Document:

Exhibit 4.1

 

Warrant No. ___

 

THIS WARRANT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

	
Effective Date: March 31, 2017 

	
Void After: March 31, 2022

 

AIT THERAPEUTICS, INC.

 

WARRANT TO PURCHASE SHARES

 

AIT Therapeutics, Inc., a Delaware corporation (the “Company”), for value received on March 31, 2017 (the “Effective Date”), hereby issues to [_______] (the “Holder”) this Warrant (this “Warrant”) to purchase, [_______] Shares (as defined below) (each such share as from time to time adjusted as hereinafter provided being a “Warrant Share” and all such shares being the “Warrant Shares”), at $6.90 per share, as adjusted from time to time as provided herein (the “Exercise Price”), on or before March 31, 2022 (the “Expiration Date”), all subject to the following terms and conditions.

 

This Warrant is one of a series of warrants of like tenor that have been issued in connection with the Company’s private offering solely to accredited investors of Units in accordance with, and subject to, the terms and conditions described in, that certain Securities Purchase and Registration Rights Agreement, dated as of March 31, 2017, by and among the Company and the Investors (the “Purchase Agreement”).  Capitalized terms used in this Warrant but not defined herein shall have the respective meanings ascribed thereto in the Purchase Agreement.

 

As used in this Warrant:

 

		(i)	
“Affiliate” means any person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, a person, as such terms are used and construed in Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”);

 

		(ii)	
“Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York, New York, are authorized or required by law or executive order to close;

 

		(iii)	
“Exercise Period” means the period commencing on the date hereof and ending at 5:00 P.M., New York City time, on the Expiration Date, unless sooner terminated as provided herein;

 

		(iv)	
“Shares” means (A) shares of the Company’s common stock, par value $0.0001 per share, and (B) any shares in the capital of the Company into which such shares shall have been changed or any shares in the capital of the Company resulting from a reclassification of such shares.

 

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

 

		(vi)	
“Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Shares as in effect on the date of delivery of the Notice of Exercise.

 

		(vii)	
“Trading Market” means whichever of the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, the OTCQB, the OTCQX, the OTCPink or the OTCBB on which the Shares are listed or quoted for trading on the date in question.

 

		(viii)	
“Trading Day” means (a) a day on which the Shares are traded on a Trading Market (other than the OTCQB, the OTCQX, the OTCPink or the OTCBB), or (b) if the Shares are not listed or quoted on any such Trading Market, a day on which the Shares are quoted on the OTCQB, OTCQX, OTCPink or the OTCBB; provided, that if the Shares are not listed or quoted as set forth in the immediately preceding clauses (a) or (b), then Trading Day shall mean a Business Day.

 

		(ix)	
“Weighted Average Price” means, for any security as of any date, the U.S. dollar volume-weighted average price for such security on its primary Trading Market during the period beginning at 9:30 a.m., New York City time (or such other time as the Trading Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York City time (or such other time as the Trading Market publicly announces is the official close of trading), as reported by Bloomberg Markets (or any successor thereto, “Bloomberg”) through its “Volume at Price” functions, 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 a.m., New York City time (or such other time as such over-the-counter market publicly announces is the official open of trading), and ending at 4:00 p.m., New York City time (or such other time as such over-the-counter market publicly announces is the official close of trading), 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 by OTC Markets Group, Inc. (or any successor thereto).  If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  If the primary Trading Market is located in a country other than the United States, the Weighted Average Price shall be calculated in U.S. Dollars using the spot rate for the purchase of the applicable foreign currency at the close of business on the immediately preceding Business Day in New York, New York published in the Wall Street Journal.   All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction that occurs during any period for which the Weighted Average Price is being determined.

 

1. EXERCISE OF WARRANTS

 

(a)            Exercise Procedures.

 

(i)      Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Effective Date and on or before the Expiration Date by delivery to the Company (or such other office or agency that the Company may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company), as applicable, of a duly executed facsimile copy or PDF copy submitted by electronic delivery (or e-mail attachment to amir@ait-pharm.com and racheli@ait-pharm.com or such other email address to which the Company’s email address for this purpose may be changed in accordance with Section 7.4 of the Purchase Agreement) of the notice of exercise in the form attached as Exhibit A (the “Notice of Exercise”).  Within the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following the date of exercise of this Warrant as set forth herein, the Holder shall deliver the aggregate Exercise Price (“Aggregate Exercise Price”) for the Shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 1(a)(ii) is specified in such Notice of Exercise.  No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of reducing the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the dates of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

(ii)      If, at any time a registration statement covering the resale of the Warrant Shares by the Holder is not currently effective and available for the resale of all the Warrant Shares, the Holder may, in its sole discretion, exercise all or any part of the Warrant in a “cashless” or “net-issue” exercise (a “Cashless Exercise”), pursuant to which the Holder shall be entitled to receive a number of Warrant Shares calculated using the following formula:

 

	
X

	
=

	
Y * (A - B)

	 
	
A

	 

 

	with:	Y =	
the number of Warrant Shares to be issued to the Holder

 

		Y =	
the number of Warrant Shares with respect to which the Warrant is being exercised

 

		A =	
the last Weighted Average Price immediately preceding the time of delivery of the Notice of Exercise giving rise to the applicable “cashless exercise”, as set forth in the applicable Notice of Exercise (to clarify, the “last Weighted Average Price” will be the last Weighted Average Price as calculated over an entire Trading Day such that, if this Warrant is exercised at a time that the primary Trading Market is open, then the prior Trading Day’s Weighted Average Price shall be used in this calculation)

 

		B =	
the then-current Exercise Price of the Warrant

 

For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder in accordance with Section 3(a)(9) of the Securities Act, and the holding period for such Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued.

 

(iii)      Upon the exercise of this Warrant in compliance with the provisions of this Section 1(a), the Company shall promptly issue and cause to be delivered to the Holder a certificate for the Warrant Shares purchased by the Holder by the date that is the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after the delivery to the Company of the Notice of Exercise (the “Share Delivery Date”).  Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) three Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise (the “Date of Exercise”).  On or before the Share Delivery Date, the Company shall issue and dispatch by overnight courier to the address as specified in the Notice of Exercise, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise; provided, that, if, at the time of exercise, there shall either be (i) an effective registration statement under the Securities Act covering the resale of the Warrant Shares subject to such exercise or (ii) the Holder shall have effected a cashless exercise pursuant to Section 1(a)(ii) on or after the six-month anniversary of the Effective Date and, at the time of such exercise, the Company satisfies the current public information requirements contained in Rule 144(c) promulgated under the Securities Act, then, on or prior to the Share Delivery Date, the Company shall (X) provided that the company’s transfer agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program (the “FAST Program”), upon the request of the Holder, credit such aggregate number of Shares 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 Fast Program, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Shares to which the Holder is entitled pursuant to such exercise, without the imposition of any restrictive legend.  The Company agrees to maintain a transfer agent that is a participant in the FAST Program so long as this Warrant remains outstanding and exercisable.  If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Shares on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.

 

(b) Partial Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, within three (3) Business Days following such surrender, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

(c) Rescission Rights.  If the Company fails to cause its transfer agent to transmit to the Holder the Warrant Shares pursuant to Section 1(a)(iii) by the Share Delivery Date, then the Holder will have the right to rescind such exercise by written notice to the Company at any time prior to the delivery of such Warrant Shares.

 

(d) Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise.  In addition to any other rights available to the Holder, if the Company fails to cause the transfer agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 1(a)(iii) pursuant to an exercise on or before the Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Warrant Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.

 

(e) Exercise Limitation.  The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, to the extent that after giving effect to the issuance of Warrant Shares after such exercise, as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 1(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act, and the Holder is solely responsible for any schedules required to be filed in accordance therewith.  To the extent that the limitation contained in this Section 1(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion, and at the sole determination, of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination, nor shall the Company be in any way liable to the Holder, any Attribution Party or any other Person in any respect of any such determination.  In addition, a determination as to any “group” status for purpose of this Section 1(d) shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 1(d), in determining the number of outstanding Shares, a Holder may rely on the number of outstanding Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Securities and Exchange Commission (the “SEC”), as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the transfer agent setting forth the number of Shares outstanding.  Upon the written request of a Holder, the Company shall within two Trading Days confirm in writing to the Holder the number of Shares then outstanding.  In any case, the number of outstanding Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Shares was reported.  The “Beneficial Ownership Limitation” shall be 4.99% of the number of Shares outstanding immediately after giving effect to the issuance of Shares issuable upon exercise of this Warrant.  The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 1(d); provided that the Beneficial Ownership Limitation in no event exceeds 9.985% of the number of Shares outstanding immediately after giving effect to the issuance of Shares upon exercise of this Warrant held by the Holder, and the provisions of this Section 1(d) shall continue to apply.  Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.  The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

2. ISSUANCE OF WARRANT SHARES

 

(a) The Company covenants that all Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be (i) duly authorized, fully paid and non-assessable, and (ii) free from all liens, charges and security interests, with the exception of claims arising through the acts or omissions of the Holder and except as arising under applicable Federal and state securities laws.

 

(b) The Company shall register this Warrant upon records to be maintained by the Company for that purpose in the name of the record Holder of such Warrant from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner thereof for the purpose of any exercise thereof, any distribution to the Holder thereof and for all other purposes.

 

(c) Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its organizational documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all action necessary or appropriate in order to protect the rights of the Holder to exercise this Warrant, or against impairment of such rights.

 

3.              ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND TYPE OF WARRANT SHARES; REPURCHASE OF WARRANTS FOR CASH.

 

(a) The Exercise Price and the number of Warrant Shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. If the Company does not have the requisite number of authorized but unissued Shares to make any adjustment, the Company shall use its commercially reasonable efforts to obtain the necessary stockholder consent to increase the authorized number of Shares to make such an adjustment pursuant to this Section 3.

 

(i)      Subdivision or Combination of Shares. In case the Company shall at any time subdivide (whether by way of stock dividend, stock split or otherwise) its outstanding Shares into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of Warrant Shares shall be proportionately increased, and conversely, in case the outstanding Shares shall be combined (whether by way of stock combination, reverse stock split or otherwise) into a lesser number of shares, then the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares shall be proportionately decreased. The Exercise Price and the Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 3(a)(i).

 

(ii)      Dividends in Stock, Property, Reclassification. If at any time, or from time to time, all of the holders of Shares (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefore:

 

		(A)	
any shares of stock or other securities that are at any time directly or indirectly convertible into or exchangeable for Shares, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or

 

		(B)	
additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement (other than Shares issued as a stock split or adjustments covered by the terms of Section 3(a)(i)), then and in each such case, the Exercise Price and the number of Warrant Shares to be obtained upon exercise of this Warrant shall be adjusted proportionately, and the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of Warrant Shares receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to above) that such Holder would hold on the date of such exercise had such Holder been the holder of record of such Warrant Shares as of the date on which holders of Shares received or became entitled to receive such shares or all other additional stock and other securities and property. The Exercise Price and the Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 3(a)(ii).  Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 3(a)(ii) with respect to any dividend or distribution that the Holder receives pursuant to Section 8.

