the other party informed, and reasonably taken into account all input by the other party. The costs will be shared by the parties. The parties acknowledge that each of them is free to use the Joint Foreground IP or to grant licenses to its Affiliates.

 

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19.2                     Any granted patent or pending application for a patent claiming any patentable Licensor Foreground IP disclosed by Licensor under this Agreement shall be deemed to be included in the definition of Licensor Patents, and Schedule 1 shall be updated accordingly.

 

19.3                     If a party (the “Granting Party”) may authorise the use of Foreground IP generated (partly) by a Third Party only by complying with conditions (including payment of a royalty to the Third Party), it shall inform the other party (the “Receiving Party”) of the applicable condition(s). The Receiving Party shall, within thirty (30) days after receipt of such information, decide whether to accept the rights to use such Foreground IP. If the Receiving Party decides to accept such rights, (i) it shall provide all reports and other information necessary to help the Granting Party fulfil its obligations towards the Third Party and (ii) it shall comply with the terms of this Agreement or any other agreement applicable between the Granting Party and the relevant Third Party.

 

20                               Maintenance of Intellectual Property Rights

 

20.1                     Licensor shall during the Term of this Agreement:

 

20.1.1           use Commercially Reasonable Efforts to file for, maintain, prosecute and keep in force and defend the Licensor Patents, Licensor Know-how and Licensor Trade Marks, at its expense; and

 

20.1.2           use Commercially Reasonable Efforts to continue at its expense the prosecution of the applications for Licensor Patents, unless Licensee gives its consent to abandoning one or more of them or unless Licensor hands over to Licensee the above responsibility. If Licensor decides to abandon or to not further defend (e.g. in oppositions/appeal proceedings at the European Patent Office) a Licensor Patent, it will notify Licensee thirty (30) days in advance, and Licensee shall decide at its own discretion whether or not to take over the patent rights or responsibility and all associated costs. In this case, Licensor will still have a royalty-free license under such assigned rights for the duration of such rights.

 

20.2                     Licensor and Licensee shall cooperate to identify, develop and implement any joint measures that they would deem necessary or useful in relation to Intellectual Property Rights relevant to the licenses granted under this Agreement.

 

21                               Infringement

 

21.1                     Infringement of Licensor and Licensee Intellectual Property Rights

 

21.1.1           Either party, as the case may be, shall upon becoming aware of a suspected infringement of any of the Intellectual Property Rights held by Licensor and licensed to Licensee, including Licensor Patents and Licensor Foreground IP 

 

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or any unauthorised use or threatened use of the Licensor Know-how or Foreground IP promptly notify the other party and provide full particulars thereof.

 

21.1.2           If such infringement or use consists of any act which (if done by Licensee) would be within the scope of the license granted by Clause 3.1, Licensor shall take such action (if any including litigation, arbitration or compromise) as, in the sole discretion of Licensor, is reasonably necessary for the protection of Licensor’s rights under said Intellectual Property Rights. If Licensor notifies Licensee that it does not intend to take such action, or, within fifteen (15) days of either party becoming aware of such infringement, fails to take such action, whichever is the sooner, Licensee may commence proceedings at its own expense (subject to obtaining Licensor’s prior written consent and keeping Licensor informed of its strategy in respect of the proceedings) but may not settle or compromise any such proceedings without the prior written approval of Licensor who may at any stage reassume control. Licensor will support Licensee as requested and/or necessary under Applicable Laws, with any relevant documentation and information. In case Licensor reassumes control over the proceedings, parties shall share the costs incurred after such reassuming of control.

 

21.1.3           Either party shall give the other party all such assistance as the party in charge of the proceeding under Clause 21.1.2 may require, at the assisting party’s own cost, in taking action against any suspected infringements.

 

21.1.4           This Clause 21.1 shall apply mutatis mutandis to any Intellectual Property Rights held by Licensee and licensed to Licensor.

 

21.2                     Notice and Defence of Third Party Infringement

 

21.2.1           Each party shall notify the other party of any risk identified relating to the potential infringement of a Third Party Intellectual Property Right by the Development, Product Manufacturing and/or the Commercialization of the Product in due time upon its identification.

 

21.2.2           After notifying any such risk derived from a relevant Third Party Intellectual Property Right to the other party, the parties shall discuss and, as the case may be, agree on the appropriate mitigation or remedy strategy.

 

21.2.3           Each party or its permitted subcontractors shall promptly notify the other party in writing if it receives a claim or a Threatened Claim by a Third Party for infringement or for inducing or contributing to infringement of Intellectual Property Rights controlled by a Third Party, which would be directly related to the Product Manufacturing, Commercialization, or use of Products. In such case, the parties shall immediately escalate this to the JOC to consult how to further proceed.

 

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21.2.4           Upon receipt of a claim, the parties shall consult and determine an appropriate strategy for course of action for defense against any such claim. In case of disagreement between the parties, the matter will be escalated to the JSC. Each party shall render the other party all reasonable assistance in defending any such suit or claim.

 

21.2.5           In the case of a filed or Threatened Claim by a Third Party for infringement or for inducing or contributing to infringement in the Territory of any Third Party Intellectual Property Rights, and in case of an infringement risk as identified and discussed by the parties according to 21.2.1 and 21.2.2, and provided that an infringement opinion by an external qualified counsel as determined by the parties comes to the conclusion that the chances of a court of law confirming a finding of infringement is more than 50%, Licensee will have the right to immediately delay or suspend its Commercialization activities. At the same time Licensor shall, at its own expense, investigate the below options within the specified terms:

 

(i)                                  use Commercially Reasonable Efforts to have started and progressed on negotiating for the benefit of Licensee (and any sub-licensees in multiple tiers) the right to continue using such Product within six (6) months; or

 

(ii)                               use Commercially Reasonable Efforts to have initiated development activities in order to replace such Product with a non-infringing product which performs substantially the same functions as the Product within six (6) months; or

 

(iii)                            use Commercially Reasonable Efforts to have initiated development activities in order to modify such Product to become non-infringing, provided always that it performs substantially the same functions as the Product, within six (6) months.

 

The JOC will regularly monitor such activities during the term of six (6) months and the parties shall after this term agree on a maximum period for investigating the above options during which period the Commercialization activities by Licensee are suspended, in view of commercial and regulatory requirements and considerations. If the parties do not come to an agreement on such maximum period, the decision will be escalated to the JSC. In case of further disagreement, Licensee will have the right to terminate the Agreement on a country-by-country basis, before its expiration with immediate effect, by written thirty (30) days’ notice to Licensor.

 

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22                               Third Party obligations

 

Licensor is solely responsible for any Third Party obligations arising with respect to the sales of the Product in the Field in the Territory where such obligations arise from (i) the rights licensed from the Universidad Autonoma de Madrid (“Universidad”) and the Consejo Superior de Investigaciones Cientificas (“Consejo”) or (ii) the Third Party rights identified and shared between the parties during Licensee’s due diligence investigations conducted prior to the execution of this Agreement. If Licensor wishes to abandon or terminate any of the existing licenses under (i) above or any future agreements relating to any Third Party Intellectual Property Rights as provided under (ii) above and procured under Clause 21.2.5(i), such abandonment or termination shall be discussed between the parties. In case of disagreement, such discussion and decision will be escalated to the JSC. In case such dispute cannot be solved by the JSC, Licensee may decide either to (i) request the Licensor to assign the agreement with the Third Party, subject to contractual or legal conditions of such agreement or to (ii) terminate the Agreement on a country-by-country basis according to Clause 21.2.5.

 

23                               Insurance

 

23.1                     Each party, at its own expense, shall maintain during the Term liability insurance including product liability insurance in an amount consistent with industry standards during the Term, but in no event in an amount less than twenty million euros (€ 20,000,000) per occurrence and twenty million euros (€ 20,000,000) annual aggregate.

 

23.2                     Licensee shall be permitted to satisfy its obligations hereunder through a program of self-insurance.

 

24                               Confidentiality

 

24.1                     This Agreement is without prejudice to and shall – to the extent relevant – be subject to (i) the Confidential Disclosure Agreement dated 17 June 2013 (and supplemented by an addendum on 29 February 2016) between TiGenix NV and Licensee and (ii) the Common Interest Agreement, effective as of 15 February 2016 between the parties.

 

24.2                     During the Term and for as long as this Clause 24 shall survive in accordance with Clause 24.5, each of the parties shall take all steps necessary to preserve the secrecy of and use of the Know-how and the Confidential Information for the sole purpose of their activities, using their rights and fulfilling their obligations under this Agreement. Each of the parties shall ensure that its officers, employees, consultants, advisors, agents, Subcontractors and sub-licensees (collectively the “Representatives”) to whom details of the Know-how and the Confidential Information are disclosed are made aware of the confidentiality of the Know-how and the Confidential Information, as well as sign a non-use and non-disclosure agreement

 

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at least as protective as the provisions hereof, prior to any disclosure of Confidential Information to such Representative.

 

24.3                     Any Confidential Information disclosed by one party to the other in pursuance of this Agreement shall be treated by the recipient in confidence and shall not be used or disclosed to any Third Party (except for the Representatives as mentioned in Clause 24.2) by the recipient without the prior written consent of the disclosing party.

 

24.4                     The provisions of this Clause shall not apply to any information which:

 

24.4.1           is or later becomes freely available to the public otherwise than through the fault of the recipient in breach of this Agreement or of the agreements mentioned in Clause 24.1;

 

24.4.2           the recipient can demonstrate was in the possession of the recipient prior to its receipt from the other party;

 

24.4.3           the recipient can demonstrate was independently received from a Third Party who is free from any obligations to any other party not to disclose it;

 

24.4.4           the recipient can demonstrate was conceived by the recipient independently of the information received or acquired from the other party;

 

24.4.5           the recipient can demonstrate was required to be disclosed by law, government agency, court order or valid discovery request in connection with a legal proceeding, provided that the recipient provides the disclosing party as promptly as possible with prior written notice of any such disclosure (unless such notice is impracticable or prohibited by such Applicable Laws) so that application for an appropriate protective order can be made. The recipient will fully cooperate (at the disclosing party’s expense) in connection with the disclosing party’s efforts to obtain any such order or other remedy. The recipient shall disclose only that portion of the Confidential Information that it is legally required to disclose; or

 

24.4.6           is required to be disclosed in the framework of the envisaged US IPO of TiGenix NV pursuant to applicable US securities laws.

 

24.5                     This Clause 24 shall survive termination of this Agreement for ten (10) years.

 

25                               Press Releases and Publications

 

25.1                     Without prejudice to Clause 24.4.6, the parties shall cooperate to draft all appropriate press releases and other public announcements relating to the Product and the relationship between the parties, providing the other party with comments on any draft press release or other public announcement within three (3) Business Days upon receipt of such draft (or as soon as possible upon receipt of the draft in the event of a reasonable need for prompt publication, e.g. due to a requirement by a stock 

 

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exchange authority). The parties shall take into consideration each other’s reasonable comments, and no party will issue any such press release or announcement without the other party’s prior written consent, which shall not be unreasonably withheld or delayed.

 

Each party shall provide to the other party a copy, prior to submission, of any international and substantial local written publications, oral presentation or poster (together, for purposes of this Clause, a publication) which includes any information related to the subject matter of this Agreement. The other party shall have ten (10) Business Days to review and comment on such draft publication. In case no comments are provided within such ten (10) Business Days period, the draft publication can be considered as approved. The party submitting the publication shall take into account the other party’s reasonable comments including with a view to removing any of the other party’s Confidential Information prior to effective publication. Any suggested publication shall be delayed for purposes of securing protection under any Intellectual Property Right if so desired by the other party. Such delays shall be kept within a reasonable period, in general not exceeding twenty (20) Business Days after submission of the complete manuscript to the other party. Longer delays may be requested by the other party if it determines in good faith that its business interest would be significantly damaged by premature publication. Such request shall be adequately motivated in writing and shall not delay publication for more than three (3) months as from the submission of the complete manuscript to the receiving party. Once an abstract, manuscript or presentation has been reviewed and approved by each party, the exact same abstract, manuscript or presentation does not have to be provided again to the other party for review for a later submission for publication; provided that once the abstract or manuscript is accepted for publication or the presentation is finalized, the submitting party shall provide the other party with a copy of the final version of such abstract, manuscript or presentation. Authorship on publications involving work of Representatives of both parties shall be determined on the basis of their respective scientific contributions, in accordance with the applicable standards in the field.

 

26                               Representations and Warranties

 

26.1                     Unless set out explicitly in this Clause 26, no warranties, indemnities, representations or undertakings with regard to the Intellectual Property Rights held by Licensor, or Licensor’s title to them, or as to conflicting third party rights are given by Licensor nor are they to be implied.

 

26.2                     Licensor does not represent or warrant that no claims will be made against Licensee by Third Parties for infringement of their proprietary rights, but shall give such reasonable assistance as Licensee may request in connection with any such claims made by third parties, subject to payment of Licensor’s out-of-pocket expenses. 

 

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However Licensor represents and warrants that, to the best of Licensor’s knowledge and on the Effective Date, Licensee’s use of any of Licensor’s Patents, Licensor Know-how and/or Licensor Trade Marks in accordance with this Agreement will not infringe any Intellectual Property Rights held by a Third Party.

 

26.3                     Licensor warrants that it is the co-owner of the Patents identified in Schedule 1 as PX006 and PX007, and that it has received a license from Universidad and Consejo, while such rights granted by Universidad and Consejo are sublicensable to a Third Party, including to Licensee.

 

26.4                     Licensor warrants that as of the Effective Date it has not received any Threatened Claim except for all letters as disclosed to Licensee prior to the Effective Date (for the avoidance of doubt, notwithstanding this warranty and the disclosure of the letters, Licensee shall be able to claim under the indemnity in Clause 27.1).

 

26.5                     Licensor warrants that Universidad and Consejo have provided documentation as to the assignment of the rights of their inventors to these institutions.

 

26.6                     On the Effective Date, Licensor has all rights necessary to grant the licenses the Licensor Background IP that it grants to Licensee under this Agreement.

 

26.7                     The Licensor Patents represent all Patents that Licensor or any of its Affiliates controls on the Effective Date that cover or disclose any invention necessary for the Product Manufacturing or the Commercialisation of the Product in the Territory in the Field as of the Effective Date. To the best of Licensor’s knowledge, save in respect to the Patents identified in Schedule 1 as PX006 and PX007, Licensor is the sole and exclusive owner of or the exclusive licensee to the entire right, title and interest in the Licensor Patents free of any encumbrance, lien, or claim of ownership by any Third Party.

 

26.8                     The Licensor Know-how set forth in Schedule 4 represent all Know-how that Licensor or any of its Affiliates controls on the Effective Date that cover or disclose any non-patented invention or trade secrets necessary for the Product Manufacturing or the Commercialisation of the Product in the Territory in the Field as of the Effective Date. To the best of Licensor’s knowledge, Licensor is the sole and exclusive owner of or the exclusive licensee to the entire right, title and interest in the Licensor Know-how set forth in Schedule 4 free of any encumbrance, lien, or claim of ownership by any Third Party.

 

26.9                     There is no actual or, to the best of Licensor’s knowledge, threatened infringement or misappropriation of any Licensor Trade Mark or Licensor Patents by any Third Party in the Territory.

 

26.10              In line with Licensor’s obligations to apply Commercially Reasonable Efforts, the Licensor Patents are being diligently prosecuted and defended in the respective patent offices in the Territory in accordance with Applicable Laws. The Licensor 

 

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Patents have been filed and maintained properly and correctly and all applicable fees have been paid on or before the due date for payment (or, where such filing or maintenance would not have been handled properly or correctly, or fees would not have been timely paid, these concerns have been remedied in time or cannot be considered of such a nature to have a material impact on the legal standing of the Licensor Patents).

 

26.11              To the best of Licensor’s knowledge, each of the Licensor Patents properly identifies each and every inventor of the claims thereof as determined in accordance with Applicable Laws of the jurisdiction in which such Licensor Patent is issued or such application is pending.

 

26.12              All current and former Representatives of Licensor or any of its Affiliates who are inventors of or have otherwise contributed in a material manner to the creation or development of any Licensor Background IP have executed and delivered to Licensor or any such Affiliate an assignment or other agreement regarding the protection of proprietary Information and the assignment to Licensor or any such Affiliate of any Licensor Background IP or have, under any Applicable Laws, otherwise transferred their rights to Licensor. To the best of Licensor’s knowledge, no current Representative of Licensor or any of its Affiliates is in violation of any term of any assignment or other agreement regarding the protection of Licensor Background IP or of any employment contract or any other contractual obligation or any obligation under Applicable Laws relating to the relationship of any such person with Licensor or any such Affiliate. Licensee shall have no obligation to contribute to any remuneration of any inventor employed or previously employed by Licensor or any of its Affiliates in respect of any such inventions, information and discoveries and intellectual property rights therein that are so assigned to Licensor or its Affiliate(s). Licensor will pay all such remuneration due to such inventors with respect to such inventions and other Know-how and Intellectual Property Rights therein.

 

26.13              Licensor has maintained and has not breached in any material respect any material agreements with any Third Party relating to the Product, and after the Effective Date of this Agreement, Licensor shall use Commercially Reasonable Efforts to continue to comply with its undertaking to maintain and/or not to breach in any material way any such material agreements with Third Parties.

 

26.14              On the basis of the “Day 80 Questions” received until the Effective Date from the rapporteur / co-rapporteur, TiGenix was not requested to conduct any additional clinical trial and, to the best of its knowledge, does not anticipate the need to conduct additional phase 3 clinical trial(s) in order to obtain Regulatory Approval for the Product.

 

26.15              Mutual Representations and Warranties.  Licensor and Licensee represent and warrant to the other, as of the Effective Date, as follows:

 

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26.15.1       Corporate Power.  Such party is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation, and has full corporate power and authority to enter into this Agreement and to perform its obligations hereunder, and it has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as it is contemplated to be conducted by this Agreement;

 

26.15.2       Due Authorization.  Such party has taken all necessary corporate action required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder;

 

26.15.3       Binding Agreement.  This Agreement has been duly executed and delivered on behalf of such party and constitutes a legal, valid and binding obligation of such party and is enforceable against it in accordance with the terms hereof subject to the effects of bankruptcy, insolvency or other laws of general application affecting the enforcement of creditor rights and judicial principles affecting the availability of specific performance and general principles of equity, whether enforceability is considered a proceeding at law or equity; and

 

26.15.4       Conflicts.  The execution and delivery of this Agreement and the performance of such party’s obligations hereunder (a) do not conflict with or violate any provision of the articles of incorporation, bylaws or any similar instrument of such party, as applicable, in any material way and (b) do not conflict with or violate or constitute a default or require any consent under, any contractual obligation or any court or administrative order by which such Party is bound (unless such conflict, violation, default or lack of consent do not have a material impact on this Agreement).

 

27                               Indemnities

 

27.1                     Indemnification by Licensor. Licensor hereby agrees to defend, indemnify and hold Licensee and its Affiliates and their respective directors, officers, employees and agents harmless from and against any and all losses, damages, costs (including reasonable court costs and fees of attorneys and other professionals), penalties, liabilities (including strict liabilities) or other expenses incurred or suffered by Licensee as a result of the infringement of any Third Party Intellectual Property Rights by (i) the Development of the Product or the Product Manufacturing as conducted by Licensor prior to the Agreement or during the course of the Agreement, (ii) the Development, Commercialisation and Product Manufacturing of the Product by Licensee in accordance with the terms of this Agreement; and (iii) Licensee’s use of the Licensor Trade Mark in accordance with the terms of this Agreement.

 

Without prejudice to the foregoing, Parties acknowledge that when one of the remedial actions set out in Clause 21.2.5 has been taken by Licensor, the damage to 

 

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be compensated to Licensee may be more limited than if no such action had been taken.

 

27.2                     Indemnification by Licensor. Licensor hereby agrees to defend, indemnify and hold Licensee and its Affiliates and their respective directors, officers, employees and agents harmless from and against any and all losses, damages, costs (including reasonable court costs and fees of attorneys and other professionals), penalties, liabilities (including strict liabilities), fines, amounts and expenses to be paid by Licensee in execution of a final/non appealable judgment or a settlement (individually and collectively, the “Licensee Loss(es)”), to the extent such Licensee Losses are in result of a claim or suit started from a Third Party for:

 

27.2.1           bodily injury, personal injury, death and property damage caused by defects in a Product, provided that such defects have not been caused by Licensee or its Affiliates or any persons for whose actions or omissions Licensee is liable under the Applicable Laws or under this Agreement;

 

27.2.2           a breach by Licensor or its Affiliates of its obligations, representations and warranties under this Agreement; and

 

27.2.3           the negligence or willful act or omission of Licensor or any person for whose actions or omissions Licensor is liable under Applicable Laws or under this Agreement;

 

provided, however, that in all cases referred to above, Licensor’s obligation under this Clause 27.2 shall be proportionally reduced to the extent that Licensee Loss was partially caused by: (a) the negligence or willful misconduct of Licensee or any person for whose actions or omissions Licensee is liable under the Applicable Laws or under this Agreement or (b) any breach by Licensee of its representations, warranties and/or obligations assumed hereunder.

 

27.3                     Indemnification by Licensee. Licensee hereby agrees to defend, indemnify and hold Licensor and its Affiliates and their respective directors, officers, employees and agents harmless from and against any and all losses, damages, costs (including reasonable court costs and fees of attorneys and other professionals), penalties, liabilities (including strict liabilities), fines, amounts and expenses to be paid by Licensor in execution of a final/non appealable judgment or a settlement (individually and collectively, “Licensor Loss(es)”), to the extent such Licensor Losses are in result of a claim or suit started from a Third Party for:

 

27.3.1           bodily injury, personal injury, death and property damage caused by the negligence or willful misconduct or wrongdoing of Licensee or its Affiliates or any person for whose actions or omissions Licensee is liable under the Applicable Laws or under this Agreement;

 

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27.3.2           a breach by Licensee or its Affiliates of its obligations, representations and warranties under this Agreement; and

 

27.3.3           the negligence or willful act or omission of Licensee or any person for whose actions or omissions Licensee is liable under Applicable Laws or under this Agreement;

 

provided, however, that in all cases referred to above, Licensee’s obligation under this Clause 27.3 shall be proportionally reduced to the extent that Licensor Loss was partially caused by: (a) the negligence or willful misconduct of Licensor or any person for whose actions or omissions Licensor is liable under the Applicable Laws or under this Agreement or (b) any breach by Licensor of its representations, warranties and/or obligations assumed hereunder.

 

27.4                     Indemnification by Licensee. Licensee shall indemnify Licensor against all liability, loss, damages, costs or other expenses incurred or suffered by Licensor as a result of the use by Licensee (or on its behalf or authority) of the Intellectual Property Rights held by Licensor without Licensor’s consent, for any purpose other than as set out in this Agreement.

 

27.5                     Duty to Coordinate. Any party seeking to be indemnified hereunder (“Indemnified Party”) shall provide prompt written notice to the other party (“Indemnifying Party”) no later than thirty (30) days after becoming aware of any actual or potential claim in respect of which indemnification may be sought; provided, however, that the failure by the Indemnified Party to provide such prompt notice to the Indemnifying Party shall only be a bar to recovering Licensee Losses or Licensor Losses, as the case may be (each being hereinafter defined the “Loss(es)”), to the extent that the Indemnifying Party was prejudiced by such failure. In the event of any such actual or threatened Loss therefor, each party shall provide the other party with information and assistance as the other party shall reasonably request for purposes of defense and each party shall receive from the other all necessary and reasonable cooperation in such defense including the services of employees or agents of such other party who are familiar with the transactions or occurrences out of which any such Loss may have arisen.. Except as provided for under Clause 21.2.4, the primary responsibility for defending any such Loss shall be with the Indemnifying Party; provided, however, that the Indemnified Party shall have the right to participate in and with respect to the defense of any Loss with counsel of its own choosing, whose fees shall be borne by the Indemnified Party. The Indemnified Party shall not make any admission of liability in relation to or be entitled to settle any claim or agree to the entry of any judgment or other relief without the prior consent of the Indemnifying Party, which consent shall not be unreasonably withheld, conditioned or delayed.

