Document:

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT is made as of the 12th day of August, 2013 (the “Effective Date”), by and among Citizens Bancshares Corporation, a bank holding company organized under the laws of the State of Georgia (the “Company”), Citizens Trust Bank, a Georgia bank (the “Bank” and collectively with the Company, the “Employer”), and Cynthia N. Day (the “Executive”).

 

BACKGROUND:

 

The Company and the Bank each currently employ the Executive as its President and Chief Executive Officer.  The Company, the Bank and the Executive now desire to memorialize the terms and conditions of their employment relationships, as set forth below.

 

AGREEMENT:

 

In consideration of the above premises and the mutual agreements hereinafter set forth, effective as of the Effective Date, the parties hereby agree as follows:

 

1.                                      Duties.

 

1.1                               Positions.  The Executive shall be employed as the President and Chief Executive Officer of the Company and the President and Chief Executive Officer of the Bank and shall perform and discharge faithfully the duties and responsibilities which may be assigned to the Executive from time to time in connection with the conduct of the businesses.  The duties and responsibilities of the Executive shall be commensurate with similar positions at other publicly-traded community bank holding companies and community banks. The Executive shall report directly to the Board of Directors.

 

1.2                               Full-Time Status.  In addition to the duties and responsibilities specifically assigned to the Executive pursuant to Section 1.1 hereof, the Executive shall:

 

(a)                subject to Section 1.3, devote substantially all of the Executive’s time, energy and skill during regular business hours to the performance of the duties of the Executive’s employment (reasonable vacations and reasonable absences due to illness excepted) and faithfully and industriously perform such duties;

 

(b)                diligently follow and implement all reasonable and lawful management policies and decisions communicated to the Executive by the Board of Directors; and

 

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(c)                 timely prepare and forward to the Board of Directors all reports and accountings as may be requested of the Executive.

 

1.3                               Permitted Activities. The Executive shall devote substantially all of the Executive’s entire business time, attention and energies to the Business of the Employer and shall not during the Term be engaged (whether or not during normal business hours) in any other significant business or professional activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage, but as long as the following activities do not interfere with the Executive’s obligations to the Employer, this shall not be construed as preventing the Executive from:

 

(a)                investing the Executive’s personal assets in any manner which will not require any services on the part of the Executive in the operation or affairs of the entity and in which the Executive’s participation is solely that of an investor; provided that such investment activity following the Effective Date shall not result in the Executive owning beneficially at any time one percent (1%) or more of the equity securities of any Competing Business; or

 

(b)                participating in civic and professional affairs and organizations and conferences, preparing or publishing papers or books, or teaching or serving on the board of directors of an entity so long as any such participation does not interfere with the ability of the Executive to effectively discharge the Executive’s duties hereunder; provided further, that the Board of Directors may direct the Executive in writing to resign from any such organization and/or cease such activities should the Board of Directors reasonably conclude that continued membership and/or activities of the type identified would not be in the best interests of the Employer.

 

2.                                      Term.  This Agreement shall remain in effect for the Term.  If the Agreement is in effect at the end of the Initial Term, the Term shall be renewed automatically for successive twelve-month periods unless and until one party gives written notice to the other of its or the Executive’s intent not to extend this Agreement with such written notice to be given not less than ninety (90) days prior to the end of the Initial Term or any such twelve-month period.  In the event such notice of non-extension is properly given, this Agreement shall terminate at the end of the remaining Term then in effect, subject to earlier termination in connection with the termination of the Executive’s employment pursuant to Section 4 hereof.  In the event that either party provides notice of the termination of the Agreement, but the Executive continues to provide services to the Employer as an employee, such post-expiration employment shall be deemed to be performed on an “at-will” basis and either party may thereafter terminate such employment with or without notice and for any or no reason and without any obligations determined by reference to this Agreement.

 

3.                                      Compensation.  The Employer shall pay or otherwise provide the Executive the following during the Term, except as otherwise provided below:

 

3.1                               Annual Base Salary.  The Executive shall be compensated at an annual base rate of Two Hundred Eighty Thousand and No/100 Dollars ($280,000.00) (the “Annual Base Salary”).  The Executive’s Annual Base Salary shall be reviewed by the Board of Directors at

 

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least annually for adjustments, as determined by the Board of Directors based on an evaluation of the Executive’s performance.  The Executive’s Annual Base Salary shall be payable in accordance with the Employer’s normal payroll practices.

 

3.2                               Annual Incentive Compensation.

 

(a)                                 The Executive shall be eligible to receive annual bonus compensation, if any, as may be determined by, and based on performance measures established by, the Board of Directors upon the recommendation of the Executive Committee of the Board of Directors (the “Committee”) consistent with the Employer’s strategic planning process and in consultation with the Executive, pursuant to any incentive compensation program as may be adopted from time to time by the Board of Directors, based on recommendations by the Committee (an “Annual Bonus”).

 

(b)                                 Any Annual Bonus earned shall be payable in cash in the year following the year in which the bonus is earned in accordance with the Employer’s normal practices for the payment of short-term incentives.  The payment of any Annual Bonus shall be subject to any approvals or non-objections required by any regulator of the Employer, and it is understood by the parties that it is contemplated that Executive will not be eligible to receive any such Annual Bonus or other short-term incentive compensation while the Company or any Affiliate is subject to restrictions imposed on the Company or any Affiliate by the United States Department of Treasury (“Treasury”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (the “FDIC”), or any other bank regulatory authority, or otherwise restricted under applicable law.

 

(c)                                  The provisions of this Section 3.2 shall become effective from and after the expiration of the TARP Covered Period.  The “TARP Covered Period” shall mean the period during which any obligation of the Company arising from financial assistance provided under the Treasury’s Troubled Asset Relief Program (“TARP”) remains outstanding; provided, however, that the TARP Covered Period shall not include any period during which the federal government only holds warrants to purchase common stock of the Company.

 

3.3                               Equity Compensation.  The Executive shall be entitled to such long-term equity incentive awards in the discretion of the Board of Directors of the Company (or any committee thereof) based upon and/or subject to any performance measures as may be established by the granting entity; provided, however, that, in general, awards shall be made at such times and shall be subject to such terms and conditions that are no less favorable than awards granted to similarly situated executives.  The granting of any and all forms of long-term equity compensation to the Executive is subject to applicable restrictions imposed by federal and state banking laws and, with respect to any award granted during the TARP Covered Period, the type and terms of any such award shall be consistent with the restrictions imposed on the Company or any Affiliate by Treasury.

 

3.4                               Supplemental Executive Retirement Plan.  The Executive is, and shall remain, a participant in the Bank’s Supplemental Executive Retirement Plan, subject to the terms and conditions of that plan, except as modified by this Section 3.4.  Following the

 

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earlier of the expiration of the TARP Covered Period or the first day of the calendar year following calendar year 2013 with respect to which the Executive ceases to be the Employer’s “most highly compensated employee,” within the meaning of 31 C.F.R. Part 30.1, the Employer will increase the Executive’s benefit level under the Bank’s Supplemental Executive Retirement Plan to reflect a benefit level that, in the reasonable judgment of the Employer and consistent with past practice, is commensurate with the Executive’s status as the President and Chief Executive Officer of the Employer.  If the TARP compensation restrictions cease to be applicable to the Executive due solely to the Executive no longer being considered the Employer’s “most highly compensated employee,” such restrictions shall again become applicable to the Executive if the Executive again becomes the Employer’s “most highly compensated employee” during any portion of the TARP Covered Period.