 

(iii) Reorganization, Reclassification, Consolidation, Merger or Sale. If (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person (including, for the avoidance of doubt, in the Qualified Public Transaction), (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Shares or any compulsory share exchange pursuant to which the Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Shares (not including any Shares 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) (an “Organic Change”), then, as a condition of such Organic Change, lawful and adequate provisions shall be made by the Company whereby the Holder shall thereafter have the right to purchase and receive (in lieu of the Warrant Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented by this Warrant) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for such Warrant Shares (as applicable, “Alternate Consideration”) equal to the number of shares of such stock immediately theretofore purchasable and receivable assuming the full exercise of the rights represented by this Warrant. In the event of any Organic Change, appropriate provision shall be made by the Company with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, in relation to any Alternate Consideration thereafter deliverable upon the exercise hereof. The Company will not effect any such Organic Change unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such Organic Change or the corporation purchasing such assets shall assume by written instrument (which, at the request of the Holder, shall be in the form of a new Warrant issued by such successor corporation) the obligation to deliver to the Holder such Alternate Consideration as, in accordance with the foregoing provisions, the Holder may be entitled to receive upon exercise of this Warrant. If there is an Organic Change, then the Company shall cause to be mailed to the Holder at its last address as it shall appear on the books and records of the Company, at least 10 calendar days before the effective date of the Organic Change, a notice stating the date on which such Organic Change is expected to become effective or close, and the date as of which it is expected that holders of Shares of record shall be entitled to exchange their shares for the Alternate Consideration delivered upon such Organic Change; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the 10-day period commencing on the date of such notice to the effective date of the event triggering such notice. In any event, the successor corporation (if other than the Company) resulting from such Organic Change or the corporation purchasing such assets shall be deemed to assume such obligation to deliver to such Holder such Alternate Consideration even in the absence of a written instrument assuming such obligation to the extent such assumption occurs by operation of law.

 

(b)             Adjustment of Exercise Price Upon Certain Issuances of Shares.  If and whenever after the Effective Date, the Company issues or sells, or is deemed to have issued or sold, any Shares (excluding Exempted Issuances (as defined below)), for a consideration per share (the “New Issuance Price”) less than a price equal to the Exercise Price in effect immediately prior to such issuance or sale (the “Applicable Price”), then immediately after such issuance or sale the Exercise Price then in effect shall be reduced to the New Issuance Price.  If any sale or issuance, or deemed issuance, is for no consideration, then the New Issuance Price shall be deemed to be $0.01 per Share.  Upon each such adjustment of the Exercise Price pursuant to the immediately preceding sentence, the number of Warrant Shares issuable upon exercise of this Warrant shall be increased to the number of Shares determined by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.  For purposes of this Warrant, “Exempted Issuances” shall mean: (I) Shares issued or deemed to be issued by the Company pursuant to any employee benefit plan which has been duly adopted and approved by the Company Board and shareholders of the Company, pursuant to which the Company's securities may be issued to employees, consultants, advisors, officers and/or directors (or any individual who has accepted an offer of employment) for services provided to the Company, provided that the number of such shares issued or deemed to be issued in any calendar year does not exceed 5% of the number of outstanding Shares as of the end of the immediately preceding year; (II) Shares issued or deemed to be issued by the Company upon the conversion, exchange or exercise of any right, option, obligation or security outstanding on the date immediately prior to the date of the Purchase Agreement and set forth in a Schedule to the Purchase Agreement, provided that the terms of such option, obligation or security are not amended or otherwise modified on or after the date of the Purchase Agreement in a manner that would reduce the exercise price thereof; or (III) Shares issued or deemed to be issued by the Company upon exercise of the Warrants issued by the Company pursuant to the Purchase Agreement (provided that the terms of the Warrants are not amended or otherwise modified on or after the date of the Purchase Agreement in a manner that would reduce the exercise price thereof).

 

(c)            Effect on Exercise Price of Certain Events.  For purposes of determining the adjusted Exercise Price under Section 3(b) (which, for the avoidance of doubt, the Company expressly agrees shall mean, for all purposes of this Section 3(c), including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any Shares for a consideration per Common Share less than a price equal to the Applicable Price), the following shall be applicable:

 

(i)      Issuance of Options.  If the Company in any manner grants or sells any Options and the lowest price per share for which one Share is issuable upon the exercise of any such Option or upon conversion, exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such Share shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option.  For purposes of this Section 3(c)(i), the “lowest price per share for which one Share is issuable upon exercise of any such Option or upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of any such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one Share upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Shares or of such Convertible Security upon the exercise of such Option or upon the actual issuance of such Shares upon conversion, exchange or exercise of such Convertible Security.

 

(ii)      Issuance of Convertible Securities.  If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one Share is issuable upon the conversion, exchange or exercise thereof is less than the Applicable Price, then such Share shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section 3(c)(ii), the “lowest price per share for which one share of Shares is issuable upon such conversion, exchange or exercise” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one Share upon the issuance or sale of any such Convertible Security and upon conversion, exchange or exercise of such Convertible Security.  No further adjustment of the Exercise Price shall be made upon the actual issuance of such Shares upon conversion, exchange or exercise of such Convertible Security, and if any such issue or sale of such Convertible Security is made upon exercise of any Option for which adjustment of the Exercise Price had been or are to be made pursuant to other provisions of Section 3(c)(i), no further adjustment of the Exercise Price shall be made by reason of such issue or sale.

 

(iii)      Change in Option Price or Rate of Conversion.  If the purchase, exchange or exercise price provided for in any Options, the additional consideration, if any, payable upon the issuance, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Options or Convertible Securities are convertible into or exchangeable or exercisable for Shares changes at any time, then the Exercise Price in effect at the time of such change shall be adjusted to the Exercise Price that would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase, exchange or exercise price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold, and the number of Shares acquirable hereunder shall be correspondingly readjusted.  For purposes of this Section 3(c)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Shares deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change.  No adjustment shall be made if such adjustment would result in an increase of the Exercise Price then in effect.

 

(d) Calculation of Consideration Received.  In case any Options are issued in connection with the issuance or sale of other securities of the Company, together comprising one integrated transaction or series of related transactions, (A) the Options will be deemed to have been issued for a consideration equal to the greatest of (I) $0.01, (II) the specific aggregate consideration, if any, allocated to such Options, and (III) the sum of the Black-Scholes values of each such Option, determined by use of the Black-Scholes Option Pricing Model applying the applicable criteria set forth on Schedule I hereto (the greatest of (I), (II) and (III), the “Option Consideration”), and for purposes of applying the provisions of this Section 3(d), the Option Consideration shall be allocated pro rata among all the Shares issuable upon exercise of such Options to determine the consideration per each such Share and (B) the other securities will be deemed to have been issued for an aggregate consideration equal to the aggregate consideration received by the Company for the Options and other securities (determined as provided below with respect to each share of Shares represented thereby), less the Option Consideration.  If any Shares, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor.  If any Shares, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the Weighted Average Price of such securities on the date of receipt of such securities.  If any Shares, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Shares, Options or Convertible Securities, as the case may be.  The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder.  If such parties are unable to reach agreement within five (5) Business Days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within ten (10) Business Days after the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder.  The determination of such appraiser shall be final and binding upon all parties absent manifest error, and the fees and expenses of such appraiser shall be borne by the Company.

 

(e) Certain Events.  If any event occurs of the type contemplated by the provisions of this Section 3 but not expressly provided for by such provisions (including the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company Board will make an appropriate adjustment in the Exercise Price and the number of Shares acquirable upon exercise of this Warrant so as to protect the rights of the Holders of the Warrants; provided that no such adjustment will increase the Exercise Price or decrease the number of Shares acquirable as otherwise determined pursuant to this Section 3.

 

(f) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 3, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Holder, at its last address as it shall appear on the books and records of the Company, a notice setting forth (i) such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based and (ii) the number of Warrant Shares and the amount, if any, of other property which at the time would be received upon the exercise of the Warrant.

 

(g) Repurchase of Warrants for Cash.  Notwithstanding anything to the contrary contained herein, if the Company effects or enters into an agreement to effect an Organic Change, then upon the written request of the Holder (an “Organic Change Purchase Notice”) delivered to the Company at any time on or prior to the 30th day immediately following the later of (x) the date on which the Company publicly discloses such Organic Change or agreement in respect thereof and (y) the date on which such Organic Change is consummated, the Company (or the successor entity to the Company or the person acquiring all or substantially all of the Company’s assets in such Organic Change) shall purchase this Warrant from the Holder by paying to the Holder, on or prior to the later of (A) five (5) Business Days after such request and (B) the effective date of the Organic Change, cash in an amount (the “Organic Change Purchase Price”) equal to the “Black Scholes Value” of the remaining unexercised portion of this Warrant as of the effective date of such Organic Change, determined by use of the Black Scholes Option Pricing Model applying the criteria set forth in Schedule I hereto.  Any Holder that receives cash pursuant to this Section 3(g) shall not receive, and shall not be entitled to receive, any Alternate Consideration.  Concurrently with the consummation of such Organic Change, and provided that the Holder has previously delivered to the Company an Organic Change Purchase Notice, the Company shall pay the Organic Change Purchase Price, by wire transfer of immediately available funds, to an account designated by the Holder.  The Company shall not enter into a definitive agreement with respect to an Organic Change unless such agreement provides, as a condition to the consummation of such Organic Change, that the Organic Change Purchase Price with respect to each Warrant as to which an Organic Change Purchase Notice has been delivered to the Company shall be paid concurrently with the consummation of such Organic Change, as provided herein and in the other Warrants.  For the avoidance of doubt, the rights and obligations of the Company and the Holder upon the occurrence of an Organic Change are conditional upon such Organic Change being consummated, and in the event that an Organic Change in respect of which the Holder has delivered to the Company an Organic Change Purchase Notice is terminated prior to the consummation thereof, all actions taken under this Section 3(g) shall be deemed to be rescinded and null and void with respect to such Organic Change.  Notwithstanding anything to the contrary contained herein, this Section 3(g) shall not apply to the Qualified Public Transaction.

 

4.             TRANSFERS AND EXCHANGES OF WARRANT AND WARRANT SHARES

 

(a) Registration of Transfers and Exchanges. Subject to Section 4(c), upon the Holder’s surrender of this Warrant, with a duly executed copy of the Form of Assignment attached as Exhibit B, to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder, the Company shall register the transfer of all or any portion of this Warrant. Upon such registration of transfer, the Company shall issue a new Warrant, in substantially the form of this Warrant, evidencing the acquisition rights transferred to the transferee and a new Warrant, in similar form, evidencing the remaining acquisition rights not transferred, to the Holder requesting the transfer.

 

(b) Warrant Exchangeable for Different Denominations. The Holder may exchange this Warrant for a new Warrant or Warrants, in substantially the form of this Warrant, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder, each of such new Warrants to be dated the date of such exchange and to represent the right to purchase such number of Warrant Shares as shall be designated by the Holder. The Holder shall surrender this Warrant with duly executed instructions regarding such re-certification of this Warrant to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder.