 

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27.6                     Limitation of Liability. Neither party shall have any liability to the other party, its Affiliates or their respective entitled persons for any indirect, consequential, punitive or incidental damages arising out of or relating to this Agreement.

 

In addition, the indemnification obligations of either party under this Agreement as provided for in Clauses 27.1 to 27.4 shall be limited to a maximum amount of twenty-five million euros (€25,000,000), it being understood that this maximum amount will be increased to forty million euros (€40,000,000) upon payment by Licensee to Licensor of the approval milestone in accordance with Clause 9.1.2(i).

 

27.7                     The provisions of this Clause 27 (including the limitations of liability) shall also apply to any sublicenses granted by Licensee under this Agreement.

 

28                               Term and termination

 

28.1                     The Agreement shall enter into force on the Effective Date and, unless earlier terminated as provided in this Agreement, shall expire on a country-by-country basis (within the Territory), at the latest of either (i) the twentieth (20th) anniversary of the date of first commercial sale of the Product in a country in the Territory, or (ii) upon the last valid patent claim covering the Product or its use in the Field (including supplementary protection certificates) to expire in a country in the Territory, (iii) the expiry of any market exclusivity in a particular country granted under the marketing authorisation of the Product as an orphan medicine, if any, or (iv) the expiry of any data exclusivity (“Term”).

 

28.2                     The parties may agree to prolong this Agreement beyond the Term (for one (1) or more countries of the Territory), provided such prolongation is not legally prohibited and provided the parties reach an agreement on the terms of such prolongation (including its duration) at the latest sixty (60) days before the expiry of the Term.

 

28.3                     Termination by either party

 

28.3.1           Either party may terminate this Agreement before its expiration with immediate effect, by written thirty (30) days’ notice, to the other party if:

 

(i)                                  a receiver or administrative receiver is appointed over the whole or any part of the other party’s assets or an order is made by a court of competent jurisdiction, a petition is filed, a notice is given or a resolution is passed for the winding-up or administration of the other party, or any step is taken by any person with a view to bringing about any of the preceding events;

 

(ii)                               the other party commences negotiations with any of its creditors with a view to rescheduling any of its debts or enters into any compromise or arrangement with its creditors (in each case other than as part of a voluntary scheme for the reconstruction or amalgamation of the other 

 

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party as a solvent corporation and the resulting corporation, if a different legal entity, undertakes with Licensor or Licensee as applicable to be bound by the terms of this Agreement);

 

(iii)                            the other party is capable of being deemed unable to pay its debts.

 

28.3.2           Termination for Change of Control. Each party shall promptly inform the other party in writing of any event that could trigger a Change of Control. In case of such Change of Control, the non-affected party shall have the right to terminate this Agreement by providing sixty (60) days prior written notice to the other party.

 

28.3.3           Without prejudice to any remedy or claim it may have against the other party for material breach or non-performance of this Agreement, each party shall have the right to terminate this Agreement with immediate effect in the event that the other party fails to materially comply with or perform any material provision of this Agreement and, in case of a curable material breach, in the further event that such other party, after having been given notice, should fail to discontinue and to remedy such violation within a remedy period of sixty (60) days after receipt of such notice.

 

28.3.4           Termination for Force Majeure. Either party may terminate this Agreement in accordance with the terms of Clause 38.2.

 

28.3.5           Miscellaneous. Either party may terminate this Agreement in accordance with Clause 6.12.

 

28.4                     Termination by Licensor. Licensor may terminate this Agreement before its expiration with immediate effect, by written thirty (30) days’ notice:

 

28.4.1           without prejudice to Clause 28.3.3, on a Region – by Region basis, if (i) there is a negative deviation of at least 25% measured against the expected royalty income to Licensor as agreed in the (sales forecast included in the) Commercialisation Plan for at least three consecutive Years in a Key Market of a Region and (ii) subject to the aforementioned negative deviation having occurred, the Licensor reasonably deems that Licensee did not apply Commercially Reasonable Efforts in order to perform the (sales forecast included in the) Commercialisation Plan in the relevant Key Market of a Region. If the parties are not able to resolve the disputed claim in the JSC. the Licensor shall submit any disputed claim it may have under this Clause 28.4.1 in writing to the parties’ senior management or board of directors for good faith negotiations. If despite such good faith efforts, resolution of such matter cannot be reached by senior management or the board of directors of the parties within thirty (30) Business Days of its referral, and the Licensor chooses to continue with its claim, the Licensor shall indicate the same in writing to the Licensee and the parties shall jointly appoint an independent Third Party expert 

 

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who shall provide a report (the “Third Party Report”) evaluating the application of Commercially Reasonable Efforts by Licensee (for the avoidance of doubt, if the parties cannot agree on which Third Party expert should be appointed within thirty (30) days of notification from the Licensor to the Licensee of the Licensor’s intention to appoint such Third Party expert, then the president of the SwAAP (Swiss Association Pharmaceutical Professionals) shall appoint such Third Party expert on behalf of the parties. If the Third Party Report confirms that the Licensee used Commercially Reasonable Efforts, the Licensor shall abandon its claim for termination pursuant to this Clause 28.4.1 (and shall pay the Third Party expert’s costs in obtaining the Third Party Report). If the Third Party Report confirms that the Licensee did not use Commercially Reasonable Efforts, the Licensor shall be entitled to present such report to the JSC for discussion between the parties within 30 (thirty) Business Days of the Third Party Report having been provided by the Third Party expert to the parties. In the event the parties are not able to conclusively settle this discussion in the JSC (which shall use reasonable efforts to find a solution for the Licensee to remedy the breach if possible) and reach an agreement, as the case may be through the escalation process specified in Clause 8.8 (it being understood that Licensee shall not have the final decision-making authority for the subject matter of this Clause 28.4.1), Licensor may terminate the Agreement in accordance with this Clause 28.4.1 on a Region-by Region basis. For the avoidance of doubt, if the Third Party Report confirms that the Licensee did not use Commercial Reasonable Efforts, the Licensee shall pay the Third Party expert’s costs in obtaining the Third Party Report); and

 

28.4.2           if Licensee or an Affiliate of Licensee challenges or takes any material steps to assist a Third Party in challenging the validity of any of the Intellectual Property Rights held by Licensor, provided that this shall not apply to any such steps taken incidentally or inadvertently or which Licensee can show were otherwise taken without the intention of so assisting the Third Party.

 

28.5                     Termination by Licensee. Licensee may terminate this Agreement before its expiration with immediate effect, by written thirty (30) days’ notice:

 

28.5.1           in the event that Licensor does not obtain the Regulatory Approval for EEA by the fourth anniversary of the Effective Date;

 

28.5.2           on a country-by-country basis, in accordance with Clause 21.2.5;

 

28.5.3           on a country-by-country basis in case of a final court decision confirming the infringement in the country at stake of any Third Party Intellectual Property Rights by the Product Manufacturing or the Commercialization of the Product (however, prior to termination under this Clause the Licensee shall

 

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communicate in writing to the JSC its intention to terminate the Agreement hereunder, after which the parties shall discuss for a period of up to twenty (20) Business Days in the JSC any alternative to termination). For the avoidance of doubt the final decision as to whether to terminate this Agreement hereunder shall be at the sole discretion of the Licensee;

 

28.5.4           on a country-by-country basis, in accordance with Clause 22;

 

28.5.5           Notwithstanding the fact that Takeda has been able to perform due diligence on the Licensor and the Product, as well as on the subject matter of this Agreement, Takeda has not been able to evaluate the following information:

 

(i)                                  Manufacturing process:

 

(a)                       process validation,

 

(b)                       selected process ranges and justifications,

 

(c)                        manufacture of MCB criteria and markers used for qualification of MCB;

 

(ii)                               Process validation reports;

 

(iii)                            Justification of specification for the potency assay.

 

Therefore, Licensee may terminate the Agreement by written thirty (30) days’ notice to Licensor, in case the changes requested by the Regulatory Authorities to Module 3 in connection with release specifications, stability and comparability assessment or analytical procedures or viral safety require any material changes to the manufacturing process leading to a total increase in COGS of more than 15% compared to Current COGS. This termination right will no longer be available to Licensee as from the granting of the (conditional or standard) Regulatory Approval by the Regulatory Authority.

 

28.6                     Upon termination of this Agreement.

 

28.6.1           Licensee shall cease using the Intellectual Property Rights licensed to it under this Agreement and shall deliver to Licensor all documents embodying the Know-how or other Intellectual Property Rights in its possession or control, or destroy (and certify such destruction to Licensor) such documents, it being understood that (i) Licensee may retain one (1) copy of any such document exclusively for record-retention purposes and for the purpose of monitoring compliance with its obligations pursuant to this Agreement and subject to any copies remaining on the Licensee`s standard computer back-up devices (which copies the Licensee agrees not to access after the termination) and (ii) if the Know-how has, as a whole, become publicly known, other than by the action of Licensee, then Licensee may continue to use it without further payment to

 

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Licensor, subject to any relevant Patents or other Intellectual Property Rights held by Licensor then subsisting;

 

28.6.2           Licensee shall have the right, for six (6) months from the date of termination of this Agreement, to sell stocks of the Products manufactured by Licensee itself or supplied by Licensor prior to the date of termination. Royalties and other amounts due under this Agreement shall remain payable on all such Products calculated in accordance with this Agreement;

 

28.6.3           Royalties and other amounts due under this Agreement shall be paid to Licensor within two (2) calendar months after the date of effective expiration or termination and Licensee shall at the same time pay any undisputed outstanding royalties or other amounts due under this Agreement and render statements in respect of all other Products sold, put into use or otherwise disposed of prior to the date of effective expiration or termination;

 

28.6.4           The provisions relating to the payment of royalties and other amounts due under this Agreement and the rendering and auditing of accounts and other information, shall remain in force as long as may be necessary in order to wind-up the outstanding obligations of both parties;

 

28.6.5           Subject only to the provisions of Clause 28.6.2 hereof, Licensee shall cease using or operating under any Regulatory Approval of the Product and shall, to the extent Licensee is the holder of any Regulatory Approval, promptly do one or more of the following as explicitly requested by Licensor from time to time:

 

(a)                              to the extent possible, transfer to Licensor or its designee any Regulatory Approval of the Product, at Licensee’s costs (unless Licensee terminates because of breach of Licensor);

 

(b)                              if a transfer as envisaged under (a) is not possible, or with a view to making a transfer as envisaged under (a) possible, cancel any such Regulatory Approval in order to facilitate application for corresponding registrations by Licensor or its designees;

 

(c)                               permit and authorise Licensor or its designee, while applying for corresponding registrations, to rely on or refer to any documents submitted by Licensee to Regulatory Authorities in respect of the Product;

 

(d)                              take any other steps which may be reasonably necessary to enable Licensor or its designee to use or operate under any Regulatory Approval of the Product obtained pursuant to this Agreement, including the execution of a no-objection letter or similar document;

 

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provided that any step under (a) through (d) here above shall be taken only in close co-operation with Licensor and with Licensor’s prior written approval for each such step that is of an irrevocable nature; and

 

28.6.6           Licensor shall cease using the Intellectual Property Rights of the Licensee Foreground IP, except for Patents and Know-how which Licensor can continue to use, or the Licensee Background IP licensed to it under this Agreement, unless otherwise stated in this Agreement. Licensor shall deliver to Licensee all documents embodying the Intellectual Property Rights other than Know-how and Patents in its possession or control, or destroy (and certify such destruction to Licensor) such documents, it being understood that Licensor may retain one (1) copy of any such document exclusively for record-retention purposes and for the purpose of monitoring compliance with its obligations pursuant to this Agreement and subject to any copies remaining on the Licensor`s standard computer back-up devices (which copies the Licensor agrees not to access after the termination).

 

28.6.7           The provisions of Clause 24 (Confidentiality), Clause 27 (Indemnities), as well as any other provision which by its terms or by the context thereof, is intended to survive termination, shall in any event remain in force.

 

29                               Notices

 

29.1                     Any notice given under this Agreement shall be in writing and may be delivered by hand to the relevant party or sent by recorded delivery or fax to the address or fax number stated in this Agreement or to such other address or fax number as may be notified by that party for this purpose, and shall be effective notwithstanding any change of address or fax number not notified. Notice may not be given under this Agreement by e-mail.

 

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1.1.1                        Addresses for Notice:

 

	
For Takeda:
    	
 
    	
For Tigenix:
    
	
 
    	
 
    	
 
    
	
Takeda Pharmaceuticals International AG
   Thurgauerstrasse 130
   8152 Glattpark-Opfikon
   Zurich, Switzerland

Fax: +41 44 555 1250
   E-mail: Nils.Kjaergaard@takeda.com
   Attention: Head of Legal
    	
 
    	
TiGenix SAU
   Marconi 1
   28760 Tres Cantos – Madrid
   Spain

Fax: 34 (0) 91 804 92 63
   E-mail: legal@tigenix.com
   Attention: General Counsel
    

 

29.2                     Unless proved otherwise, a notice shall be deemed to have been given, if sent by letter, 48 hours after the date of posting, and if delivered by hand or sent by fax during the hours of 9.00 am to 6.00 pm, when left at the relevant address or transmitted (as applicable), and otherwise on the next working day.

 

30                               Waiver

 

No delay or forbearance by any party in exercising any right or remedy arising under this Agreement shall operate as a waiver of it, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise of it or the exercise of any other right or remedy.

 

31                               Whole Agreement and Non-reliance

 

31.1                     This Agreement supersedes any previous written or oral agreement between the parties in relation to the matters dealt with in this Agreement (including the term sheet referred to in Recital (C)) that has not been expressly maintained by this Agreement and contains the whole agreement between the parties relating to the subject matter of this Agreement at the date hereof to the exclusion of any terms implied by law which may be excluded by contract.

 

31.2                       Without prejudice of any other rights the parties may have under this Agreement or under Applicable Laws, both parties acknowledge that they have not been induced to enter into this Agreement by any representation, warranty or undertaking not expressly incorporated into it, and (ii) Takeda has been able to perform due diligence on the subject matter of this Agreement.

 

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31.3                       Parties will enter into such ancillary agreements as are required for the performance of this Agreement, including the Manufacturing and Supply Agreement, a Quality Agreement and a Pharmacovigilance Agreement.

 

32                                 Variation

 

32.1                       No variation of this Agreement shall be effective unless in writing and signed by or on behalf of each of the parties.

 

33                               Expenses

 

Each party will bear its own expenses (including legal and accounting fees) associated with negotiating and executing this Agreement. Neither party will be liable for the other party’s expenses.

 

34                                 No Partnership

 

Nothing in this Agreement shall create a partnership or joint venture between the parties to it and neither party shall enter into or have authority to enter into any engagement or make any representation or warranty on behalf of or pledge the credit of or otherwise bind or oblige the other party hereto.

 

35                                 Further Assurance

 

At any time after the date of this Agreement the parties shall, and shall use all reasonable endeavours to procure that any necessary Third Party shall execute such documents and do such acts and things as may reasonably be required for the purpose of giving either party the full benefit of all the provisions of this Agreement.

 

36                                 Severance

 

If any provision in this Agreement shall be held to be illegal, invalid or unenforceable, in whole or in part, under any enactment or rule of law, such provision or part shall to that extent be deemed not to form part of this Agreement but the legality, validity and enforceability of the remainder of this Agreement shall not be affected.

 

37                                 Assignment of Rights and Obligations

 

37.1                       Licensor may assign any of its obligations under this Agreement, as well as any part of the Patents or the Know-how, or any other Intellectual Property Rights held by Licensor, to a Third Party assignee without Licensee’s consent, provided that Licensor shall procure that such Third Party assignee agrees and undertakes to perform any and all Licensor’s obligations under this Agreement. For the avoidance of doubt, Licensee shall not compensate Licensor for any negative Tax impact to the extent it is triggered, increased or relates to an assignment by Licensor, including, but not limited to an increase in withholding tax caused by an assignment.

 

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37.2                       Licensee may not assign all or part of its rights and obligations under this Agreement to any Third Party (through a sale, a contribution, a donation or any other transaction, including the sale or contribution of a division or of a business as a whole, a merger or a split) without the prior written consent of Licensor (which consent shall not be unreasonably withheld or delayed). As long as such consent has not been obtained, Licensee shall continue to be responsible for all obligations that it intended to assign.

 

Subject to the assignment restrictions set out in this Clause 37, the provisions of this Agreement shall inure to the benefit of and shall be binding upon the parties and their respective heirs, successors and assigns.

 

38                                 Force Majeure

 

38.1                       The obligations of each party under this Agreement shall be suspended during the period and to the extent that such party is prevented from or hindered in complying with it or them by any cause beyond its reasonable control including strikes, lock-outs, act of God, war, riot, civil commotion, malicious damage, break-down of plant or machinery, fire, flood or storm.

 

38.2                       If any such cause or event prevents a party from or hinders a party in complying with its obligations under this Agreement for a continuous period of five (5) months, the other party shall have the right to terminate this Agreement on giving the party under force majeure one (1) month written notice. This Agreement will automatically terminate on expiry of the said further one (1) month period unless, during that period, the party under force majeure is no longer prevented from or hindered in complying with its obligations hereunder and is, before the end of that period, again complying with its obligations.

 

39                                 Governing Law

 

This Agreement, the documents to be entered into pursuant to it, and any non-contractual obligations arising out of or in connection with them, shall be governed by and construed in accordance with Swiss law.

 

40                                 Arbitration

 

Any dispute or difference arising out of or under or in connection with this Agreement and the documents to be entered into pursuant to it, and any non-contractual obligations arising out of or in connection with them, shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by three (3) arbitrators. The award rendered shall be final and binding upon both parties. Such arbitration shall have its seat in Madrid (Spain), and be conducted in the English language.

 

69

 

[Next page is signatory page]

 

70

 

	
Signed by the parties or their duly   authorised representatives,
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Signed by TiGenix   SAU:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
/s/
    	
Eduardo Bravo
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
Eduardo Bravo
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
Managing Director and Chief   Executive Officer
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Date:
    	
July 4, 2016
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Signed by Takeda   Pharmaceuticals International AG:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
/s/
    	
Marc Princen
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
Marc Princen
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
Regional President Business Unit   Europe & Canada
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Date:
    	
July 4, 2016
    	
 
    	
 
    
					

 

71

 

	
/s/
    	
Nils Kjærgaard
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
Nils Kjærgaard
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
VP, General Counsel Europe and   Canada
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Date:
    	
July 4, 2016
    	
 
    	
 
    
					

 

Schedules:

 

Schedule 1 – Licensor Patents

 

Schedule 2 – Principal Trade Mark

 

Schedule 3 – Back-Up Trade Mark

 

Schedule 4 – Licensor Know-how

 

72

 

Schedule 1 – Licensor Patents

 

1.1                              Patents and patent applications belonging to the patent family “Identification and isolation of multipotent cells from non-osteochondral mesenchymal tissue” (TiGenix reference PCX006)

 

	
Jurisdiction
    	
 
    	
Application / Publication / Patent
   number
    	
 
    	
Status
    
	
Spain
    	
 
    	
ES2313805
    	
 
    	
Granted
    
	
Canada
    	
 
    	
CA2583151
    	
 
    	
Granted
    
	
China
    	
 
    	
CN101056974A
    	
 
    	
Granted
    
	
Japan
    	
 
    	
5732011
    	
 
    	
Granted
    
	
Singapore
    	
 
    	
192459
    	
 
    	
Pending
    
	
Israel
    	
 
    	
182441
    	
 
    	
Granted
    
	
Europe
    	
 
    	
EP2292736
    	
 
    	
Granted
    
	
Europe
    	
 
    	
EP2862925
    	
 
    	
Pending
    
	
Australia
    	
 
    	
AU2011253985
    	
 
    	
Granted
    
	
India
    	
 
    	
48/2012
    	
 
    	
Pending
    

 

1.2                              Patents and patent applications belonging to the patent family “Use of adipose tissue-derived stromal stem cells in treating fistula” (TiGenix internal reference PCX007)

 

	
Jurisdiction
    	
 
    	
Application / Publication / Patent
   number
    	
 
    	
Status
    
	
Brazil
    	
 
    	
BRPI0613811
    	
 
    	
Pending
    
	
Canada
    	
 
    	
CA2613457
    	
 
    	
Granted
    
	
Mexico
    	
 
    	
305684
    	
 
    	
Granted
    

 

73

 

	
Jurisdiction
    	
 
    	
Application / Publication / Patent
   number
    	
 
    	
Status
    
	
Singapore
    	
 
    	
SG166770
    	
 
    	
Granted
    
	
China
    	
 
    	
CN103143055
    	
 
    	
Pending
    
	
Hong Kong
    	
 
    	
HK1186133
    	
 
    	
Pending
    
	
Japan
    	
 
    	
JP2014054550
    	
 
    	
Pending
    
	
Japan
    	
 
    	
2016-000288
    	
 
    	
Pending
    
	
Israel
    	
 
    	
188378
    	
 
    	
Granted
    
	
Australia
    	
 
    	
2006261383
    	
 
    	
Granted
    
	
New Zealand
    	
 
    	
565246
    	
 
    	
Granted
    
	
New Zealand
    	
 
    	
594848
    	
 
    	
Granted
    
	
Russian Federation
    	
 
    	
2435846
    	
 
    	
Granted
    
	
Russian Federation
    	
 
    	
RU2011135234
    	
 
    	
Pending
    
	
Europe
    	
 
    	
EP2292737
    	
 
    	
Granted
    
	
Europe
    	
 
    	
EP2944688
    	
 
    	
Pending
    

 

74

 

1.3                              Patents and patent applications belonging to the patent family “Cell populations having immunoregulatory activity, method for isolation and uses” (TiGenix reference PCX008)

 

	
Jurisdiction
    	
 
    	
Application / Publication / Patent
   number
    	
 
    	
Status
    
	
Canada
    	
 
    	
CA2623353
    	
 
    	
Pending
    
	
Mexico
    	
 
    	
MX/a/2013/012947
    	
 
    	
Pending
    
	
Singapore
    	
 
    	
10201400793R
    	
 
    	
Pending
    
	
China
    	
 
    	
CN101313062
    	
 
    	
Pending
    
	
Japan
    	
 
    	
JP2014221045
    	
 
    	
Pending
    
	
Japan
    	
 
    	
5925408
    	
 
    	
Granted
    
	
Israel
    	
 
    	
228670
    	
 
    	
Pending
    
	
South   Korea
    	
 
    	
KR20080048555
    	
 
    	
Pending
    
	
South   Korea
    	
 
    	
10-1536239
    	
 
    	
Granted
    
	
Australia
    	
 
    	
AU2012268272
    	
 
    	
Pending
    
	
Hong   Kong
    	
 
    	
HK1158979
    	
 
    	
Pending
    
	
Europe
    	
 
    	
EP2340847
    	
 
    	
Pending
    
	
Europe
    	
 
    	
EP1926813
    	
 
    	
Granted
    

 

75

 

Schedule 2 – Principal Trade Mark

 

2.1                               Registered trade marks

 

	
Trademark
    	
 
    	
Jurisdiction
    	
 
    	
Registration
   No.
    	
 
    	
Classes
    	
 
    	
Renewal
   Date
    
	
ALOFISEL
    	
 
    	
EUTM
    	
 
    	
007352081
    	
 
    	
3 and 5
    	
 
    	
29/10/2018
    
	
ALOFISEL
    	
 
    	
EUTM
    (on which international application is based)
    	
 
    	
013492781
    	
 
    	
3 and 5
    	
 
    	
24/11/2024
    
	
ALOFISEL
    	
 
    	
CH, IS, LI, NO
    	
 
    	
1244283
    	
 
    	
3 and 5
    	
 
    	
28/01/2025
    

 

2.2                               Trade mark applications

 

	
Trademark
    	
 
    	
Jurisdiction
    	
 
    	
Application No.
    	
 
    	
Classes
    	
 
    	
Application
   Date
    
	

    	
 
    	
EUTM
    	
 
    	
015138563
    	
 
    	
3 and 5
    	
 
    	
pending
    

 

76

 

Schedule 3 – Back-Up Trade Mark

 

3.1                               Registered trade marks

 

	
Trademark
    	
 
    	
Jurisdiction
    	
 
    	
Registration
   No.
    	