 

3.5                               Employee Insurance Bonus Plan.  The Executive is, and shall remain, a participant in the Bank’s Employee Insurance Bonus Plan, subject to the terms and conditions of that plan, except as modified by this Section 3.5.  Effective as of January 1, 2013, the Executive’s participation in the Employee Insurance Bonus Plan was suspended to comply with the compensation restrictions under TARP.  Following the earlier of the expiration of the TARP Covered Period or the first day of the calendar year following calendar year 2013 with respect to which the Executive ceases to be the Employer’s “most highly compensated employee,” within the meaning of 31 C.F.R. Part 30.1, the Executive’s suspension from participation in the plan shall be lifted and the Executive shall thereafter on a prospective basis receive the premium payment assistance contemplated by the terms of the plan with respect to the following life insurance policy:

 

(a)                                 Northwestern Mutual Life Insurance Company Policy No. 18 279 661, Policy Date:  August 22, 2008.

 

(b)                                 Northwestern Mutual Life Insurance Company Policy No. 19 981 949, Policy Date:  August 8, 2012.

 

If the Executive’s suspension from the plan is lifted due solely to the Executive no longer being considered the Employer’s “most highly compensated employee,” the Executive shall again be suspended from participation in the plan if the Executive again becomes the Employer’s “most highly compensated employee” during any portion of the TARP Covered Period.

 

3.6                               Employee Stock Purchase Plan.  The Executive is, and shall remain, a participant in the Company’s Employee Stock Purchase Plan, subject to the terms and conditions of that plan, except as modified by this Section 3.6.  Effective as of January 1, 2013, the Executive’s participation in the Employee Stock Purchase Plan was suspended to comply with the compensation restrictions under TARP.  Following the earlier of the expiration of the TARP Covered Period or the first day of the calendar year following calendar year 2013 with respect to which the Executive ceases to be the Employer’s “most highly compensated employee,” within the meaning of 31 C.F.R. Part 30.1, the Executive’s suspension from participation in the plan shall be lifted and the Executive shall thereafter have the opportunity to participate in the plan on the same terms and conditions as any other employee, subject to the terms and conditions of that plan.  If the Executive’s suspension from the plan is lifted due solely to the Executive no longer being considered the Employer’s

 

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“most highly compensated employee,” the Executive shall again be suspended from participation in the plan if the Executive again becomes the Employer’s “most highly compensated employee” during any portion of the TARP Covered Period.

 

3.7                               Change in Control Agreement.  The Change in Control Agreement (as defined in Section 19 below) is hereby amended in the following respects:

 

(a)                                 The first paragraph of Section 3(a) of the Change in Control Agreement is amended in its entirety, as follows:

 

“(a)                           If, within two (2) months before or two (2) years following a Change in Control, the Executive experiences a Termination of Employment due to either (i) an involuntarily termination by the Company or one of its affiliates without Cause or (ii) a resignation by the Executive for Good Reason (no later than six (6) months after the occurrence of the most recent event constituting Good Reason), the Company shall pay to the Executive an amount equal to the sum of (1) two and one half (2.5) times the Executive’s annual base salary in effect at the time of the Termination of Employment plus (2) the value of her accrued, but unused, vacation as determined as of the effective date of her Termination of Employment (the ‘Lump Sum Benefit’).”

 

(b)                                 A new final paragraph is added to Section 3(a) of the Change in Control Agreement, as follows:

 

“Notwithstanding the foregoing, if the Lump Sum Benefit becomes payable in connection with a Termination of Employment occurring within two (2) months preceding the Change in Control, the Lump Sum Benefit shall be reduced by any severance amount payable to the Executive under Section 4.2 of the Employment Agreement by and among the Executive, the Company and Citizens Trust Bank.  Such reduction shall not affect the terms of the severance payment due under such Employment Agreement and shall not affect the form or timing of the payment of the reduced Lump Sum Benefit as described in Section 3(c) below.”

 

3.8                               Automobile Usage.  The Employer will provide the Executive with the use of an Employer-owned automobile.

 

3.9                               Business and Professional Education Expenses; Memberships.  Subject to the reimbursement policies from time to time adopted by the Board of Directors and consistent with the annual budget approved for the period during which an expense was incurred, the Employer specifically agrees to reimburse the Executive for reasonable and necessary business expenses incurred by the Executive in the performance of the Executive’s duties hereunder; provided, however, that as a condition of any such reimbursement, the Executive submit verification of the nature and amount of such expenses in accordance with such reimbursement policies and in sufficient detail to comply with rules and regulations promulgated by the United States Treasury Department.  In addition, the Employer shall reimburse the Executive for membership in such professional, civic and social organizations to the extent such activities are consistent with the Employer’s strategic objectives, unless and until,

 

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with respect to any such membership, the Board of Directors may disapprove reimbursements for continuing membership in any such organization.  The Executive acknowledges that the Employer makes no representation with respect to the taxability or nontaxability of the benefits provided under this Section 3.9.

 

3.10                        Paid Vacation.  The Executive shall be entitled annually to no less than four (4) weeks of paid vacation and six (6) additional days of paid leave.  The provisions of this Section 3.10 shall apply notwithstanding any less generous paid leave policy then maintained by the Employer, but the use of Executive’s paid leave shall otherwise be determined in accordance with the Employer’s paid leave policy as in effect from time to time.

 

3.11                        Benefits.  In addition to the benefits specifically described in this Agreement, the Executive shall be entitled to such other benefits as may be available from time to time to similarly situated employees, including, but not limited to a 401(k) plan.  All such benefits shall be awarded and administered in accordance with the written terms of any applicable benefit plan or, if no written terms exist, the Employer’s standard policies and practices relating to such benefit.

 

3.12                        Withholding.  The Employer may deduct from each payment of compensation hereunder all amounts required to be deducted and withheld in accordance with applicable federal and state income, FICA and other withholding requirements.

 

3.13                        Reimbursement of Expenses; In-Kind Benefits.  All expenses eligible for reimbursements described in this Agreement must be incurred by the Executive during the Term of this Agreement to be eligible for reimbursement.  Any in-kind benefits provided by the Employer must be provided during the Term of this Agreement.  The amount of reimbursable expenses incurred, and the amount of any in-kind benefits provided, in one taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits provided, in any other taxable year.  Each category of reimbursement shall be paid as soon as administratively practicable, but in no event shall any such reimbursement be paid after the last day of the calendar year following the calendar year in which the expense was incurred.  Neither rights to reimbursement nor in-kind benefits are subject to liquidation or exchanges for other benefits.

 

3.14                        Clawback of Compensation.  The Executive agrees to repay any compensation previously paid or otherwise made available to the Executive that is subject to recovery under any applicable law (including any rule of any exchange or service through which the securities of the Company are then traded) where such compensation was in excess of what should have been paid or made available because the determination of the amount due was based, in whole or in part, on materially inaccurate financial information of the Employer or was in excess of, or a type of compensation limited by, the compensation limitations imposed under TARP.  The Executive agrees to return promptly any such compensation identified by the Employer.  If the Executive fails to return such compensation promptly, the Executive agrees that the amount of such compensation may be deducted from any and all other compensation owed to the Executive.  The Executive acknowledges that the Employer may take appropriate disciplinary action (up to, and including, Termination of Employment) if the Executive fails to return such compensation.  The provisions of this

 

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Section 3.14 shall be modified to the extent, and remain in effect for the period, required by applicable law.

 

3.15                        Apportionment of Obligations.  The obligations for the payment of the amounts otherwise payable pursuant to this Section 3 shall be apportioned between the Company and the Bank as they may agree from time to time in their sole discretion.

 

4.                                      Termination; Suspension or Reduction of Benefits.

 

4.1                               Termination of Employment.  During the Term, the Executive’s Termination of Employment under this Agreement may only occur in accordance with Section 2; provided, however, that the Termination of Employment of the Executive and this Agreement may be effected immediately in the event of (a) an involuntary termination of the Executive by the Employer for Cause; (b) an involuntary termination of the Executive by the Employer without Cause; (c) a resignation by the Executive for Good Reason; (d) the Executive’s death or Disability; or (e) the expiration of the Term.

