Document:

konaredexh10_3.htm

Exhibit 10.3

 

 

NEITHER THIS SECURITY NOR THE SECURITIES UNDERLYING THIS SECURITY HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (2) AN OPINION OF HOLDER’S COUNSEL, IN A CUSTOMARY FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

 

 

 

AMENDED AND RESTATED WARRANT

 KONARED CORPORATION

 

	
Warrant Shares: 1,136,364

	  	
Initial Exercise Date: January 27, 2014            

 

THIS AMENDED AND RESTATED COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, Lincoln Park Capital Fund, LLC (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 January 27, 2014 (the “Initial Exercise Date”) and on or prior to the close of business on the sixth anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from KonaRed Corporation, a Nevada corporation (the “Company”), up to 1,136,364 shares (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 Securities Purchase Agreement, dated as of January 27, 2014, by and between the Company and the Holder (the “Agreement”).  Provided notwithstanding the forgoing, for purposes of this Warrant, the following terms shall have the following meanings:

(a)           “Business Day” means any day on which the Principal Market is open for trading including any day on which the Principal Market is open for trading for a period of time less than the customary time.

(b)           “Principal Market” means the OTC Bulletin Board (it being understood that as used herein “OTC Bulletin Board” shall also mean any successor or comparable market quotation system or exchange to the OTC Bulletin Board such as the OTCQB operated by the OTC Markets Group, Inc.); provided however, that in the event the Company’s Common Stock is ever listed or traded on The NASDAQ Global Market, The NASDAQ Capital Market, The NASDAQ Global Select Market, the New York Stock Exchange, the NYSE MKT or the NYSE Arca, then the “Principal Market” shall mean such other market or exchange on which the Company’s Common Stock is then listed or traded.

(c)           “Transfer Agent” means Island Stock Transfer, or such other Person who is then serving as the transfer agent for the Company in respect of the Common Stock.

 

 

  

  

  

 

Section 2.             Exercise.

 

a)             Exercise of Warrant.  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; and, within three (3) Business Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Business 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) Business Day of receipt of such notice.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. 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)             Exercise Price.  The exercise price per share of the Common Stock under this Warrant shall be $0.15, subject to adjustment hereunder (the “Exercise Price”).

 

c)             Cashless Exercise.  Commencing on the second anniversary of the Initial Exercise Date, and if at the time of exercise hereof the Registration Statement (as defined in the Agreement) is not effective (or the prospectus contained therein is not available for use) for the resale by the Holder of all of the Warrant Shares, then, at the Holder’s sole discretion, this Warrant may be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

	  	
(A) =

	
the VWAP on the Business 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.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on the Principal Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Principal Market as reported by Bloomberg L.P. (based on a Business Day from 8:30 a.m. (Central Standard Time to 3:02 p.m. (Central Standard Time), (b)  if the OTC 

 

 

 

  

  

  

 

 

Bulletin Board is not a Principal Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

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

d)             Mechanics of Exercise.

 

i.               Delivery of Certificates Upon Exercise.  Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit/Withdrawal  at Custodian (“DWAC”) system if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Business Days after the latest of (A) the delivery to the Company of the Notice of Exercise Form, (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”).  This Warrant shall be deemed to have been exercised on the first date on which all of the foregoing have been delivered to the Company.  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 aggregate 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.

 

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

 

iii.             Rescission Rights.  If the Company fails to cause the Transfer Agent to transmit to the Holder 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 to rescind such exercise.

 

iv.            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.

 

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

 

vi.            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.

 

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

 

e)             Holder’s Exercise Limitations.  The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), 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   securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants 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) 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 Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Business 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, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply.  Any such increase or decrease 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.  For purposes of the Warrant, “Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act.

  

Section 3.             Certain Adjustments.

 

a)             Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of 

 

 

  

  

  

 

 

shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

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

 

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 Holders) 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), 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, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of 

 

 

  

  

  

 

 

arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Warrant, 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). 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 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

f)              Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

 

 

  

  

  

 

 

g)             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 setting forth a brief statement of the facts requiring such adjustment.

 

ii.              Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed 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 its subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

Section 4.             Transfer of Warrant.