 
    	
Classes
    	
 
    	
Renewal
   Date
    
	
ONTARIL
    	
 
    	
EUTM
    	
 
    	
005652599
    	
 
    	
5
    	
 
    	
30/01/2017
    
	
ONTARIL
    	
 
    	
EUTM
    (on which international application is based)
    	
 
    	
013492871
    	
 
    	
3 and 5
    	
 
    	
24/11/2024
    
	
ONTARIL
    	
 
    	
CH, IS, LI
    	
 
    	
1272541
    	
 
    	
3 and 5
    	
 
    	
24/09/2025
    

 

77

 

Schedule 4 – Licensor Know-how

 

Licensor Know-how includes:

 

1.1                              Clinical Know-how relating to the Product

 

This includes the preclinical package, the clinical package and the CMC dossier.

 

1.2                              Medical Know-how relating to the Product

 

This includes medical knowledge such as surgical technique and disease management.

 

1.3                              Market access Know-how relating to the Product

 

This includes dossiers in respect of pricing and reimbursement, epidemiology and burden of the disease.

 

1.4                              Manufacturing Know-how relating to the Product

 

This includes manufacturing know-how and experience, including donor identification.

 

1.5                              Logistics and transportation Know-how relating to the Product

 

This includes logistics and transportation know-how and experience, including shipping containers, temperature monitoring, and product shelf-life.

 

78ex10-1.htm

EXHIBIT 10.1

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement (this “Agreement”) is being delivered to the purchaser identified on the signature page to this Agreement (the “Subscriber”) in connection with its investment in the securities of Majesco Entertainment Company, a Delaware corporation (the “Company”).  The Company is conducting a private placement (the “Offering”) of up to Five Million Fifty Thousand Dollars ($5,050,000) (the “Minimum Offering Amount”) of units (the “Units”) at a purchase price of $1.20 per Unit (the “Purchase Price”) with each Unit consisting of (i) one share (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (or, at the election of any Subscriber who, as a result of the ownership of the Common Stock would hold in excess of 4.99% of the Company’s issued and outstanding Common Stock, shares of Series C Convertible Preferred Stock (the “Preferred Shares”), par value $0.001 per share, which are convertible into shares of Common Stock (the “Conversion Shares”), with such rights and designations as set forth in the form of Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock, attached hereto as Exhibit A, (the “Series C Certificate of Designation”) and (ii) a thirty-six (36) month warrant, in the form attached hereto as Exhibit B (the “Warrant”) to purchase one share of Common Stock (the “Warrant Shares”) at an exercise price of $1.40 per share.  For purposes of this Agreement, the term “Securities” shall refer to the Shares, the Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares.

 

IMPORTANT INVESTOR NOTICES

 

NO OFFERING LITERATURE OR ADVERTISEMENT IN ANY FORM MAY BE RELIED UPON IN THE OFFERING OF THESE SECURITIES EXCEPT FOR THIS SUBSCRIPTION AGREEMENT AND ANY SUPPLEMENTS HERETO, AND NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS EXCEPT THOSE CONTAINED HEREIN.

 

UNTIL SUCH TIME AS A FORM 8-K IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION DISCLOSING THE TRANSACTIONS CONTEMPLATED HEREBY, THIS AGREEMENT IS CONFIDENTIAL AND THE CONTENTS HEREOF MAY NOT BE REPRODUCED, DISTRIBUTED OR DIVULGED BY OR TO ANY PERSONS OTHER THAN THE RECIPIENT OR ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY.  EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT, ACKNOWLEDGES AND AGREES TO THE FOREGOING RESTRICTIONS.

 

THIS AGREEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION OF AN OFFER TO ANY PERSON OR IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS UNLAWFUL OR NOT AUTHORIZED.  EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT AGREES TO RETURN IT AND ALL RELATED DOCUMENTS IF SUCH PERSON DOES NOT PURCHASE ANY OF THE SECURITIES DESCRIBED HEREIN.

 

NEITHER THE DELIVERY OF THIS AGREEMENT AT ANY TIME NOR ANY SALE OF SECURITIES HEREUNDER SHALL IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.  THE COMPANY WILL EXTEND TO EACH PROSPECTIVE SUBSCRIBER (AND TO ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, IF ANY) THE OPPORTUNITY, PRIOR TO ITS PURCHASE OF UNITS, TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM THE COMPANY CONCERNING THE OFFERING AND TO OBTAIN ADDITIONAL INFORMATION, TO THE EXTENT THE COMPANY POSSESSES THE SAME OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, IN ORDER TO VERIFY THE ACCURACY OF THE INFORMATION SET FORTH HEREIN.  ALL SUCH ADDITIONAL INFORMATION SHALL ONLY BE PROVIDED IN WRITING AND IDENTIFIED AS SUCH BY THE COMPANY THROUGH ITS DULY AUTHORIZED OFFICERS AND/OR DIRECTORS ALONE; NO ORAL INFORMATION OR INFORMATION PROVIDED BY ANY BROKER OR THIRD PARTY MAY BE RELIED UPON.

 

NO REPRESENTATIONS, WARRANTIES OR ASSURANCES OF ANY KIND ARE MADE OR SHOULD BE INFERRED WITH RESPECT TO THE ECONOMIC RETURN, IF ANY, THAT MAY ACCRUE TO AN INVESTOR IN THE COMPANY.

 

  

-1-

  

FOR RESIDENTS OF ALL STATES

 

THIS OFFERING IS BEING MADE SOLELY TO “ACCREDITED INVESTORS,” AS SUCH TERM IS DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).  THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 4(a)(2) THEREUNDER AND REGULATION D (RULE 506) OF THE SECURITIES ACT AND CORRESPONDING PROVISIONS OF STATE SECURITIES LAWS.

 

THE SECURITIES OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.  SUBSCRIBERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS AGREEMENT.  ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

PROSPECTIVE SUBSCRIBERS SHOULD NOT CONSTRUE THE CONTENTS OF THIS AGREEMENT AS INVESTMENT, LEGAL, BUSINESS, OR TAX ADVICE.  EACH SUBSCRIBER SHOULD CONTACT HIS, HER OR ITS OWN ADVISORS REGARDING THE APPROPRIATENESS OF THIS INVESTMENT AND THE TAX CONSEQUENCES THEREOF, WHICH MAY DIFFER DEPENDING ON A SUBSCRIBER’S PARTICULAR FINANCIAL SITUATION.  IN NO EVENT SHOULD THIS AGREEMENT BE DEEMED OR CONSIDERED TO BE TAX ADVICE PROVIDED BY THE COMPANY.

 

FOR FLORIDA RESIDENTS ONLY

 

THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE HOLDER IN A TRANSACTION EXEMPT UNDER § 517.061 OF THE FLORIDA SECURITIES ACT.  THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA.  IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH SUBSCRIBER TO THE COMPANY, AN AGENT OF THE COMPANY, OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH SUBSCRIBER, WHICHEVER OCCURS LATER.

 

  

-2-

  

1.           SUBSCRIPTION AND PURCHASE PRICE

 

(a)           Subscription.  Subject to the conditions set forth in Section 2 hereof, the Subscriber hereby subscribes for and agrees to purchase the number of Units indicated on page 24 hereof on the terms and conditions described herein.

 

(b)           Purchase of Units.  The Subscriber understands and acknowledges that the purchase price to be remitted to the Company in exchange for the Units shall be set at $1.20 per Unit, for an aggregate purchase price as set forth on page 24 hereof (the “Aggregate Purchase Price”), which shall be equivalent to $1.20 per Share, exclusive of the value of the Warrants. The Subscriber’s delivery of this Agreement to the Company shall be accompanied by payment for the Units subscribed for hereunder, payable in United States Dollars, by wire transfer of immediately available funds delivered to Signature Bank, as escrow agent (the “Escrow Agent”) pursuant to the terms of the escrow agreement (the “Escrow Agreement”) in accordance with the wire instructions set forth on Exhibit C attached hereto. The Subscriber understands and agrees that, subject to Section 2 and applicable laws, by executing this Agreement, it is entering into a binding agreement. Additionally, the Company shall deposit certificates evidencing the Shares (and Preferred Shares) and Warrants so subscribed for with the Company’s corporate secretary, as escrow agent for the Securities (the “Securities Escrow Agent”).  The Subscriber understands and agrees that, subject to Section 2 and applicable laws, by executing this Agreement, it is entering into a binding agreement. Notwithstanding anything to the contrary herein, the Securities shall be held by the Securities Escrow Agent and the Aggregate Purchase Price shall be held by the Escrow Agent  in accordance with Section 5(r) herein and the terms of the Escrow Agreement.

 

2.           ACCEPTANCE, OFFERING TERM AND CLOSING PROCEDURES

 

(a)           Acceptance. Subject to full, faithful and punctual performance and discharge by the Company of all of its duties, obligations and responsibilities as set forth in this Agreement, the Series C Certificate of Designation, the Warrant , the Registration Rights Agreement (as defined below), the Escrow Agreement and any other agreement entered into between the Subscriber and the Company relating to this subscription (collectively, the "Transaction Documents") to be performed or discharged on or prior to the Closing in which such Subscriber participates, the Subscriber shall be legally bound to purchase the Units  pursuant to the terms and conditions set forth in this Agreement.  For the avoidance of doubt, upon the occurrence of the failure by the Company to fully, faithfully and punctually perform and discharge any of its duties, obligations and responsibilities as set forth in any of the Transaction Documents, which shall have been performed or otherwise discharged prior to the Closing (as defined below), the Subscriber may, on or prior to the Closing, at its sole and absolute discretion, elect not to purchase the Units  and provide instructions to the Company to receive the full and immediate refund of the Aggregate Purchase Price.  In the event the Closing does not take place because of (i) the election not to purchase the Units  by the Subscriber or (ii) the failure to effectuate the Initial Closing (as defined below) on or prior to April 30, 2015 (unless extended in the discretion of the Board of Directors) for any reason or no reason, this Agreement and any other Transaction Documents shall thereafter be terminated and have no force or effect, and the parties shall take all steps, including the execution of instructions to the Company, to ensure that the Aggregate Purchase Price shall promptly be returned or caused to be returned to the Subscriber without interest thereon or deduction therefrom.

 

(b)           Closing.  The closing of the purchase and sale of the Units hereunder (the “Closing”) shall take place at such time and place as determined by the Company and may take place in one of more closings.  Closings shall take place on a Business Day promptly following the satisfaction of the conditions set forth in Section 6 below, as determined by the Company (the “Closing Date”). “Business Day” shall mean from the hours of 9:00 a.m. (Eastern Time) through 5:00 p.m. (Eastern Time) of a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required to be closed. The Units purchased by the Subscriber will be delivered by the Company promptly following the Final Closing Date (as defined herein) of the Offering.  The initial closing shall be referred to as the ‘Initial Closing” and may be held upon receipt and acceptance of subscriptions equal to at least the Minimum Offering Amount prior to April 30, 2015. The date of the Initial Closing is sometimes referred to as the “Initial Closing Date.”  Subsequent closings (each a “Subsequent Closing”) will be held until the earlier to occur of: (i) termination of the Offering by the Company, and (ii) May 15, 2015.  The Offering may be extended up to May 29, 2015 (the “Final Closing” and such date of the Final Closing, the “Final Closing Date”), without additional notice to Subscribers.  Officers, directors and affiliates of the Company and the placement agents, if any, may purchase Units in the Offering.

  

-3-

  

(c)           Following Acceptance or Rejection.  The Subscriber acknowledges and agrees that this Agreement and any other documents delivered in connection herewith will be held by the Company. Prior to the Company’s execution, in the event that this Agreement is not accepted by the Company for whatever reason, which the Company expressly reserves the right to do, this Agreement, the Aggregate Purchase Price received (without interest thereon) and any other documents delivered in connection herewith will be returned to the Subscriber at the address of the Subscriber as set forth in this Agreement. If this Agreement is accepted by the Company, the Company is entitled to treat the Aggregate Purchase Price received as an interest free loan to the Company until such time as the Subscription is accepted.

 

(d)           Favored Nations Provision.  For as long as any Subscriber holds any Securities, other than in connection with (i) the issuance of shares of Common Stock or options to purchase Common Stock issued to directors, officers, employees or consultants of the Company pursuant to any Approved Stock Plan, provided that the exercise price of any such options is not lowered after issuance by subsequent amendment thereof, none of such options are amended subsequent to issuance to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are subsequent to issuance otherwise materially changed in any manner that adversely affects any of the Subscribers; (ii) the issuance of shares of Common Stock issued upon the conversion or exercise of Convertible Securities or contractual agreements (other than options to purchase Common Stock or other equity incentive awards issued pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the date hereof, provided that the conversion price of any such Convertible Securities (other than options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered by subsequent amendment, none of such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are subsequently amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities (other than options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed in any manner that adversely affects any of the Subscribers; (iii) the shares of Common Stock issuable upon conversion of the Preferred Shares or the Warrants; and (iv) the issuances set forth on Schedule 2(d) (collectively, the foregoing (i) through (iv) are “Excepted Issuances”), if at any time the Company shall  issue any Common Stock or securities convertible into or exercisable for shares of Common Stock (or modify any of the foregoing which may be outstanding) to any person or entity at a price per share or conversion or exercise price per share which shall be less than $1.20 per share, being the per share price of the Shares and Preferred Shares hereunder (disregarding any value attributable to the Warrants) or as in effect at such time, without consent of the Lead Investor (as defined herein) (the “Lower Price Issuance”) and other than with regard to Excepted Issuances, then the Company shall issue the Subscriber such number of additional shares of Common Stock to reflect such lower price for the Shares such that the Subscriber shall hold such number of Shares, in total, had Subscriber paid a per Unit price equal to the Lower Price Issuance (with any fractional Shares rounded up to the nearest whole number).  Common Stock issued or issuable by the Company for no consideration or for consideration that cannot be determined at the time of issue will be deemed issuable or to have been issued for $0.001 per share of Common Stock.  Notwithstanding the foregoing, any Subscriber who elected to receive Units consisting of Preferred Shares and Warrants shall not receive additional Preferred Shares and all “Favored Nations” rights of the Preferred Shares shall be governed by the Series C Certificate of Designation.  Notwithstanding anything herein or in any other agreement to the contrary, the Company shall only be required to make a single adjustment with respect to any individual Lower Price Issuance, regardless of the existence of multiple basis therefore.    For purposes of this Section 2(d), “Approved Stock Plan” shall mean any employee benefit plan which has been approved by the board of directors of the Company on or prior to the date hereof pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer or director for services provided to the Company in their capacity as such (including, without limitation, any adjustments to the number of shares reserved for issuance thereunder as a result of the operation of any evergreen provisions), “Convertible Securities” shall mean any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock, and “Options” shall mean any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

  

-4-

  

(e)           Extraordinary Events Regarding Common Stock.  In the event that the Company shall (a) issue additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein. The number of Units that the Subscriber shall thereafter be entitled to receive (including number of shares of Conversion Shares or Warrant Shares the Subscriber may thereafter be entitled to receive upon conversion of the Preferred Shares or exercise of the Warrants, as the case may be) shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section) be issuable on such conversion or exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section) be in effect, and (b) the denominator is the Purchase Price then in effect.

(f)           Certificate as to Adjustments.  In each case of any adjustment or readjustment in (i) the Shares, (ii) the Preferred Shares, (iii) the number of Conversion Shares issuable upon conversion of the Preferred Shares (iii) the number of Warrant Shares issuable upon the exercise of the Warrants, (iv) the exercise price of the Warrants and/or (v) the conversion price of the Preferred Shares, the Company, at its expense, will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms hereof and of the Series C Certificate of Designation or the Warrant, as applicable, and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company will forthwith mail a copy of each such certificate to the Subscriber. To the extent any such certificate contains material non-public information, the Company shall, no later than the first Business Day after the date of delivery of such certificate to the Subscriber, include such material non-public information in a Current Report on Form 8-K filed with the United States Securities and Exchange Commission (the “SEC”).  From and after the filing of such Form 8-K, the Company shall have disclosed all material non-public information (if any) delivered to the Subscriber by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions described in such certificate.

 

3.           THE SUBSCRIBER’S REPRESENTATIONS, WARRANTIES AND COVENANTS

 

Each Subscriber, severally and not jointly, hereby acknowledges, agrees with and represents, warrants and covenants to the Company, as follows:

 

(a)           The Subscriber has full power and authority to enter into this Agreement, the execution and delivery of which has been duly authorized, if applicable, and this Agreement constitutes a valid and legally binding obligation of the Subscriber, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability of the obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law).

 

(b)           The Subscriber acknowledges its understanding that the Offering and sale of the Securities is intended to be exempt from registration under the Securities Act, by virtue of Section 4(a)(2) of the Securities Act and the provisions of Regulation D promulgated thereunder (“Regulation D”).  In furtherance thereof, the Subscriber represents and warrants to the Company and its affiliates as follows:

 

(i)           The Subscriber realizes that the basis for the exemption from registration may not be available if, notwithstanding the Subscriber’s representations contained herein, the Subscriber is merely acquiring the Securities for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. The Subscriber does not have any such intention.

 

  

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(ii)           The Subscriber realizes that the basis for exemption would not be available if the Offering is part of a plan or scheme to evade registration provisions of the Securities Act or any applicable state or federal securities laws, except sales pursuant to a registration statement or sales that are exempted under the Securities Act.

 

(iii)           The Subscriber is acquiring the Securities solely for the Subscriber’s own beneficial account, for investment purposes, and not with a view towards, or resale in connection with, any distribution of the Securities.

 

(iv)           The Subscriber has the financial ability to bear the economic risk of the Subscriber’s investment, has adequate means for providing for its current needs and contingencies, and has no need for liquidity with respect to an investment in the Company.

 

(v)           The Subscriber and the Subscriber’s attorney, accountant, purchaser representative and/or tax advisor, if any (collectively, the “Advisors”) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of a prospective investment in the Securities. If other than an individual, the Subscriber also represents it has not been organized solely for the purpose of acquiring the Securities.

 

(vi)           The Subscriber (together with its Advisors, if any) has received all documents requested by the Subscriber, if any, and has carefully reviewed them and understands the information contained therein, prior to the execution of this Agreement.

 

(c)           The Subscriber is not relying on the Company or any of its employees, agents, sub-agents or advisors with respect to the legal, tax, economic and related considerations involved in this investment. The Subscriber has relied on the advice of, or has consulted with, only its Advisors. Each Advisor, if any, has disclosed to the Subscriber in writing (a copy of which is annexed to this Agreement) the specific details of any and all past, present or future relationships, actual or contemplated, between the Advisor and the Company or any affiliate or sub-agent thereof.

 

(d)           The Subscriber has carefully considered the potential risks relating to the Company and a purchase of the Securities, and fully understands that the Securities are a speculative investment that involves a high degree of risk of loss of the Subscriber’s entire investment. Among other things, the Subscriber has carefully considered each of the risks described under the heading “Risk Factors” and “Forward Looking Statements” in the Company’s SEC Filings (as defined below) and any additional disclosures in the nature of Risk Factors described herein.

 

 (e)           The Subscriber will not sell or otherwise transfer any Securities without registration under the Securities Act or an exemption therefrom, and fully understands and agrees that the Subscriber must bear the economic risk of its purchase because, among other reasons, the Securities have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under the applicable securities laws of such states, or an exemption from such registration is available.  In particular, the Subscriber is aware that the Securities are “restricted securities,” as such term is defined in Rule 144 promulgated under the Securities Act (“Rule 144”), and they may not be sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The Subscriber also understands that the Company is under no obligation to register the Securities on behalf of the Subscriber or to assist the Subscriber in complying with any exemption from registration under the Securities Act or applicable state securities laws. The Subscriber understands that any sales or transfers of the Securities are further restricted by state securities laws and the provisions of this Agreement.

 

(f)           No oral or written representations or warranties have been made, or information furnished, to the Subscriber or its Advisors, if any, by the Company or any of its officers, employees, agents, sub-agents, affiliates, advisors or subsidiaries in connection with the Offering, other than any representations of the Company contained herein, and in subscribing for the Units the Subscriber is not relying upon any representations other than those contained herein.

 

  

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(g)           The Subscriber’s overall commitment to investments that are not readily marketable is not disproportionate to the Subscriber’s net worth, and an investment in the Securities will not cause such overall commitment to become excessive.

 

(h)           The Subscriber understands and agrees that the certificates for the Securities shall bear substantially the following legend:

 

“[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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 TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE 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.”

 

 (i)           Certificates evidencing Securities shall not be required to contain the legend set forth in Section 3(h) above or any other legend (i) while a registration statement covering the resale of such Securities is effective under the Securities Act, (ii) following any sale of such Securities pursuant to Rule 144 (assuming the transferor is not an affiliate of the Company), (iii) if such Securities are eligible to be sold, assigned or transferred under Rule 144 and the Subscriber is not an affiliate of the Company (provided that the Subscriber provides the Company with reasonable assurances that such Securities are eligible for sale, assignment or transfer under Rule 144 which shall not include an opinion of the Subscriber’s counsel), (iv) in connection with a sale, assignment or other transfer (other than under Rule 144), provided that the Subscriber provides the Company with an opinion of counsel (at the expense of the Company), in a  form generally acceptable 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 Securities Act or (v) if such legend is not required under applicable requirements of the Securities Act (including, without limitation, controlling judicial interpretations and pronouncements issued by the SEC).  If a legend is not required pursuant to the foregoing, the Company shall no later than three (3) business days following the delivery by the Subscriber to the Company or the transfer agent (with notice to the Company) of a legended certificate representing such Securities (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer, if applicable), together with any other deliveries from the Subscriber as may be required above in this Section 3(i), as directed by the Subscriber, either:  (A) provided that the Company’s transfer agent is participating in the DTC Fast Automated Securities Transfer Program and such Securities are shares of Shares, Conversion Shares or Warrant Shares, credit the aggregate number of shares of Common Stock to which the Subscriber shall be entitled to the Subscriber’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system or (B) if the Company’s transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight courier) to the Subscriber, a certificate representing such Securities that is free from all restrictive and other legends, registered in the name of the Subscriber or its designee.  The Company shall be responsible for any transfer agent fees or DTC fees with respect to any issuance of Securities or the removal of any legends with respect to any Securities in accordance herewith.

 

(j)           Neither the SEC nor any state securities commission has approved the Securities or passed upon or endorsed the merits of the Offering. There is no government or other insurance covering any of the Securities.

 

(k)           The Subscriber and its Advisors, if any, have had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the Offering and the business, financial condition, results of operations and prospects of the Company, and all such questions have been answered to the full satisfaction of the Subscriber and its Advisors, if any.

 

  

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 (l)        (i)           In making the decision to invest in the Securities the Subscriber has relied solely upon the information provided by the Company in the Transaction Documents.  To the extent necessary, the Subscriber has retained, at its own expense, and relied upon appropriate professional advice regarding the investment, tax and legal merits and consequences of this Agreement and the purchase of the Securities hereunder.  The Subscriber disclaims reliance on any statements made or information provided by any person or entity in the course of Subscriber’s consideration of an investment in the Securities other than the Transaction Documents.

 

(ii)           The Subscriber represents and warrants that: (i) the Subscriber was contacted regarding the sale of the Securities by the Company (or an authorized agent or representative thereof) with whom the Subscriber had a prior substantial pre-existing relationship  and (ii) no Securities were offered or sold to it by means of any form of general solicitation or general advertising, and in connection therewith, the Subscriber did not (A) receive or review any advertisement, article, notice or other communication published in a newspaper or magazine or similar media or broadcast over television or radio, whether closed circuit, or generally available; or (B) attend any seminar meeting or industry investor conference whose attendees were invited by any general solicitation or general advertising; or (C) observe any website or filing of the Company with the SEC in which any offering of securities by the Company was described and as a result learned of any offering of securities by the Company.

 

(m)           The Subscriber has taken no action that would give rise to any claim by any person for brokerage commissions, finders’ fees or the like relating to this Agreement or the transactions contemplated hereby.