 

4.2                               Severance.  If, during the Term but prior to, or more than two (2) years following, a Change in Control, the Executive experiences a Termination of Employment by the Employer without Cause pursuant to Section 4.1(b) or the Executive resigns the Executive’s employment with the Employer for Good Reason pursuant to Section 4.1(c), then, upon the Executive’s Termination of Employment, for a period of twelve (12) months thereafter, the Employer will pay severance to the Executive, with the amount of each monthly payment equal to one-twelfth of the Annual Base Salary in effect as of the effective date of the Termination of Employment.  Monthly severance payments, or portions thereof, shall be paid in accordance with the Employer’s regular payroll practices, commencing with the first payroll date that is not more than sixty (60) days following the date of the Executive’s Termination of Employment.  In addition, for the duration of the applicable COBRA health continuation coverage period, subject to earlier expiration if the Executive becomes eligible for substantially similar benefits with a successor employer and subject further to applicable law, including the provisions of any insurance policy pursuant to which benefits are provided under any group health plan maintained by the Bank, the Bank shall pay, on an after-tax basis, for the cost of any COBRA health continuation coverage for which she is eligible and as elected by the Executive on behalf of herself and her eligible dependents for whom coverage is in effect as of the effective date of termination.

 

4.3                               Death.  In the event the Executive’s Termination of Employment is due to death, the Employer shall have no further obligations to the Executive or the Executive’s estate with respect to this Agreement, except for the payment of any amount earned and owing under Section 3 through the effective date of the termination of the Agreement.  In addition, the Employer shall reimburse the Executive’s surviving eligible dependents for the cost of the premiums associated with any continued health care coverage to which they are otherwise entitled under the Employer’s group health plan for a period not to exceed one (1) year from the Executive’s death.

 

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4.4                               Disability.  In the event of the Executive’s Disability, the Employer shall have no further obligations to the Executive with respect to this Agreement, except for the payment of any amount earned and owing under Section 3 through the effective date of the termination of the Agreement.  In addition, the Executive may be eligible for long-term disability benefits provided in accordance with any group disability insurance policy maintained by the Employer in which the Executive is a participant and which is in effect at the time of the termination of this Agreement.

 

4.5                               Effect of Termination of Employment.

 

(a)                                 Upon Executive’s Termination of Employment hereunder for any reason, the Employer shall have no further obligations to the Executive or the Executive’s estate with respect to this Agreement, except for the payment of any amount earned and owing under Section 3 through the effective date of the termination of the Agreement and, if applicable, any payments set forth in Section 4.2, Section 4.3 or Section 4.4, if applicable.

 

(b)                                 Notwithstanding any other provision of this Agreement to the contrary, as a condition of the Employer’s payment of any amount in connection with the Executive’s Termination of Employment, the Executive must execute within such period of time following Termination of Employment as is permitted by the Employer (and not timely revoke during any revocation period provided pursuant to such release) a release and non-disparagement agreement in a form which shall be reasonable and consistent with customary practices in the banking industry.  Any payments of severance shall accrue from the date of the Executive’s Termination of Employment, with any accrued but unpaid severance being paid on the date of the first payment as provided in Section 4.2.

 

(c)                                  Any purported termination of the Executive’s employment which does not rise to the level of a Termination of Employment shall not entitle the Executive to any of the payments or benefits described in Section 4.

 

(d)                                 If the Executive is a member of the Board of Directors and the Executive’s employment is terminated by the Employer or by the Executive pursuant to Section 4.1, the Executive shall immediately resign from the Executive’s position on the Board(s) of Directors, effective no later than the date the Executive’s employment is terminated.

 

(e)                                  Notwithstanding any provision in the Agreement to the contrary, to the extent necessary to avoid the imposition of tax on the Executive under Code Section 409A, any payments that are otherwise payable to the Executive within the first six (6) months following the effective date of Termination of Employment, shall be suspended and paid as soon as practicable following the end of the six-month period following such effective date if, immediately prior to the Executive’s Termination of Employment, the Executive is determined to be a “specified employee” (within the meaning of Code Section 409A(a)(2)(B)(i)) of the Employer (or any related “service recipient” within the meaning of Code Section 409A and the regulations thereunder).  Any payments suspended by operation of the foregoing

 

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sentence shall be paid as a lump sum within thirty (30) days following the end of such six-month period.  Payments (or portions thereof) that would be paid latest in time during the six-month period will be suspended first.

 

(f)                                   The severance obligations under Section 4 shall become effective only from and after the expiration of the TARP Covered Period.  The Executive understands and acknowledges that the compensatory arrangement in favor of the Executive as set forth under Section 4 may, at the time payment is to commence, be subject to the prohibition on “golden parachute payments,” as described by the TARP Guidance, and, in that event, such obligations of the Employer under this Agreement shall be deemed null and void.

 

4.6                               Regulatory Limitation.

 

(a)                                 FDIC Golden Parachute Limitations.  Notwithstanding anything contained in this Agreement to the contrary, no payments shall be made pursuant to Section 4 or any other provision herein or otherwise in contravention of the requirements of Section 2[18(k)] of the Federal Deposit Insurance Act (the “FDIA”) (12 U.S.C. 1828(k)) and Part 359 of the FDIC Rules and Regulations, 12 C.F.R. 359 (collectively, the “FDIC Golden Parachute Restrictions”).  In the event any such payments become due and payable under this Agreement at a time when such payments would constitute “golden parachute payments,” other than “permissible golden parachute payments,” within the meaning of the FDIC Golden Parachute Restrictions, the obligation on the part of the Employer to make any such payments shall become null and void.  In addition, nothing in the preceding sentence shall impose an obligation on the part of the Employer to petition the FDIC (and/or other regulatory agency having jurisdiction over the Employer) for permission to treat any such payments as “permissible golden parachute payments.”

 

(b)                                 TARP Compensation Restrictions.  The Executive understands and acknowledges that, as a condition of receiving TARP financial assistance, the Company is required to comply with the compensation requirements established by the Emergency Economic Stabilization Act of 2008, as amended (“EESA”), and all rules and regulations now or hereafter promulgated by the responsible agencies of the United States government under EESA (collectively, the “TARP Guidance”).  In the event the Executive is or becomes, or is reasonably anticipated to become, a “senior executive officer” or a “most highly compensated employee” (as contemplated by the TARP Guidance), the Executive agrees to enter into a TARP Restricted Employee Agreement, in the form customarily employed by the Employer, as modified from time to time by the Employer to reflect any revisions to the TARP Guidance.  In the event the Executive is already party to a TARP Restricted Employee Agreement with the Company, the Executive agrees to such modifications to that agreement as may be made by the Employer from time to time to reflect any revisions to the TARP Guidance.  The parties further agree to make such modifications to this Agreement as the Employer reasonably determines are necessary to comply with the TARP Guidance.

 

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(c)                                  Other Bank Regulatory Limitations.  If the Executive is removed from office and/or permanently prohibited from participating in the conduct of the affairs of any depository institution by an order issued under Section 8(e) or 8(g) of the FDIA (12 U.S.C. 1818(e) and (g)), the Employer shall have the right to terminate all obligations of the Employer under this Agreement as of the effective date of such order, except for the payment of Annual Base Salary due and owing under Section 3.1 on the effective date of said order, and reimbursement under Section 3.9 of expenses incurred as of the effective date of termination.  If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e) or 8(g) of the FDIA (12 U.S.C. 1818(e) and (g)), the Employer shall have the right to suspend all obligations of the Employer under this Agreement as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Employer shall reinstate prospectively (in whole or in part) any of its obligations which were suspended.  If the FDIC is appointed receiver or conservator under Section 11(c) of the FDIA (12 U.S.C. 1821(c)) of the Company or any depositary institution controlled by the Company, the Employer shall have the right to terminate all obligations of the Employer under this Agreement as of the date of such receivership or conservatorship, other than any rights of the Executive that vested prior to such appointment.  If the Employer is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but the vested rights of the parties shall not be affected.  If the FDIC provides open bank assistance under Section 13(c) of the FDIA (12 U.S.C. 1823(c)) to the Company or any depositary institution controlled by the Company, but excluding any such assistance provided to the industry generally, the Employer shall have the right to terminate all obligations of the Employer under this Agreement as of the date of such assistance, other than any rights of the Employee that vested prior to the FDIC action.  If the FDIC requires a transaction under Section 13(f) or 13(k) of the FDIA (12 U.S.C. 1823(f) and (k)) by the Company or any depository institution controlled by the Company, the Employer shall have the right to terminate all obligations of the Employer under this Agreement as of the date of such transaction, other than any rights of the Employee that  vested  prior  to  the  transaction.  Notwithstanding  the  foregoing  provisions  of  this  Section  4.6(c),  any  vested  rights  of  the  Executive may be subject to such modifications that are consistent with the authority of the FDIC.