 

a)             Transferability.  Subject to compliance with applicable securities laws, 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)             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 set forth on the first page of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

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

 

d)             Representation by the Holder.  The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5.             Miscellaneous.

 

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

 

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

 

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

 

d)             Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of 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 Trading Market upon which the Common Stock may be listed.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

 

  

  

  

 

 

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

 

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

 

e)             Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Agreement.

 

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

 

g)             Nonwaiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies.  Without limiting any other provision of this Warrant or the Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to 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 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 Agreement.

 

i)              Limitation of Liability.  No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of 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)              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.

 

m)            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 Pages Follow)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of June 15, 2015.

	 	KONARED CORPORATION	 
	 	 	  	 
	 	By:	
/s/ John Dawe

	 
	 	Name:	John Dawe	 
	 	Title:	Chief Financial Officer	 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

NOTICE OF EXERCISE

TO: KONARED CORPORATION

(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):

 

o  in lawful money of the United States; or

 

o  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:

 

_______________________________

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: ________________________________________________________________________________________

 

 

 

 

  

  

  

 

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

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.EX-10.1

 Exhibit 10.1 

June 17, 2015 
 Daniel Gallagher 

c/o Town Sports International Holdings, Inc. 
 5 Penn Plaza 

New York, NY 10001 
 Dear Dan: 

This letter agreement (the “Agreement”) confirms the terms that Town Sports International Holdings, Inc. (“TSI
Holdings” and together with its subsidiaries and affiliates, the “Company”) is offering you in connection with your departure from the employ of the Company, including from all officer and other positions that you currently
hold with the Company. For the sake of clarity, this Agreement confirms our mutual agreement regarding such departure. 
 1. Separation Date; Transition
Period. 
 (a) The employment relationship between you and the Company will end on June 19, 2015 (the “Separation
Date”). During the period through the Separation Date, you shall perform those duties reasonably requested by the Board of Directors of TSI Holdings (the “Board”) in a satisfactory manner, including without limitation,
assistance with the transition, and be in compliance with the policies and procedures of the Company. As of the Separation Date, you shall not have any authority to act on the Company’s behalf or otherwise bind the Company (and you shall not
give any third person the appearance that you have any such authority) unless the Board instructs you in writing. You hereby agree that if at any time you are requested or nominated to serve as a member of the Board, you shall decline to so serve.

 (b) In consideration of the separation benefits described in Section 2 below, you agree that following the Separation Date through
October 31, 2015, you will provide transition services to the Company as reasonably requested by the Board, including with respect to the timing of such requests, to the best of your abilities and be in substantial compliance with the policies
and procedures of the Company. If you accept new employment during this transition period, you will inform such new employer of this obligation to provide transition services and the Company will be reasonable with its requests. Such transition
services (i) will include, without limitation, assisting the Chief Financial Officer with SEC reporting and financial planning & analysis matters and (ii) will not exceed 40% of your time in July and October and 20% of your time
in August and September. You hereby represent that you have not willfully withheld information relating to the Company’s operations from the Board. A smooth transition is a material inducement for the Company to enter into this Agreement. 

(c) You will be paid your regular wages through and including the Separation Date. You shall no longer be eligible to participate in the
Company’s benefit programs after the Separation Date, except as set forth below in Section 2 of this Agreement. Information regarding the Company’s 401(k) Plan will be sent to you separately by the plan administrator following the
Separation Date. 

 2. Separation Benefits. In return for your execution of, and your compliance with, this Agreement, and
subject to the terms and conditions set forth in this Agreement: 
 (a) You shall receive a payment equal to $150,000 in one lump sum in
consideration of your target bonus for 2015, payable within 10 days following the later of the Separation Date and the effective date of this Agreement. For the sake of clarity, the deferred portion of any bonus previously awarded to you is
forfeited as of the Separation Date without any payment. 
 (b) You shall receive a severance payment equal to $550,000, payable in equal
installments over the 12-month period following the Separation Date in accordance with the Company’s prevailing payroll practices, which severance payments will begin on the first payroll date following 30 days after the Separation Date (the
“Starting Date”), with the first payment of severance to include the payments you would have received from the Separation Date to the Starting Date. 