 

(n)           The Subscriber is not relying on the Company or any of its employees, agents, or advisors with respect to the legal, tax, economic and related considerations of an investment in the Securities, and the Subscriber has relied on the advice of, or has consulted with, only its own Advisors.

 

(o)           The Subscriber acknowledges that any estimates or forward-looking statements or projections furnished by the Company to the Subscriber were prepared by the management of the Company in good faith, but that the attainment of any such projections, estimates or forward-looking statements cannot be guaranteed by the Company or its management and should not be relied upon.

 

(p)           No oral or written representations have been made, or oral or written information furnished, to the Subscriber or its Advisors, if any, in connection with the Offering that are in any way inconsistent with the information contained herein.

 

(q)           (For ERISA plans only) The fiduciary of the ERISA plan (the “Plan”) represents that such fiduciary has been informed of and understands the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Company is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities. The Subscriber or Plan fiduciary (i) is responsible for the decision to invest in the Company; (ii) is independent of the Company and any of its affiliates; (iii) is qualified to make such investment decision; and (iv) in making such decision, the Subscriber or Plan fiduciary has not relied primarily on any advice or recommendation of the Company or any of its affiliates.

 

(r)           This Agreement is not enforceable by the Subscriber unless it has been accepted by the Company, and the Subscriber acknowledges and agrees that the Company reserves the right to reject any subscription for any reason.

 

(s)           The Subscriber is an “Accredited Investor” as defined in Rule 501(a) under the Securities Act. In general, an “Accredited Investor” is deemed to be an institution with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 (excluding such person’s residence) or annual income exceeding $200,000 or $300,000 jointly with his or her spouse.

 

(t)           The Subscriber, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the Offering, and has so evaluated the merits and risks of such investment. The Subscriber has not authorized any person or entity to act as its Purchaser Representative (as that term is defined in Regulation D of the General Rules and Regulations under the Securities Act) in connection with the Offering. The Subscriber is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

  

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4.           THE COMPANY’S REPRESENTATIONS, WARRANTIES AND COVENANTS

 

The Company hereby acknowledges, agrees with and represents, warrants and covenants to each Subscriber as of the date hereof and as of the Closing Date, except as set forth in the disclosure schedule attached hereto (the “Company Disclosure Schedule”, which Company Disclosure Schedules shall be deemed a part hereof and shall qualify any representation made herein only to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, as follows:

 

(a) Organization and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation.  The Company is duly qualified to do business, and is in good standing in the states required due to (a) the ownership or lease of real or personal property for use in the operation of the Company's business or (b) the nature of the business conducted by the Company, except where the failure to so qualify would not, individually or in the aggregate, have a Material Adverse Effect.  The Company has all requisite power, right and authority to own, operate and lease its properties and assets, to carry on its business as now conducted, to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party, and to carry out the transactions contemplated hereby and thereby, subject to the Required Approvals.  All actions on the part of the Company and its officers and directors necessary for the authorization, execution, delivery and performance of this Agreement and the other Transaction Documents, the consummation of the transactions contemplated hereby and thereby, and the performance of all of the Company's obligations under this Agreement and the other Transaction Documents have been taken or will be taken prior to the Closing.  This Agreement has been, and the other Transaction Documents to which the Company is a party on the Closing will be, duly executed and delivered by the Company, and this Agreement is, and each of the other Transaction Documents to which it is a party on the Closing will be, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability of the obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law).

 

(b)           Issuance of Securities.  The Securities to be issued to the Subscriber pursuant to this Agreement and the applicable Transaction Documents, when issued and delivered in accordance with the terms of this Agreement and the applicable Transaction Documents, will be duly and validly issued and will be fully paid and non-assessable and the Warrant Shares and the Conversion Shares, when issued and delivered in accordance with Warrant and the Series C Certificate of Designation, as applicable, and assuming proper payment (with respect to the Warrant Shares) and exercise in accordance with the provisions of such documents, will be duly and validly issued and will be fully paid and non-assessable.

 

(c)           Authorization; Enforcement.  Except as set forth in Schedule 4(c), the execution, delivery and performance of this Agreement and the other Transaction Documents by the Company, and the consummation of the transactions contemplated hereby and thereby, will not (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of any law or any judgment, decree, order, regulation or rule of any court, agency or other governmental authority applicable to the Company, (b) except as set forth in Section 4(d) below, require any consent, approval or authorization of, or declaration, filing or registration with, any person, (c) result in a default (with or without the giving of notice or lapse of time, or both) under, acceleration or termination of, or the creation in any party of the right to accelerate, terminate, modify or cancel, any agreement, lease, note or other restriction, encumbrance, obligation or liability to which the Company is a party or by which it is bound or to which any assets of the Company are subject, (d) result in the creation of any lien or encumbrance upon the assets of the Company, or upon any shares of Common Stock, preferred stock or other securities of the Company, (e) conflict with or result in a breach of or constitute a default under any provision of the certificate of incorporation or bylaws of the Company, or (f) invalidate or adversely affect any permit, license, authorization or status used in the conduct of the business of the Company.

 

(d)           Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) approval of the issuance of the securities by The NASDAQ Capital Market (“NASDAQ Approval”), (ii) approval of the Company’s stockholders of the Offering, which has been obtained prior to the date hereof, (iii) the filing of Form D with the SEC and such filings as are required to be made under applicable state securities laws or (iv) as set forth on Schedule 4(d) (collectively, the “Required Approvals”).

 

  

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(e)           SEC Filings. The Company is subject to, and in full compliance with, the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company has made available to each Subscriber through the EDGAR system true and complete copies of the Company’s filings for the prior two full fiscal years plus any interim period (collectively, the “SEC Filings”), and all such SEC Filings are incorporated herein by reference.  The SEC Filings, when they were filed with the SEC (or, if any amendment with respect to any such document was filed, when such amendment was filed), complied in all material respects with the applicable requirements of the Exchange Act and the rules and regulations thereunder and did not, as of such date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. All reports and statements required to be filed by the Company under the Exchange Act have been filed, together with all exhibits required to be filed therewith. The Company and each of its direct and indirect subsidiaries, if any (collectively, the “Subsidiaries”), are engaged in all material respects only in the business described in the SEC Filings, and the SEC Filings contain a complete and accurate description in all material respects of the business of the Company and the Subsidiaries.

 

(f)           No Financial Advisor.  The Company acknowledges and agrees that each Subscriber is acting solely in the capacity of an arm’s length purchaser with respect to the Securities and the transactions contemplated hereby. The Company further acknowledges that Subscriber is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Subscriber or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Subscriber’s purchase of the Securities. The Company further represents to each Subscriber that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

(g)           Indemnification.  The Company will indemnify and hold harmless each Subscriber and, where applicable, its directors, officers, employees, agents, advisors and shareholders (each, an “Indemnitee”, from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not  limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company or any Subsidiary in any of the Transaction Documents, (ii) any breach of any covenant, agreement or obligation of the Company or any Subsidiary contained in any of the Transaction Documents or (iii) any cause of action, suit, proceeding 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 or any Subsidiary) or which otherwise involves such Indemnitee that arises out of or results from (A) the execution, delivery, performance or enforcement of any of the Transaction Documents, (B) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (C) the status of such Subscriber or holder of the Securities either as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents or as a party to this Agreement (including, without limitation, as a party in interest or otherwise in any action or proceeding for injunctive or other equitable relief).   To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.

 

(h)           Capitalization and Additional Issuances.  The capitalization of the Company is as set forth in Schedule 4 (h). Except as set forth in Schedule 4 (h), the Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act.  No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.  Except as disclosed on Schedule 4 (h), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock equivalents. Except as set forth on Schedule 4 (h), the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Subscribers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in material compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  Except for NASDAQ Approval, no further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders .

 

  

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(i)           Private Placements.  Assuming the accuracy of each Subscriber’s representations and warranties set forth in Section 3, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Subscribers as contemplated hereby.

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

 

(k)           Reporting Company/Shell Company Status.  The Company is a publicly-held company subject to reporting obligations pursuant to Sections 12(g) and 13 of the Exchange Act.  Pursuant to the provisions of the Exchange Act, the Company has timely filed all reports and other materials required to be filed by the Company thereunder with the SEC during the preceding twelve months.  The Company, as of the Closing Date, is not a “shell company”, as that term is employed in Rule 144 under the Securities Act.  Except as set forth on Schedule 4(k), the Company is in full compliance with the continued listing standards of The NASDAQ Capital Market, and has no reason to believe that it will not in the foreseeable future continue to be in compliance with all such listing and maintenance requirements.

 

(l)           Litigation.  Except as set forth on Schedule 4 (l), there is no action, suit, proceeding, inquiry or investigation before or by the Trading Market, any court, public board, other Governmental Entity, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the Company’s or its Subsidiaries’ officers or directors which is outside of the ordinary course of business or individually or in the aggregate material to the Company or any of its Subsidiaries.  No director, officer or employee of the Company or any of its Subsidiaries has willfully violated 18 U.S.C. §1519 or engaged in spoliation in reasonable anticipation of litigation.  Without limitation of the foregoing, there has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company, any of its Subsidiaries or any current or former director or officer of the Company or any of its Subsidiaries.  The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Securities Act or the Exchange Act.  “Governmental Entity” means any nation, state, county, city, town, village, district, or other political jurisdiction of any nature, federal, state, local, municipal, foreign, or other government, governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal), multi-national organization or body; or body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature or instrumentality of any of the foregoing, including any entity or enterprise owned or controlled by a government or a public international organization or any of the foregoing.  “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, The NASDAQ Capital Market, The NASDAQ Global Market, The NASDAQ Global Select Market, the New York Stock Exchange, OTCQB, OTCQX or the OTC Bulletin Board (or any successors to any of the foregoing).

(m)           Employee Relations.  Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union.  The Company believes that its and its Subsidiaries’ relations with their respective employees are good.  The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except as disclosed in Schedule 4(m) or where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.  “Material Adverse Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary, individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents or (iii) the authority or ability of the Company or any of its Subsidiaries to perform any of their respective obligations under any of the Transaction Documents. 

 

(n)           Tax Status.  The Company and each of its Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company and its Subsidiaries know of no basis for any such claim.  The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

  

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(o)           Indebtedness and Other Contracts.  Except as set forth on Schedule 4(o) annexed hereto, neither the Company nor any of its Subsidiaries, (i) has any outstanding Indebtedness (as defined below), (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is 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 (iv) is 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 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, claim, lien, tax, right of first refusal, 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, any other entity and any Governmental Entity or any department or agency thereof.

 

(p)           No Undisclosed Events, Liabilities, Developments or Circumstances.  Since the date of the latest audited financial statements included within the SEC Filings, except as specifically disclosed in a subsequent SEC Filing: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any material liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the SEC, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) except as set forth on Schedule 4(h), the Company has not issued any equity securities to any officer, director or Affiliate. The Company does not have pending before the SEC any request for confidential treatment of information.  Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 4 (p), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least two Trading Days prior to the date that this representation is made.

 

(q)           No Additional Agreements.  Neither the Company nor any of its Subsidiaries has any agreement or understanding with any Subscriber with respect to the transactions contemplated by the Transaction Documents other than pursuant to documents substantially identical to the Transaction Documents.

 

  

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(r)           No Disqualification Events

 

.  To the Company’s knowledge, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering contemplated hereby, any beneficial owner of 20% or more of the Company's outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”) is subject to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.

 

(s)           General Solicitation

 

.  None of the Company, any of its affiliates (as defined in Rule 501(b) under the Securities Act) or any person acting on behalf of the Company or such affiliate will solicit any offer to buy or offer or sell the Securities by means of any form of general solicitation or general advertising within the meaning of Regulation D, including:  (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar medium or broadcast over television or radio; and (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

 

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

 

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

 

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

 

(w)   Intellectual Property.

 

   1.           The term “Intellectual Property Rights” includes:

 

(a)           the name of the Company and each Subsidiary, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications of the Company and each Subsidiary (collectively, “Marks'');

 

(b)           all patents, patent applications, and inventions and discoveries that may be patentable of the Company and each Subsidiary  (collectively, “Patents'');

 

(c)           all copyrights in both published works and published works of the Company and each Subsidiary (collectively, “Copyrights”);

 

  

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(d)           all rights in mask works of the Company and each Subsidiary (collectively, “Rights in Mask Works''); and

 

(e)           all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blue prints (collectively, “Trade Secrets''); owned, used, or licensed by the Company and each Subsidiary as licensee or licensor.

 

2.           Know-How Necessary for the Business.  The Intellectual Property Rights are all those necessary for the operation of the Company’s businesses as it is currently conducted or as represented, in writing, to the Subscriber to be conducted. The Company is the owner of all right, title, and interest in and to each of the Intellectual Property Rights, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use all of the Intellectual Property Rights.  To the Company’s knowledge, no employee of the Company has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than of the Company.

 

3.           Patents. The Company is the owner of all right, title and interest in and to each of the Patents, free and clear of all liens and other adverse claims, purchase price payments, or license agreements now or hereafter existing).

 

4.           Trademarks. The Company is the owner of all right, title, and interest in and to each of the Marks, free and clear of all liens and other adverse claims.  All Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date.

 

5.           Copyrights. The Company is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all liens and other adverse claims.  All the Copyrights have been registered and are currently in compliance with formal requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the date of the Closing

 

6.           Trade Secrets. With respect to each Trade Secret, the documentation relating to such Trade Secret is current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual. The Company has taken all reasonable precautions to protect the secrecy, confidentiality, and value of its Trade Secrets.  The Company has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and, to the Company’s knowledge, have not been used, divulged, or appropriated either for the benefit of any Person (other the Company) or to the detriment of the Company. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.

 

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

 

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

 

(z)           Listing and Maintenance Requirements.   The Common Stock is quoted on the NASDAQ Capital Market under the symbol COOL.  Except as set forth on Schedule 4(z), the Company has not, in the twenty-four (24) months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market.

 

  

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

 

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

 

(cc)           Acknowledgment Regarding Subscriber’s Trading Activity.  Anything in this Agreement or elsewhere herein to the contrary notwithstanding, it is understood and acknowledged by the Company that: (i) none of the Subscribers has been asked by the Company to agree, nor has any Subscriber agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Subscriber, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Subscriber, and counter-parties in “derivative” transactions to which any such Subscriber is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Subscriber shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction.  The Company further understands and acknowledges that (y) one or more Subscribers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.  There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

 

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

 

(ee)           No Integrated Offering. Assuming the accuracy of the Subscribers’ representations and warranties set forth in Section 3, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of: (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

 

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

 

  

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(gg)           Registration Rights.  Other than as set forth on Schedule 4(gg), no Person other than the Subscribers herein has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.

 

(hh)           Certain Fees.  Except as disclosed on Schedule 4(hh), no brokerage, finder’s fees, commissions or due diligence fees are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.  The Subscribers shall have no obligation with respect to any such fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section 4(hh) that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(ii)           Sarbanes-Oxley; Internal Accounting Controls.  The Company and the Subsidiaries are in material compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date.  Except as set forth on Schedule 4(ii), the Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the SEC Filings, the Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.  The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries that have materially affected, or is reasonably likely to materially affect, the  internal control over financial reporting of the Company and its Subsidiaries.

 

(jj)           Transactions With Affiliates and Employees.  Except as set forth on Schedule 4(jj), none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $50,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company except as disclosed on Schedule 4(jj).

 

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

 

  

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(ll)            Disclosure.

 

The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Subscribers or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information regarding the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that each of the Subscribers will rely on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Subscribers regarding the Company and its Subsidiaries, their businesses and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the Company or any of its Subsidiaries is true and correct and does 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.  No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not been so publicly disclosed. The Company acknowledges and agrees that no Subscriber makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.

(mm)           Survival.  The foregoing representations and warranties shall survive the Closing.

 

5.           OTHER AGREEMENTS OF THE PARTIES

 

(a)           Furnishing of Information.  As long as any Subscriber owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.  As long as any Subscriber owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Subscribers and make publicly available in accordance with Rule 144(c) under the Securities Act such information as is required for the Subscribers to sell the Securities under Rule 144.  The Company further covenants that it will take such further action as any holder of Securities may reasonably request, at the sole cost and expense of the Company including transfer agent and legal opinion fees and expenses, all to the extent required from time to time to enable such person to sell such Securities without registration under the Securities Act within the limitation of the exemptions proved by Rule 144 under the Securities Act.

 

(b)           Shareholder Rights Plan.  No claim will be made or enforced by the Company or, to the knowledge of the Company, any other person that any Subscriber is an “Acquiring Person” under any shareholder rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Subscriber could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Subscribers.

 

(c)           Securities Laws Disclosure; Publicity.  The Company shall by 8:30 a.m. (New York City time) (a) on the first Business Day after this Agreement has been executed, file a Current Report on Form 8-K with the SEC (the “8-K Filing”), including the Transaction Documents as exhibits thereto.  From and after the issuance of the 8-K Filing, the Company shall have publicly disclosed all material, non-public information delivered to any of the Subscribers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents.  The Company and each Subscriber shall consult with each other in issuing any press releases with respect to the transactions contemplated hereby, and no Subscriber shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, which consent shall not unreasonably be withheld.  Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Subscriber, or include the name of any Subscriber in any filing with the SEC or any regulatory agency, without the prior written consent of such Subscriber, except to the extent such disclosure is required by law or in connection with the Registration Rights Agreement, in which case the Company shall provide the Subscribers with prior notice of such disclosure.  The Company understands that any such disclosure shall cause irreparable harm and each Subscriber shall be entitled to injunctive relief and liquidated damages in connection therewith.

 

  

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(d)           Integration.  The Company shall not, and shall use its best efforts to ensure that no affiliate of the Company shall, after the date hereof, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security that would be integrated with the offer or sale of the Units in a manner that would require the registration under the Securities Act of the sale of the Units to the Subscribers.

 

(e)           Reservation of Securities.

 

(i)           The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents, but not less than 125% of the maximum number of shares of Common Stock issuable pursuant to the Transaction Documents (the “Required Minimum”).

 

(ii)           If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall approve the amendment of the Company’s Charter to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum and submit such amendment to the Company’s stockholders for approval, as soon as possible and in any event not later than the 60th day after such date.

 

(iii)                      The Company shall, if applicable: (i) in the time and manner required by The NASDAQ Capital Market or such other principal market on which the Company’s Common Stock is then primarily traded (the “Principal Market”), prepare and file with such Principal Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Principal Market as soon as possible thereafter, (iii) provide to the Subscribers evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Principal Market or another Principal Market.  The Company will then take all commercially reasonable action necessary to continue the listing or quotation and trading of its Common Stock on a Principal Market for as long as any Subscriber holds Securities, and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal Market at least until five years after the Closing Date.  In the event the aforedescribed listing is not continuously maintained for five years after the Closing Date (a “Listing Default”), then in addition to any other rights the Subscribers may have hereunder or under applicable law, on the first day of a Listing Default and on each monthly anniversary of each such Listing Default date (if the applicable Listing Default shall not have been cured by such date) until the applicable Listing Default is cured, the Company shall pay to each Subscriber an amount in cash, as partial liquidated damages and not as a penalty, equal to 1% of (x) aggregate Subscription Amount of Shares or Conversion Shares calculated on an “as converted” basis, as the case may be, held by such Subscriber on the date of a Listing Default and (y) the aggregate purchase price of Warrant Shares held by such Subscriber on the day of a Listing Default and on every thirtieth day (pro-rated for periods less than thirty days) thereafter with respect to Shares (or “as converted” Conversion Shares”) and Warrant Shares held as of each such date until the date such Listing Default is cured or Subscriber no longer holds any Shares, Preferred Shares, Conversion Shares or Warrant Shares.  If the Company fails to pay any liquidated damages pursuant to this Section in a timely manner, the Company will pay interest thereon at a rate of 1.5% per month (pro-rated for partial months) to the Subscriber, up to a maximum of sixteen (16%) percent for such interest and liquidated damages amounts, collectively.

 

(f)           Use of Proceeds.  The Company anticipates using the gross proceeds from the Offering as set forth on Exhibit D or as otherwise agreed to be the lead investor set forth on Exhibit E, attached hereto (the “Lead Investor”.

 

(g)            Non-Public Information.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Subscriber or its agents or counsel with any information that the Company believes constitutes or could constitute material non-public information, and each Subscriber agrees, and shall direct its agents and counsel not to, request any material non-public information from the Company or any Person acting on its behalf, unless prior thereto such Subscriber shall have executed a written agreement with the Company regarding the willingness to accept receipt of such material non-public information and acknowledges the confidentiality and use of such information and the Company’s covenant to file a further SEC filing or report and the period in which such information shall remain confidential or be required to not be disclosed.  The Company understands and confirms that each Subscriber shall be relying on the foregoing covenant in effecting transactions in securities of the Company. In addition, effective upon the filing of the 8-K Filing, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company and any of its Subsidiaries or any of their respective officers, directors, affiliates, employees or agents, on the one hand, and the Subscriber or any of its affiliates on the other hand, shall terminate.

 

  

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(h)           Limitations on Issuances and Financings.  For as long as the Lead Investor holds Securities, except with respect to Excepted Issuances, the Company shall not issue any Common Stock or securities convertible into or exercisable for shares of Common Stock (or modify any of the foregoing which may be outstanding) to any person or entity or incur any financing debt, without the express written consent of the Lead Investor.

 

(i)           Capital Changes.  Until the one year anniversary of the Final Closing Date, the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without 10 days prior written notice to the Subscribers, unless such reverse split is made in conjunction with the listing of the Common Stock on a national securities exchange or maintaining compliance with such listing.

 

(j)           DTC Program.  From the Closing Date until such time as no Subscriber holds any of the Securities (such date, the “Release Date”), the Company shall use its best efforts to employ as the transfer agent for the Shares, the Conversion Shares and Warrant Shares a participant in the Depository Trust Company Automated Securities Transfer Program (FAST) and cause the Common Stock to be transferable pursuant to such program.

 

(k)           Subsequent Equity Sales.   For the period beginning on the Closing Date and ending on  twenty-four (24) month anniversary of the Final Closing Date,  the Company will not, without the consent of Subscribers holding a majority of the then issued and outstanding Shares and Preferred Shares  on the date of such consent (including the Lead Investor):(A) enter into any Equity Line of Credit or similar agreement, nor issue nor agree to issue any common stock, Common Stock Equivalents, floating or Variable Priced Equity Linked Instruments nor any of the foregoing or equity with price reset rights (subject to adjustment for stock splits, distributions, dividends, recapitalizations and the like) (collectively, the “Variable Rate Transaction”).   For purposes hereof, “Equity Line of Credit” shall include any transaction involving a written agreement between the Company and an investor or underwriter whereby the Company has the right to “put” its securities to the investor or underwriter over an agreed period of time and at an agreed price or price formula, and “Variable Priced Equity Linked Instruments” shall include: (A) any debt or equity securities which are convertible into, exercisable or exchangeable for, or carry the right to receive additional shares of Common Stock either (1) at any conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security, or (2) with a fixed conversion, exercise or exchange price that is subject to being reset at some future date at any time after the initial issuance of such debt or equity security due to a change in the market price of the Company’s Common Stock since date of initial issuance, and (B) any amortizing convertible security which amortizes prior to its maturity date, where the Company is required or has the option to (or any investor in such transaction has the option to require the Company to) make such amortization payments in shares of Common Stock which are valued at a price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security (whether or not such payments in stock are subject to certain equity conditions) and (C) issue any equity or equity-linked convertible securities with an exercise or conversion price lower than $1.20 per share.  For purposes of determining the total consideration for a convertible instrument (including a right to purchase equity of the Company) issued, subject to an original issue or similar discount or which principal amount is directly or indirectly increased after issuance, the consideration will be deemed to be the actual cash amount received by the Company in consideration of the original issuance of such convertible instrument. “Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

(l)           Form D and Blue Sky.