 

(d)                                 State Banking Limitations.  All obligations under this Agreement are further subject to such conditions, restrictions, limitations and forfeiture provisions as may separately apply pursuant to any applicable state banking laws.

 

5.                                      Employer Information.

 

5.1                               Ownership of Employer Information.   All Employer Information received or developed by the Executive or by the Employer while the Executive is employed by the Employer will remain the sole and exclusive property of the Employer.

 

5.2                               Obligations of the Executive.  The Executive agrees:

 

(a)                                 to hold Employer Information in strictest confidence;

 

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(b)                                 not to use, duplicate, reproduce, distribute, disclose or otherwise disseminate Employer Information or any physical embodiments of Employer Information to any unauthorized recipient; and

 

(c)                                  in any event, not to take any action causing or fail to take any action necessary in order to prevent any Employer Information from losing its character or ceasing to qualify as Confidential Information or a Trade Secret;

 

provided, however, that none of the foregoing obligations shall preclude the Executive from making any disclosures of Employer Information required by law.  This Section 5 shall survive for a period of two (2) years following termination of this Agreement for any reason with respect to Confidential Information, and shall survive termination of this Agreement for any reason for so long as is permitted by applicable law, with respect to Trade Secrets.

 

5.3                               Delivery upon Request or Termination.  Upon request by the Employer, and in any event upon the Executive’s Termination of Employment with the Employer, the Executive will promptly deliver to the Employer all property belonging to the Employer, including, without limitation, all Employer Information then in the Executive’s possession or control.

 

6.                                      Non-Competition.  The Executive agrees that during the Executive’s employment by the Employer hereunder, and for the duration of the Post-Termination Period following any Termination of Employment (other than a voluntary resignation without Good Reason that becomes effective at least two (2) months prior to a Change in Control), the Executive will not (except on behalf of or with the prior written consent of the Employer), within the Area, either directly or indirectly, on the Executive’s own behalf or in the service or on behalf of others, perform for any Competing Business any services which are the same as or essentially the same as the services the Executive provided for the Employer.

 

7.                                      Non-Solicitation of Customers.  The Executive agrees that during the Executive’s employment by the Employer hereunder, and in the event of the Executive’s Termination of Employment, regardless of the reason, for the duration of the Post-Termination Period, the Executive will not (except on behalf of or with the prior written consent of the Employer) on the Executive’s own behalf or in the service or on behalf of others, solicit, divert or appropriate or attempt to solicit, divert or appropriate, any business from any of the Employer’s customers, including prospective customers actively sought by the Employer, with whom the Executive has or had material contact during the last two (2) years of the Executive’s employment with Employer, for purposes of providing products or services that are competitive with those provided by the Employer.

 

8.                                      Non-Solicitation of Employees.  The Executive agrees that during the Executive’s employment by the Employer hereunder, and in the event of the Executive’s Termination of Employment, regardless of the reason, for the duration of the Post-Termination Period, the Executive will not (except on behalf of or with the prior written consent of the Employer) on the Executive’s own behalf or in the service or on behalf of others, solicit, recruit or hire away or attempt to solicit, recruit or hire away, any employee of the Employer with whom the Executive had material contact during the last two (2) years of the Executive’s employment,

 

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whether or not such employee is a full-time employee or a temporary employee of the Employer, such employment is pursuant to written agreement, for a determined period, or at will.

 

9.                                      Non-disparagement.  The Executive agrees that during the Executive’s employment by the Employer hereunder, and for a period of two (2) years thereafter, the Executive will not make any untruthful statement (written or oral) that could reasonably be perceived as disparaging to the Employer or any Affiliate.

 

10.                               Remedies.  The Executive agrees that the covenants contained in Sections 5 through 9 of this Agreement are of the essence of this Agreement; that each of the covenants is reasonable and necessary to protect the business, interests and properties of the Employer, and that irreparable loss and damage will be suffered by the Employer should the Executive breach any of the covenants.  Therefore, the Executive agrees and consents that, in addition to all the remedies provided by law or in equity, the Employer shall be entitled to a temporary restraining order and temporary and permanent injunctions to prevent a breach or contemplated breach of any of the covenants.  If the Executive breaches the Executive’s obligations pursuant to Sections 5, 6, 7, 8 and/or 9 hereof, the Executive will forfeit any payments owed to the Executive which have not been paid.  The Executive further agrees that should the Executive breach any of the covenants contained in Sections 5, 6, 7, 8 and/or 9 hereof, the Executive shall repay to the Employer any amounts previously received by the Executive pursuant to Section 4 that are attributable to that portion of the payments paid for the period during which the Executive was in breach of any of the covenants.  The Employer and the Executive agree that all remedies available to the Employer shall be cumulative.

 

11.                               Severability.  The parties agree that each of the provisions included in this Agreement is separate, distinct and severable from the other provisions of this Agreement and that the invalidity or unenforceability of any Agreement provision shall not affect the validity or enforceability of any other provision of this Agreement.  Further, if any provision of this Agreement is ruled invalid or unenforceable by a court of competent jurisdiction because of a conflict between the provision and any applicable law or public policy, the provision shall be redrawn to make the provision consistent with, and valid and enforceable under, the law or public policy.

 

12.                               No Set-Off by the Executive.  The existence of any claim, demand, action or cause of action by the Executive against the Employer whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by the Employer of any of its rights hereunder.

 

13.                               Notice.  All notices, requests, waivers and other communications required or permitted hereunder shall be in writing and shall be either personally delivered, sent by reputable overnight courier service or mailed by first class mail, return receipt requested, to the recipient at the address below indicated:

 

	
If   to the Company:
    	
 
    	
Citizens   Bancshares Corporation
    
	
 
    	
 
    	
Attn:   Chairman, Board of Directors
    
	
 
    	
 
    	
75   Piedmont Avenue
    
	
 
    	
 
    	
Atlanta,   GA 30303
    

 

12

 

	
 
    	
 
    	
 
    
	
If   to the Bank:
    	
 
    	
Citizens   Bancshares Corporation
    
	
 
    	
 
    	
Attn:   Chairman, Board of Directors
    
	
 
    	
 
    	
75   Piedmont Avenue
    
	
 
    	
 
    	
Suite 1200
    
	
 
    	
 
    	
Atlanta,   GA 30303
    
	
 
    	
 
    	
 
    
	
If   to the Executive:
    	
 
    	
3687   Spring Hill Road, S.E.
    
	
 
    	
 
    	
Smyrna,   GA 30080
    

 

or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party.  All such notices, requests, waivers and other communications shall be deemed to have been effectively given:  (a) when personally delivered to the party to be notified; (b) when sent by confirmed facsimile to the party to be notified; (c) five (5) business days after deposit in the United States Mail postage prepaid by certified or registered mail with return receipt requested at any time other than during a general discontinuance of postal service due to strike, lockout, or otherwise (in which case such notice, request, waiver or other communication shall be effectively given upon receipt) and addressed to the party to be notified as set forth above; or (d) two (2) business days after deposit with a national overnight delivery service, postage prepaid, addressed to the party to be notified as set forth above with next-business-day delivery guaranteed. A party may change that party’s notice address given above by giving the other party ten (10) days’ written notice of the new address in the manner set forth above.