 

(c) Restrictions on Transfers. This Warrant may not be transferred at any time without (i) registration under the Securities Act or (ii) an exemption from such registration (including pursuant to a so-called “4(a)(1) and a half” transaction) and a written opinion of legal counsel addressed to the Company that the proposed transfer of the Warrant may be effected without registration under the Securities Act, which opinion shall be in form and substance and from counsel reasonably satisfactory to the Company.

 

5.             MUTILATED OR MISSING WARRANT CERTIFICATE

 

If this Warrant is mutilated, lost, stolen or destroyed, upon request by the Holder, the Company will, at its expense, issue, in exchange for and upon cancellation of the mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant, a new Warrant, in substantially the form of this Warrant, representing the right to acquire the equivalent number of Warrant Shares; provided, that, as a prerequisite to the issuance of a substitute Warrant, the Company may require satisfactory evidence of loss, theft or destruction as well as an indemnity from the Holder of a lost, stolen or destroyed Warrant, but without any requirement to post a bond (unless required by the Company’s transfer agent, in which case the Company shall pay the cost of such bond).

 

6.              PAYMENT OF TAXES AND FEES

 

The Company will pay all transfer and stock issuance taxes attributable to the preparation, issuance and delivery of this Warrant and the Warrant Shares (and replacement Warrants) including, without limitation, all documentary and stamp taxes, transfer agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares; provided, however, that the Company shall not be required to pay any tax in respect of the transfer of this Warrant, or the issuance or delivery of certificates for Warrant Shares or other securities in respect of the Warrant Shares to any person or entity other than to the Holder.

 

7.             FRACTIONAL WARRANT SHARES

 

No fractional Warrant Shares shall be issued upon exercise of this Warrant. The Company, in lieu of issuing any fractional Warrant Share, shall round up the number of Warrant Shares issuable to nearest whole share.

 

8.             PARTICIPATION RIGHTS; NO OTHER STOCK RIGHTS; LEGEND

 

No holder of this Warrant, as such, shall be entitled to vote or be deemed the holder of any other securities of the Company, including, but not limited to, the Warrant Shares, that may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, the rights of a stockholder of the Company or the right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting stockholders, or to receive dividends or subscription rights or otherwise.  Notwithstanding the foregoing or anything else contained herein, the Holder, as the holder of this Warrant, shall be entitled to receive such dividends paid and distributions of any kind (other than Shares issued as a stock split or adjustments covered by the terms of Section 3(a)(i)) made to the holders of Shares to the same extent as if the Holder had Exercised this Warrant into Shares (without regard to any limitations on exercise herein or elsewhere and without regard to whether or not a sufficient number of shares are authorized and reserved to effect any such exercise and issuance) and had held such Shares on the record date for such dividends and distributions. Payments pursuant to the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Shares.

 

Except as otherwise provided in this Warrant or the Purchase Agreement, each certificate for Warrant Shares initially issued upon the exercise of this Warrant, and each certificate for Warrant Shares issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form:

 

“THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.”

 

Notwithstanding the foregoing, the Warrant Shares issued upon exercise of this Warrant shall not contain such legend if:  (i) the Warrant Shares are, at the time of issuance, registered for resale pursuant to an effective registration statement under the Securities Act; or (ii) on or after the six-month anniversary of the Effective Date, the Warrant Shares are issued pursuant to a cashless exercise effected pursuant to Section 1(a)(ii) and, at the time of such exercise, the Company satisfies the current public information requirements contained in Rule 144(c) promulgated under the Securities Act.

 

9.             REGISTRATION RIGHTS

 

The Holder shall be entitled to the registration rights as are contained in the Purchase Agreement.

 

10.            NOTICES

 

All notices, consents, waivers, and other communications under this Warrant must be in writing and will be deemed given to a party (a) when delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) when sent by facsimile or e-mail with confirmation of transmission by the transmitting equipment for notice sent by facsimile or lack of any rejection notice for notice sent by email; (c) when received or rejected by the addressee, if sent by certified mail, return receipt requested, if to the registered Holder hereof; (d) on the Business Day after being deposited for overnight delivery by a nationally recognized courier service; or (e) seven days after the placement of the notice into the mails (first class postage prepaid), to the Holder.  The respective contact information for the Holder and the Company shall be as set forth in the Purchase Agreement.

 

11.           SEVERABILITY

 

If a court of competent jurisdiction holds any provision of this Warrant invalid or unenforceable, the other provisions of this Warrant will remain in full force and effect. Any provision of this Warrant held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

 

12.           AMENDMENT; BINDING EFFECT

 

This Warrant may be amended only in a writing entered into by the Company and the Holder.  This Warrant shall be binding upon and inure to the sole and exclusive benefit of the Company, its successors and assigns, and the registered Holder or Holders from time to time of this Warrant.

 

13.           SURVIVAL OF RIGHTS AND DUTIES

 

This Warrant shall terminate and be of no further force and effect on the earlier of 5:00 P.M., Eastern Time, on the Expiration Date or the date on which this Warrant has been exercised in full.

 

14.           SPECIFIC PERFORMANCE

 

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

 

15.            GOVERNING LAW

 

THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.  THE COMPANY AND INVESTORS HEREBY IRREVOCABLY SUBMIT 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 BROUGHT BY THE COMPANY OR ANY INVESTOR HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS WARRANT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  THE COMPANY AND THE HOLDER HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.

 

16.            RESERVATION OF SHARES

 

The Company shall reserve and keep available out of its authorized but unissued Shares a sufficient number of Shares for issuance upon the exercise of this Warrant, free from pre-emptive rights. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation. Without limiting the generality of the foregoing, the Company covenants that it will use commercially reasonable efforts to take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and use commercially reasonable efforts to obtain all such authorizations, exemptions or consents, including but not limited to consents from the Company’s stockholders or the Company Board or any public regulatory body, as may be necessary to enable the Company to perform its obligations under this Warrant.

 

17.           NO THIRD PARTY RIGHTS

 

This Warrant is not intended, and will not be construed, to create any rights in any parties other than the Company and the Holder, and no person or entity may assert any rights as third- party beneficiary hereunder.

 

[SIGNATURE PAGE FOLLOWS]

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the date first set forth above.

 

	
 

	

AIT THERAPEUTICS, INC.

By: _______________

Name:  ____________

Title: ______________

 

 

 

Schedule I

 

Black-Scholes Value

 

	 	
Calculation Under Section 3(d)

	 	
Calculation Under Section 3(g)

	
Remaining Term

	
Number of calendar days from date of the issuance of the Option (the “Option Date”) until the last date on which the Option  may be exercised (the “Option Term”).

	 	
Number of calendar days from date of public announcement of the Organic Change until the last date on which the Warrant may be exercised (the “Remaining Warrant Term”).

	
Interest Rate

	
A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the Option Term.

	 	
A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the Remaining Warrant Term.

	
Cost to Borrow

	
Zero

	 	
Zero

	
Volatility

	
The greater of 100% and the historical volatility for the 100 Trading Day period ending on the Option Date, obtained from the HVG or similar function on Bloomberg.

 

	 	
The greater of 100% and the arithmetic mean of the historical volatility for the 10, 50 and 100 Trading Day periods ending on the next succeeding Trading Day following the date of the first public announcement of the Organic Change, obtained from the HVG or similar function on Bloomberg.

 

	
Stock Price

	
The Weighted Average Price of the Shares on the Option Date.

 

	 	
The greatest of (1) the closing price of the Shares on the primary Trading Market (“Closing Market Price”) on the Trading Day immediately preceding the date on which the Organic Change is consummated, (2) the first Closing Market Price following the first public announcement of the Organic Change, or (3) the Closing Market Price as of the Trading Day immediately preceding the first public announcement of the Organic Change, in each case appropriately adjusted for any share dividends, share splits, share combinations, recapitalizations or similar events occurring prior to the consummation of the Organic Change.

If the Holder and the Company are unable to agree upon the calculation of the Black-Scholes value of the Option or Warrant (as applicable) within five (5) Business Days of the Option Date or the date of the Organic Change Purchase Notice (as applicable; any such applicable date being referred to as the “Black-Scholes Determination Date”), then the Company shall submit via facsimile the disputed calculation to an investment banking firm (jointly selected by the Company and the Holder) within seven (7) Business Days of the Black-Scholes Determination Date.  The Company shall direct such investment banking firm to perform the calculations and notify the Company and the Holder of the results no later than ten (10) Business Days after such Black-Scholes Determination Date.  Such investment banking firm’s calculation of the Black-Scholes value of the Options or Warrant (as applicable) shall be deemed conclusive absent manifest error.  The Company shall bear the fees and expenses of such investment banking firm for providing such calculation.

 

EXHIBIT A NOTICE OF EXERCISE

 

(To be executed by the Holder of Warrant if such Holder desires to exercise Warrant)

 

To AIT Therapeutics, Inc.

 

The undersigned hereby irrevocably elects to exercise this Warrant as set forth below (check the box that applies):

 

☐ The undersigned hereby irrevocably elects to purchase __________ Warrant Shares in accordance with Section 1(a)(i) of the attached Warrant and tenders herewith payment of the exercise price in full, in an amount in cash equal to $______________, which amount includes any applicable taxes payable by the undersigned pursuant to the Warrant; OR

 

☐ The undersigned hereby irrevocably elects to purchase __________ Warrant Shares pursuant to a Cashless Exercise in accordance with Section 1(a)(ii) of the Warrant, and tenders herewith payment in cash for all applicable taxes payable by the undersigned pursuant to the Warrant.

 

The undersigned requests that certificates for such Warrant Shares be issued in the name of:

 

	
Name 

	
_________________________________________

	
Social Security or Federal Employer Identification Number (if applicable)

	
_________________________________________

	
Address 

	
_________________________________________

_________________________________________

_________________________________________

_________________________________________

 

If the Warrant Shares issuable upon this exercise of the Warrant are not all of the Warrant Shares which the Holder is entitled to acquire upon the exercise of the Warrant (and the Holder shall have delivered the Warrant to the Company), the undersigned requests that a new Warrant evidencing the rights not so exercised be issued in the name of and delivered to:

 

	
Name 

	
_________________________________________

	
Social Security or Federal Employer Identification Number (if applicable)

	
_________________________________________

	
Address 

	
_________________________________________

_________________________________________

_________________________________________

_________________________________________

	
 

	

Name of Holder (print): ____________________

(Signature): _____________________________

(By:) __________________________________

(Title:) _________________________________

Dated__________________________________

 

: 

EXHIBIT B

 

FORM OF ASSIGNMENT

 

FOR VALUE RECEIVED, ___________________________________ hereby sells, assigns and transfers to each assignee set forth below all of the rights of the undersigned under the Warrant (as defined in and evidenced by the attached Warrant) to acquire the number of Warrant Shares set opposite the name of such assignee below and in and to the foregoing Warrant with respect to said acquisition rights and the shares issuable upon exercise of the Warrant:

 

	
Name of Assignee

	
Address

	
Number of Shares

	 	 	 
	 	 	 
	 	 	 
	 	 	 

If the total of the Warrant Shares are not all of the Warrant Shares evidenced by the foregoing Warrant, the undersigned requests that a new Warrant evidencing the right to acquire the Warrant Shares not so assigned be issued in the name of and delivered to the undersigned.