(c) To the extent permitted by law, you may continue your participation in the Company’s health, dental and disability insurance programs
in which you participate as of the Separation Date (or comparable substitute coverage) on behalf of yourself and your eligible dependents through June 30, 2017 (or, if earlier, until you are eligible for comparable coverage with a subsequent
employer) (the “Coverage Period”); provided that if applicable law or Company policy does not permit such participation, the Company shall pay that portion of the COBRA coverage that it would have paid if you were an active employee
with similar coverage during the Coverage Period, to the extent permitted by law. During the Coverage Period, the Company will continue to pay that portion of the premiums that it would have paid if you remained an active employee. You agree to
notify the Company immediately in writing in the event that you are eligible for comparable coverage with a subsequent employer. If you are not otherwise covered by a group health or dental plan at the end of the Coverage Period, you will be
eligible to continue your health and dental insurance coverage pursuant to federal COBRA law. Information regarding COBRA will be sent to you separately by the Company’s COBRA administrator. 

Up to June 30, 2020, you and your immediate family will continue to have Passport Memberships (or its equivalent) at no cost to you;
provided, however, that such memberships shall cease in the event you have materially breached the terms and conditions of this Agreement, including Section 7 or 8 hereunder. In addition, if you provide services to a company engaged in fitness
clubs in any capacity and in any location at any time during this period, this benefit shall cease. The aforementioned memberships are subject to all of the Company’s membership rates, regulations and policies currently in effect and as may be
amended from time to time. 
 (d) If you do not execute this Agreement within the time periods provided herein, or if you revoke this
Agreement, no payment or benefits will be due under this Section 2. 

  
 2 

 3. Release. 

(a) In consideration of the Company’s obligations contained in Section 2 of this Agreement and for other valuable consideration, you
(for yourself, your heirs, legal representatives, executors or administrators (collectively, your “Representatives”)) hereby release and forever discharge the Company (including TSI Holdings, Town Sports International, LLC, and each
of their respective subsidiaries and affiliates and each of their respective officers, employees, directors and agents (in both their official and personal capacities) (collectively, the “Released Parties”)) from any and all claims
and rights which you may have against them, and you hereby specifically release, waive and forever hold them harmless from and against any and all such claims, liability, causes of action, compensation, benefits, damages, attorney fees, costs or
expenses, of whatever nature or kind and whether known or unknown, fixed or contingent, and by reason of any matter, cause, charge, claim, right or action whatsoever, which have arisen at any time up to and including the date you execute this
Agreement, including, but not limited to, those arising during or in any manner out of your employment with the Company or your resignation of such employment or anything else that may have happened up to and including the date you execute this
Agreement. The rights, claims, causes of action, and liabilities that you are releasing and waiving include, but are not limited to, those that concern, relate to, or might arise out of the following: salary, overtime, bonuses, commissions, equity
and severance arrangements, benefit plans or any other benefits; breach of express or implied contract (including, without limitation, your Employment Agreement with TSI Holdings dated February 25, 2015 (the “Employment
Agreement”)) or promise; harassment, intentional injury or intentional tort, fraud, misrepresentation, battery, assault, defamation, breach of fiduciary duty, tort or public policy claims, whistleblower claims, negligence (including
negligent hiring, retention and/or supervision), wrongful or retaliatory discharge, infliction of emotional injury or any other facts or claims; retirement; discrimination or retaliation; any claims for costs or attorney fees; or any other federal,
state, city, county or other common law, law, or ordinance, including but not limited to those where you work and/or reside (including, but not limited to the Fair Labor Standards and the Equal Pay Acts (29 U.S.C. §201, 29 U.S.C. §206(d),
et seq.); the Age Discrimination in Employment Act (ADEA) (29 U.S.C. §621, et seq.); Title VII of the Civil Rights Act of 1964 (42 U.S.C. §2000e, et seq.); ERISA (the Employee Retirement Income Security Act of 1974 (29 U.S.C. §1001,
et seq.) other than any vested ERISA benefit; COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1986, 29 U.S.C. §21161, et seq.); the federal WARN Act; the American with Disabilities Act (42 U.S.C. §12101, et seq.); the National
Labor Relations Act and the Labor Management Relations Act, 29 U.S.C. §141 et seq.; the Family and Medical Leave Act (29 U.S.C. §2601, et seq.); the United States Constitution; the Civil Rights Act of 1991; the Civil Rights Acts of 1866 or
1871 (42 U.S.C. §§1981,1983,1985, et seq.); the New York State Human Rights Law; the New York City Human Rights Law; the New York Equal Pay Law; the New York Whistleblower Protection Law; the New York Law for the Protection of Persons with
a Disability; the New York Military Family Leave Law; New York Administrative Code; New York City Administrative Code; New Jersey Law Against Discrimination; New Jersey Conscientious Employee Protection Act; New Jersey Family Leave Act; New Jersey
Paid Family Leave Law; New Jersey Equal Pay Act; New Jersey Civil Rights Act; New Jersey Administrative Code). You are not releasing any rights or claims that arise following the date on which you execute this Agreement or which cannot be waived as
a matter of law. 