 

14.                               Assignment.  The rights and obligations of the Employer under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Employer, as applicable, including without limitation, a purchaser of all or substantially all the assets of the Employer.  If the Agreement is assigned pursuant to the foregoing sentence, the assignment shall be by novation and the Employer shall have no further liability hereunder, and the successor or assign, as applicable, shall become the “Employer” hereunder, but the Executive will not be deemed to have experienced a Termination of Employment by virtue of such assignment.  The Agreement is a personal contract and the rights and interest of the Executive may not be assigned by the Executive.  This Agreement shall inure to the benefit of and be enforceable by the Executive and the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

 

15.                               Waiver.  A waiver by one party to this Agreement of any breach of this Agreement by any other party to this Agreement shall not be effective unless in writing, and no waiver shall operate or be construed as a waiver of the same or another breach on a subsequent occasion.

 

16.                               Mediation.  Except with respect to Sections 5 through 10 and 22 herein, and as provided in Section 17 hereof, if any dispute arises out of or relates to this Agreement, or a breach thereof, and if the dispute cannot be settled through direct discussions between the parties, the parties agree to first endeavor to settle the dispute in an amicable manner by non-binding mediation in accordance with the rules of alternative dispute resolution of the State of Georgia for the judicial circuit containing Fulton County, Georgia before resorting to any other process for resolving the dispute.

 

13

 

17.                               Applicable Law and Choice of Forum.  This Agreement shall be construed and enforced under and in accordance with the laws of the State of Georgia.  The parties agree that any appropriate state court located in Fulton County, Georgia or federal court for the Northern District of Georgia shall have exclusive jurisdiction of any case or controversy arising under or in connection with this Agreement shall be a proper forum in which to adjudicate such case or controversy.  The parties consent and waive any objection to the jurisdiction or venue of such courts.

 

18.                               Interpretation.  Words importing any gender include all genders.  Words importing the singular form shall include the plural and vice versa.  The terms “herein,” “hereunder,” “hereby,” “hereto,” “hereof” and any similar terms refer to this Agreement.  Any captions, titles or headings preceding the text of any article, section or subsection herein are solely for convenience of reference and shall not constitute part of this Agreement or affect its meaning, construction or effect.

 

19.                               Entire Agreement; Cancellation of Participation Agreement.  This Agreement embodies the entire and final agreement of the parties on the subject matter stated in this Agreement.  No amendment or modification of this Agreement shall be valid or binding upon the Employer or the Executive unless made in writing and signed by all parties.  All prior understandings and agreements relating to the subject matter of this Agreement are hereby expressly terminated.  Notwithstanding the provisions of this Section 19, the following agreements remain in effect except to the extent expressly modified herein:

 

(a)                                 the Change in Control Agreement between the Company and the Executive, dated December 1, 2005, as amended by the First Amendment thereto, dated December 31, 2008, is unaffected by the terms of this Agreement (the “Change in Control Agreement”).

 

(b)                                 the Nonqualified Stock Option Award issued pursuant to Citizens Bancshares Corporation 1999 Stock Incentive Plan, dated April 25, 2005, originally representing the opportunity to purchase up to 1,400 shares of Company common stock.

 

(c)                                  the Nonqualified Stock Option Award issued pursuant to Citizens Bancshares Corporation 1999 Stock Incentive Plan, dated May 1, 2006, originally representing the opportunity to purchase up to 1,661 shares of Company common stock.

 

(d)                                 the Nonqualified Stock Option Award issued pursuant to Citizens Bancshares Corporation 1999 Stock Incentive Plan, dated April 25, 2007, originally representing the opportunity to purchase up to 5,000 shares of Company common stock.

 

(e)                                  the Nonqualified Stock Option Award issued pursuant to Citizens Bancshares Corporation 1999 Stock Incentive Plan, dated May 28, 2008, originally representing the opportunity to purchase up to 4,500 shares of Company common stock.

 

14

 

(f)                                   the Restricted Stock Award issued pursuant to Citizens Bancshares Corporation 2009 Long-Term Incentive Plan, dated May 24, 2012, originally in the amount of 4,000 shares of Company common stock.

 

(g)                                  the Restricted Stock Award issued pursuant to Citizens Bancshares Corporation 2009 Long-Term Incentive Plan, dated May 23, 2013, originally in the amount of 5,000 shares of Company common stock.

 

(h)                                 the Citizens Trust Bank Employee Insurance Bonus Plan Participation Agreement in favor of the Executive, dated August 26, 2008.

 

(i)                                     the Supplemental Executive Retirement Plan Joinder Agreement in favor of the Executive, dated August 1, 2008.

 

20.                               Rights of Third Parties.  Nothing herein expressed is intended to or shall be construed to confer upon or give to any person, firm or other entity, other than the parties hereto and their permitted assigns, any rights or remedies under or by reason of this Agreement.

 

21.                               Survival.  The obligations of the parties pursuant to Sections 3.11, 5 through 9, 16, 17 and 22, as applicable, shall survive the Executive’s Termination of Employment hereunder for the period designated under each of those respective sections.

 

22.                               Representation Regarding Restrictive Covenants.  The Executive represents that the Executive is not and will not become a party to any non-competition or non-solicitation agreement or any other agreement which would prohibit the Executive from entering into this Agreement or providing the services for the Employer contemplated by this Agreement on or after the Effective Date.  In the event the Executive is subject to any such agreement, this Agreement shall be rendered null and void and the Employer shall have no obligations to the Executive under this Agreement.

 

23.                               Section 409A.  It is the intent of the parties that any payment to which the Executive is entitled under this Agreement be exempt from Section 409A of the Code, to the maximum extent permitted under Section 409A of the Code. However, if any such amounts are considered to be “nonqualified deferred compensation” subject to Section 409A of the Code, such amounts shall be paid and provided in a manner, and at such time and form, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for non-compliance. Neither the Executive nor the Employer shall intentionally take any action to accelerate or delay the payment of any amounts in any manner which would not be in compliance with Section 409A of the Code without the consent of the other party.  For purposes of this Agreement, all rights to payments shall be treated as rights to receive a series of separate payments to the fullest extent allowed by Section 409A of the Code. To the extent that some portion of the payments under this Agreement may be bifurcated and treated as exempt from Section 409A of the Code under the “short-term deferral” or “separation pay” exemptions, then such amounts may be so treated as exempt from Section 409A of the Code.

 

15

 

24.                               Definitions. Whenever used in this Agreement, the following terms and their variant forms shall have the meanings set forth below:

 

(a)                                 “Affiliate” shall mean any entity which controls, is controlled by, or is under common control with another entity.  For this purpose, “control” means ownership of more than fifty percent (50%) of the ordinary voting power of the outstanding equity securities of an entity.

 

(b)                                 “Agreement” shall mean this Agreement and any appendices incorporated herein together with any amendments hereto made in the manner described in this Agreement.

 

(c)                                  “Area” shall mean the geographic area within the boundaries of Fulton, DeKalb and Muscogee Counties, Georgia, as well as Jefferson and Greene Counties, Alabama.

 

(d)                                 “Board of Directors” shall mean the board of directors of the Company and/or the Bank, as the context requires and, where appropriate, includes any committee thereof or other designee.

 

(e)                                  “Business of the Employer” shall mean the business conducted by the Employer, which is the business of commercial and consumer banking.