 

  The Company shall file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Subscriber promptly after such filing.  The availability of the filed Form D on EDGAR shall satisfy the foregoing delivery requirement.  The Company shall, on or before the Closing Date, 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 Subscribers 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 taken to the Subscribers on or prior to the Closing Date.  Without limiting any other obligation of the Company under this Agreement, the Company shall timely make all filings and reports relating to the offer and sale of the Securities required under all applicable securities laws (including, without limitation, all applicable federal securities laws and all applicable “Blue Sky” laws), and the Company shall comply with all applicable federal, foreign, state and local laws, statutes, rules, regulations and the like relating to the offering and sale of the Securities to the Subscribers.

 

  

-19-

  

(m)            Restriction on Redemption and Cash Dividends. From the date hereof through the Release Date, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, any securities of the Company without the prior express written consent of the Subscribers.

 

(n)     Corporate Existence. From the date hereof through the Release Date, the Company shall not be party to any Fundamental Transaction (as defined in the Series C Certificate of Designation) unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Series C Certificate of Designation.

 

(o)   Conversion Procedures.  Each of the form of Notice of Conversion included in the Series C Certificate of Designation set forth the totality of the procedures required of the Subscribers in order to convert the Preferred Shares.  No legal opinion, other information or instructions shall be required of the Subscribers to convert their Preferred Shares (other than customary 144 representation letters if such Preferred Shares are to be sold in reliance upon the exemption provided by to Rule 144).  The Company shall honor conversions of the Preferred Shares and shall deliver the Conversion Shares in accordance with the terms, conditions and time periods set forth in the Series C Certificate of Designation.

 

(p)   Closing Documents.  On or prior to fourteen (14) calendar days after each Closing Date, the Company agrees to deliver, or cause to be delivered, to each Subscriber and Sichenzia Ross Friedman Ference LLP executed copies of the Transaction Documents, Securities and other document required to be delivered to any party pursuant to this Agreement.

 

(q)   Fees.  The Company shall reimburse Sichenzia Ross Friedman Ference LLP, as counsel to Lead Investor, in a non-accountable amount equal to $15,000, which amount shall be paid by the Escrow Agent in connection with the Initial Closing.   The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, transfer agent fees, the costs associated with any legal opinions required to be rendered to the Company’s transfer agent in connection with the lifting of any legends on the Securities, DTC fees or broker’s commissions (other than for Persons engaged by any Subscriber) relating to or arising out of the transactions contemplated hereby. The Company (subject to the foregoing qualification) shall pay, and hold each Subscriber harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment.  The Company shall also pay all legal fees of the Lead Investor in connection with any documentation, corporate actions or other actions of the Company reviewed or prepared by counsel to the Lead Investor on its behalf.

 

(r)           Escrow Release.  The Aggregate Purchase Price shall be held by the Escrow Agent and shall be released as follows:

 

(i)      On each Closing Date: Twenty (20%) percent of the Aggregate Purchase Price to be closed upon shall be released by the Escrow Agent and Twenty (20%) percent of such corresponding Units shall be released by the Securities Escrow Agent on a pro rata basis based on the Subscriber’s subscription amount, in accordance with the written instructions of the Company and the Lead Investor provided that the Lead Investor and the Company certify that all conditions and obligations of the Company for such release set forth herein have been satisfied (the releases of 20% of the Aggregate Purchase Price, the “Initial Escrow Releases”).

 

(ii)      Subsequent to the Initial Escrow Releases, in one or multiple tranches (each, a “Subsequent Escrow Release”), all or part of the remaining eighty (80%) of cash Aggregate Purchase Price shall be released by the Escrow Agent and the corresponding percentage of Units shall be released by the Securities Escrow Agent on a pro rata basis based on the Subscriber’s subscription amount, in accordance with the written instructions of the Company and the Lead Investor provided that the Lead Investor and the Company  certify that the below conditions and obligations of the Company for such release set forth below have been satisfied (the “Release Conditions”):

 

	
  

	
(A)

	
The Lead Investor has approved the Subsequent Escrow Release in writing; or

 

  

-20-

  

	
  

	
(B)

	
The Company has executed definitive binding documents for a Qualified Transaction and the Qualified Transaction shall close contemporaneously with the Subsequent Escrow Release following approval of the Company’s stockholders as required by NASDAQ, which Qualified Transaction requires the filing by the Company of a Current Report on Form 8-K with the inclusion of audited financial statements of the target. For purposes hereof, a “Qualified Transaction” shall mean one or more acquisitions by the Company of any business, assets, stock, licenses, interests or properties (including, without limitation, intellectual property rights) approved by the stockholders of the Company or any acquisition involving assets, shares of capital stock, any purchase, merger, consolidation, recapitalization, or reorganization or involving any licensing, royalties, sharing arrangement or otherwise, which value of such Qualified Transaction is in excess of $25,000,000 for the Company’s interest therein.  For purposes hereof, the value of a Qualified Transaction shall take into account all cash, stock, present value of all royalties, settlement amounts, future payments, license fees received or owed, and all other consideration associated with such acquisition of any kind whatsoever.

 

(s)           Special Meeting of Stockholders.  Within ten (10) days from the Closing Date, the Company shall filed a preliminary proxy statement for a special meeting of its stockholders, which such meeting shall be held within thirty (30) days of the Closing Date, in order to submit to its stockholders a proposal to approve the issuance of in excess of Five Million (5,000,000) shares of Common Stock in this Offering.

 

6.           CONDITIONS TO ACCEPTANCE OF SUBSCRIPTION

 

(a) The Closing of the sale of the Units is conditioned upon satisfaction of the following conditions precedent on or before the Closing Date:

 

(i)           As of the Closing, no legal action, suit or proceeding shall be pending against the Company that seeks to restrain or prohibit the transactions contemplated by this Agreement.

 

(ii)           The representations and warranties of the Company and the Subscribers contained in this Agreement shall have been true and correct in all material respects on the date of this Agreement (except whether such representations are qualified by material or material adverse effect, which shall be true and correct in all respects) and shall be true and correct as of the Closing as if made on the Closing Date and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company in connection with the consummation of the transactions contemplated by the Transaction Documents at or prior to the Closing Date and the Company shall deliver a certificate, executed by its Chief Executive Officer, dated as of the Closing Date, certifying that the foregoing is true.

 

(iii)           The Company shall deliver to the Subscribers, a certificate from the Company, signed by its Secretary or Assistant Secretary, including incumbency specimen signatures of any signatory of any Transaction Document of the Company and certifying that the attached copies of the Company’s Certificate of Incorporation, as amended and Bylaws, as amended, and resolutions of the Board of Directors of the Company approving this the Offering, are all true, complete and correct and remain in full force and effect.

 

(iv)           The Company shall deliver to the Subscribers an opinion of its legal counsel substantially in the form attached hereto as Exhibit F.

 

(v)           The Company shall deliver to the Subscribers a file stamped copy of the filed Series C Certificate of Designation, filed with the Secretary of State of the State of Delaware, which shall not have been amended, waived, modified or revoked by the Company.

 

(vi)           The Company shall have submitted to The NASDAQ Capital Market, a “Listing of dditional Shares” application (the “LAS”) for the listing of the Shares, the Conversion Shares and the Warrant Shares thereon and NASDAQ shall have completed its review of the LAS without comment.

 

  

-21-

  

7.           REGISTRATION RIGHTS.      The Company shall file a “resale” registration statement with the SEC covering the Shares and the Conversion Shares purchased by the Subscriber, so that such shares of Common Stock will be registered under the Securities Act. The Company will maintain the effectiveness of the “resale” registration statement from the effective date of the registration statement until all Registrable Securities (as defined in the Registration Rights Agreement) covered by such registration statement have been sold, or may be sold without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144.  The Company will use its reasonable best efforts to have such “resale” registration statement filed by the Filing Date (as defined in the Registration Rights Agreement) and declared effective by the SEC as soon as possible and, in any event, by the Effectiveness Date (as defined in the Registration Rights Agreement), unless extended by Subscribers holding at least 60% of the Registrable Securities outstanding on such date (including the Lead Investor).

 

The Company is obligated to pay to the Subscribers a fee of 1% per month of the investors’ investment, payable in cash, up to a maximum of twelve (12%) percent, on the Filing Date and the Effectiveness Date if the registration obligations set forth herein have not been met, and pro- rata for each month, or partial month, in excess of the Filing Date and/or the  Effectiveness Date that the registration statement has not been declared effective; provided, however, that the Company shall not be obligated to pay any such liquidated damages if the Company is unable to fulfill its registration obligations as a result of rules, regulations, positions or releases issued or actions taken by the SEC pursuant to its authority with respect to “Rule 415”, provided the Company registers at such time the maximum number of shares of Common Stock permissible upon consultation with the staff of the SEC.

 

The description of registration rights is qualified in its entirety by reference to Registration Rights Agreement annexed hereto as Exhibit G (the “Registration Rights Agreement”).

 

	
8.

	
MISCELLANEOUS PROVISIONS

 

(a)           All parties hereto have been represented by counsel, and no inference shall be drawn in favor of or against any party by virtue of the fact that such party’s counsel was or was not the principal draftsman of this Agreement.

 

(b)           Each of the parties hereto shall be responsible to pay the costs and expenses of its own legal counsel in connection with the preparation and review of this Agreement and related documentation.

 

(c)           Neither this Agreement, nor any provisions hereof, shall be waived, modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, modification, discharge or termination is sought.

 

(d)           The representations, warranties and agreement of each Subscriber and the Company made in this Agreement shall survive the execution and delivery of this Agreement and the delivery of the Securities.

 

(e)           Any party may send any notice, request, demand, claim or other communication hereunder to the Subscriber at the address set forth on the signature page of this Agreement or to the Company at its primary office (including personal delivery, expedited courier, messenger service, fax, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication will be deemed to have been duly given unless and until it actually is received by the intended recipient. Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties written notice in the manner herein set forth.

 

(f)           Except as otherwise provided herein, this Agreement shall be binding upon, and inure to the benefit of, the parties to this Agreement and their heirs, executors, administrators, successors, legal representatives and assigns.  If any Subscriber is more than one person or entity, the obligation of any Subscriber shall be joint and several and the agreements, representations, warranties and acknowledgments contained herein shall be deemed to be made by, and be binding upon, each such person or entity and its heirs, executors, administrators, successors, legal representatives and assigns. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

 

  

-22-

  

(g)           This Agreement is not transferable or assignable by the Company.

 

(h)           The Company hereby represents and warrants as of the date hereof and as of any Closing Date that none of the terms offered to any Person with respect to any offer, sale or subscription of Securities (each a "Subscription Document"), is or will be more favorable to such Person than those of the Subscriber and this Agreement shall be, without any further action by the Subscriber or the Company, deemed amended and modified in an economically and legally equivalent manner such that the Subscriber shall receive the benefit of the more favorable terms contained in such Subscription Document.  Notwithstanding the foregoing, the Company agrees, at its expense, to take such other actions (such as entering into amendments to the Transaction Documents) as the Subscriber may reasonably request to further effectuate the foregoing.

 

(i)           The obligations of each Subscriber under any Transaction Document are several and not joint with the obligations of any other Subscriber, and no Subscriber shall be responsible in any way for the performance or non-performance of the obligations of any other Subscriber under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Subscriber pursuant hereto or thereto, shall be deemed to constitute the Subscribers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Subscribers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Subscriber shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Subscriber to be joined as an additional party in any proceeding for such purpose.  Each Subscriber has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents.  The Company has elected to provide all Subscribers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Subscribers.  It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Subscriber, solely, and not between the Company and the Subscribers collectively and not between and among the Subscribers.  The Company acknowledges that any actions of Subscribers now, and in the future, in which (A) any review or approval is sought by the Company, including, without limitation, review, approval or acceptance of any reportable event required to be reported in any SEC filing or report by the Company; or (B) any amendment, waiver, right of first refusal, participation right, acquisition or financing, including any acquisition or financing is proposed, introduced, offered or arranged by any one or more Subscribers or their affiliates or sought by the Company, shall not be claimed by the Company or any person seeking to assert such a claim on behalf of the Company, to constitute the forming of any “Group” as such term is defined under Section 13(d) or Section 16 of the Exchange Act, nor shall any activity permit the Company or any third party holder of securities of the Company to assert any claim that any beneficial ownership limitations or conversion limitations of the Series A Certificate of Designation or Warrants have been exceeded and such Subscriber, alone or in conjunction with others, constitutes a “Group” for purposes of the Exchange Act as a result thereof.

 

(j)           Except as otherwise provided herein, this Agreement shall not be changed, modified or amended and no right hereunder shall be waived, except in writing signed by both (a) the Company and (b) Subscribers holding at least 60% of the Units sold in the Offering outstanding on the date of determination (including the Lead Investor).  The Company shall be prohibited from offering any additional consideration to any Subscriber in this Offering (or such original Subscriber’s transferee) for the purposes of inducing such person to change, modify, waive or amend any term of this Agreement or any other Transaction Document without making the same offer on a pro-rata basis to all other Subscribers (and those transferees) in this Offering allocable to the securities acquired by such transferee(s).

 

(k)           This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles.

 

(l)           The Company and each Subscriber hereby agree that any dispute that may arise between them arising out of or in connection with this Agreement shall be adjudicated before a court located in the City of New York, Borough of Manhattan, and they hereby submit to the exclusive jurisdiction of the federal and state courts of the State of New York located in the City of New York, Borough of Manhattan with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Agreement or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, postage prepaid, in care of the address set forth herein or such other address as either party shall furnish in writing to the other.

 

  

-23-

  

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

 

(n)           This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

[Signature Pages Follow]

 

  

-24-

  

ALL SUBSCRIBERS MUST COMPLETE THIS PAGE

IN WITNESS WHEREOF, the Subscriber has executed this Agreement on the ____ day of _____, 2015.

 

	  	
x  $1.20  for per Unit      =

	  
	
Units subscribed for

	  	
      Aggregate Purchase Price

Election to Purchase Preferred Shares: ________ (check here)

 

Manner in which Title is to be held (Please Check One):

 

	
1.

	
___

	
Individual

	
7.

	
___

	
Trust/Estate/Pension or Profit sharing Plan

Date Opened:______________

	
2.

	
___

	
Joint Tenants with Right of Survivorship

	
8.

	
___

	
As a Custodian for

________________________________

Under the Uniform Gift to Minors Act of the State of

________________________________

	
3.

	
___

	
Community Property

	
9.

	
___

	
Married with Separate Property

	
4.

	
___

	
Tenants in Common

	
10.

	
___

	
Keogh

	
5.

	
___

	
Corporation/Partnership/ Limited Liability Company

	
11.

	
___

	
Tenants by the Entirety

	
6.

	
___

	
IRA

	  	  	  

ALTERNATIVE DISTRIBUTION INFORMATION

 

To direct distribution to a party other than the registered owner, complete the information below. YOU MUST COMPLETE THIS SECTION IF THIS IS AN IRA INVESTMENT.

 

Name of Firm (Bank, Brokerage, Custodian):

 

Account Name:

 

Account Number:

 

Representative Name:

 

Representative Phone Number:

 

Address:

 

City, State, Zip:

 

  

-25-

  

IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.

INDIVIDUAL SUBSCRIBERS MUST COMPLETE THIS PAGE 25.

SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 26.

 

EXECUTION BY NATURAL PERSONS

 

	
_____________________________________________________________________________

Exact Name in Which Title is to be Held

	
_________________________________

Name (Please Print)

	  	
_________________________________

Name of Additional Purchaser

	
_________________________________

Residence: Number and Street

	  	
_________________________________

Address of Additional Purchaser

	
_________________________________

City, State and Zip Code

	  	
_________________________________

City, State and Zip Code

	
_________________________________

Social Security Number

	  	
_________________________________

Social Security Number

	
_________________________________

Telephone Number

	  	
_________________________________

Telephone Number

	
_________________________________

Fax Number (if available)

	  	
________________________________

Fax Number (if available)

	
_________________________________

E-Mail (if available)

	  	
________________________________

E-Mail (if available)

	
__________________________________

(Signature)

 

 

	  	
________________________________

(Signature of Additional Purchaser)

	
ACCEPTED this ___ day of _________ 2015, on behalf of the Company.

	  	
 

By:_________________________________

Name:

          Title:

	  	  

[SIGNATURE PAGE FOR SUBSCRIPTION AGREEMENT]

  

-26-

  

EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY

(Corporation, Partnership, LLC, Trust, Etc.)

 

	
_____________________________________________________________________________

Name of Entity (Please Print)

	
Date of Incorporation or Organization:

	
State of Principal Office:

	
Federal Taxpayer Identification Number:

____________________________________________

Office Address

 

____________________________________________

City, State and Zip Code

 

____________________________________________

Telephone Number

 

____________________________________________

Fax Number (if available)

 

____________________________________________

E-Mail (if available)

 

	  	
By: _________________________________

Name:

Title:

	
[seal]

Attest: _________________________________

(If Entity is a Corporation)

	
_________________________________

_________________________________

Address

	  	  
	
ACCEPTED this ____ day of __________ 2015 , on behalf of the Company.

	  	
 

 

By: _________________________________

Name:

Title:

 

[SIGNATURE PAGE FOR SUBSCRIPTION AGREEMENT]

 

  

-27-

  

 

INVESTOR QUESTIONNAIRE

 

Instructions:  Check all boxes below which correctly describe you.

 

	
o

	
You are (i) a bank, as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), (ii) a savings and loan association or other institution, as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in an individual or fiduciary capacity, (iii) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (iv) an insurance company as defined in Section 2(13) of the Securities Act, (v) an investment company registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), (vi) a business development company as defined in Section 2(a)(48) of the Investment Company Act, (vii) a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the Small Business Investment Act of 1958, as amended, (viii) a plan established and maintained by a state, its political subdivisions, or an agency or instrumentality of a state or its political subdivisions, for the benefit of its employees and you have total assets in excess of $5,000,000, or (ix) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and (1) the decision that you shall subscribe for and purchase shares of common stock or preferred stock, is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or (2) you have total assets in excess of $5,000,000 and the decision that you shall subscribe for and purchase the Units is made solely by persons or entities that are accredited investors, as defined in Rule 501 of Regulation D promulgated under the Securities Act (“Regulation D”) or (3) you are a self-directed plan and the decision that you shall subscribe for and purchase the Securities is made solely by persons or entities that are accredited investors.

 

	
o

	
You are a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended.

 

	
o

	
You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation, Massachusetts or similar business trust or a partnership, in each case not formed for the specific purpose of making an investment in the Securities  and its underlying securities in excess of $5,000,000.

 

	
o

	
You are a director or executive officer of the Company.

 

	
o

	
You are a natural person whose individual net worth, or joint net worth with your spouse, exceeds $1,000,000 (excluding residence) at the time of your subscription for and purchase of the Securities.

 

	
o

	
You are a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with your spouse in excess of $300,000 in each of the two most recent years, and who has a reasonable expectation of reaching the same income level in the current year.

 

	
o

	
You are a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities and whose subscription for and purchase of the Securities is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D.

 

	
o

	
You are an entity in which all of the equity owners are persons or entities described in one of the preceding paragraphs.

 

  

-28-

  

Check all boxes below which correctly describe you.

 

With respect to this investment in the Securities, your:

 

Investment Objectives:                               p Aggressive Growth                         p Speculation

 

Risk Tolerance:                                            o Low Risk                                            o Moderate Risk                                 p High Risk

 

Are you associated with a FINRA Member Firm?                                                                                      o Yes                       o No

 

	
  

	
Your initials (purchaser and co-purchaser, if applicable) are required for each item below:

 

	
____   ____ 

	
I/We understand that this investment is not guaranteed.

 

	
____   ____ 

	
I/We are aware that this investment is not liquid.

 

	
____   ____ 

	
I/We are sophisticated in financial and business affairs and are able to evaluate the risks and merits of an investment in this offering.

 

	
____   ____ 

	
I/We confirm that this investment is considered “high risk.” (This type of investment is considered high risk due to the inherent risks including lack of liquidity and lack of diversification.  Success or

 

	
  

	
failure of private placements such as this is dependent on the corporate issuer of these securities and is outside the control of the investors. While potential loss is limited to the amount invested, such loss is possible.)

 

The Subscriber hereby represents and warrants that all of its answers to this Investor Questionnaire are true as of the date of its execution of the Subscription Agreement pursuant to which it purchased the Securities.

 

	
 

 

___________________________________

Name of Purchaser  [please print]

___________________________________

Signature of Purchaser (Entities please

provide signature of Purchaser’s duly

authorized signatory.)

___________________________________

Name of Signatory (Entities only)

___________________________________

Title of Signatory (Entities only)

	
 

 

___________________________________

Name of Co-Purchaser  [please print]

___________________________________

Signature of Co-Purchaser

 

 

[SIGNATURE PAGE FOR INVESTOR QUESTIONNAIRE]

 

  

-29-

  

EXHIBIT A

CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES C CONVERTIBLE PREFERRED STOCK

See Attached.

 

  

A-1

  

 

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE

 

0% SERIES C CONVERTIBLE PREFERRED STOCK OF

 

MAJESCO ENTERTAINMENT COMPANY

 

I, Jesse Sutton, hereby certify that I am the Chief Executive Officer of Majesco Entertainment Company (the “Company”), a corporation organized and existing under the Delaware General Corporation Law (the “DGCL”), and further do hereby certify:

 

That pursuant to the authority expressly conferred upon the Board of Directors of the Company (the “Board”) by the Company’s Certificate of Incorporation, as amended (the “Certificate of Incorporation”), the Board on April 23, 2015, adopted the following resolutions creating a series of shares of Preferred Stock designated as 0% Series C Convertible Preferred Stock, none of which shares have been issued:

 

RESOLVED, that the Board designates the 0% Series C Convertible Preferred Stock and the number of shares constituting such series, and fixes the rights, powers, preferences, privileges and restrictions relating to such series in addition to any set forth in the Certificate of Incorporation as follows:

 

TERMS OF SERIES C CONVERTIBLE PREFERRED STOCK

 

1.      Designation and Number of Shares. There shall hereby be created and established a series of preferred stock of the Company designated as “0% Series C Convertible Preferred Stock” (the “Preferred Shares”).  The authorized number of Preferred Shares shall be 24,000 shares. Each Preferred Share shall have $0.001 par value (the “Par Value”). Capitalized terms not defined herein shall have the meaning as set forth in Section 23 below.

 

2.      Liquidation. Upon the liquidation, dissolution or winding up of the business of the Company, whether voluntary or involuntary, each holder of Preferred Shares shall be entitled to receive, for each share thereof, out of assets of the Company legally available therefor, a preferential amount in cash equal to (and not more than) the Par Value.  All preferential amounts to be paid to the holders of Preferred Shares in connection with such liquidation, dissolution or winding up shall be paid before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Company to the holders of (i) any other class or series of capital stock whose terms expressly provide that the holders of Preferred Shares should receive preferential payment with respect to such distribution (to the extent of such preference) and (ii) the Common Stock but not before any payment to holders of outstanding shares of the Company’s Series A Preferred Stock.  If upon any such distribution the assets of the Company shall be insufficient to pay the holders of the Preferred Shares (or the holders of any class or series of capital stock ranking on a parity with the  Preferred Shares as to distributions in the event of a liquidation, dissolution or winding up of the Company) the full amounts to which they shall be entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were paid in full.  Any distribution in connection with the liquidation, dissolution or winding up of the Company, or any bankruptcy or insolvency proceeding, shall be made in cash to the extent possible.  Whenever any such distribution shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Company.

 

3.      Dividends. In addition to Sections 5(a) and 11 below, from and after the first date of issuance of any Preferred Shares (the “Initial Issuance Date”), each holder of a Preferred Share (each, a “Holder” and collectively, the “Holders”) shall be entitled to receive dividends (“Dividends”) when and as declared by the Board, from time to time, in its sole discretion, which Dividends shall be paid by the Company out of funds legally available therefor, payable, subject to the conditions and other terms hereof, in cash as if such Holders had converted the Preferred Shares into Common Stock (without regard to any limitations on conversion) and had held such shares of Common Stock on the record date for such dividends and distributions.  Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock.

 

  

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4.      Conversion. Each Preferred Share shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock (as defined below) on the terms and conditions set forth in this Section 4.