 

	
 

	

Name of Holder (print): ____________________

(Signature): _____________________________

(By:) __________________________________

(Title:) _________________________________Exhibit 10.1

___________________________

 

SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT

 

DATED MARCH 31, 2017

 

BY AND AMONG

 

AIT THERAPEUTICS, INC.

 

AND

 

THE INVESTORS PARTY HERETO

 

___________________________

 

TABLE OF CONTENTS

 

Page

 

	
Article I. 

	DEFINITIONS	
2

	
1.1

	
Definitions

	
2

	
Article II. 

	PURCHASE AND SALE	
7

	
2.1

	
Escrow Agreement; Closing

	
7

	
2.2

	
Closing Deliveries.

	
8

	
Article III. 

	REPRESENTATIONS AND WARRANTIES	
8

	
3.1

	
Representations and Warranties of the Company

	
8

	
3.2

	
Representations and Warranties of the Investors

	
19

	
Article IV. 

	OTHER AGREEMENTS OF THE PARTIES	
19

	
4.1

	
Transfer Restrictions.

	
19

	
4.2

	
Use of Proceeds

	
22

	
4.3

	
Shareholder Rights Plan

	
22

	
4.4

	
Form D and Blue Sky

	
22

	
4.5

	
Resale Registration

	
22

	
4.6

	
Prohibitions on Dividends, Etc

	
29

	
4.7

	
Prohibition on Variable Rate Transactions

	
29

	
4.8

	
Satisfaction of Closing Conditions

	
29

	
4.9

	
Public Disclosure

	
29

	
4.10

	
Non-Public Information

	
30

	
4.11

	
Listing of Shares; DTC

	
30

	
4.12

	
Registration Under Section 12; Maintenance of Reporting Status

	
30

	
4.13

	
Reservation of Shares

	
31

	
Article V. 

	CONDITIONS	
31

	
5.1

	
Conditions Precedent to the Obligations of the Investors

	
31

	
5.2

	
Conditions Precedent to the Obligations of the Company

	
33

	
Article VI. 

	INDEMNIFICATION	
33

	
6.1

	
Indemnification.

	
33

	
6.2

	
Contribution

	
36

	
Article VII. 

	MISCELLANEOUS	
36

	
7.1

	
Remedies

	
36

	
7.2

	
Termination

	
37

	
7.3

	
Fees and Expenses

	
37

	
7.4

	
Entire Agreement; Further Assurances

	
37

	
7.5

	
Notices

	
37

	
7.6

	
Amendments; Waivers

	
37

	
7.7

	
Construction

	
38

	
7.8

	
Successors and Assigns

	
38

i

 

 

	
7.9

	
No Third-Party Beneficiaries

	
38

	
7.10

	
Governing Law; Venue; Waiver of Jury Trial

	
39

	
7.11

	
Survival

	
39

	
7.12

	
Execution

	
39

	
7.13

	
Severability

	
39

	
7.14

	
Independent Nature of Investors’ Obligations and Rights

	
40

	
7.15

	
Replacement of Securities

	
40

	
7.16

	
Interpretative Matters

	
40

 

 

ii

THIS SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of March 31, 2017, is by and among AIT Therapeutics, Inc., a Delaware corporation (the “Company”), and each investor identified on the signature pages hereto (each, an “Investor” and collectively, the “Investors”).

 

RECITALS

 

A. The Company and each Investor are executing and delivering this Agreement in reliance upon the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act.

 

B. Each Investor, severally and not jointly, wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, that aggregate number of Units (each a “Unit” and the aggregate amount of Units purchased by all Investors together, the “Purchased Units”), set forth across from such Investor’s name on such Investor’s signature page hereto.

 

C. Each Unit comprises one share of common stock, par value $0.0001 per share, of the Company (each, a “Share” and collectively, “Shares”), and one five-year warrant, in the form attached as Exhibit A, to purchase, in each case subject to adjustment as provided therein, two (2) Shares at an exercise price equal to $6.90 per share (the “Warrants” and each, a “Warrant”).

 

D. The minimum aggregate purchase price for the Units offered and sold pursuant to this Agreement shall not be less than $250,000 (the “Minimum Offering Amount”) nor more than $10,000,000 (the “Maximum Offering Amount”).

 

E. Prior to Closing, the Company shall have entered into the Escrow Agreement, pursuant to which, not later than the Business Day prior to the anticipated Closing Date, each Investor will have deposited an amount in cash, in immediately available funds (the “Escrow Deposit”), equal to $6.00 multiplied times the number of such Investor’s Purchased Units, as set forth below such Investor’s name on such Investor’s signature page to this Agreement (the “Total Purchase Price”).

 

F. If, at any Closing, the Company shall not have issued and sold Units for the Maximum Offering Amount, then the Company may at its election and in its sole discretion offer and sell additional Units in one or more subsequent closings on substantially identical terms (including, without limitation, the same purchase price per Unit and, for the avoidance of doubt, the same Unit composition and the same exercise price per Share under each Warrant) to those contained in this Agreement (all such subsequent closings, collectively, the “Subsequent Financing”); provided, that (i) the aggregate dollar amount of Units issued and sold in this offering at the Closing, together with all such subsequent closings, shall not exceed the Maximum Offering Amount and (ii) the Subsequent Financing may be effected pursuant to the issuance and sale of Shares alone and without the concurrent issuance and sale of Warrants, so long as the price per Share is not less than $6.00.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Investors, intending to be legally bound hereby, agree as follows:

 

ARTICLE I.

 DEFINITIONS

 

1.1           Definitions.  In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings indicated:

 

“Additional Registration Statement” has the meaning set forth in Section 4.5(c).

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act.

 

“Agreement” has the meaning set forth in the Preamble.

 

“Allowable Grace Period” has the meaning set forth in Section 4.5(d)(xi).

 

“BHCA” has the meaning set forth in Section 3.1(jj).

 

“Blue Sky Filing” has the meaning set forth in Section 6.1(a).

 

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

 

“Claims” has the meaning set forth in Section 6.1(a).

 

“Closing” has the meaning set forth in Section 2.1(c).

 

“Closing Date” means the second (2nd) Business Day following the satisfaction or waiver (by the Persons entitled to effect such waiver) of the conditions set forth in Sections 2.1, 2.2, 5.1 and 5.2 (other than those to be satisfied at the Closing).

 

“Closing Form 8-K” has the meaning set forth in Section 4.9.

 

“Company” has the meaning set forth in the Preamble.

 

“Company Board” means the Company’s Board of Directors.

 

“Convertible Securities” means any stock or securities (other than Options) convertible into or exercisable or exchangeable for Shares.

 

“Covered Person” has the meaning set forth in Section 3.1(aa).

 

“Current Public Information Failure” has the meaning set forth in Section 4.5(b).

 

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“Cutback Shares” has the meaning set forth in Section 4.5(c).

 

“Disqualification Event” has the meaning set forth in Section 3.1(aa).

 

“Effectiveness Deadline” has the meaning set forth in Section 4.5(a).

 

“Effectiveness Failure” has the meaning set forth in Section 4.5(b).

 

“Escrow Deposit” has the meaning set forth in the Recitals.

 

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

 

“Exempted Issuance” means: (i) Shares issued or deemed to be issued by the Company pursuant to any employee benefit plan which has been duly adopted and approved by the Company Board and shareholders of the Company, pursuant to which the Company's securities may be issued to employees, consultants, advisors, officers and/or directors (or any individual who has accepted an offer of employment) for services provided to the Company, provided that the number of such shares issued or deemed to be issued in any calendar year does not exceed 5% of the number of outstanding Shares as of the end of the immediately preceding year; (ii) Shares issued or deemed to be issued by the Company upon the conversion, exchange or exercise of any right, option, obligation or security outstanding on the date immediately prior to the date of this Agreement and set forth in a Schedule hereto, provided that the terms of such option, obligation or security are not amended or otherwise modified on or after the date hereof in a manner that would reduce the exercise price thereof; (iii) Shares issued or deemed to be issued by the Company in the Subsequent Financing; and (iv) Shares issued or deemed to be issued by the Company upon exercise of the Warrants (provided that the terms of the Warrants are not amended or otherwise modified on or after the date hereof in a manner that would reduce the exercise price thereof).

 

“Federal Reserve” has the meaning set forth in Section 3.1(jj).

 

“Final Closing” has the meaning set forth in Section 2.1(c).

 

“Filing Deadline” has the meaning set forth in Section 4.5(a).

 

“Filing Failure” has the meaning set forth in Section 4.5(b).

 

“GAAP” United States generally accepted accounting principles applied on a consistent basis during the periods involved.

 

“Grace Period” has the meaning set forth in Section 4.5(d)(xi).

 

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“Indebtedness” means, with respect to any Person, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in accordance with GAAP, is classified as a capital lease, and (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by such Person, even though such Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness.

 

“Indemnified Damages” has the meaning set forth in Section 6.1(a).

 

“Indemnified Party” has the meaning set forth in Section 6.1(b).

 

“Indemnified Person” has the meaning set forth in Section 6.1(a).

 

“Initial Closing” has the meaning set forth in Section 2.1(c).

 

“Investor” has the meaning set forth in the Preamble.

 

“Lien” means any lien, charge, claim, security interest, pledge encumbrance, right of first refusal, preemptive right or other restriction.

 

“Losses” means any and all losses, claims, damages, liabilities, settlement costs and expenses, including, without limitation, reasonable attorneys’ fees.

 

“Maintenance Failure” has the meaning set forth in Section 4.5(b).

 

“Material Adverse Effect” means any condition, circumstance, or situation that may result in, or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of this Agreement or any of the Transaction Documents, (ii) a material adverse effect on the results of operations, prospects, assets, business or condition (financial or otherwise) of the Company and the Subsidiary, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform its obligations hereunder or under any of the Transaction Documents in any material respect on a timely basis; provided, however, that with respect to the immediately preceding clause (ii), none of the following shall be deemed in themselves to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect: (a) any change generally affecting the economy, financial markets or political, economic or regulatory conditions in the United States, the State of Israel or any other geographic region in which the Company and the Subsidiary conduct business (except, in each case, to the extent that the Company or the Subsidiary is disproportionately adversely affected relative to other participants in the industries in which the Company or the Subsidiary participate), (b) general financial, credit or capital market conditions, including interest rates or exchange rates, or any changes therein, (c) conditions (or changes therein) in any industry or industries in which the Company operates (including seasonal fluctuations) to the extent that such conditions do not disproportionately have a greater adverse impact on the Company and the Subsidiary, taken as a whole, relative to other companies operating in such industry or industries, (d) the announcement or pendency of this Agreement and the transactions contemplated hereby or (e) changes in applicable law or GAAP (or, in each case, any interpretations thereof).