 

(f)                                   “Cause” shall mean:

 

(1)                                 a material breach of the terms of this Agreement by the Executive not cured by the Executive within thirty (30) business days after the Executive’s receipt of Employer’s written notice thereof, including, without limitation, failure by the Executive to perform the Executive’s duties and responsibilities in the manner and to the extent required under this Agreement;

 

(2)                                 any act by the Executive of fraud against, material misappropriation from, or material dishonesty to the Employer;

 

(3)                                 conviction of the Executive of a crime involving breach of trust or moral turpitude or any felony;

 

(4)                                 conduct by the Executive that amounts to willful misconduct, gross and willful insubordination, gross neglect or inattention to or material failure to perform the Executive’s duties and responsibilities hereunder, including prolonged absences without the written consent of the Board of Directors; provided that the nature of such conduct shall be set forth with reasonable particularity in a written notice to the Executive who shall have thirty (30) days following delivery of such notice to cure such alleged conduct, provided that such conduct is, in the reasonable discretion of the Board of Directors, susceptible to a cure;

 

16

 

(5)                                 conduct in material violation of the Employer’s written code of conduct as the same may be in force from time to time;

 

(6)                                 receipt by the Employer of written notice from its primary federal or state regulator that such regulator has criticized the Executive’s performance or area of responsibility and, in conjunction with such criticism, has assigned the Bank a composite CAMELS rating of “4” or “5;”

 

(7)                                 receipt of any form of notice, written or otherwise, that any regulatory agency having jurisdiction over the Employer intends to institute any form of formal or informal regulatory action against the Executive; or

 

(8)                                 Executive’s removal and/or permanent prohibition from participating in the conduct of the Employer’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(4) and (g)(1)).

 

(g)                                  “Change in Control” has the same meaning as the same term is defined in the Change in Control Agreement (as defined in Section 19), as such agreement may be amended from time to time and if such agreement is no longer in effect, as such agreement was most recently in effect prior to its expiration.

 

(h)                                 “Code” shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

 

(i)                                     “Competing Business” shall mean any entity (other than the Employer and its Affiliates) that is conducting business that is the same or substantially the same as the Business of the Employer.

 

(j)                                    “Confidential Information” means data and information relating to the business of the Employer and its Affiliates (which does not rise to the status of a Trade Secret) which is or has been disclosed to the Executive or of which the Executive became aware as a consequence of or through the Executive’s relationship to the Company and its Affiliates and which has value to the Employer and its Affiliates and is not generally known to its competitors.  Confidential Information shall not include any data or information that has been voluntarily disclosed to the public by the Employer or its Affiliates, provided that such public disclosure shall not be deemed to be voluntary when made without authorization by the Executive or any other employee of Employer, or that has been independently developed and disclosed by others, or that otherwise enters the public domain through lawful means.

 

(k)                                 “Disability” shall mean that the Executive suffers from a physical or mental disability or infirmity that qualifies the Executive for disability benefits under any accident and health plan maintained by the Employer that provides income replacement benefits due to disability or, if the Employer does not maintain such a plan, the Executive’s inability to perform the essential functions of the Executive’s job for a period of ninety (90) or more days, with or without reasonable accommodation, as a result of a physical or mental disability or infirmity, as reasonably determined by the Employer.

 

17

 

(l)                                     “Employer Information” shall mean Confidential Information and Trade Secrets.

 

(m)                             “Good Reason” shall mean any of the following which occurs on or after the Effective Date:

 

(1)                                 a material reduction of the Executive’s Annual Base Salary from its then current rate, other than a reduction that also is applied to substantially all other executive officers of the Employer if Executive’s reduction is substantially proportionate to, or no greater than, the reduction applied to substantially all other executive officers;

 

(2)                                 a material diminution in the Executive’s authority, responsibilities or duties; or

 

(3)                                 a material breach of the terms of this Agreement by the Employer;

 

provided, however, that for a Termination of Employment by the Executive to be for Good Reason, the Executive must notify the Employer in writing of the event giving rise to Good Reason within thirty (30) days following the occurrence of the event (or, if later, thirty (30) days following the Executive’s knowledge of occurrence of the event), the event must remain uncured after the expiration of thirty (30) days following the delivery of written notice of such event to the Employer by the Executive, and the Executive must resign effective no later than sixty (60) days following the Employer’s failure to cure the event and must give at least thirty (30) days advance written notice prior to the Executive’s effective date of resignation.

 

(n)                                 “Initial Term” shall mean that period of time commencing on the Effective Date and running until the earlier of (1) thirty-six (36) months following the Effective Date, or (2) any earlier Termination of Employment of the Executive under this Agreement as provided for in Section 4.

 

(o)                                 “Post-Termination Period” shall mean twelve (12) months following the effective date of the Executive’s Termination of Employment.

 

(p)                                 “Term” shall mean the Initial Term and any subsequent extension periods or any earlier Termination of Employment of the Executive under this Agreement as provided for in Section 4.

 

(q)                                 “Termination of Employment” shall mean a termination of the Executive’s employment where either (1) the Executive has ceased to perform any services for the Employer and all affiliated companies that, together with the Employer, constitute the “service recipient” within the meaning of Code Section 409A (collectively, the “Service Recipient”) or (2) the level of bona fide services the Executive performs for the Service Recipient after a given date (whether as an employee or as an independent contractor) permanently decreases (excluding a decrease as a result of

 

18

 

military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the Executive retains a right to reemployment with the Service Recipient under an applicable statute or by contract) to no more than twenty percent (20%) of the average level of bona fide services performed for the Service Recipient (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of service if the Executive has been providing services to the Service Recipient for less than 36 months).

 

(r)                                    “Trade Secrets” shall mean Employer or Affiliate information including, but not limited to, technical or nontechnical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans or lists of actual or potential customers or suppliers which:

 

(1)                        derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

 

(2)                        is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

 

[SIGNATURES ARE ON THE FOLLOWING PAGE]

 

19

 

IN WITNESS WHEREOF, the Employer and the Executive have executed and delivered this Agreement as of the date first shown above.

 

 

	
 
    	
Citizens   Bancshares Corporation:
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Signature
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Print   Name
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Citizens   Trust Bank:
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Signature
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Print   Name
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Executive:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Cynthia   N. Day
    

 

20Exhibit 4.4

 

[FORM OF WARRANT]

 

AASTROM BIOSCIENCES, INC

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.:               

 

Date of Issuance: [                   ], 2013 (“Issuance Date”)

 

Aastrom Biosciences, Inc., a Michigan corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [                   ], the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), [                            ](subject to adjustment as provided herein) fully paid and nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is one of the Warrants to Purchase Common Stock (the “Warrants”) issued pursuant to (i) Section 1.1 of that certain Underwriting Agreement, dated as of [          , 2013] (the “Subscription Date”), by and among the Company and the underwriters referred to therein, as amended from time to time (the “Underwriting Agreement”) and (ii) the Company’s Registration Statement on Form S-1 (File number 333-188186) (the “Registration Statement”).

 

1.                                      EXERCISE OF WARRANT.

 

(a)                                 Mechanics of Exercise.  Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder on any day on or after the Issuance Date (each, an “Exercise Date”), in whole or in part, by delivery (whether via facsimile or otherwise) of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant.  Within one (1) Trading Day following an exercise of this Warrant as aforesaid, the Holder shall deliver payment to the Company of an amount equal to the Exercise Price in effect on the date of such exercise multiplied by the number of Warrant Shares as to which this Warrant was so exercised (the “Aggregate Exercise Price”) in cash or via wire transfer of immediately available funds if the Holder did not notify the Company in such Exercise Notice that such exercise was made pursuant to a Cashless Exercise (as defined in Section 1(d)).  The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder.  Execution and delivery of an Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares.  Execution and delivery of an Exercise Notice for all of the then-remaining Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in

 

 

accordance with the terms hereof.  On or before the first (1st) Trading Day following the date on which the Company has received an Exercise Notice, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of such Exercise Notice, in the form attached hereto as Exhibit B, to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the third (3rd) Trading Day following the date on which the Company has received such Exercise Notice, the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the Holder or, at the Holder’s instruction pursuant to the Exercise Notice, the Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the applicable Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee (as indicated in the applicable Exercise Notice), for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of an Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be).  If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then, at the request of the Holder, the Company shall as soon as practicable and in no event later than three (3) Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.  No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number.  The Company shall pay any and all taxes and fees which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.  Notwithstanding the foregoing, except in the case where an exercise of this Warrant is validly made pursuant to a Cashless Exercise (as defined in Section 1(d)), the Company’s failure to deliver Warrant Shares to the Holder on or prior to the second (2nd) Trading Day after the Company’s receipt of the Aggregate Exercise Price shall not be deemed to be a breach of this Warrant.