  
 3 

 (b) Notwithstanding the foregoing, the release and discharge set forth in Section 3(a) of
this Agreement, will not apply to (i) the obligations of the Company under Sections 1 and 2 of this Agreement, (ii) your vested benefits under the Company’s 401(k) Plan, (iii) the Company’s obligations under the Equity Plan
and related agreements (as described below in Section 4 of this Agreement), or (iv) your right to challenge the validity of the release and discharge under the Older Workers Benefit Protection Act (“OWBPA”). You further
agree that the payments and benefits described in Sections 1 and 2 of this Agreement will be in full satisfaction of any and all claims for payments or benefits, whether express or implied, that you may have against any Released Party arising out of
your employment relationship, your service as an employee or officer of the Company, and your resignation of employment therefrom. You hereby acknowledge and confirm that you are providing the release and discharge set forth in this Section 3
only in exchange for consideration that is in addition to anything of value to which you are already entitled. 
 (c) You represent and
agree that you have not filed any lawsuits against any Released Party, or filed or caused to be filed any charges or complaints against any Released Party with any municipal, state or federal agency charged with the enforcement of any law. Pursuant
to and as a part of your release and discharge of the Released Parties, you agree, to the extent permitted by applicable law, not to sue or file a charge or complaint against any Released Party in any forum or assist or otherwise participate
willingly or voluntarily in any claim, suit, action, investigation or other proceeding of any kind which relates to any matter that involves any Released Party, and that occurred up to and including the date of your execution of this Agreement,
unless as required to do so by court order, subpoena or other directive by a court, administrative agency or legislative body, other than to enforce the Agreement. This section is not intended to affect your right to file a charge with and/or
participate in an investigation or proceeding conducted by a governmental administrative agency (including without limitation the Equal Employment Opportunity Commission, National Labor Relations Board or other federal, state or local governmental
agency charged with the enforcement of any laws), although you agree that you are hereby waiving any right to receive money or any other relief in any action instituted on your behalf by any other person, entity or government agency. 

(d) You expressly understand and acknowledge that it is possible that unknown losses or claims exist or that present losses may have been
underestimated in amount or severity, and that you explicitly took that into account in determining the amount of consideration to be paid for the giving of this release and discharge, and a portion of said consideration and the mutual covenants
contained herein, having been agreed between the parties with the knowledge of the possibility of such unknown claims, were given in exchange for a full satisfaction and discharge of all such claims. 

(e) Nothing in the release and discharge set forth in this Section 3 will affect the Company’s obligation to indemnify, defend and
hold you harmless to the fullest extent allowable by the respective charter and by-laws with respect to your acts or omissions in your capacity as an officer of the Company. The Company will continue to maintain directors’ and officers’
liability insurance with respect to actions or omissions by you as an officer of the Company in the same manner that it maintains such insurance for other officers and directors. 