 

(a)           Holder’s Conversion Right. Subject to the provisions of Section 4(e), at any time or times on or after the Initial Issuance Date, each Holder shall be entitled to convert any whole number of Preferred Shares into validly issued, fully paid and non-assessable shares of Common Stock in accordance with Section 4(c) at the Conversion Rate (as defined below).

 

(b)           Conversion Rate. The number of validly issued, fully paid and non-assessable shares of Common Stock issuable upon conversion of each Preferred Share pursuant to Section 4(a) shall be determined according to the following formula (the “Conversion Rate”):

 

Base Amount

 

Conversion Price

 

No fractional shares of Common Stock are to be issued upon the conversion of any Preferred Shares. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.

 

(c)           Mechanics of Conversion. The conversion of each Preferred Share shall be conducted in the following manner:

 

(i)           Holder’s Conversion. To convert a Preferred Share into validly issued, fully paid and non-assessable shares of Common Stock on any date (a “Conversion Date”), a Holder shall deliver (whether via facsimile or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an executed notice of conversion of the share(s) of Preferred Shares subject to such conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company. If required by Section 4(c)(v), within five (5) Trading Days following a conversion of any such Preferred Shares as aforesaid, such Holder shall surrender to a nationally recognized overnight delivery service for delivery to the Company the original certificates representing the share(s) of Preferred Shares (the “Preferred Share Certificates”) so converted as aforesaid.

 

(ii)           Company’s Response. On or before the first (1st) Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile an acknowledgment of confirmation, in the form attached hereto as Exhibit II, of receipt of such Conversion Notice to such Holder and the Transfer Agent, which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. On or before the second (2nd) Trading Day following the date of receipt by the Company of such Conversion Notice, the Company shall (1) provided that the Transfer Agent is participating in DTC Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which such Holder shall be entitled to such Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system, or (2) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight courier) to the address as specified in such Conversion Notice, a certificate, registered in the name of such Holder or its designee, for the number of shares of Common Stock to which such Holder shall be entitled. If the number of Preferred Shares represented by the Preferred Share Certificate(s) submitted for conversion pursuant to Section 4(c)(v) is greater than the number of Preferred Shares being converted, then the Company shall if requested by such Holder, as soon as practicable and in no event later than three (3) Trading Days after receipt of the Preferred Share Certificate(s) and at its own expense, issue and deliver to such Holder (or its designee) a new Preferred Share Certificate representing the number of Preferred Shares not converted.

 

(iii)           Record Holder. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

 

  

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(iv)           Company’s Failure to Timely Convert. If the Company shall fail, for any reason or for no reason, to issue to a Holder within three (3) Trading Days after the Company’s receipt of a Conversion Notice (whether via facsimile or otherwise) (the “Share Delivery Deadline”), a certificate for the number of shares of Common Stock to which such Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit such Holder’s or its designee’s balance account with DTC for such number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion of any Preferred Shares (as the case may be) (a “Conversion Failure”), then, in addition to all other remedies available to such Holder, such Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned (as the case may be) any Preferred Shares that have not been converted pursuant to such Holder’s Conversion Notice, provided that the voiding of a Conversion Notice shall not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice pursuant to the terms of this Certificate of Designations or otherwise and (y) the Company shall pay in cash to such Holder on each day after such third (3rd) Trading Day that the issuance of such shares of Common Stock is not timely effected an amount equal to 1.5% of the product of (A) the aggregate number of shares of Common Stock not issued to such Holder on a timely basis and to which the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the last possible date on which the  Company could have issued such shares of Common Stock to the Holder without violating Section 4(c).  In addition to the foregoing, if within three (3) Trading Days after the Company’s receipt of a Conversion Notice (whether via facsimile or otherwise), the Company shall fail to issue and deliver a certificate to such Holder and register such shares of Common Stock on the Company’s share register or credit such Holder’s or its designee’s balance account with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion hereunder (as the case may be), and if on or after such third (3rd) Trading Day such Holder (or any other Person in respect, or on behalf, of such Holder) purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, issuable upon such conversion that such Holder so anticipated receiving from the Company, then, in addition to all other remedies available to such Holder, the Company shall, within three (3) Business Days after such Holder’s request and in such Holder’s discretion, either (i) pay cash to such Holder in an amount equal to such Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including, without limitation, by any other Person in respect, or on behalf, of such Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such certificate or credit such Holder’s balance account with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion hereunder (as the case may be) (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue and deliver to such Holder a certificate or certificates representing such shares of Common Stock or credit such Holder’s balance account with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion hereunder (as the case may be) and pay cash to such Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the lowest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Conversion Notice and ending on the date of such issuance and payment under this clause

 

(v)           Pro Rata Conversion; Disputes. In the event the Company receives a Conversion Notice from more than one Holder for the same Conversion Date and the Company can convert some, but not all, of such Preferred Shares submitted for conversion, the Company shall convert from each Holder electing to have Preferred Shares converted on such date a pro rata amount of such Holder’s Preferred Shares submitted for conversion on such date based on the number of Preferred Shares submitted for conversion on such date by such Holder relative to the aggregate number of Preferred Shares submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to a Holder in connection with a conversion of Preferred Shares, the Company shall issue to such Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 22.

 

  

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(vi)           Book-Entry. Notwithstanding anything to the contrary set forth in this Section 4, upon conversion of any Preferred Shares in accordance with the terms hereof, no Holder thereof shall be required to physically surrender the certificate representing the Preferred Shares to the Company following conversion thereof unless (A) the full or remaining number of Preferred Shares represented by the certificate are being converted (in which event such certificate(s) shall be delivered to the Company as contemplated by this Section 4(c)(v)) or (B) such Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of Preferred Shares upon physical surrender of any Preferred Shares. Each Holder and the Company shall maintain records showing the number of Preferred Shares so converted by such Holder and the dates of such conversions or shall use such other method, reasonably satisfactory to such Holder and the Company, so as not to require physical surrender of the certificate representing the Preferred Shares upon each such conversion. In the event of any dispute or discrepancy, such records of such Holder establishing the number of Preferred Shares to which the record holder is entitled shall be controlling and determinative in the absence of manifest error. A Holder and any transferee or assignee, by acceptance of a certificate, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of any Preferred Shares, the number of Preferred Shares represented by such certificate may be less than the number of Preferred Shares stated on the face thereof.  Each certificate for Preferred Shares shall bear the following legend:

 

ANY TRANSFEREE OR ASSIGNEE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE CORPORATION’S CERTIFICATE OF DESIGNATIONS RELATING TO THE SHARES OF SERIES C PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 4(c)(v) THEREOF. THE NUMBER OF SHARES OF SERIES C PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF SHARES OF SERIES C PREFERRED STOCK STATED ON THE FACE HEREOF PURSUANT TO SECTION 4(c)(v) OF THE CERTIFICATE OF DESIGNATIONS RELATING TO THE SHARES OF SERIES C PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE.

 

(d)           Taxes. The Company shall pay any and all documentary, stamp, transfer (but only in respect of the registered holder thereof), issuance and other similar taxes that may be payable with respect to the issuance and delivery of shares of Common Stock upon the conversion of Preferred Shares.

 

  

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(e)           Limitation on Beneficial Ownership.  Notwithstanding anything to the contrary contained in this Certificate of Designations, the Preferred Shares held by a Holder shall not be convertible by such Holder, and the Company shall not effect any conversion of any Preferred Shares held by such Holder, to the extent (but only to the extent) that such Holder or any of its affiliates would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the Common Stock. To the extent the above limitation applies, the determination of whether the Preferred Shares held by such Holder shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by such Holder or any of its affiliates) and of which such securities shall be convertible, exercisable or exchangeable (as among all such securities owned by such Holder and its affiliates) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability of a Holder to convert Preferred Shares, or of the Company to issue shares of Common Stock to such Holder, pursuant to this Section 4(e) shall have any effect on the applicability of the provisions of this Section 4(e) with respect to any subsequent determination of convertibility or issuance (as the case may be). For purposes of this Section 4(e), beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder. The provisions of this Section 4(e) shall be implemented in a manner otherwise than in strict conformity with the terms of this Section 4(e) to correct this Section 4(e) (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this Section 4(e) shall apply to a successor holder of Preferred Shares. The holders of Common Stock shall be third party beneficiaries of this Section 4(e) and the Company may not waive this Section 4(e). For any reason at any time, upon the written or oral request of a Holder, the Company shall within two (2) Business Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Certificate of Designations or securities issued pursuant to the Exchange Agreements.  By written notice to the Company, any Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to such Holder sending such notice and not to any other Holder.

 

5.               Rights Upon Issuance of Purchase Rights and Other Corporate Events.

 

(a)           Purchase Rights. In addition to any adjustments pursuant to Section 7 below, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all of the record holders of any class of Common Stock (the “Purchase Rights”), then each Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of all the Preferred Shares (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares) held by such Holder immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that such Holder’s right to participate in any such Purchase Right would result in such Holder exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for such Holder until such time, if ever, as its right thereto would not result in such Holder exceeding the Maximum Percentage).

 

  

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(b)           Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that each Holder will thereafter have the right to receive upon a conversion of all the Preferred Shares held by such Holder (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which such Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by such Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares contained in this Certificate of Designations) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as such Holder would have been entitled to receive had the Preferred Shares held by such Holder initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. The provisions of this Section 5(b) shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion of the Preferred Shares contained in this Certificate of Designations.

 

6.     Rights Upon Fundamental Transactions.  Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designations and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Certificate of Designations and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein and therein. In addition to the foregoing, upon consummation of a Fundamental Transaction, the Successor Entity shall deliver to each Holder confirmation that there shall be issued upon conversion of the Preferred Shares at any time after the consummation of such Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 5 and 11, which shall continue to be receivable thereafter)) issuable upon the conversion of the Preferred Shares prior to such Fundamental Transaction, such shares of the Successor Entity (including its Parent Entity) or other consideration which each Holder would have been entitled to receive upon the happening of such Fundamental Transaction had all the Preferred Shares held by each Holder been converted immediately prior to such Fundamental Transaction (without regard to any limitations on the conversion of the Preferred Shares contained in this Certificate of Designations), as adjusted in accordance with the provisions of this Certificate of Designations.  The provisions of this Section 6 shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion of the Preferred Shares.

 

7.               Rights Upon Issuance of Other Securities.

 

(a)           Adjustment of Conversion Price upon Issuance of Common Stock.  If and whenever for a period beginning on the Initial Issuance Date and ending on the date that the Holder no longer holds any Securities (as defined in the Subscription Agreement), the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excepted Issuance (as defined in the Subscription Agreement) issued or sold or deemed to have been issued or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such Conversion Price then in effect is referred to as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive Issuance the Conversion Price then in effect shall be reduced to the New Issuance Price.  For all purposes of the foregoing (including, without limitation, determining the adjusted Conversion Price and the New Issuance Price under this Section 7(a)), the following shall be applicable

 

  

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(i)           Issuance of Options.  If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities.

 

(ii)           Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For purposes of this Section 7(a)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(a), except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

 

  

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(iii)           Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Initial Issuance Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(a) shall be made if such adjustment would result in an increase of the Conversion Price then in effect above what it was prior to the original adjustment prior before giving effect to any such increase or decrease.

 

(iv)           Calculation of Consideration Received. If any Option or Convertible Security is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company (including, without limitation, any other Option or Convertible Security), together comprising one integrated transaction, (x) such Option or Convertible Security (as applicable) will be deemed to have been issued for consideration equal to the fair market value thereof as determined in good faith by the Company’s Board of Directors and (y) the other securities issued or sold or deemed to have been issued or sold in such integrated transaction shall be deemed to have been issued for consideration equal to the difference of (I) the aggregate consideration received by the Company minus (II) the aggregate fair market value of all such Options and/or Convertible Securities (as applicable) so issued. If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the holders of at least 60% of the outstanding Preferred Shares including the Lead Investor (as defined in the Subscription Agreement)  (the “Required Holders”). If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Required Holders. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.

 

(v)           Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).

 

  

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(b)           Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision of Sections 5 and 11, if the Company at any time on or after the Initial Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision of Sections 5 and 11, if the Company at any time on or after the Initial Issuance Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7(b) shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7(b) occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.

 

(c)           Other Events. In the event that the Company (or any Subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect any Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Board shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of such Holder, provided that no such adjustment pursuant to this Section 7(c) will increase the Conversion Price as otherwise determined pursuant to this Section 7, provided further that if such Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Board and such Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.

 

(d)           Calculations. All calculations under this Section 7 shall be made by rounding to the nearest one-hundred thousandth of a cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

8.               Authorized Shares.

 

(a)           Reservation. The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock equal to 125% of the Conversion Rate with respect to the Base Amount of each Preferred Share as of the Initial Issuance Date (assuming for purposes hereof, that all the Preferred Shares issuable pursuant to the Subscription Agreement have been issued, such Preferred Shares are convertible at the Conversion Price and without taking into account any limitations on the conversion of such Preferred Shares set forth in herein) issuable pursuant to the terms of this Certificate of Designations from the Initial Issuance Date through the second anniversary of the Initial Issuance Date assuming (assuming for purposes hereof, that all the Preferred Shares issuable pursuant to the Subscription Agreement have been issued and without taking into account any limitations on the issuance of securities set forth herein). So long as any of the Preferred Shares are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, as of any given date, 125% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Preferred Shares issued or issuable pursuant to the Subscription Agreement assuming for purposes hereof, that all the Preferred Shares issuable pursuant to the Subscription Agreement have been issued and without taking into account any limitations on the issuance of securities set forth herein), provided that at no time shall the number of shares of Common Stock so available be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions contained in this Certificate of Designations) (the “Required Amount”). The initial number of shares of Common Stock reserved for conversions of the Preferred Shares and each increase in the number of shares so reserved shall be allocated pro rata among the Holders based on the number of Preferred Shares held by each Holder on the Initial Issuance Date or increase in the number of reserved shares (as the case may be) (the “Authorized Share Allocation”). In the event a Holder shall sell or otherwise transfer any of such Holder’s Preferred Shares, each transferee shall be allocated a pro rata portion of such Holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Preferred Shares shall be allocated to the remaining Holders of Preferred Shares, pro rata based on the number of Preferred Shares then held by such Holders.

 

  

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(i) Insufficient Authorized Shares.  If, notwithstanding Section 8(a) and not in limitation thereof, at any time while any of the Preferred Shares remain outstanding the Company does not have a sufficient number of authorized and unissued shares of Common Stock to satisfy its obligation to have available for issuance upon conversion of the Preferred Shares at least a number of shares of Common Stock equal to the Required Amount (an “Authorized Share Failure”), then the Company shall promptly take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve and have available the Required Amount for all of the Preferred Shares then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders or conduct a consent solicitation for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its commercially reasonable efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its Board to recommend to the stockholders that they approve such proposal.  Nothing contained in this Section 8 shall limit any obligations of the Company under any provision of the Subscription Agreement.  In the event that the Company is prohibited from issuing shares of Common Stock upon a conversion of any Preferred Share due to the failure by the Company to have sufficient shares of Common Stock available out of the authorized but unissued shares of Common Stock (such unavailable number of shares of Common Stock, the “Authorization Failure Shares”), in lieu of delivering such Authorization Failure Shares to such Holder of such Preferred Shares, the Company shall pay cash in exchange for the cancellation of such Preferred Shares convertible into such Authorized Failure Shares at a price equal to the sum of (i) the product of (x) such number of Authorization Failure Shares and (y) the Closing Sale Price on the Trading Day immediately preceding the date such Holder delivers the applicable Conversion Notice with respect to such Authorization Failure Shares to the Company and (ii) to the extent such Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of Authorization Failure Shares, any brokerage commissions and other out-of-pocket expenses, if any, of such Holder incurred in connection therewith.  Notwithstanding any contained herein to the contrary, the liquidated damages provisions set forth herein shall be subject to a maximum liability per Holder of 6% of such Holder’s Purchase Price (as defined in the Subscription Agreement).

 

9.               Voting Rights. Except as otherwise expressly required by law, each holder of Preferred Shares shall be entitled to vote on all matters submitted to shareholders of the Company and shall be entitled to the number of votes for each Preferred Share owned at the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, equal to the number of shares of Common Stock such Preferred Shares are convertible into (voting as a class with Common Stock) based on a per share price of $1.30, representing the consolidated closing bid price of the Common Stock on The NASDAQ Stock Market LLC on the date prior to the execution of the Subscription Agreement, but not in excess of the conversion limitations set forth in Section 4(e) herein. Except as otherwise required by law, the holders of Preferred Shares shall vote together with the holders of Common Stock on all matters and shall not vote as a separate class.

 

10.               Intentionally Omitted.

 

11.               Participation. In addition to any adjustments pursuant to Section 7(b), the Holders shall, as holders of Preferred Shares, be entitled to receive such dividends paid and distributions made to the holders of shares of Common Stock to the same extent as if such Holders had converted each Preferred Share held by each of them into shares of Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of shares of Common Stock (provided, however, to the extent that a Holder’s right to participate in any such dividend or distribution would result in such Holder exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such dividend or distribution to such extent (or the beneficial ownership of any such shares of Common Stock as a result of such dividend or distribution to such extent) and such dividend or distribution to such extent shall be held in abeyance for the benefit of such Holder until such time, if ever, as its right thereto would not result in such Holder exceeding the Maximum Percentage).

 

  

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12.               Vote to Change the Terms of or Issue Preferred Shares.  In addition to any other rights provided by law, except where the vote or written consent of the holders of a greater number of shares is required by law or by another provision of the Certificate of Incorporation, without first obtaining the affirmative vote at a meeting duly called for such purpose or the written consent without a meeting of the Required Holders, voting together as a single class, the Company shall not: (a) amend or repeal any provision of, or add any provision to, its Certificate of Incorporation or bylaws, or file any certificate of designations or articles of amendment of any series of shares of preferred stock, if such action would adversely alter or change in any respect the preferences, rights, privileges or powers, or restrictions provided for the benefit, of the Preferred Shares, regardless of whether any such action shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise; (b) increase or decrease (other than by conversion) the authorized number of Preferred Shares; (c) issue any Preferred Shares other than pursuant to the Subscription Agreement; or (d) without limiting any provision of Section 16, whether or not prohibited by the terms of the Preferred Shares, circumvent a right of the Preferred Shares.

 

13.               Intentionally Omitted.

 

14.               Lost or Stolen Certificates.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any certificates representing Preferred Shares (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of an indemnification undertaking by the applicable Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of the certificate(s), the Company shall execute and deliver new certificate(s) of like tenor and date.

 

15.               Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations and any of the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy. Nothing herein shall limit any Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Certificate of Designations. The Company covenants to each Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by a Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, each Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to a Holder that is requested by such Holder to enable such Holder to confirm the Company’s compliance with the terms and conditions of this Certificate of Designations.

 

16.               Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designations, and will at all times in good faith carry out all the provisions of this Certificate of Designations and take all action as may be required to protect the rights of the Holders. Without limiting the generality of the foregoing or any other provision of this Certificate of Designations, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the conversion of any Preferred Shares above the Conversion Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of Preferred Shares and (iii) shall, so long as any Preferred Shares are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the conversion of the Preferred Shares then outstanding (without regard to any limitations on conversion contained herein).

 

  

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17.               Failure or Indulgence Not Waiver.  No failure or delay on the part of a Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. This Certificate of Designations shall be deemed to be jointly drafted by the Company and all Holders and shall not be construed against any Person as the drafter hereof.

 

18.               Notices. The Company shall provide each Holder of Preferred Shares with prompt written notice of all actions taken pursuant to the terms of this Certificate of Designations, including in reasonable detail a description of such action and the reason therefor. Whenever notice is required to be given under this Certificate of Designations, unless otherwise provided herein, such notice must be in writing and shall be given in accordance with Section 9(e) of the Subscription Agreement. Without limiting the generality of the foregoing, the Company shall give written notice to each Holder (i) promptly following any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grant, issuances, or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to all holders of shares of Common Stock as a class or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided, in each case, that such information shall be made known to the public prior to, or simultaneously with, such notice being provided to any Holder.

 

19.               Transfer of Preferred Shares. The Holder may transfer some or all of its Preferred Shares without the consent of the Company.

 

20.               Preferred Shares Register.  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 the Holders), a register for the Preferred Shares, in which the Company shall record the name, address and facsimile number of the Persons in whose name the Preferred Shares have been issued, as well as the name and address of each transferee. The Company may treat the Person in whose name any Preferred Shares is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any properly made transfers.

 

21.               Stockholder Matters; Amendment.

 

(a)           Stockholder Matters. Any stockholder action, approval or consent required, desired or otherwise sought by the Company pursuant to the DGCL, the Certificate of Incorporation, this Certificate of Designations or otherwise with respect to the issuance of Preferred Shares may be effected by written consent of the Company’s stockholders or at a duly called meeting of the Company’s stockholders, all in accordance with the applicable rules and regulations of the DGCL. This provision is intended to comply with the applicable sections of the DGCL permitting stockholder action, approval and consent affected by written consent in lieu of a meeting.

 

(b)           Amendment. This Certificate of Designations or any provision hereof may be amended by obtaining the affirmative vote at a meeting duly called for such purpose, or written consent without a meeting in accordance with the DGCL, of the Required Holders, voting separate as a single class, and with such other stockholder approval, if any, as may then be required pursuant to the DGCL and the Certificate of Incorporation.

 

22.               Dispute Resolution.

 

(a)      Disputes Over Closing Bid Price, Closing Sale Price, Conversion Price, VWAP or Fair Market Value.

 

  

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(i) In the case of a dispute relating to a Closing Bid Price, a Closing Sale Price, a Conversion Price, a VWAP or fair market value (as the case may be) (including, without limitation, a dispute relating to the determination of any of the foregoing), the Company or such applicable Holder (as the case may be) shall submit the dispute via facsimile (I) within two (2) Business Days after delivery of the applicable notice giving rise to such dispute to the Company or such Holder (as the case may be) or (II) if no notice gave rise to such dispute, at any time after such Holder learned of the circumstances giving rise to such dispute. If such Holder and the Company are unable to resolve such dispute relating to such Closing Bid Price, such Closing Sale Price, such Conversion Price, such VWAP or such fair market value (as the case may be) by 5:00 p.m. (New York time) on the third (3rd) Business Day following such delivery by the Company or such Holder (as the case may be) of such dispute to the Company or such Holder (as the case may be), then such Holder shall select an independent, reputable investment bank to resolve such dispute.

 

(ii) Such Holder and the Company shall each deliver to such investment bank (x) a copy of the initial dispute submission so delivered in accordance with the first sentence of this Section 22(a) and (y) written documentation supporting its position with respect to such dispute, in each case, no later than 5:00 p.m. (New York time) by the fifth (5th) Business Day immediately following the date on which such Holder selected such investment bank (the “Dispute Submission Deadline”) (the documents referred to in the immediately preceding clauses (x) and (y) are collectively referred to herein as the “Required Dispute Documentation”) (it being understood and agreed that if either such Holder or the Company fails to so deliver all of the Required Dispute Documentation by the Dispute Submission Deadline, then the party who fails to so submit all of the Required Dispute Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to such investment bank with respect to such dispute and such investment bank shall resolve such dispute based solely on the Required Dispute Documentation that was delivered to such investment bank prior to the Dispute Submission Deadline). Unless otherwise agreed to in writing by both the Company and such Holder or otherwise requested by such investment bank, neither the Company nor such Holder shall be entitled to deliver or submit any written documentation or other support to such investment bank in connection with such dispute (other than the Required Dispute Documentation).

 

(iii) The Company and such Holder shall cause such investment bank to determine the resolution of such dispute and notify the Company and such Holder of such resolution no later than ten (10) Business Days immediately following the Dispute Submission Deadline. The fees and expenses of such investment bank shall be borne solely by the Company, and such investment bank’s resolution of such dispute shall be final and binding upon all parties absent manifest error.

 

(b)      Disputes Over Arithmetic Calculation of the Conversion Rate.