 

(b)                                 Exercise Price.  For purposes of this Warrant, “Exercise Price” means $[ ], subject to adjustment as provided herein.

 

(c)                                  Company’s Failure to Timely Deliver Securities.  If the Company shall fail, for any reason or for no reason, to issue to the Holder within the later of (i) three (3) Trading Days after receipt of the applicable Exercise Notice and (ii) two (2) Trading Days after the Company’s receipt of the Aggregate Exercise Price (or valid notice of a Cashless Exercise) (such later date, the “Share Delivery Deadline”), a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s balance account with DTC for such number of shares of

 

 

Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant (as the case may be) (a “Delivery Failure”), and if on or after such Share Delivery Deadline the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the 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 exercise that the Holder so anticipated receiving from the Company, then, in addition to all other remedies available to the Holder, the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the 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 the Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such certificate or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise 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 the Holder a certificate or certificates representing such shares of Common Stock or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder (as the case may be) and pay cash to the 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 Exercise Notice and ending on the date immediately preceding the date of such issuance and payment under this clause (ii).

 

(d)                                 Cashless Exercise.  Notwithstanding anything contained herein to the contrary (other than Section 1(f) below), if the shares issuable upon the exercise of the Warrants are no longer registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock (the “Net Number”) determined according to the following formula (a “Cashless Exercise”):

 

	
Net Number = 
    	
(A x B) - (A x C)
    
	
 
    	
D
    

 

For purposes of the foregoing formula:

 

A = the total number of shares with respect to which this Warrant is then being exercised.

 

B =the quotient of (x) the sum of the VWAP of the Common Stock of each of the ten (10) Trading Days ending at the close of business on the Principal Market immediately prior to the time of exercise as set forth in the applicable Exercise Notice, divided by (y) ten (10).

 

 

C = the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

D = the lower of (w) as applicable, (i) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 1(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, and (ii) the Closing Sale Price of the Common Stock on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof during such Trading Day or after the close of “regular trading hours” on such Trading Day, (x) the VWAP of the Common Stock at the close of business on the Principal Market on the Trading Day immediately prior to the applicable Exercise Date, (y) the quotient of (A) the sum of the VWAP of the Common Stock of each of the ten (10) Trading Days ending at the close of business on the Principal Market immediately prior to the time of exercise as set forth in the applicable Exercise Notice, divided by (B) ten (10) and (z) the lowest Bid Price of the Common Stock at any time during the Trading Day on the applicable Exercise Date.

 

(e)                                  Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to the terms hereof, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 13.

 

(f)                                   Limitations on Exercises.  Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable by the Holder hereof to the extent (but only to the extent) that after giving effect to such exercise the Holder (together with 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 this Warrant shall be exercisable (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be convertible, exercisable or exchangeable (as the case may be, as among all such securities owned by the Holder) 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 to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability.  For the purposes of this paragraph, 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 Exchange Act and the rules and regulations promulgated thereunder.  The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (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 paragraph shall apply to a successor Holder of this Warrant.  The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock.  For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the 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 Warrant or securities issued pursuant to the Underwriting Agreement.  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 the Holder sending such notice and not to any other holder of Warrants.

 

(g)                                  Insufficient Authorized Shares.  From and after the Initial Exercisability Date, the Company shall at all times keep reserved for issuance under this Warrant a number of shares of Common Stock at least equal to 100% of the maximum number of shares of Common Stock as shall be necessary to satisfy the Company’s obligation to issue shares of Common Stock hereunder (without regard to any limitation otherwise contained herein with respect to the number of shares of Common Stock that may be acquirable upon exercise of this Warrant).  From and after the Initial Exercisability Date, if, notwithstanding the foregoing, and not in limitation thereof, at any time while any of the Warrants remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of the Warrants at least a number of shares of Common Stock (the “Required Reserve Amount”) equal to the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of the Warrants then outstanding (an “Authorized Share Failure”), then the Company shall immediately take all action reasonably necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for all the Warrants 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 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 reasonable best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.  In the event that the Company is prohibited from issuing shares of Common Stock upon an exercise of this Warrant 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 the Holder, the Company shall pay cash in exchange for the cancellation of such portion of this Warrant exercisable 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 greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date the Holder delivers the applicable Exercise Notice with respect to such

 

 

Authorization Failure Shares to the Company and ending on the date immediately preceding the date of such issuance and payment under this Section 1(g) and (ii) to the extent the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of Authorization Failure Shares, any brokerage commissions and other out-of-pocket expenses, if any, of the Holder incurred in connection therewith.

 

2.                                      ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.  The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.

 

(a)                                 Stock Dividends and Splits.  Without limiting any provision of Section 2(b) or Section 4, if the Company, at any time on or after the date of the Underwriting Agreement, (i) pays a stock dividend on one or more classes of its then outstanding shares of Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding shares of Common Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes of its then outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.  If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

(b)                                 Adjustment Upon Market Price Decrease.  If at any time on or after the date hereof and prior to December 31, 2013, the Company effects a reverse stock split and 120% of the closing Market Price of the Common Stock during any three (3) Trading Days after the effective date of the reverse stock split is less than the Initial Per Share Offering Price, as such amount shall be adjusted for stock splits, stock dividends and other similar events (the “Adjusted Per Share Offering Price”), then the Exercise Price shall be reduced to 125% of the amount of the lowest closing Market Price of the Common Stock during such three-day period; provided, that in no event shall the Exercise Price be reduced to an amount that is less than [         ], 80% of the Adjusted Per Share Offering Price.  This adjustment, if any, shall only be effected after the first reverse stock split effected after the date hereof.

 

(c)                                  Calculations.  All calculations under this Section 2 shall be made by rounding to the nearest 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.

 

3.                                      RIGHTS UPON DISTRIBUTION OF ASSETS.  In addition to any adjustments pursuant to Section 2 above, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distributions would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (or the beneficial ownership of any such shares of Common Stock as a result of such Distribution to such extent) and such Distribution to such extent shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

 

4.                                      PURCHASE RIGHTS.  In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells pro rata to all of the record holders of any class of shares of Common Stock any options, convertible securities or rights to purchase stock, warrants, securities or other property, in each case, other than Excluded Securities (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 maximum percentage) 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 Maximum Percentage, 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 Maximum Percentage).

 

5.                                      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 Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder.  Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the Warrants, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the Warrants then outstanding (without regard to any limitations on exercise).

 

6.                                      WARRANT HOLDER NOT DEEMED A STOCKHOLDER.  Except as otherwise specifically provided herein, the Holder, solely in its capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in its capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which it is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.  Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

 

7.                                      REISSUANCE OF WARRANTS.

 

(a)                                 Transfer of Warrant.  If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

 

(b)                                 Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant (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 any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of

 

 

mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

(c)                                  Exchangeable for Multiple Warrants.  This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, no warrants for fractional shares of Common Stock shall be given.

 

(d)                                 Issuance of New Warrants.  Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

 

8.                                      NOTICES.  Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9.1 of the Underwriting Agreement.  The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor.  Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) promptly upon each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s) 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 shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock 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 in conjunction with such notice being provided to the Holder and (iii) at least ten (10) Trading Days prior to the consummation of any Fundamental Transaction.  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 SEC pursuant to a Current Report on Form 8-K.  It is expressly understood and agreed that the time of execution specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.