  
 4 

 4. Equity. Your separation pursuant to this Agreement will be treated as an “Involuntary Termination
without Cause” under the TSI Holdings’ 2006 Stock Incentive Plan (the “Equity Plan”). As a result, your options granted to you pursuant to the Equity Plan, to extent vested as of the Separation Date, will remain
outstanding for the post-termination exercise period specified in the Equity Plan (which is 90 days from the Separation Date). Any vested stock options will expire at the conclusion of such post-termination exercise period to the extent not
previously exercised, and that portion of the stock options that remain unvested as of the Separation Date and any shares of restricted Common Stock will be forfeited on the Separation Date without any payment. 

5. No Other Compensation or Benefits. Except as otherwise specifically provided herein, you will not be entitled to any compensation or benefits or to
participate in any past, present or future employee benefit programs or arrangements of the Company on or after the Separation Date, except as set forth in Section 2 of this Agreement. 

6. Return of Company Property. No later than the Separation Date, you hereby covenant and agree that you will deliver to the Company all Company
property and equipment in your possession or control, including, but not limited to, any and all records, manuals, customer lists, notebooks, computers, computer programs and files, Company credit cards, papers, electronically stored information and
documents kept or made by you in connection with your employment and you will not retain any copies thereof. You also represent that you have left intact all electronic Company documents or files, including those that you developed or helped
develop. You are required to return all such property whether or not you sign this Agreement. Notwithstanding the foregoing, you may retain your phone, phone number and ipad so long as the Company’s IT department has removed all Company
information from such devices. 
 7. Restrictive Covenants. You hereby affirm your ongoing obligations to the Company with respect to non-disclosure
of confidential information, non-solicitation and non-competition as set forth in Sections 6 and 7 of the Employment Agreement; provided, however, that the post-employment period of the “Non-compete Period” shall be reduced from eighteen
(18) months to twelve (12) months following your Separation Date. Sections 6 and 7 of the Employment Agreement are included herein by reference and remain in full force and effect, as amended hereby. For the avoidance of doubt, you hereby
acknowledge that your obligation not to compete with the Company applies to entities with headquarters located outside the metropolitan areas in which the Company is engaged in business (or has definitive plans to engage) but which have fitness
clubs within such metropolitan areas. 
 8. Non-Disparagement; Cooperation. 

(a) You understand and agree that as a condition for payment to you of the consideration herein described, you, on your behalf and on behalf
of your Representatives, will not (and your Representatives will not) at any time, except as may be required by law, engage in any form of conduct, or make any statements or representations that disparage or defame the Company or its management or
stockholders. 
 (b) From and after the Separation Date, you will (i) cooperate in all reasonable respects with the Company and its
respective directors, officers, attorneys and experts in 

  
 5 

 
connection with the conduct of any dispute, action, proceeding, investigation or litigation involving the Company, including, without limitation, any such dispute, action, proceeding,
investigation or litigation in which you are called to testify and (ii) until one year after the Separation Date, promptly respond to all requests by the Company relating to information concerning the Company which may be in your possession.
The Company will, as a condition to your obligations under this Section 8(b), reimburse you for any reasonable out of pocket expenses and costs incurred as a result of such cooperation (including all reasonable, out-of-pocket attorney fees),
provided that such expenses have been approved in writing in advance by an executive officer of the Company. 
 (c) You acknowledge that TSI
Holdings is required to disclose information about you in its Annual Report on Form 10-K, its Proxy Statement and in any other report(s) required to be filed with the Securities and Exchange Commission under the Securities Act of 1933, the
Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder. 
 9. Waiver of Rights. No delay or omission by the Company in
exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion will be effective only in that instance and will not be construed as a bar or waiver of any
right on any other occasion. 
 10. Applicable Law. All questions concerning the construction, validity and interpretation of this Agreement will be
governed by, and construed in accordance with, the domestic laws of the state of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New York. 
 11. Consent to Jurisdiction. In the event of any dispute,
controversy or claim between the Company and you in any way concerning, arising out of or relating to this Agreement (a “Dispute”), including without limitation any Dispute concerning, arising out of or relating to the
interpretation, application or enforcement of this Agreement, the parties hereby agree and consent to the Arbitration Policy of the Company to the extent it applies to the Dispute. If enforcement of the arbitration award is required or the Dispute
is not covered by the Company’s arbitration policy, the parties hereby (a) agree and consent to the personal jurisdiction of the courts of the State of New York located in New York County and/or the Federal courts of the United States of
America located in the Southern District of New York (collectively, the “Agreed Venue”) for resolution of any such Dispute, (b) agree that those courts in the Agreed Venue, and only those courts, shall have exclusive
jurisdiction to determine any Dispute, including any appeal, and (c) agree that any cause of action arising out of this Agreement shall be deemed to have arisen from a transaction of business in the State of New York. The parties also hereby
irrevocably (i) submit to the jurisdiction of any competent court in the Agreed Venue (and of the appropriate appellate courts therefrom), (ii) to the fullest extent permitted by law, waive any and all defenses the parties may have on the
grounds of lack of jurisdiction of any such court and any other objection that such parties may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court (including without limitation any defense that
any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum), and (iii) consent to service of process in any such suit, action or proceeding, anywhere in the world, whether within or without the
jurisdiction of any such court, in any manner provided by applicable law. Without limiting the foregoing, each party agrees that 