 

(i) In the case of a dispute as to the arithmetic calculation of a Conversion Rate, the Company or such Holder (as the case may be) shall submit the disputed arithmetic calculation via facsimile (i) within two (2) Business Days after delivery of the applicable notice giving rise to such dispute to the Company or such Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after such Holder learned of the circumstances giving rise to such dispute. If such Holder and the Company are unable to resolve such disputed arithmetic calculation of such Conversion Rate by 5:00 p.m. (New York time) on the third (3rd) Business Day following such delivery by the Company or such Holder (as the case may be) of such disputed arithmetic calculation, then such Holder shall select an independent, reputable accountant or accounting firm to perform such disputed arithmetic calculation.

 

  

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(ii) Such Holder and the Company shall each deliver to such accountant or accounting firm (as the case may be) (x) a copy of the initial dispute submission so delivered in accordance with the first sentence of this Section 22(a) and (y) written documentation supporting its position with respect to such disputed arithmetic calculation, in each case, no later than 5:00 p.m. (New York time) by the fifth (5th) Business Day immediately following the date on which such Holder selected such accountant or accounting firm (as the case may be) (the “Submission Deadline”) (the documents referred to in the immediately preceding clauses (x) and (y) are collectively referred to herein as the “Required Documentation”) (it being understood and agreed that if either such Holder or the Company fails to so deliver all of the Required Documentation by the Submission Deadline, then the party who fails to so submit all of the Required Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to such accountant or accounting firm (as the case may be) with respect to such disputed arithmetic calculation and such accountant or accounting firm (as the case may be) shall perform such disputed arithmetic calculation based solely on the Required Documentation that was delivered to such accountant or accounting firm (as the case may be) prior to the Submission Deadline). Unless otherwise agreed to in writing by both the Company and such Holder or otherwise requested by such accountant or accounting firm (as the case may be), neither the Company nor such Holder shall be entitled to deliver or submit any written documentation or other support to such accountant or accounting firm (as the case may be) in connection with such disputed arithmetic calculation of the Conversion Rate (other than the Required Documentation).

 

(iii) The Company and such Holder shall cause such accountant or accounting firm (as the case may be) to perform such disputed arithmetic calculation and notify the Company and such Holder of the results no later than ten (10) Business Days immediately following the Submission Deadline. The fees and expenses of such accountant or accounting firm (as the case may be) shall be borne solely by the Company, and such accountant’s or accounting firm’s (as the case may be) arithmetic calculation shall be final and binding upon all parties absent manifest error.

 

(c)      Miscellaneous. The Company expressly acknowledges and agrees that (i) this Section 22 constitutes an agreement to arbitrate between the Company and such Holder (and constitutes an arbitration agreement) under § 7501, et seq. of the New York Civil Practice Law and Rules (“CPLR”) and that each party shall be entitled to compel arbitration pursuant to CPLR § 7503(a) in order to compel compliance with this Section 22, (ii) a dispute relating to a Conversion Price includes, without limitation, disputes as to (1) whether an issuance or sale or deemed issuance or sale of Common Stock occurred under Section 7(a), (2) the consideration per share at which an issuance or deemed issuance of Common Stock occurred, (3) whether any issuance or sale or deemed issuance or sale of Common Stock was an issuance or sale or deemed issuance or sale of an Excepted Issuance, (4) whether an agreement, instrument, security or the like constitutes and Option or Convertible Security and (5) whether a Dilutive Issuance occurred, (iii) the terms of this Certificate of Designations and each other applicable Transaction Document shall serve as the basis for the selected investment bank’s resolution of the applicable dispute, such investment bank shall be entitled (and is hereby expressly authorized) to make all findings, determinations and the like that such investment bank determines are required to be made by such investment bank in connection with its resolution of such dispute and in resolving such dispute such investment bank shall apply such findings, determinations and the like to the terms of this Certificate of Designations and any other applicable Transaction Documents, (iv) the terms of this Certificate of Designations and each other applicable Transaction Document shall serve as the basis for the selected accountant’s or accounting firm’s performance of the applicable arithmetic calculation, (v) for clarification purposes and without implication that the contrary would otherwise be true, disputes relating to matters described in Section 22(a)  shall be governed by Section 22(a) and not by Section 22(b), (vi) such Holder (and only such Holder), in its sole discretion, shall have the right to submit any dispute described in this Section 22 to any state or federal court sitting in The City of New York, Borough of Manhattan in lieu of utilizing the procedures set forth in this Section 22 and (vii) nothing in this Section 22 shall limit such Holder from obtaining any injunctive relief or other equitable remedies (including, without limitation, with respect to any matters described in Section 22(a) or Section 22(b)).

 

  

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23.               Certain Defined Terms. For purposes of this Certificate of Designations, the following terms shall have the following meanings:

 

(a)           “1934 Act” means the Securities Exchange Act of 1934, as amended.

 

(b)            “Base Amount” means, with respect to each Preferred Share, as of the applicable date of determination, the sum of (1) the Stated Value thereof, plus (2) the Unpaid Dividend Amount thereon as of such date of determination.

 

(c)           “Bloomberg” means Bloomberg, L.P.

 

(d)           “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.

 

(e)           “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the applicable Holder. If the Company and such Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 22. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

(f)           “Common Stock” means (i) the Company’s shares of common stock, $0.001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

(g)           “Conversion Price” means, with respect to each Preferred Share, as of any Conversion Date or other applicable date of determination, $1.20, subject to adjustment as provided herein.

 

(h)           “Conversion Shares” means (i) the shares of Common Stock into which the Preferred Shares are convertible, and (ii) any capital stock into which such Conversion Shares shall have been changed or any share capital resulting from a reclassification of such common stock

 

(i)            “Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

(j)           “Eligible Market” means The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global Market, the Over-the-Counter Bulletin Board, the OTCQB, the OTCQX or the Principal Market (or any successor thereto).

 

  

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(k)            “Fundamental Transaction” means that (i) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) any other Person unless immediately following the closing of such transaction or series of related transactions the Persons holding more than 50% of the Voting Stock of the Company prior to such closing continue to hold more than 50% of the Voting Stock of the Company following such closing, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) assist any other Person in making a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) excluding any equity financing transaction in which shares of Voting Stock are issued, or (5) reorganize, recapitalize or reclassify the Common Stock, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.

 

(l)           “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(m)           “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

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

 

(o)            “Principal Market” means The NASDAQ Capital Market.

 

(p)            “SEC” means the Securities and Exchange Commission or the successor thereto.

 

(q)           “Stated Value” shall mean $120.00 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the Initial Issuance Date with respect to the Preferred Shares.

 

(r)           “Subscription Agreement” means that certain subscription agreement by and among the Company and the initial holders of Preferred Shares, dated as of the Initial Issuance Date, as may be amended from time in accordance with the terms thereof.

 

(s)            “Subsidiaries” shall have the meaning as set forth in the Subscription Agreement.

 

(t)           “Successor Entity” means the Person (or, if so elected by the Required Holders, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

  

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(u)           “Trading Day” means, as applicable, (x) with respect to all price determinations relating to the Common Stock, any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Required Holders or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.

 

(v)           “Transaction Documents” means the Subscription Agreement, this Certificate of Designations, the Warrant, the Registration Rights Agreement, the Escrow Agreement (as such terms are defined and described in the Subscription Agreement) and each of the other agreements and instruments entered into or delivered by the Company or any of the Holders in connection with the transactions contemplated by the Subscription Agreement, all as may be amended from time to time in accordance with the terms thereof.

 

(w)            “Unpaid Dividend Amount” means, as of the applicable date of determination, with respect to each Preferred Share, all declared and unpaid Dividends on such Preferred Share.

 

(x)            “Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers, trustees or other similar governing body of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

 

(y)           “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “HP” function set to “weighted average” or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and such Holder. If the Company and such Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 22. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

24.               Disclosure. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Certificate of Designations, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries, the Company shall simultaneously with any such receipt or delivery publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate to each Holder contemporaneously with delivery of such notice, and in the absence of any such indication, each Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to the Company or its Subsidiaries. Nothing contained in this Section 24 shall limit any obligations of the Company, or any rights of any Holder, under the Subscription Agreement.

 

*  *  *  *  *

  

A-18

  

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations of Series C Convertible Preferred Stock of Majesco Entertainment Company to be signed by its Chief Executive Officer on this 15th day of May, 2015.

 

	
  

	

By: /s/ Jesse Sutton

Name:  Jesse Sutton

Title: Chief Executive Officer

 

  

A-19

  

EXHIBIT I

MAJESCO ENTERTAINMENT COMPANY

CONVERSION NOTICE

 

Reference is made to the Certificate of Designations, Preferences and Rights of the Series C Convertible Preferred Stock of Majesco Entertainment Company (the “Certificate of Designations”). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series C Convertible Preferred Stock, $0.001 par value per share (the “Preferred Shares”), of Majesco Entertainment Company, a Delaware corporation (the “Company”), indicated below into shares of common stock, $0.001 par value per share (the “Common Stock”), of the Company, as of the date specified below.

 

Date of Conversion:                                                                                                                                

 

Number of Preferred Shares to be converted:                                                                                                                                

 

Share certificate no(s). of Preferred Shares to be converted:                                                                                                                                

 

Tax ID Number (If applicable):                                                                                                                                

 

Conversion Price:_________________________________________________________

 

Number of shares of Common Stock to be issued:                                                                                                                                

 

Please issue the shares of Common Stock into which the Preferred Shares are being converted in the following name and to the following address:

 

Issue to:                                                                                     

 

 

 

Address: _________________________________________

 

Telephone Number: ________________________________

 

Facsimile Number:                                                                                     

 

Holder:                                                                                     

 

By:                                                        

Title:                                                        

 

Dated:_____________________________

 

Account Number (if electronic book entry transfer): _____________________________

 

Transaction Code Number (if electronic book entry transfer): _____________________________

  

A-20

  

EXHIBIT II

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Conversion Notice and hereby directs [                                ] to issue the above indicated number of shares of Common Stock in accordance with the Irrevocable Transfer Agent Instructions dated __________, 2015 from the Company and acknowledged and agreed to by [                              ].

 

MAJESCO ENTERTAINMENT COMPANY

By:                                                      

      Name:

      Title:

 

 

 

 

 

 

 

  

A-21

  

EXHIBIT B

FORM OF WARRANT

See attached.

  

B-1

  

EXHIBIT B

 

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

 

FORM OF COMMON STOCK PURCHASE WARRANT

MAJESCO ENTERTAINMENT COMPANY

 

 

Warrant Shares: [______]                                                                           Initial Issuance Date:  [___], 2015

 

Warrant No: [______]

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, [______] or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Initial Issuance Date  (the “Initial Exercise Date”) and on or prior to the close of business on the thirty six (36) month anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from MAJESCO ENTERTAINMENT COMPANY, a Delaware corporation (the “Company”), up to [____] shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1.                      Definitions.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Subscription Agreement (the “Subscription Agreement”), dated [____] 2015, among the Company and the Holder.

 

Section 2.                      Exercise.

 

a)           Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within one (1) Trading Day of delivery of such notice.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

  

B-2

  

b)           Exercise Price.  The initial exercise price per share of the Common Stock under this Warrant shall be $1.40, (the “Initial Exercise Price”) subject to adjustment hereunder (as adjusted, the “Exercise Price”), payable, subject to Section 2(c) below, in immediately available funds.

 

c)           Cashless Exercise. If at any time after the six (6) month anniversary of the Initial Issuance Date, provided there is no effective registration statement registering, or no current prospectus available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

	
  

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

	
  

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

	
  

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

Notwithstanding anything herein to the contrary, on the Termination Date, unless the Holder notifies the Company otherwise, if there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder and the Exercise Price is greater than the VWAP on the Trading Day immediately preceding the date on which the Warrant would otherwise expire, then this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

d)           Mechanics of Exercise.

 

(a)      Delivery of Certificates Upon Exercise.  Certificates for shares purchased hereunder shall be transmitted by the Company’s transfer agent for its Common Stock (the “Transfer Agent”) to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) this Warrant is being exercised via cashless exercise and Rule 144 is available, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise, (B) surrender of this Warrant (if required) and (C) payment of the aggregate Exercise Price as set forth above (including by cashless exercise, if permitted) (such date, the “Warrant Share Delivery Date”).   The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid.  The Company understands that a delay in the delivery of the Warrant Shares after the Warrant Share Delivery Date could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay (as liquidated damages and not as a penalty) to the Holder for late issuance of Warrant Shares upon exercise of this Warrant the proportionate amount of $10 per Trading Day (increasing to $20 per Trading Day after the fifth (5th) Trading Day) after the Warrant Share Delivery Date for each $1,000 of Exercise Price of Warrant Shares for which this Warrant is exercised which are not timely delivered.  The Company shall pay any payments incurred under this Section in immediately available funds upon demand.  Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Warrant Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant, except that the liquidated damages described above shall be payable through the date notice of revocation or rescission is given to the Company.

  

B-3

  

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

 

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

 

iii.              Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise.  In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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

 

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

 

  

B-4

  

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

 

e)           Holder’s Exercise Limitations.  (i) The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other  Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith.   To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.   In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the SEC, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant.  The Holder may decrease the Beneficial Ownership Limitation at any time and the Holder, upon not less than 61 days’ prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply.  Any such increase will not be effective until the 61st day after such notice is delivered to the Company.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

  

B-5

  

(ii) Issuance Restrictions. (i) If the Company has not obtained the approval of its shareholders in accordance with the rules of The NASDAQ Stock Market, LLC, then the Company may not issue upon exercise of this Warrant a number of Warrant Shares, which, when aggregated with any shares of Common Stock (i) issued pursuant to the Subscription Agreement, (ii) issuable upon conversion of the Preferred Shares issued pursuant to the Subscription Agreement; (iii) issuable upon prior exercise of this or any other Warrant issued pursuant to the Subscription Agreement and (iv) issuable pursuant to any warrants issued to any registered broker-dealer as a fee in connection with the issuance of Securities pursuant to the Subscription Agreement, would exceed Five Million (5,000,000) shares of Common Stock, in the aggregate, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of the Subscription Agreement (such number of shares, the “Issuable Maximum”).  The Holder and the holders of the other Warrants issued pursuant to the Subscription Agreement shall be entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the Holder’s original Aggregate Purchase Price by (y) the aggregate original Aggregate Purchase Price of all Purchasers  pursuant to the Subscription Agreement. In addition, the Holder may allocate its pro-rata portion of the Issuable Maximum among Warrants held by it in its sole discretion. Such portion shall be adjusted upward ratably in the event a Holder no longer holds any Warrants and the amount of shares issued to such Holder pursuant to its Warrants was less than such Holder’s pro-rata share of the Issuable Maximum.  For avoidance of doubt, unless and until any required approval of the Company’s shareholders of the issuance of in excess of Five Million (5,000,000) shares of Common Stock pursuant to the Subscription Agreement (“Shareholder Approval”) is obtained and effective, warrants issued to any registered broker-dealer as a fee in connection with the Securities issued pursuant to the Subscription Agreement as described in clause (iii) above shall provide that such warrants shall not be allocated any portion of the Issuable Maximum and shall be unexercisable unless and until such Shareholder Approval is obtained and effective.  The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

Section 3.                      Certain Adjustments.

 

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

 

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

 

  

B-6

  

c)           Pro Rata Distributions.  If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(c)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

d)           Fundamental Transaction.  If, at any time while this Warrant is outstanding, the Company enters into a Fundamental Transaction then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant) the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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

 

  

B-7

  

f)           Notice to Holder.

 

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

 

ii.      Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, to the extent that such information constitutes material non-public information (as determined in good faith by the Company) the Company shall deliver to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission SEC pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

Section 4.                      Transfer of Warrant.

 

a)           Transferability.  Subject to compliance with any applicable securities laws and the provisions of the Subscription Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

  

B-8

  

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

 

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

 

Section 5.                      Certain Definitions.  For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)           “Affiliate” shall mean as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person.  For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.  For purposes of this definition, a Person shall be deemed to be “controlled by” a Person if such latter Person possesses, directly or indirectly, power to vote 10% or more of the securities having ordinary voting power for the election of directors of such former Person

(b)           “Bloomberg” means Bloomberg Financial Markets.

(c)           “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.

(d)           “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by the OTC Markets Group LLC.  If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

(e)           “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

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

  

B-9

  

 (g)           “Fundamental Transaction” means that (i) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) any other person unless immediately following the closing of such transaction or series of related transactions the persons holding more than 50% of the Voting Stock of the Company prior to such closing continue to hold more than 50% of the Voting Stock of the Company following such closing or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person, or (3) assist any other person in making a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the person or persons making or party to, or associated or affiliated with the persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person whereby such other person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other person or other persons making or party to, or associated or affiliated with the other persons making or party to, such stock or share purchase agreement or other business combination) excluding any equity financing transaction in which shares of Voting Stock are issued, or (5) (I) reorganize, recapitalize or reclassify the Common Stock, (II) effect or consummate a stock combination, reverse stock split or other similar transaction involving the Common Stock or (III) make any public announcement or disclosure with respect to any stock combination, reverse stock split or other similar transaction involving the Common Stock (including, without limitation, any public announcement or disclosure of (x) any potential, possible or actual stock combination, reverse stock split or other similar transaction involving the Common Stock or (y) board or stockholder approval thereof, or the intention of the Company to seek board or stockholder approval of any stock combination, reverse stock split or other similar transaction involving the Common Stock), or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.

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

(i)           “Principal Market” means The NASDAQ Capital Market or the principal securities exchange or securities market on which the Common Stock is then quoted or traded.

 

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

 

(k)             “Subsidiary” means any subsidiary of the Company including any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

 

(l)           “Trading Day” means any day on which the Common Stock are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock are then traded; provided that “Trading Day” shall not include any day on which the Common Stock are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

(m)           “Voting Stock” of a person means capital stock of such person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers, trustees or other similar governing body of such person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

 

  

B-10

  

(n)           “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “HP” function set to “weighted average” or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and such Holder. If the Company and such Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 22 of the Series C Certificate of Designations. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period

 

Section 6.                      Miscellaneous.

 

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

 

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

 

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

 

d)           Authorized Shares.

 

(i)           The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock 200% of the maximum number of shares for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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

 

  

B-11

  

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

 

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

 

f)           Restrictions.  The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, or unless exercised in a cashless exercise when Rule 144 is available, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

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

 

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

 

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

 

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

 

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

 

l)           Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holders of not less than a 60% of the then outstanding Warrants issued pursuant to the Subscription Agreement which such approval shall include the approval of the Lead Investors (as defined in the Subscription Agreement).

 

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

 

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

 

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

(Signature Page Follows)

  

B-12

  

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

 

 

	 	
MAJESCO ENTERTAINMENT COMPANY

 

 

	 	
 

 

By:__________________________________________

     Name:  Jesse Sutton

     Title:   Chief Executive Officer

 

  

B-13

  

NOTICE OF EXERCISE

TO:           MAJESCO ENTERTAINMENT COMPANY

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

 

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

 

[  ] in lawful money of the United States; or

 

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

 

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

 

_______________________________

(4)      After giving effect to this Notice of Exercise, the undersigned will not have exceeded the Beneficial Ownership Limitation.

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

_______________________________

_______________________________

_______________________________

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

  

B-14

  

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

MAJESCO ENTERTAINMENT COMPANY

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

 

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated:  ______________, _______

Holder’s Signature:                                _____________________________

Holder’s Address:                                _____________________________

         _____________________________

Signature Guaranteed:  ___________________________________________

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

 

  

B-15

  

EXHIBIT C

WIRE INSTRUCTIONS

 

[provided separately]

  

C-1

  

EXHIBIT D

USE OF PROCEEDS

General Working Capital

  

D-1

  

EXHIBIT E

LEAD INVESTOR

GRQ Consultants, Inc. 401K

  

E-1

  

 

EXHIBIT F

May 15, 2015

GRQ Consultants Inc. 401k 

ATG Capital LLC

Betsy and Michael Brauser Charitable Family Foundation Inc. 

Daniel Brauser

Darwin Ret LLC

DBGJ Irrevocable Trust

Frost Gamma Investments Trust 

Grander Holdings, Inc. 401(k) 

Melechdavid Inc

Pinehurst Capital LLC

Sable Ridge Capital Opportunity Fund LP 

Sandor Capital Master Fund

Stetson Capital Investments, Inc.

Stetson Capital Investments, Inc. Retirement Plan 

The Special Equities Group, LLC

 

Re: Majesco Entertainment Company 

 

Ladies and Gentlemen:

 

This opinion letter is furnished to you at the request of Majesco Entertainment Company (the "Company") pursuant to Section 6(a)(iv) of the Subscription Agreement  (the  "Agreement"), dated April 29, 2015, by and between the Company and you (collectively, the "Purchasers"), in connection with the closing of the sale to the Purchasers of $5.05 million of units (the "Units") consisting of (i) shares of the Company's Common Stock (as defined below) (the "Shares") or 0% Series C Convertible Preferred Stock (the "Preferred Stock") which are convertible  into shares of common stock, $0.001 par value per share (the "Common Stock") of the Company, if the issuance of such Common Stock would result in the recipient Purchaser exceeding certain thresholds, and (ii) warrants (the "Warrants") to purchase shares of Common Stock  (the "Warrant  Shares").

 

Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Agreement.

 

We have acted as counsel for the Company in connection  with the offering of the Units. In connection with the rendering of the opinions set forth below, we have examined, are familiar with and, to the extent we have deemed appropriate, have relied upon the Restated Certificate of Incorporation of the Company, as amended to date (the "Certificate of Incorporation"), and the Bylaws of the Company, as amended to date (the "Bylaws"); such records of the meetings of the board of directors (including committees thereof) of the Company as we have deemed material; the Agreement, the Warrant certificates, each dated May 15, 2015 (collectively, the "Warrant Certificates"), the Certification of Designations, Preferences and Rights of 0% Series C Convertible Preferred Stock (the "Series C Certificate of Designations"), the Escrow Agreement, dated April 29, 2015 (the "Escrow Agreement"), the Registration Rights Agreement, dated May 15, 2015 (the "Registration Rights Agreement" and collectively with the Agreement, the Escrow Agreement, the Warrant Certificates and the Series C Certificate  of  Designations,  the "Transaction Documents"); a Certificate of Good Standing of the Company issued by the Secretary of State of the State of Delaware on April 27, 2015 and a bring-down Certificate of Good Standing dated as of May 15, 2015; a Certificate of Good Standing of the Company issued by the Secretary of State of the State of New Jersey on April 27, 2015 and a bring-down Certificate of Good Standing dated as of May 15, 2015; and such other agreements, certificates, instruments, records and documents as we have deemed necessary for the  purposes  of this opinion letter. We have assumed, without independent investigation, that there has been  no relevant change or development between the dates as of which the information cited herein was given and the date of this opinion letter and that the information upon which we have relied is accurate and does not omit disclosures necessary to prevent such information from being misleading.

 

In our examination of the documents referred to above, we have assumed, without independently verifying such assumptions, (i) the authenticity and genuineness of all signatures on all documents and instruments examined by us (other than with respect to the due execution and delivery of the Transaction Documents by the Company); (ii) the authenticity of all documents submitted to us as originals; and (iii) the conformity to originals of all documents submitted to us as certified, photostatic or conformed copies, including documents transmitted by fax, in Adobe Portable Document format (PDF) or electronically, and the authenticity of the originals of such documents. We have further assumed, without independent inquiry or investigation, that each of the Transactions Documents has been duly authorized and validly executed and delivered on behalf of each of the Purchasers, and that each of the Transaction Documents constitutes the legal, valid and binding obligation of each of the Purchasers.

 

Our opinions regarding the enforceability of the Transaction Documents are limited by: (i) bankruptcy,  insolvency,  reorganization,  fraudulent  transfer,  conveyance,  voidable  preference, moratorium and other similar laws, regulations or judicial opinions of general applicability, including those relating to or affecting creditors' rights generally; and (ii) general equitable principles and public policy considerations, whether such principles and considerations are considered in a proceeding at law or at equity.