 

9.                                      AMENDMENT AND WAIVER.  Except as otherwise provided herein, the provisions of this Warrant (other than Section 1(f)) may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the

 

 

Company has obtained the written consent of the Holder.  No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

 

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

 

11.                               GOVERNING LAW.  This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.  The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder or to enforce a judgment or other court ruling in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

12.                               CONSTRUCTION; HEADINGS.  This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof.  The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

 

13.                               DISPUTE RESOLUTION.  In the case of a dispute as to the determination of the Exercise Price, the Closing Bid Price, the Closing Sale Price or fair market value or the arithmetic calculation of the number of Warrant Shares (as the case may be), the Company or the

 

 

Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile (i) within two (2) Business Days after receipt of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute (including, without limitation, as to whether any issuance or sale or deemed issuance or sale was an issuance or sale or deemed issuance or sale of Excluded Securities).  If the Holder and the Company are unable to agree upon such determination or calculation (as the case may be) of the Exercise Price, the Closing Sale Price or fair market value or the number of Warrant Shares (as the case may be) within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Company or the Holder (as the case may be), then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed determination of the Exercise Price, the Closing Bid Price, the Closing Sale Price or fair market value (as the case may be) to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the number of Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed determinations or calculations (as the case may be).  Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.

 

14.          REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Warrant.  The Company covenants to the 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, exercises and the like (and the computation thereof) shall be the amounts to be received by the 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 Holder 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, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any 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 the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Warrant (including, without limitation, compliance with Section 2 hereof).  The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.

 

 

15.          TRANSFER.  This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.

 

16.          CERTAIN DEFINITIONS.  For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)           “Approved Stock Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to or subsequent 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.

 

(b)           “Bid Price” means, for any security as of the particular time of determination, the bid price for such security on the Principal Market as reported by Bloomberg as of such time of determination, or, if the Principal Market is not the principal securities exchange or trading market for such security, the bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg as of such time of determination, or if the foregoing does not apply, the bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg as of such time of determination, or, if no bid price is reported for such security by Bloomberg as of such time of determination, the average of the bid prices of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC) as of such time of determination.  If the Bid Price cannot be calculated for a security as of the particular time of determination on any of the foregoing bases, the Bid Price of such security as of such time of determination shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the 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 13.  All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

(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 City 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 Holder.  If the Company and the 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 13.  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, no 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)           “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.

 

(h)           “Eligible Market” means The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the OTCQB or the Principal Market.

 

(i)            “Excluded Securities” means (i) shares of Common Stock or standard options to purchase Common Stock issued to directors, officers or employees of the Company in their capacity as such pursuant to an Approved Stock Plan (as defined above), provided that (A) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after the date hereof pursuant to this clause (i) do not, in the aggregate, exceed more than 5% of the Common Stock issued and outstanding immediately prior to the date hereof and (B) the exercise price of any such options is not lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the holders of Warrants; (ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities (other than standard options to purchase Common Stock 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 standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered through the amendment or waiver of such Convertible

 

 

Security, 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 amended to increase the number of shares issuable thereunder and none of the terms or conditions of any 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 otherwise materially changed in any manner that adversely affects any of the holders of Warrants; (iv) the shares of Common Stock issuable upon exercise of the Warrants and (v) securities issuable in connection with strategic license agreements and other partnering arrangements where the purchaser or acquirer of the securities in such issuance solely consists of either (x) the actual participants in such strategic license, strategic alliance, strategic partnership or other partnering arrangements, (y) the actual owners of such assets or securities acquired in such acquisition or merger or (z) the stockholders, partners or members of the foregoing Persons and (C) number or amount of securities issued to such Person by the Company shall not be disproportionate (as determined in good faith by the Board of Directors of the Company) to either (x) the fair market value of such Person’s actual contribution to such strategic alliance or strategic partnership or (y) the proportional ownership of such assets or securities to be acquired by the Company, as applicable; provided, that, notwithstanding the foregoing, such purchaser or acquirer of the securities in such issuance shall not include any person regularly engaged in the business of buying or selling securities. 

 

(j)            “Expiration Date” means the date that is [           ](1) or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.

 

(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, 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) allow any other Person to make 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), 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,

 

(1)  Insert fifth anniversary of the initial Issuance Date

 

 

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) (for the avoidance of doubt, this subsection (5) shall not include any forward splits or dividends on 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. 

 

(l)            “Initial Per Share Offering Price” means $[     ].

 

(m)          “Market Price” means, as of any Exercise Date, the lower of (i) 70% of the VWAP of the Common Stock on the Trading Day immediately prior to such Exercise Date, (ii) the price which shall be computed as 70% of the quotient of (I) the sum of the VWAPs of the Common Stock of each Trading Day during the ten (10) consecutive Trading Day period ending and including the Trading Day immediately prior to such Exercise Date, divided by (II) ten (10) and (iii) the lowest Bid Price of the Common Stock at any time during the Trading Day on such Exercise Date.

 

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

 

(o)           “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.

 

(p)           “Principal Market” means the OTC Bulletin Board.

 

(q)           “Subsidiary” means any Person in which the Company, directly or indirectly, (i) owns any of the outstanding capital stock or holds any equity or similar interest of such Person or (ii) controls or operates all or any part of the business, operations or administration of such Person, and all of the foregoing.

 

(r)            “Trading Day” means 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 Holder. 

 

(s)            “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 or trustees 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).

 

(t)            “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 “Volume at Price” function 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 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 the Holder.  If the Company and the 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 13.  All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

[signature page follows]

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

 

	
 
    	
AASTROM BIOSCIENCES, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
 WARRANT TO PURCHASE COMMON STOCK

 

AASTROM BIOSCIENCES, INC.

 

The undersigned holder hereby exercises the right to purchase                                    of the shares of Common Stock (“Warrant Shares”) of Aastrom Biosciences, Inc., a Michigan corporation (the “Company”), evidenced by Warrant to Purchase Common Stock No.                (the “Warrant”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1.             Form of Exercise Price.  The Holder intends that payment of the Exercise Price shall be made as:

 

o                                                                                    a “Cash Exercise” with respect to                                    Warrant Shares; and/or

 

o                                                                                    a “Cashless Exercise” with respect to                                Warrant Shares, resulting in a delivery obligation by the Company to the Holder of                      shares of Common Stock representing the applicable Net Number, subject to adjustment.

 

2.             Cashless Exercise Adjustment.  Check if applicable: o

 

The Holder hereby notifies the Company that the Holder has previously delivered the Exercise Notice(s) attached hereto as Schedule I for Cashless Exercise.

 

As the applicable Net Number has changed since the time of delivery of such Exercise Notice(s):

 

Check if applicable:

 

o                                                            The Company’s delivery obligation to the Holder with respect to such Exercise Notice(s), in the aggregate, should be adjusted to                      shares of Common Stock.

 

o                                                            Due to the application of Section 1(f) of the Warrant, the number of Warrant Shares of this Warrant to be exercised, with respect to such Exercise Notice(s), in the aggregate, was automatically reduced to                 , Warrant Shares, resulting in a delivery obligation by the Company to the Holder of                      shares of Common Stock representing the applicable Net Number.

 

3.             Payment of Exercise Price.  In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay

 

 

the Aggregate Exercise Price in the sum of $                                       to the Company in accordance with the terms of the Warrant.

 

4.             Delivery of Warrant Shares.  The Company shall deliver to Holder, or its designee or agent as specified below,                      Warrant Shares in accordance with the terms of the Warrant.  Delivery shall be made to Holder, or for its benefit, to the following address:

 

	
Date:                                    ,
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Name   of Registered Holder
    	
 
    
	
By:
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

 

EXHIBIT B

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exercise Notice and hereby directs                              to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated                   , 20    , from the Company and acknowledged and agreed to by                               .

 

 

	
 
    	
AASTROM   BIOSCIENCES, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:

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