 

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“Material Contract” means any contract of the Company that would be required to be filed with the SEC pursuant to Item 601(b)(10) of Regulation S-K if the Company were required to file reports with the SEC pursuant to Sections 13 or 15(d) of the Exchange Act.

 

“Material Permits” has the meaning set forth in Section 3.1(q).

 

“Maximum Offering Amount” has the meaning set forth in the Recitals.

 

“Minimum Offering Amount” has the meaning set forth in the Recitals.

 

“Money Laundering Laws” has the meaning set forth in Section 3.1(kk).

 

“OFAC” has the meaning set forth in Section 3.1(y).

 

“Options” means any outstanding rights, warrants or options to subscribe for or purchase Shares or Convertible Securities.

 

“Outside Date” has the meaning set forth in Section 7.2.

 

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

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, a partial proceeding, such as a deposition), whether commenced or threatened in writing.

 

“Purchased Securities” has the meaning set forth in Section 3.1(e).

 

“Purchased Units” has the meaning set forth in the Recitals.

 

“RDP Cap” has the meaning set forth in Section 4.5(b).

 

“Registrable Securities” means (i) the Shares comprising a portion of the Units, (ii) the Warrant Shares and (iii) any shares of capital stock issued or issuable with respect to the Shares and Warrant Shares referred to in the immediately preceding clauses (i) and (ii) as a result of any stock split, dividend, distribution, recapitalization, ; provided, that the Registrable Securities shall cease to be Registrable Securities when (a) a registration statement covering such Registrable Securities has been declared effective by the SEC and such Registrable Securities have been disposed of pursuant to such effective registration statement, or (b) such Registrable Securities may be sold without restrictions or other limitations pursuant to Rule 144 (or any successor provision) under the Securities Act (including, without limitation, volume restrictions) and without the need for current public information required by Rule 144(c)(1).

 

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“Registration Delay Payments” has the meaning set forth in Section 4.5(b).

 

“Registration Period” has the meaning set forth in Section 4.5(d)(i).

 

“Registration Failure” has the meaning set forth in Section 4.5(b).

 

“Registration Statement” has the meaning set forth in Section 4.5(a).

 

“Regulation D” has the meaning set forth in the Recitals.

 

“Representatives” means, with respect to any Person, such Person’s directors, managers, officers employees, investment bankers, financial advisors, attorneys, accountants, agents and other representatives.

 

“Required Approvals” has the meaning set forth in Section 3.1(n).

 

“Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.

 

“SEC” has the meaning set forth in the Recitals.

 

“Securities Act” has the meaning set forth in the Recitals.

 

“Shares” has the meaning set forth in the Recitals.

 

“Subscription Agreement” has the meaning set forth in Section 2.2(b)(ii).

 

“Subsequent Financing” has the meaning set forth in the Recitals.

 

“Subsidiary” means Advanced Inhalation Therapies (AIT) Ltd., an Israeli corporation.

 

“Total Purchase Price” has the meaning set forth in the Recitals.

 

“Trading Market” means whichever of the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, the OTCQB, OTCQX, OTCPink or the OTCBB on which the Shares are listed or quoted for trading on the date in question.

 

“Transaction Documents” means this Agreement, including the schedules, annexes and exhibits attached hereto, the Warrants, the Escrow Agreement, the Subscription Agreements and each of the other agreements or instruments entered into or executed by the parties hereto in connection with the transactions contemplated by this Agreement (including any expense reimbursement agreement entered into by the Company with any Investor or any of its Affiliates prior to the date of this Agreement).

 

“Transaction Form 8-K” has the meaning set forth in Section 3.1(nn)

 

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“Units” has the meaning set forth in the Recitals.

 

“Unrestricted Conditions” has the meaning set forth in Section 4.1(b).

 

“Violations” has the meaning set forth in Section 6.1(a).

 

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

 

“Warrant Shares” has the meaning set forth in Section 3.1(e).

 

“Warrants” has the meaning set forth in the Recitals.

 

“Willful Registration Failure” has the meaning set forth in Section 4.5(b).

 

ARTICLE II.

 PURCHASE AND SALE

 

2.1          Escrow Agreement; Closing.

 

(a)          Subject to the terms and conditions contained in this Agreement, each Investor, individually and not together with any other Investor, hereby subscribes for and agrees to purchase from the Company, and the Company subject to its rights to accept or reject this subscription, agrees to sell to such Investor, such aggregate amount of Units for such Investor’s Total Purchase Price as is set forth on the signature page hereof.  The Total Purchase Price is payable by wire transfer, to be held in escrow until the conditions to Closing are satisfied or waived, to Signature Bank, the escrow agent (the “Escrow Agent”) as follows:

 

Bank:  Signature Bank

ABA Number: 026013576

Account #: 1503047744

Account Name: Signature Bank, as Escrow Agent for AIT Therapeutics, Inc.

Swift Code: SIGNUS33

 

(b)          The Units will be offered for sale until the earlier of (i) the Closing on the Maximum Offering Amount and (ii) March 31, 2017 (the “Termination Date”).

 

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(c)          The Company may hold an initial closing (“Initial Closing”) at any time after the receipt of accepted subscriptions in respect of the Minimum Offering Amount, subject to the satisfaction or waiver of the conditions to closing set forth in Sections 2.1, 2.2, 5.1 and 5.2 (other than those conditions to be satisfied at Closing, but subject to the satisfaction or waiver of such conditions).  After the Initial Closing, subsequent closings with respect to additional Units may take place at any time prior to the Termination Date as determined by the Company, with respect to subscriptions accepted prior to the Termination Date (each such closing, together with the Initial Closing, being referred to as a “Closing”).  The last Closing of the Offering, occurring on or prior to the Termination Date, shall be referred to as the “Final Closing”.  Any subscription documents or funds received after the Final Closing will be returned, without interest or deduction.  In the event that the any Closing does not occur prior to the Termination Date, all amounts paid by the Subscriber shall be returned to the Subscriber, without interest or deduction.

 

2.2           Closing Deliveries.

 

(a)            At the Closing, the Company shall deliver or cause to be delivered to each Investor:

 

(i)            One or more certificates issued in the name of such Investor, evidencing the number of Shares equal to Investor’s Purchased Units; and

 

(ii)            a duly executed Warrant exercisable for a number of Shares equal to the number of such Investor’s Purchased Units.

 

(b)            At the Closing, each Investor shall deliver or cause to be delivered to the Company the following:

 

(i)            the Total Purchase Price in U.S. dollars and in immediately available funds, by wire transfer to an account designated in writing to such Investor by the Company for such purpose; provided, that, such payment shall be satisfied by such Investor’s delivery of written instructions to the escrow agent, directing that the Escrow Deposit be immediately paid to the Company in accordance with the terms of the Escrow Agreement;

 

(ii)           a completed and duly executed Subscription Agreement, in the form attached as Exhibit B (each, a “Subscription Agreement”), together with each questionnaire and certificate attached thereto or required thereby.

 

ARTICLE III.

 REPRESENTATIONS AND WARRANTIES

 

    3.1           Representations and Warranties of the Company.  The Company hereby represents and warrants to the Investors as follows:

 

    (a)           Subsidiary.  The Company owns, directly or indirectly, all of the capital stock or comparable equity interests of the Subsidiary free and clear of any Lien (other than restrictions on transfer arising under applicable securities laws), and all issued and outstanding shares of capital stock or comparable equity interest of the Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.  The Company does not own an equity or other ownership interest in any Person other than the Subsidiary.

 

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(b) Organization and Qualification.  Each of the Company and the Subsidiary is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as applicable, with the requisite power and legal authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor the Subsidiary is in violation of any of the provisions of its certificate or articles of incorporation, bylaws or other organizational or charter documents, as applicable.  Each of the Company and the Subsidiary is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect and no Proceeding has been instituted seeking to revoke, limit or curtail such power or authority or qualification.

 

(c) Authorization; Enforcement; Anti-Takeover Provisions Inapplicable.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery by the Company of each of the Transaction Documents to which it is a party and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company, and no further consent or action is required by the Company, the Company Board or its shareholders.  Each of the Transaction Documents to which it is a party has been (or upon delivery will be) duly executed by the Company and is, or when delivered in accordance with the terms hereof, will constitute, the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.  The Company has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination or other similar anti-takeover provision under the Company’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or the laws of the jurisdictions of incorporation, formation or organization of the Company that is or could become applicable to Investors as a result of the transactions contemplated by this Agreement, including the Company’s issuance of the Purchased Securities and each Investor’s ownership of the Purchased Securities immediately following the Closing.  The Company has not adopted a shareholder rights plan (or “poison pill”) or similar arrangement relating to accumulations of beneficial ownership of Shares or a change in control of the Company.

 

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(d) No Conflicts.  The execution, delivery and performance by the Company of the Transaction Documents to which it is a party, the issuance and sale of the Units and the consummation by the Company of the transactions contemplated hereby and thereby do not, and will not, (i) conflict with or violate any provision of the Company’s certificate or articles of incorporation, bylaws or other organizational or charter documents, as applicable, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or the Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement (including any Material Contract), credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or the Subsidiary is a party or by which any property or asset of the Company or the Subsidiary is bound, or affected, except to the extent that such conflict, default, termination, amendment, acceleration or cancellation right would not have or reasonably be expected to result in a Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or the Subsidiary is subject or by which any property or asset of the Company or the Subsidiary is bound or affected, except to the extent that such violation would not have or reasonably be expected to result in a Material Adverse Effect.

 

(e) The Purchased Securities.  The (i) Shares comprising a portion of the Units, (ii) the Warrants and (iii) the Shares issuable upon exercise of the Warrants (the “Warrant Shares” and, collectively with the Shares comprising a portion of the Units and the Warrants, the “Purchased Securities”) are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens (other than restrictions on transfer arising under applicable securities laws) and will not be subject to preemptive or similar rights of stockholders (other than those imposed by the Investors).  The offer, issuance and sale of the Purchased Securities are exempt from registration under the Securities Act (in reliance on either or both Section 4(a)(2) or Rule 506(b) of Regulation D thereunder) and applicable state securities laws.

 

(f) Capitalization.  The aggregate number of shares or other securities and types of all authorized, issued and outstanding classes of capital stock, Options and other securities of the Company and of the Subsidiary (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company or the Subsidiary, as applicable, and without giving effect to any restrictions or limitations on conversion, exercise or exchange thereof) are set forth on Schedule 3.1(f).  All outstanding shares of capital stock of the Company and of the Subsidiary are duly authorized, validly issued, fully paid and nonassessable and have been issued in compliance in all material respects with all applicable securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase any capital stock of the Company or the Subsidiary.  Except as set forth on Schedule 3.1(f) and as a result of the purchase and sale of the Purchased Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any Shares or the capital stock of the Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or the Subsidiary is bound to issue Shares or other equity securities.