  
 6 

 
service of process on such party pursuant to a Notice shall be deemed effective service of process on such party. Any action for enforcement or recognition of any judgment obtained in connection
with a Dispute may be enforced in any competent court in the Agreed Venue or in any other court of competent jurisdiction. 
 In the event that either party
commences a litigation, arbitration, or an administrative action related to this Agreement against the other, the prevailing party shall be entitled to recover from the non-prevailing party all reasonable costs, expenses and fees, including
reasonable attorney’s fees, through all appeals in prosecuting or defending such action. For purposes hereof, the “prevailing party” shall be the party who receives substantially the relief sought as determined by the trier of fact.

 12. Entire Agreement/Severability. This Agreement and Sections 6 and 7 of the Employment Agreement (which are incorporated herein by reference and
remain in full force and effect, as amended hereby) constitute the sole and complete understanding and agreement between the parties with respect to the matters set forth herein, and there are no other agreements or understandings, whether written
or oral and whether made contemporaneously or otherwise. No term, condition, covenant, representation or acknowledgment contained in this Agreement may be amended unless in writing signed by both parties. If any section of this Agreement is
determined to be void, voidable or unenforceable, it will have no effect on the remainder of this Agreement which will remain in full force and effect; provided, however that if the release and discharge in Section 3 of this Agreement is
declared illegal or unenforceable and cannot be modified to be enforceable, then the entire Agreement shall be null and void, including the obligation to provide the separation benefits described in Section 2, and to the extent already made, it
shall be returned to the Company upon demand. 
 13. Periods for Review; Acceptance; and Revocation. You shall have twenty-one (21) days from
the date you receive this Agreement to consider the terms of this Agreement (the “Review Period”). In order to receive the benefits and payments provided for by Section 2 of this Agreement, you must execute this Agreement prior
to expiration of such agreement’s Review Period. The executed Agreement shall be returned to the Company, addressed to the Company, Attention: General Counsel, at the address specified in Section 20 of this Agreement so that it is received
any time on or before the expiration of the twenty-one (21) day Review Period. After executing this Agreement, you shall have seven (7) days (the “Revocation Period”) to revoke it by indicating your desire to do so in
writing addressed to and received by the General Counsel at the address set forth in Section 20 of this Agreement, no later than the seventh (7th) day following the date you executed
this Agreement. In the event you do not execute this Agreement before the expiration of the Review Period, or you revoke it during the Revocation Period, the obligations of the Company to make the payments and provide the benefits set forth in
Section 2 of this Agreement will automatically be deemed null and void . Moreover, no payments or benefits will be paid or provided under Section 2 of this Agreement, until this Agreement becomes effective by the parties signing it and you
not revoking this Agreement within the Revocation Period. 