 

  

F-1

  

 

Any reference to "we are not aware," "believe," "our knowledge," "the best of our knowledge," "appeared," "matters known to us," "matters coming to our attention," "no facts have come to our attention" or words of similar import shall, except as otherwise specifically described herein, mean the actual awareness of the existence or absence of any relevant facts or information by any lawyer in this firm who has worked directly on current matters with respect to  which  the Company has requested us to  represent them (and not including any constructive  or imputed notice of any information).  Other than as set forth herein, we have not undertaken  for purposes of this opinion letter any independent investigation to determine the existence or absence of such facts, and no inference as to our knowledge of the existence or absence of such facts should be drawn from the fact of our representation of the Company. Moreover, we have not searched any computerized or electronic databases or the dockets of any court,  regulatory  body  or governmental agency or other filing office in any jurisdiction.

 

We are authorized to practice law in the State of New York and do not purport to express any opinion herein concerning any laws other than the provisions of the General Corporation Law of the State of Delaware (the "DGCL"), the laws of the State of New York and the federal laws of the United States as in effect on the date hereof. We express no opinion as to, and assume no obligation to advise you of, any subsequent changes in such laws or any subsequent changes in the facts on which this opinion letter is based.

 

We call your attention specifically to the fact that we are not admitted to practice in the State of Delaware. We have made no investigation of Delaware law (other than with  respect  to  the DGCL as set forth below) nor consulted with counsel admitted to practice  law in the State of Delaware. We have based our opinion with respect to the Delaware law on our examination of appropriate certificates from officers or officials of the State of Delaware, and of applicable statutory provisions of the DGCL, as set forth in standard, unofficial compilations, and have made no investigation of regulations, rules or cases interpreting or applying those statutory provisions. We express no opinion with respect to any questions of choice of law, choice of venue, choice of jurisdiction, conflict of laws or the enforceability of any indemnification provisions or contribution provisions, any provision providing that rights or remedies are not exclusive, any provision eliminating or limiting the liability of parties, any provision purporting to waive certain rights, any release provision, any provision regarding the availability of declaratory or equitable relief, any waiver of trial by jury, any provision appointing a party as the attorney-in-fact   for  another  person,   or  liquidated   damages  provisions  to  the  extent   such provisions are deemed to constitute a penalty, or the accuracy, completeness or survival of any representation or warranty contained in the Agreement.

 

The opinions expressed herein are based upon currently existing statutes, rules, regulations and judicial decisions and, except as otherwise noted, are rendered as of the date hereof. We express no opinion as to any matter other than as expressly set forth herein, and no other opinion is intended to be implied nor may be inferred herefrom.

 

As to matters of fact, we have relied solely upon the representations and warranties contained in and made by the Company pursuant to the Agreement (and all attachments thereto), upon statements contained in the other Transaction Documents, and upon certificates and statements of government officials and of officers, and other representatives, of the Company.

 

Our opinion in paragraph 1 below is based solely upon  our review of a Certificate of Good Standing dated as of April 27, 2015 of the Secretary of State of the State of Delaware  and a bring-down Certificate of Good Standing dated as of May 15, 2015, and our opinion in paragraph 2 below is based solely upon our review of a Certificate of Good Standing dated as of April 27, 2015 of the Secretary of State of the State of New Jersey and a bring-down Certificate of Good Standing dated as of May 15, 2015. Our opinions with respect to such matters are rendered as of the dates of such certificates and are limited accordingly.

 

We express no opinion regarding state securities, or "blue sky," laws or securities laws of any foreign   jurisdictions.We   also   express   no   opinion   with   respect   to  the   existence,   due incorporation, valid existence, good standing or operations of any subsidiary of the Company. Furthermore, we express no opinion as to the financial statements, financial statement schedules, interactive data (XBRL), or other financial or statistical data derived therefrom included in the Transaction  Documents  or the  Company's  filings  and/or  exhibits thereto  (the "SEC Filings") with the  Securities and Exchange  Commission (the "Commission").   In rendering this  opinion letter, we have assumed that no party will exercise, waive or modify any right or remedy except in a commercially reasonable manner and in good faith.

 

With respect to our opinions in paragraph 7, to the extent that any such opinion relates to judgments, decrees or orders, we have relied upon a representation made to us in the certificate of the officers of the Company, dated May 15, 2015, to the effect that, except as may otherwise be set forth in the Agreement and the exhibits thereto, there are no judgments or decrees binding upon the Company and have not performed any docket searches or any search of our files. With respect to our opinions in paragraph 10, we have relied upon a representation made to us in the certificate of the officers of the Company, dated May 15, 2015, to the effect that, the Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision in any agreement or other document that is or could become applicable to the Purchasers as a result of the Purchasers and  the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company's issuance of the Units and the Purchasers' ownership of the Units. In addition, to the extent that such opinion relates to laws, rules and regulations, it is understood that we have not conducted any special investigation of laws, rules or regulations and our opinion with respect thereto is limited to the DGCL and such United States and New York laws, rules and regulations as in our experience are normally applicable to transactions of the type contemplated by the Agreement.

 

  

F-2

  

 

Based upon the assumptions, limitations and qualifications set forth herein, we are of the opinion that:

 

    1. The Company is a corporation duly incorporated and is a validly ex1stmg corporation under the laws of the State of Delaware, in good standing under the laws of the State of Delaware, with the corporate power to own, lease and operate its properties and to conduct its business as currently conducted and to enter into and perform its obligations under the Transaction Documents.

 

    2. The Company is qualified to do business as a foreign corporation and is in good standing in the State of New Jersey.

 

    3. Each of the Agreement, the Escrow Agreement and the Registration Rights Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding  agreement of the Company, enforceable against the Company in accordance with its respective terms.

 

    4. The Warrant Certificates have been duly authorized, executed and delivered by the Company and constitute valid, legal and binding obligations of the Company, enforceable against the Company in accordance with their terms.

 

    5. The shares of Preferred Stock are duly authorized and, when issued and delivered by the Company pursuant to the Agreement against payment of the  consideration  set forth therein, will be validly issued, fully paid and nonassessable.

 

    6. The shares of Common Stock underlying the shares of Preferred Stock and the Warrant Shares are duly authorized and reserved for issuance and, when issued and delivered by the Company pursuant to the terms of the Series C Certificate of Designations or the Warrant Certificates, as applicable, will be validly issued, fully paid and nonassessable.

 

    8. The Shares have been duly authorized and, when issued and delivered by the Company pursuant to the Agreement against payment of the consideration set forth therein, will be validly issued, fully paid and nonassessable.

 

    7. The execution and delivery of the Transaction Documents by the Company, the performance by the Company of its obligations under the Transaction Documents in accordance with their terms and the issuance and sale of the Units do not, with or without the giving of notice or lapse of  time or both, (i) violate the provisions of  the Company's Certificate of Incorporation or Bylaws or (ii) to the best of our knowledge, violate any jugement, decree, order, or award of any court binding upon the Company.

 

    8. Based in part upon, and in reliance upon, the representations of the Purchasers and the Company contained in the Agreement, the Units may be issued to the Purchasers without registration under the Securities Act of 1933, as amended.

 

    9. The Company has either obtained the approval of the transactions described in the Transaction Documents from The NASDAQ Capital Market, or no such approval is required.

 

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

 

This opinion letter is effective only as of the date first set forth above and furnished to you, by us, as counsel for the Company, solely for your benefit, and solely with respect to the purchase of the Units by you. This opinion letter may be relied upon only by you in connection with the transactions contemplated by the Agreement and may not be used or relied upon by you for any other purpose or by any other person whatsoever, without in each such instance our prior written consent. In furnishing this opinion letter to you, as limited above, we are not hereby assuming any professional responsibility to any other person whatsoever and we disavow any obligation to update this opinion letter or advise you of any changes in this opinion letter in the event of changes in applicable laws or facts or if additional or newly discovered information is brought to our attention. Furthermore, no assurances can be given that future legislation, judicial or administrative changes, on either a prospective or retrospective basis, would not adversely affect the accuracy of the opinions stated herein. This opinion letter is provided to you as a legal opinion only and not as a guarantee or warranty of the matters discussed herein or discussed in the documents referred to herein, and may not be used, circulated, quoted or otherwise referred to by you for any other purpose, or by any other person for any purpose, without our express prior written consent.

 

Very truly yours,

 

Thompson Hine LLP

 

  

F-3

  

EXHIBIT G

REGISTRATION RIGHTS AGREEMENT

See attached.

  

G-1

  

EXHIBIT G

REGISTRATION RIGHTS AGREEMENT

 

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made as of ___________, 2015, among the undersigned corporation (the “Company”), and each signatory hereto (each, an “Investor” and collectively, the “Investors”).  Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Subscription Agreement (as defined below).

 

R E C I T A L S

 

WHEREAS, the Company each Investor are parties to a Subscription Agreement (collectively, the “Subscription Agreements”), dated as of the date hereof, as such may be amended and supplemented from time to time;

 

WHEREAS, the Investors’ obligations under the Subscription Agreements are conditioned upon certain registration rights under the Securities Act of 1933, as amended (the “Securities Act”); and

 

WHEREAS, the Investors and the Company desire to provide for the rights of registration under the Securities Act as are provided herein upon the execution and delivery of this Agreement by such Investors and the Company.

 

NOW, THEREFORE, in consideration of the promises, covenants and conditions set forth herein, the parties hereto hereby agree as follows:

 

1.      Registration Rights.

 

 1.1           Definitions.  As used in this Agreement, the following terms shall have the meanings set forth below:

 

(a)           “Commission” means the United States Securities and Exchange Commission.

 

(b)           “Common Stock” means the Company’s common stock, par value $0.001 per share.

 

(c)           “Effectiveness Date” means the date that is ninety (90) days after the Filing Date.

 

(d)           “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(e)           “Filing Date” means the date that is thirty (30) days after the Trigger Date.

 

(f)            “Investor” means any person owning Registrable Securities who becomes party to this Agreement by executing a counterpart signature page hereto, or other agreement in writing to be bound by the terms hereof, which is accepted by the Company.

 

(g)           The terms “register,” “registered” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

 

(h)           “Registrable Securities” means the 125% of the number of Shares and the Conversion Shares (as such terms are defined in the Subscription Agreement) issued pursuant to the Subscription Agreement as of the day immediately preceding the applicable date of determination (without taking into account any limitations on the conversion of the Preferred Shares); provided, however, that Registrable Securities shall not include any securities of the Company that have previously been registered and remain subject to a currently effective registration statement or which have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold in a private transaction in which the transferor’s rights under this Section 1 are not assigned, or which may be sold immediately without registration under the Securities Act and without restriction or imitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1).

 

  

G-2

  

(i)           “Rule 144” means Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

 

(j)           “Rule 415” means Rule 415 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

 

(k)            “Trigger Date” means the Final Closing Date.

 

 1.2                 Company Registration.

 

(a)           On or prior to the Filing Date, the Company shall prepare and file with the Commission a registration statement covering the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415.  The registration statement shall be on Form S-1 or, if the Company is so eligible, on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-1 or Form S-3, as the case may be, in which case such registration shall be on another appropriate form in accordance herewith) and shall contain (unless otherwise directed by Investors holding an aggregate of at least  60% of the Registrable Securities on an “as converted” and “as exercised” basis including the approval of the Lead Investor) substantially the “Plan of Distribution” attached hereto as Annex A.  The Company shall cause the registration statement to become effective and remain effective as provided herein.  The Company shall use its reasonable best efforts to cause the registration statement to be declared effective under the Securities Act as soon as possible and, in any event, by the Effectiveness Date.  The Company shall use its reasonable best efforts to keep the registration statement continuously effective under the Securities Act until all Registrable Securities covered by such registration statement have been sold, or may be sold without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, as determined by the counsel to the Company (the “Effectiveness Period”).

 

(b)           The Company shall pay to Investors a fee of 1% per month of the Investors’ investment, payable in cash, for every thirty (30) day period up to a maximum of 12%, (i) following the Filing Date that the registration statement has not been filed and (ii) following the Effectiveness Date that the registration statement has not been declared effective; provided, however, that the Company shall not be obligated to pay any such liquidated damages if (i) the Registrable Securities that would other be covered by the registration statement may be sold without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144 under the Securities Act or (ii) the Company is unable to fulfill its registration obligations as a result of rules, regulations, positions or releases issued or actions taken by the Commission pursuant to its authority with respect to “Rule 415”, and the Company registers at such time the maximum number of shares of Common Stock permissible upon consultation with the staff of the Commission.

 

(c)           If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a registration statement, the Company shall file as soon as reasonably practicable after receiving written notice from holders of a majority of the Registrable Securities not registered an additional registration statement covering the resale of not less than the number of such Registrable Securities.

 

(d)           The Company shall bear and pay all expenses reasonably incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to this Section 1.2 for each Investor, including (without limitation) all registration, filing and qualification fees, printer’s fees, accounting fees and fees and disbursements of counsel for the Company, but excluding any brokerage or underwriting fees, discounts and commissions relating to Registrable Securities and fees and disbursements of counsel for the Investors.

 

  

G-3

  

(e)           If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities, then the Company shall notify each Investor in writing at least fifteen (15) days prior to the filing of any registration statement under the Securities Act, in connection with a public offering of shares of Common Stock (including, but not limited to, registration statements relating to secondary offerings of securities of the Company but excluding any registration statements (i) on Form S-4 or S-8 (or any successor or substantially similar form), or of any employee stock option, stock purchase or compensation plan or of securities issued or issuable pursuant to any such plan, or a dividend reinvestment plan, (ii) otherwise relating to any employee, benefit plan or corporate reorganization or other transactions covered by Rule 145 promulgated under the Securities Act, (iii) on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the resale of the Registrable Securities. In the event an Investor desires to include in any such registration statement all or any part of the Registrable Securities held by such Investor, the Investor shall within ten (10) days after the above-described notice from the Company, so notify the Company in writing, including the number of such Registrable Securities such Investor wishes to include in such registration statement. If an Investor decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company such Investor shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to the offering of the securities, all upon the terms and conditions set forth herein.

 

 1.3           Obligations of the Company.  Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

 

(a)           Prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective and to keep such registration statement effective during the Effectiveness Period;

 

(b)           Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;

 

(c)           Furnish to the Investors such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them (provided that the Company would not be required to print such prospectuses if readily available to Investors from any electronic service, such as on the EDGAR filing database maintained at www.sec.gov);

 

(d)           Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities’ or blue sky laws of such jurisdictions as shall be reasonably requested by the Investors; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

 

(e)           In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering (each Investor participating in such underwriting shall also enter into and perform its obligations under such an agreement);

 

(f)           Promptly notify each Investor holding Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act, within one business day, (i) of the effectiveness of such registration statement, or (ii) of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

 

  

G-4

  

(g)           Cause all such Registrable Securities registered pursuant hereto to be listed on each securities exchange or nationally recognized quotation system on which similar securities issued by the Company are then listed; and

 

(h)           Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

 

 1.4           Furnish Information.  It shall be a condition precedent to the Company’s obligations to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Investor that such Investor shall furnish to the Company such information regarding such Investor, the Registrable Securities held by such Investor, and the intended method of disposition of such securities in the form attached to this Agreement as Annex B, or as otherwise reasonably required by the Company or the managing underwriters, if any, to effect the registration of such Investor’s Registrable Securities.

 

 1.5           Delay of Registration.  No Investor shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

 

 1.6         #160;  Indemnification.

 

(a)           To the extent permitted by law, the Company will indemnify and hold harmless each Investor, any underwriter (as defined in the Securities Act) for such Investor and each person, if any, who controls such Investor or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject under the Securities Act, the Exchange Act or other federal or state securities law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto (collectively, the “Filings”), (ii) the omission or alleged omission to state in the Filings a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will pay any legal or other expenses reasonably incurred by any person to be indemnified pursuant to this Section 1.6(a) in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 1.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Investor, underwriter or controlling person.

 

(b)           To the extent permitted by law, each Investor will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, any underwriter, any other Investor selling securities in such registration statement and any controlling person of any such underwriter or other Investor, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject under the Securities Act, the Exchange Act or other federal or state securities law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Investor expressly for use in connection with such registration; and each such Investor will pay any legal or other expenses reasonably incurred by any person to be indemnified pursuant to this Section 1.6(b) in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 1.6(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Investor (which consent shall not be unreasonably withheld); provided, however, in no event shall any indemnity under this subsection 1.6(b) exceed the net proceeds received by such Investor upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

  

G-5

  

(c)           Promptly after receipt by an indemnified party under this Section 1.6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.6, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.6.

 

(d)           If the indemnification provided for in Sections 1.6(a) and (b) is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such loss, liability, claim or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  In no event shall any Investor be required to contribute an amount in excess of the net proceeds received by such Investor upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

(e)           The obligations of the Company and Investors under this Section 1.6 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.

 

 1.7           Reports Under Securities Exchange Act.  With a view to making available the benefits of certain rules and regulations of the Commission, including Rule 144, that may at any time permit an Investor to sell securities of the Company to the public without registration or pursuant to a registration on Form S-1 or Form S-3, the Company agrees to:

 

(a)           make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the Final Closing Date;

 

(b)           take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Investors to utilize Form S-1 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the registration statement is declared effective;

 

(c)           file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

 

(d)           furnish to any Investor, so long as the Investor owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-1 or Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Investor of any rule or regulation of the Commission that permits the selling of any such securities without registration or pursuant to such form.

 

  

G-6

  

 1.8           Transfer or Assignment of Registration Rights.  The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be transferred or assigned, but only with all related obligations, by an Investor to a transferee or assignee who (a) acquires at least 25,000 Shares or 25,000 Conversion Shares (on an “as-converted” basis) (subject to appropriate adjustment for stock splits, stock dividends and combinations) from such transferring Investor, unless waived in writing by the Company, or (b) holds Registrable Securities immediately prior to such transfer or assignment; provided, that in the case of (a), (i) prior to such transfer or assignment, the Company is furnished with written notice stating the name and address of such transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned, (ii) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement and (iii) such transfer or assignment shall be effective only if immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the Securities Act.

 

2.      Legend.

 

(a)           Each certificate representing Shares and Conversion Shares held by the Investors shall be endorsed with the following legend:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.”

 

(b)           The legend set forth above shall be removed, and the Company shall issue a certificate without such legend to the transferee of the Shares or Conversion Shares represented thereby, if, unless otherwise required by state securities laws, (i) such Shares or Conversion Shares have been sold under an effective registration statement under the Securities Act, (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, reasonably acceptable to the Company, to the effect that such sale, assignment or transfer is being made pursuant to an exemption from the registration requirements of the Securities Act, or (iii) such holder provides the Company with reasonable assurance that the Shares or Conversion Shares are being sold, assigned or transferred pursuant to Rule 144 or Rule 144A under the Securities Act.

 

3.      Miscellaneous.

 

 3.1           Governing Law.  The parties hereby agree that any dispute which may arise between them arising out of or in connection with this Agreement shall be adjudicated only before a federal court located in the State of New York and they hereby submit to the exclusive jurisdiction of the federal and state courts of the State of New York with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Agreement or any acts or omissions relating to the registration of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, in care of the address set forth below or such other address as the undersigned shall furnish in writing to the other.

 

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

 

  

G-7

  

 3.3           Waivers and Amendments.  This Agreement may be terminated and any term of this Agreement may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Company and Investors holding at least a 60% of the Registrable Securities then outstanding, including the Lead Investor (the “Majority Investors”).  Notwithstanding the foregoing, additional parties may be added as Investors under this Agreement, and the definition of Registrable Securities expanded, with the written consent of the Company and the Majority Investors.  No such amendment or waiver shall reduce the aforesaid percentage of the Registrable Securities, the holders of which are required to consent to any termination, amendment or waiver without the consent of the record holders of all of the Registrable Securities. Any termination, amendment or waiver effected in accordance with this Section 3.3 shall be binding upon each holder of Registrable Securities then outstanding, each future holder of all such Registrable Securities and the Company.

 

 3.4           Successors and Assigns.  Except as otherwise expressly provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

 

 3.5           Entire Agreement.  This Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein.

 

 3.6           Notices.  All notices and other communications required or permitted under this Agreement shall be in writing and shall be delivered personally by hand or by overnight courier, mailed by United States first-class mail, postage prepaid, sent by facsimile or sent by electronic mail directed (a) if to an Investor, at such Investor’s address, facsimile number or electronic mail address set forth in the Company’s records, or at such other address, facsimile number or electronic mail address as such Investor may designate by ten (10) days’ advance written notice to the other parties hereto or (b) if to the Company, to its address, facsimile number or electronic mail address set forth on its signature page to this Agreement and directed to the attention of its  President, or at such other address, facsimile number or electronic mail address as the Company may designate by ten (10) days’ advance written notice to the other parties hereto. All such notices and other communications shall be effective or deemed given upon delivery, on the date that is three (3) days following the date of mailing, upon confirmation of facsimile transfer or upon confirmation of electronic mail delivery.

 

 3.7           Interpretation.  The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.”  The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement.

 

 3.8           Severability.  If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement, and the balance of the Agreement shall be interpreted as if such provision were so excluded, and shall be enforceable in accordance with its terms.

 

 3.9           Independent Nature of Investors’ Obligations and Rights. The obligations of each Investor hereunder are several and not joint with the obligations of any other Investor hereunder, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Investor pursuant hereto or thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Investor shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose.

 

 3.10           Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

 

 3.11&##160;          Telecopy Execution and Delivery.  A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile or similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes.  At the request of any party hereto, all parties hereto agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.

 

[SIGNATURE PAGE FOLLOWS]

 

  

G-8

  

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, as of the date, month and year first set forth above.

 

MAJESCO ENTERTAINMENT COMPANY

 

 

 

 

By:________________________________

Name:

Title:

 

Address for notice:

404I-T Hadley Road

S. Plainfield, New Jersey 07080

 

 

[COMPANY SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]

  

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IN WITNESS WHEREOF, the undersigned Investor has executed this Agreement as of the date, month and year that such Investor became the owner of Registrable Securities.

 

“Investor”

 

___________________________________

 

By:________________________________

Name

Title:

 

 

Address:

 

___________________________________

___________________________________

___________________________________

Telephone:__________________________

Facsimile:___________________________

 

Email:______________________________

[INVESTOR COUNTERPART SIGNATURE PAGE TO

REGISTRATION RIGHTS AGREEMENT]

  

G-10

  

Annex A

Plan of Distribution

Each selling stockholder of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on The NASDAQ Capital Market or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares:

 

	
  

	
·

	
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

	
  

	
·

	
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

	
  

	
·

	
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

	
  

	
·

	
an exchange distribution in accordance with the rules of the applicable exchange;

 

	
  

	
·

	
privately negotiated transactions;

 

	
  

	
·

	
settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

 

	
  

	
·

	
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

 

	
  

	
·

	
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

	
  

	
·

	
a combination of any such methods of sale; or

 

	
  

	
·

	
any other method permitted pursuant to applicable law.

 

The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.

 

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

  

G-11

  

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock.

 

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended.

 

Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, they will be subject to the prospectus delivery requirements of the Securities Act of 1933, as amended, including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144 or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act of 1933, as amended).

 

  

G-12

  

Annex B

 

 

Selling Securityholder Notice and Questionnaire

The undersigned beneficial owner of common stock (the “Registrable Securities”) of Majesco Entertainment Company, a Delaware corporation (the “Company”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below.  All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

Certain legal consequences arise from being named as a selling securityholder in the Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Registration Statement and the related prospectus.

NOTICE

The undersigned beneficial owner (the “Selling Securityholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

QUESTIONNAIRE

1.           Name.

(a)           Full Legal Name of Selling Securityholder

(b)           Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

 

(c)           Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):

2.           Address for Notices to Selling Securityholder:

 

 

	
Telephone:

	
Fax:

	
Contact Person:

3.           Broker-Dealer Status:

(a)           Are you a broker-dealer?

Yes                      No

  

G-13

  

(b)           If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

Yes                      No

Note:           If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

(c)           Are you an affiliate of a broker-dealer?

Yes                      No

(d)           If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

Yes                      No

Note:           If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

4.  Beneficial Ownership of Securities of the Company Owned by the Selling Securityholder.

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Subscription Agreement.

(a)           Type and Amount of other securities beneficially owned by the Selling Securityholder:

 

5.  Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto.  The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Date:

Beneficial Owner:

By:_________________________________

      Name:

      Title:

[SIGNATURE PAGE FOR SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE]

	  

G-14

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