 

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(g) Absence of Litigation.  There is no Proceeding pending, or, to the Company’s knowledge, threatened, before or by any court, public board, government agency, self-regulatory organization or body that adversely affect or challenge the legality, validity or enforceability of any of the Transaction Documents or that, if determined adversely to the Company or the Subsidiary, would, individually or in the aggregate, have or be reasonably likely to result in a Material Adverse Effect.  Neither the Company nor the Subsidiary, nor any director or officer thereof, is or has been the subject of any Proceeding involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company or any current or former director or officer of the Company.  The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or the Subsidiary under the Exchange Act or the Securities Act.

 

(h) Compliance.  Except as would not, individually or in the aggregate, have or be reasonably likely to result in a Material Adverse Effect, (i)  neither the Company nor the Subsidiary is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or the Subsidiary under), nor has the Company or the Subsidiary received written notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement (including any Material Contract) or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) neither the Company nor the Subsidiary is in violation of any order of any court, arbitrator or governmental body, or (iii)  neither the Company nor the Subsidiary is or has been in violation of any statute, rule or regulation of any governmental authority.

 

(i) Title to Assets.  Neither the Company nor the Subsidiary owns real property.  The Company and the Subsidiary has good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiary, in each case free and clear of all Liens, except for Liens that do not, individually or in the aggregate, have or are reasonably likely to result in a Material Adverse Effect or which do not materially affect the value and do not materially interfere with the use of such property by the Company.  Any real property and facilities held under lease by the Company or the Subsidiary is held by it under valid, subsisting and enforceable leases of which the Company and the Subsidiary is in compliance.

 

(j) Intellectual Property; Employees.

 

(i)            The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted, without any known infringement of the rights of others and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  Except as disclosed on Schedule 3.1(j), there are no material outstanding options, licenses or agreements of any kind relating to the Intellectual Property Rights, nor is the Company bound by or a party to any material options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of “off the shelf” or standard products.  The Company has not received any written communications alleging that the Company has violated any Intellectual Property Rights of any other person or entity.  The Company and the Subsidiary have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their respective Intellectual Property Rights, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

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(ii)           The Company is not aware that any of its employees is obligated under any written contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or that would conflict with the Company’s business as presently conducted.

 

(iii)          To the Company’s knowledge, no employee of the Company, nor any consultant with whom the Company has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company because of the nature of the business conducted by the Company; and to the Company’s knowledge the continued employment by the Company of its present employees, and the performance of the Company’s contracts with its independent contractors, will not result in any such violation, except to the extent that, in each of the foregoing case, any such violation would not reasonably be expected to have a Material Adverse Effect.  The Company has not received any written notice alleging that any such violation has occurred.  No employee of the Company has been granted the right to continued employment by the Company or to any compensation following termination of employment with the Company except for any of the same which would not have a Material Adverse Effect on the business of the Company.  The Company is not aware that any officer, key employee or group of employees intends to terminate his, her or their employment with the Company, nor does the Company have a present intention to terminate the employment of any officer, key employee or group of employees.

 

(k) Insurance.  The Company and the Subsidiary are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses and locations in which the Company and the Subsidiary is engaged. Neither the Company nor the Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business.

 

(l) Internal Accounting Controls.  The Company and the Subsidiary maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

(m) Indebtedness.  Except (x) as set forth on Schedule 3.1(m) or (y) incurred subsequent to the date hereof in respect of the Company’s clinical trials (in an aggregate amount not in excess of $1,000,000), neither the Company nor the Subsidiary (i) has any outstanding Indebtedness or any liabilities that would be required to be reflected in the Company’s financial statements pursuant to GAAP or (ii) is in violation of any term of and is not in default under any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect.

 

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(n) Filings, Consents and Approvals.  Neither the Company nor the Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents (including the issuance of the Units), other than (i) notice filings required by applicable state securities laws, (ii) the filing of a Notice of Sale of Securities on Form D with the SEC under Regulation D of the Securities Act, and (iii) those that have been made or obtained prior to the date of this Agreement (collectively, the “Required Approvals”).

 

(o) Material Changes; Undisclosed Events, Liabilities or Developments.  Since December 31, 2016: (i) there has been no event, occurrence or development that has had or that would reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and not exceeding an aggregate of $150,000, (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP (none of which, individually, or in the aggregate, are material) and (C) liabilities incurred subsequent to the date hereof in respect of the Company’s clinical trials (in an aggregate amount not in excess of $1,000,000), (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any Shares or other equity securities, Options or Convertible Securities, to any officer, director or Affiliate, except pursuant to existing Company stock option plans and reflected on Schedule 3.1(f).

 

(p) Labor Relations.  No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which would reasonably be expected to result in a Material Adverse Effect.  None of the Company’s or its Subsidiary’s employees is a member of a union that relates to such employee’s relationship with the Company or the Subsidiary, and neither the Company nor the Subsidiary is a party to a collective bargaining agreement, and the Company and the Subsidiary believe that their relationships with their employees are good.

 

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

 

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(r) Transactions With Affiliates and Employees.  Except as set forth on Schedule 3.1(r), none of the officers or directors of the Company or the Subsidiary and, to the knowledge of the Company, none of the employees of the Company or the Subsidiary is presently a party to any transaction with the Company or the Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for:  (i) payment of salary or consulting fees for services rendered; (ii) reimbursement for expenses incurred on behalf of the Company; and (iii) other employee benefits, including, without limitation, award agreements under any incentive compensation plan of the Company.

 

(s) Private Placement.  Assuming the accuracy of the Investors’ representations and warranties set forth in Section 3.2 and their compliance with their agreements contained in this Agreement, no registration under the Securities Act is required for the offer and sale of the Purchased Securities by the Company to the Investors pursuant to the terms of this Agreement.

 

(t) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Purchased Units, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

(u) Registration Rights.  Other than as set forth in this Agreement, and except as set forth on Schedule 3.1(f), no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.

 

(w) No General Solicitation.  Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Units by any form of general solicitation or general advertising.  The Company has offered, and may offer, the Units for sale only to the Investors and other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(x) Foreign Corrupt Practices.  Neither the Company nor the Subsidiary, nor to the knowledge of the Company or the Subsidiary, any agent or other person acting on behalf of the Company or the Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees, (iii) failed to disclose fully any contribution made by the Company or the Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is  in violation of law or (iv) violated in any material respect any provision of Foreign Corrupt Practices Act of 1977, as amended.

 

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(y) Office of Foreign Assets Control.  Neither the Company nor the Subsidiary nor, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or the Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the sale of the Units, or lend, contribute or otherwise make available such proceeds to any joint venture partner or other person or entity, towards any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or for the purpose of financing the activities of any person currently subject to any U.S. sanctions.

 

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

 

(aa) Disqualification Events.  None of the Company or the Subsidiary, any of their respective predecessors, any director, executive officer, other officer of the Company or any Subsidiary participating in the offering contemplated hereby, any beneficial owner (as that term is defined in Rule 13d-3 under the Exchange Act) of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, any “promoter” (as that term is defined in Rule 405 under the Securities Act) connected with the Company or any of the Subsidiaries in any capacity at the time of the Closing, any placement agent or dealer participating in the offering of the Purchase Securities, any of such agents’ or dealer’s directors, executive officers, other officers participating in the offering of the Purchased Securities (each, a “Covered Person” and, together, “Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”). The Company has exercised reasonable care to determine (i) the identity of each person that is a Covered Person; and (ii) whether any Covered Person is subject to a Disqualification Event.  The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e).  The Company is not for any other reason disqualified from reliance upon Rule 506 of Regulation D under the Securities Act for purposes of the offer and sale of the Purchased Securities.  The Company will notify the Investors prior to the Closing Date of the existence of any Disqualification Event with respect to any Covered Person.

 

(bb) General Solicitation.  Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf, has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Purchased Securities hereunder.

 

(cc) No Integrated Offering.  Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Purchased Securities under the Securities Act (except as required by this Agreement), nor will the Company take any action or steps that would require registration of the issuance of any of the Purchased Securities under the Securities Act (except as required by this Agreement).

 

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(dd) Disclosure; Reporting.  Taken as a whole, all written disclosure provided by or on behalf of the Company to the Investors regarding the Company, the Subsidiary, their respective businesses and the transactions contemplated hereby and by the other Transaction Documents, including the Schedules to this Agreement, are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

 

(ee) Financial Advisors; Placement Agents.  The Company shall not be responsible for the payment of any placement agent’s fees or broker’s commissions relating to or arising out of the transactions contemplated hereby, except for the fees payable to Laidlaw as set forth in the Memorandum and on Schedule 3.1(ee). The Company shall pay, and hold each Investor harmless against, any liability, loss or expense (including reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claim for any such payment.  The Company represents and warrants to each Investor that, except as set forth on Schedule 3.1(ee), (a) it has not engaged a placement agent, broker or financial advisor in connection with the transactions contemplated hereby and (b) there are no fees, commissions or expenses payable to any broker, finder or agent relating to or arising out of the transactions contemplated hereby.

 

(ff) Solvency.  Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Purchased Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing Indebtedness and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).  The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.

 

(gg) [Reserved].

 

(hh) No Disagreements with Accountants and Lawyers.  There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company.

 

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

 

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(jj) Bank Holding Company Act.  Neither the Company nor the Subsidiary nor any of their respective Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).  Neither the Company nor the Subsidiary or any of their respective Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.  Neither the Company nor the Subsidiary nor any of their respective Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

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

 

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

 

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(mm) Tax Returns and Payments.

 

(i)            Except as set forth on Schedule 3.1(mm)(i), the Company and each Subsidiary has filed all material Tax Returns required to be filed by it, and each such entity has timely paid all Taxes owed (whether or not shown on any Tax Return).  All such Tax Returns were complete and correct in all material respects, and such Tax Returns correctly reflected the facts regarding the income, business, assets, operations, activities, status and other matters of such entity and any other information required to be shown thereon. The Company and each Subsidiary has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor, shareholder, member or other third party. The Company and the Subsidiary has established adequate reserves for all Taxes accrued but not yet payable. No deficiency assessment with respect to or proposed adjustment of the Company and/or the Subsidiary’s Taxes is pending or, to the knowledge of the Company, threatened.  There is no tax lien (other than for current Taxes not yet due and payable), imposed by any taxing authority, outstanding against the assets, properties or the business of the Company or any Subsidiary.

 

(ii)           Neither the Company nor the Subsidiary has agreed to make any adjustment under Section 481(a) of the Internal Revenue Code of 1986, as amended (the “Code”) (or any corresponding provision of state, local or foreign tax law) by reason of a change in accounting method or otherwise, and neither the Company nor the Subsidiary will be required to make any such adjustment as a result of the transactions contemplated by this Agreement.  Neither the Company nor the Subsidiary has been or is a party to any tax sharing or similar agreement. Neither the Company nor the Subsidiary is or has ever been a party to any joint venture, partnership, limited liability company, or other arrangement or Contract which could be treated as a partnership for federal income tax purposes.  Neither the Company nor the Subsidiary is or has ever been a “United States real property holding corporation” as that term is defined in Section 897 of the Code.