  
 7 

 14. Voluntary Assent. By your signature on this Agreement, you affirm and acknowledge that: 

(a) you have read this Agreement, and understand all of its terms, including the release and discharge of claims set forth in Section 3
above; 
 (b) you have voluntarily entered into this Agreement and that you have not relied upon any representation or statement, written or
oral, not set forth in this Agreement; 
 (c) the only consideration for signing this Agreement is as set forth herein and that the
consideration received for executing this Agreement is greater than that to which you may otherwise be entitled; 
 (d) you have been given
the opportunity and you have been advised by the Company to have this Agreement reviewed by your attorney and/or tax advisor; and 
 (e) you
have been given up to twenty-one (21) days to consider and execute this Agreement and you understand that you have seven (7) days after executing it to revoke it in writing, and that, to be effective, such written revocation must be
received by the Company within the seven (7) day Revocation Period. 
 15. No Admission. Nothing contained in this Agreement, or the fact of its
submission to you, will constitute or be construed as an admission of liability or wrongdoing by either party. 
 16. Counterparts. The Agreement may
be executed in two (2) signature counterparts, each of which will constitute an original, but all of which taken together will constitute but one and the same instrument. 

17. Taxes; Section 409A. 
 (a) All
payments described in this Agreement will be subject to deduction for all required income and payroll taxes. 
 (b) It is intended that the
payments provided for in this Agreement are intended to comply with, or be exempt from, the terms of Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
The termination of your employment is intended to be a “separation of service” for purposes of Section 409A. Each individual payment of the separation payments described in Section 2 above shall be treated as a separate and
distinct payment. In addition, any expense reimbursement under this Agreement will be made on or before the last day of the taxable year following the taxable year in which such expense was incurred by you, and no such reimbursement or the amount of
expenses eligible for reimbursement in any taxable year will in any way affect the expenses eligible for reimbursement in any other taxable year. Notwithstanding any of the preceding, the Company makes no representations regarding the tax treatment
of any payments hereunder, and you will be responsible for any and all applicable taxes. 
 18. Breach of Agreement. In the event of any material
breach by you of any provision of this Agreement (including, without limitation, Section 7 or 8 (and including the agreements referenced and incorporated therein), which breach, if susceptible to cure, is not substantially cured within ten
(10) business days of the Company providing notice to you, in addition to any other remedy available to it, the Company will cease to have any obligation to make payments or provide benefits to you under this Agreement. For the sake of clarity,
the transition services set 

  
 8 

 
forth above in paragraph 1(b) are susceptible to cure and you will be afforded the opportunity to materially cure any reasonable breaches to which you have been afforded prior written notice in
accordance with this paragraph. You agree that in the event you bring a claim covered by the release in Section 3 of this Agreement in which you seek damages against the Company or in the event you seek to recover against any of such entities
in any claim brought by a governmental agency on your behalf, this Agreement shall serve as a complete defense to such claims. In the event of any breach by the Company, you will provide the Company with notice of such breach, and, if such breach is
susceptible to cure, the Company will have ten (10) business days to cure such breach. 
 19. Assignment. This Agreement may be assigned by TSI
Holdings to an entity which is an affiliate, and will be assigned to any successor in interest to substantially all of the business operations of TSI Holdings, provided, however that TSI Holdings shall remain responsible for any and all payments
hereunder in the event the assignee does not make any payments when due. Upon such assignment, the rights and obligations of TSI Holdings hereunder will become the rights and obligations of such affiliate or successor person or entity. This
Agreement will be binding upon the successors, and assigns of TSI Holdings. If you shall die, all amounts then payable to you hereunder shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if
there be no such devisee, legatee or designee, to your estate. 
 20. Notices. Any notices required or made pursuant to this Agreement will be in
writing and will be deemed to have been given when delivered or mailed by United States certified mail, return receipt requested, postage prepaid, as follows: if to you, to the address in the Company’s payroll records; if to the Company, at 5
Penn Plaza, 4th Floor, New York, NY 10001, Attn: General Counsel, or to such other address as either party may furnish to the other in writing in accordance with this Section 20. Notices of change of address will be effective only upon receipt.

 Please evidence your agreement by signing the acknowledgement below. 

TOWN SPORTS HOLDINGS INTERNATIONAL, INC. 
  

			
	By:		 /s/ David Kastin

	Name:		David Kastin
	Title:		Senior Vice President – General Counsel

  
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	Acknowledged and accepted by:
	
	 /s/ Daniel Gallagher

	Daniel Gallagher

  
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