 

(nn) Shell Company Status; SEC Reports; Financial Statements.  The Company is an issuer subject to Rule 144(i) under the Securities Act pursuant to clause (ii) thereunder. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”).  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and neither the Current Report on Form 8-K filed by the Company with the SEC on January 20, 2017 (the “Transaction Form 8-K”) nor, to the knowledge of the Company, none of the other SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the Transaction For 8-K comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

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3.2           Representations and Warranties of the Investors. Each of the Investors hereby severally, and not jointly, represents and warrants to the Company that such Investor’s representations and warranties in such Investor’s Subscription Agreement are true and correct in all respects as of the applicable Closing, and such representations and warranties are deemed incorporated herein and made a part hereof.

 

ARTICLE IV.

 OTHER AGREEMENTS OF THE PARTIES

 

3.2           Transfer Restrictions.

 

(a) Each Investor covenants that the Purchased Securities acquired by such Investor will be disposed of by such Investor only pursuant to an effective registration statement under, and in compliance with the requirements of, the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act, and in compliance with applicable state securities laws.  Subject to Section 4.1(b), in connection with any transfer of Purchased Securities other than pursuant to an effective registration statement or to the Company, the Company may require the transferor to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration under the Securities Act.

 

(b) The Investors agree to the imprinting, until no longer required by this Section 4.1(b), of the following legend on any certificate or other instrument evidencing any of the Purchased Securities:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

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The Company acknowledges and agrees that an Investor may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Purchased Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act, and, if required under the terms of such arrangement, such Investor may transfer pledged or secured Purchased Securities to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Purchased Company, and no legal opinion of legal counsel of the pledgee, secured party or pledger shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the applicable Investor’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Purchased Securities may reasonably request in connection with a pledge of the Purchased Securities.

(c) Certificates evidencing the Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof), (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Shares or Warrant Shares pursuant to Rule 144, (iii) if such Shares or Warrant Shares are eligible for sale under Rule 144 without volume or manner-of-sale restrictions and the Company is in compliance with the current public information required under Rule 144, (iv) if such Shares or Warrant Shares are eligible for sale under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions, or (v) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission).  The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent if required by the transfer agent to effect the removal of the legend hereunder.  If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Warrant Shares, or if such Shares or Warrant Shares may be sold under Rule 144 and the Company is then in compliance with the current public information required under Rule 144, or if the Shares or Warrant Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Shares or Warrant Shares or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Warrant Shares shall be issued free of all legends. The Company agrees that at such time as such legend is no longer required under this Section 4.1(c), it will, no later than the earlier of (i) three (3) Business Days and (ii) the number of Business Days comprising the Standard Settlement Period (as defined below) following the delivery by an Investor to the Company or the transfer agent of a certificate representing Shares or Warrant Shares, as the case may be, issued with a restrictive legend (such third Business Day, the “Legend Removal Date”), deliver or cause to be delivered to such Investor a certificate representing such shares that is free from all restrictive and other legends (subject to the remainder of this Section 4.1(c)).  The Company may not make any notation on its records or give instructions to the transfer agent that enlarge the restrictions on transfer set forth in this Section 4.1.  Certificates for Purchased Securities subject to legend removal hereunder shall be transmitted by the transfer agent to the Investor by crediting the account of the Investor’s prime broker with the Depository Trust Company System (“DTC”) through its Deposit/Withdrawal at Custodian system as directed by such Investor.  As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Business Days, on the Company’s primary Trading Market with respect to the Shares as in effect on the date of delivery of a certificate representing Shares or Warrant Shares (or the date of crediting such Shares or Warrant Shares with DTC, as applicable), as the case may be, issued without a restrictive legend.

 

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(d) In addition to an Investor’s other available remedies, the Company shall pay to such Investor, in cash, (i) as partial liquidated damages and not as a penalty, for each $1,000 of Shares (based on the VWAP of the Shares on the date such Purchased Securities are submitted to the transfer agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Business Day (increasing to $20 per Business Day five (5) Business Days after such damages have begun to accrue) for each Business Day after the Legend Removal Date until such certificate is delivered without a legend and (ii) if the Company fails to (a) issue and deliver (or cause to be delivered) to an Investor by the Legend Removal Date a certificate representing the Purchased Securities so delivered to the Company by such Investor that is free from all restrictive and other legends and (b) if after the Legend Removal Date such Investor purchases (in an open market transaction or otherwise) Shares to deliver in satisfaction of a sale by such Investor of all or any portion of the number of Shares, or a sale of a number of Shares equal to all or any portion of the number of Shares that such Investor was entitled to receive from the Company without any restrictive legend, then, an amount equal to the excess of such Investor’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the Shares so purchased (including brokerage commissions and other out-of-pocket expenses, if any) over the product of (A) such number of Shares that the Company was required to deliver to such Investor by the Legend Removal Date multiplied by (B) the lowest closing sale price of the Shares on any Business Day during the period commencing on the date of the delivery by such Investor to the Company of the applicable Shares (as the case may be) and ending on the date of such delivery and payment under this clause (ii).

 

(e) Each Investor, severally and not jointly with the other Investors, agrees with the Company that such Investor will sell all Purchased Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Purchased Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Purchased Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

 

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4.2 Use of Proceeds.  The Company shall use the net proceeds from the sale of the Units for its Phase III program in bronchiolitis, its Phase II and III programs in non-tuberculous mycobacterium and for working capital and general corporate purposes, including the expenses of this offering.

 

4.3 Shareholder Rights Plan.  No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Investor is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Investor could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Purchased Securities under the Transaction Documents.

 

4.4 Form D and Blue Sky. The Company agrees to timely file a Form D with respect to the Purchased Securities as required under Regulation D. The Company, on or before the Closing Date, shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Purchased Securities for sale to the Investors at the Closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification). The Company shall make all filings and reports relating to the offer and sale of the Purchased Securities required under applicable securities or “blue sky” laws of the states of the United States following the Closing Date and shall provide copies to any Investor who so requests.

 

4.5 Resale Registration.

 

      (a) Mandatory Registration.  Following Closing, the Company shall prepare and file with the SEC a registration statement on Form S-1, Form F-1 or such other form under the Securities Act as is then available to the Company (including the prospectus, amendments and supplements to such registration statement or prospectus, including pre- and post-effective amendments (and any additional registration statements filed in accordance herewith), all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference, if any, in such registration statement, the “Registration Statement”), providing for the resale from time to time by the Investors of any and all Registrable Securities, as soon as reasonably practicable, but in no event later than the date that is two weeks following the date on which the Company’s registration statement on Form S-1 (File No. 333-216287) is declared effective by the SEC; provided, however, that if such date falls within two weeks prior to the date on which the Company is required by Section 13 or 15(d) the Exchange Act to file its next periodic report, then such filing shall be made no later than the date that is two weeks following the date on which such periodic report is due (the “Filing Deadline”).  The Company agrees to use its reasonable best efforts to cause the Registration Statement to be declared effective by the SEC as soon as practicable following such filing, but in no event later than the earlier of (x) the 90th day following the date on which the Registration Statement is initially filed with the SEC and (y) the fifth day following the date on which the Company is notified (orally or in writing, whichever is earlier) by the SEC that the Registration Statement will not be reviewed or will not be subject to further review (such earlier date, the “Effectiveness Deadline”).  The Company shall promptly, and in any event within three (3) Business Days, notify the Investors of the effectiveness of the Registration Statement.  The Company shall maintain the effectiveness of the Registration Statement for so long as there are any Registrable Securities outstanding, with respect to such Registrable Securities.

 

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      (b) Effect of Failure to Obtain Effectiveness by Effectiveness Deadline.  If (i) the Registration Statement is not (A) filed with the SEC on or before the Filing Deadline (a “Filing Failure”) or (B) declared effective by the SEC on or before the Effectiveness Deadline (an “Effectiveness Failure”), (ii) other than during an Allowable Grace Period, on any day after the Registration Statement has been declared effective by the SEC, sales of all the Registrable Securities required to be included on the Registration Statement cannot be made pursuant to the Registration Statement (including because of a failure to keep the Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to the Registration Statement or to register sufficient Registrable Securities) (a “Maintenance Failure”) or (iii) if the Company fails to file with the SEC required reports under Section 13 or 15(d) of the Exchange Act such that it is not in compliance with Rule 144(c)(1) and as a result of which any of the Investors are unable to sell Registrable Securities under Rule 144 (a “Current Public Information Failure”, and each of a Filing Failure, an Effectiveness Failure, a Maintenance Failure and a Current Public Information Failure being referred to as a “Registration Failure”), then, subject to the last sentence of this Section 4.5(b) (and subject to Section 4.5(c) with respect to Cutback Shares), as full relief (but not as a penalty) for the damages to any Investor by reason of its inability to sell Registrable Securities under the Registration Statement other than as a result of a Willful Registration Failure (as defined below), the Company shall, (i) on or prior to the fifth (5th) day following a Registration Failure and (ii) on or prior to the fifth (5th) day following each monthly anniversary of such Registration Failure and until such Registration Failure shall have been cured (prorated for any period of less than a month), pay to each Investor holding Registrable Securities an amount in cash equal to one and one-half percent (1.5%) of the Total Purchase Price paid by such Investor for such Investor’s Purchased Units (such amounts, collectively, “Registration Delay Payments”); provided, that the aggregate amount of Registration Delay Payments payable by the Company shall in no event exceed an amount equal to nineteen and a half percent (19.5%) of the aggregate Total Purchase Price paid by all Investors hereunder (the “RDP Cap”).  Notwithstanding the foregoing, if there is (i) a Filing Failure or an Effectiveness Failure resulting from the Company’s failure to have complied with clause (y) of the definition of “Effectiveness Deadline” or (ii) any Registration Failure that shall have been due to the Company’s failure to use its reasonable best efforts to comply with its obligations under this Section 4.5 (each of the immediately preceding clauses (i) and (ii), a “Willful Registration Failure”), then as partial relief (but not as a penalty) for the damages to any Investor by reason of its inability to sell Registrable Securities under the Registration Statement and without limiting each Investor’s rights to any other remedy available hereunder or otherwise at law or in equity, the Registration Delay Payments in respect of a Willful Registration Failure shall be an amount in cash equal to three percent (3.0%) of the Total Purchase Price paid by such Investor for such Investor’s Purchased Units, and such Registration Delay Payments shall not be subject to the RDP Cap. For the avoidance of doubt, no more than one Registration Delay Payment shall be payable by the Company at any given time, notwithstanding that more than one failure giving rise to a Registration Delay Payment shall have occurred and is continuing (e.g., a Filing Failure and an Effectiveness Failure continuing simultaneously); provided, that, Registration Delay Payments shall continue in accordance with this Section 4.5(b) until all failures giving rise to such payments are cured.

 

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      (c)     Rule 415 Cutback.  Notwithstanding the registration obligations set forth in Section 4.5(a), if the SEC informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, then the Company agrees to promptly inform each of the Investors thereof and use its commercially reasonable efforts to file amendments to the Registration Statement as required by the SEC, covering the maximum number of Registrable Securities permitted to be registered by the SEC; provided, however, that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the SEC for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.  Notwithstanding any other provision of this Agreement, if the SEC or any guidance of the Staff thereof sets forth a limitation on the number of Registrable Securities permitted to be registered on the Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the SEC for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by an Investor as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows (the number of Registrable Securities not registered, the “Cutback Shares”):

 

(i)          First, the Company shall reduce or eliminate any securities to be included other than Registrable Securities;

 

(ii)         Second, the Company shall reduce Registrable Securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Investors on a pro rata basis based on the total number of unregistered Warrant Shares held by such Investors); and

 

(iii)        Third, the Company shall reduce Registrable Securities represented by Shares (applied to the Investors on a pro rata basis based on the total number of unregistered Shares held by such Investors).

 

In the event of a cutback hereunder, the Company shall give each Investor at least five (5) Business Days prior written notice along with the calculations as to such Investor’s allotment.  In the event the Company amends the Registration Statement in accordance with the foregoing, the Company will use its reasonable best efforts to file with the Commission, as promptly as allowed by the SEC or guidance of the Staff thereof provided to the Company or to registrants of securities in general, one or more registration statements on Form S-1, Form F-1 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended (any such other registration statements, an “Additional Registration Statement”).  As full relief (but not as a penalty) for the damages to any Investor by reason of its inability to sell Cutback Shares under the Registration Statement, the Company shall, (i) on or prior to the fifth (5th) day following the date on which the Registration Statement shall be declared effective by the SEC (and which Registration Statement does not include the Cutback Shares) and (ii) on or prior to the fifth (5th) day following each monthly anniversary of such effectiveness (prorated for any period of less than a month) and until the earliest to occur of (x) the date on which the Cutback Shares are included in either the effective Registration Statement, as may be amended or any effective Additional Registration Statement and (y) the date on which such Cutback Shares may be sold without restrictions or other limitations pursuant to Rule 144 (or any successor provision) under the Securities Act (including, without limitation, volume restrictions) and without the need for current public information required by Rule 144(c)(1), pay to each Investor holding Cutback Shares an amount in cash equal to one percent (1.0%) of the product of (A) $6.00 (subject to proportionate adjustment for any stock splits, stock dividends, stock combinations, recapitalizations and similar events occurring after the date hereof) and (B) the number of such Cutback Shares.

 

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(d)           Related Obligations.  The Company shall use its reasonable best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof, and, pursuant thereto, the Company shall have the following obligations:

 

(i) The Company shall promptly prepare and file with the SEC the Registration Statement with respect to all the Registrable Securities (but in no event later than the applicable Filing Deadline) and use its reasonable best efforts to cause the Registration Statement to become effective as soon as practicable after such filing (but in no event later than the Effectiveness Deadline).  Subject to Allowable Grace Periods, the Company shall keep the Registration Statement effective (and the prospectus contained therein available for use) pursuant to Rule 415 for resales by the Investors of all of the Registrable Securities on a delayed or continuous basis at then-prevailing market prices (and not fixed prices) at all times for so long as there remain outstanding any Registrable Securities (the “Registration Period”). Notwithstanding anything to the contrary contained in this Agreement, the Company shall ensure that, when filed and at all times while effective, the Registration Statement (1) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein (in the case of prospectuses, in the light of the circumstances in which they were made) not misleading and (2) will disclose (whether directly or through incorporation by reference to other SEC filings to the extent permitted) all material information regarding the Company and its securities.  The Company shall submit to the SEC, within five (5) days after the Staff of the SEC advises the Company (orally or in writing, whichever is earlier) that the Staff either will not review the Registration Statement or has no further comments on the Registration Statement (as the case may be), a request for acceleration of effectiveness of the Registration Statement to a time and date not later than forty-eight (48) hours after the submission of such request.

 

(ii) Subject to Section 4.5(d)(xi), the Company shall prepare and file with the SEC such amendments (including, without limitation, post-effective amendments) and supplements to the Registration Statement (and to the extent necessary additional registration statements, which shall be deemed to constitute part of the Registration Statement for all purposes hereof) and the prospectus used in connection with the Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep the Registration Statement effective and available for resales of all of the Registrable Securities at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act.

 

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(iii) The Company shall promptly furnish to each Investor, without charge, (i) upon request, after the same is prepared and filed with the SEC, a reasonable number of copies of the Registration Statement and any amendment(s) and supplement(s) thereto, including, if so requested, the financial statements and schedules filed therewith, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) upon request, upon the effectiveness of the Registration Statement, two (2) copies of the prospectus included in the Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request from time to time), and (iii) such other documents, including, without limitation, copies of any preliminary or final prospectus, as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.

 

(iv) The Company shall use its reasonable best efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by Investors of the Registrable Securities covered by the Registration Statement under such other securities or “blue sky” laws of jurisdictions in the United States as shall be reasonably appropriate for the distribution of the Registrable Securities covered by the Registration Statement, (ii) prepare and file in those jurisdictions, such amendments (including, without limitation, post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 4.5(d)(iv), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction.  The Company shall promptly notify each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.  Without limiting the foregoing, for so long as the principal trading is not a United States national securities exchange, the Company shall file all necessary reports, at its expense, to publish all information so as to have available “current public information” in Standard & Poor’s Corporation Records (or successor thereto) or Mergent’s Manual (or successor thereto) for state “blue sky” exemption purposes.

 

(v) The Company shall notify each Investor in writing of the happening of any event, as promptly as practicable after becoming aware of such event, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, non-public information regarding the Company or any of its Subsidiaries), and, subject to Section 4.5(d)(xi), promptly prepare a supplement or amendment to the Registration Statement and such prospectus contained therein to correct such untrue statement or omission and, upon request by any Investor, deliver two (2) copies of such supplement or amendment to such Investor (or such other number of copies as such Investor may reasonably request).  If the Company receives SEC comments which challenge the right of an Investor to have its Registrable Securities included in the Registration Statement without being deemed an underwriter thereunder, the Company shall, in discussions with and responses to the SEC, use its reasonable best efforts and time to cause as many Registrable Securities as possible to be included in the Registration Statement without characterizing any Investor as an underwriter and in such regard use its reasonable best efforts to cause the SEC to permit the affected Investors or their respective counsel to reasonably participate in SEC conversations on such issue together with Company counsel, and timely convey relevant information concerning such issue with the affected Investors or their respective counsel. In no event may the Company name any Investor as an underwriter without such Investor’s prior written consent; provided, however, that if, after the Company complies with its covenants contained in this Section 4.5(d)(v), the SEC requires that such Investor be named an underwriter and such Investor refuses to promptly deliver its written consent to be so named, then the Company may exclude such Investor and such Investor’s Registrable Securities from the Registration Statement, and such Investor’s Shares and Warrant Shares acquired under this Agreement shall be deemed to no longer be Registrable Securities, irrespective of the definition of “Registrable Securities” contained in this Agreement.

 

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(vi) The Company shall (i) use reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of the Registration Statement or the use of any prospectus contained therein, or the suspension of the qualification, or the loss of an exemption from qualification, of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension as soon as reasonably practicable and (ii) notify each Investor who holds Registrable Securities of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

 

(vii) Without limiting any obligation of the Company under this Agreement, the Company shall use its reasonable best efforts either to (i) cause all of the Registrable Securities to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all of the Registrable Securities on the applicable over the counter market.

 

(viii) The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, facilitate the timely preparation and delivery of certificates (subject to applicable securities laws, not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates to be in such denominations or amounts (as the case may be) as the Investors may reasonably request from time to time and registered in such names as the Investors may request.

 

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(ix) The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under the Securities Act) covering a twelve-month period beginning not later than the first day of the Company’s fiscal quarter next following the effective date of the Registration Statement.

 

(x) The Company shall otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC in connection with the Registration Statement.

 

(xi) Notwithstanding anything to the contrary herein (but subject to the last sentence of this Section 4.5(d)(xi)), at any time after the date on which the Registration Statement is declared effective by the SEC, the Company may delay the disclosure of material, non-public information concerning the Company or any of its Subsidiaries, the disclosure of which at the time is not, in the good faith opinion of the Company Board or any named executive officer of the Company, in the best interest of the Company or otherwise required by law or under this Agreement (a “Grace Period”); provided that the Company shall promptly notify the Investors in writing of the (i) existence of material, non-public information giving rise to a Grace Period (provided that in each such notice the Company shall not disclose the content of such material, non-public information to any of the Investors) and the date on which such Grace Period will begin and (ii) date on which such Grace Period ends; and, provided, further, that (A) no Grace Period shall exceed thirty (30) consecutive days, (B) during any three hundred sixty five (365) day period, such Grace Periods shall not exceed an aggregate of sixty (60) days, and (C) the first day of any Grace Period must be at least ten (10) Business Days after the last day of any prior Grace Period (each Grace Period that satisfies all of the requirements of this Section 4.5(d)(xi) being referred to as an “Allowable Grace Period”).  For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Investors receive the notice referred to in clause and shall end on the date referred to in such notice.  Notwithstanding anything to the contrary contained in this Section 4.5(d)(xi), the Company shall cause its transfer agent to deliver unlegended Shares to a transferee of an Investor in accordance with the terms of this Agreement in connection with any sale of Registrable Securities with respect to which such Investor has entered into a contract for sale, and delivered a copy of the prospectus included as part of the Registration Statement to the extent applicable, prior to such Investor’s receipt of the notice of a Grace Period and for which the Investor has not yet settled.

 

(e)           Obligations of the Investors.  Each Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as the Company shall reasonably request and as shall be required in connection with the registration of the Registrable Securities.  Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement, unless such Investor has notified the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable Securities from the Registration Statement.

 

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(f)            Expenses of Registration.  All expenses incurred in connection with the Registration Statement, excluding underwriters’ discounts and commissions, but including without limitation all registration, filing and qualification fees, word processing, duplicating, printers’ and accounting fees, stock exchange fees, messenger and delivery expenses, all fees and expenses of complying with state securities or blue sky laws and the fees and disbursements of counsel for the Company shall be paid by the Company.

 

4.6 Prohibitions o n Dividends, Etc Except as expressly contemplated by this Agreement, on or prior to the Closing Date, the Company shall not authorize, approve, or effect, or set a record date for, any (i) share dividend, share split, share combination, recapitalization or similar event with respect to the Shares, (ii) any dividend or distribution (of cash, securities or other assets) on the Shares, (iii) any offering, issuance or sale of any Shares or Options, Convertible Securities, or (iv) other action of a type that would have resulted in any adjustment of any of the terms of the Warrants if the Warrants were then to have been outstanding.

 

4.7 Prohibition on Variable Rate Transactions.  From the date hereof until the one-year anniversary of the date on which the Registration Statement is declared effective by the SEC, the Company shall not effect or enter into an agreement to effect any issuance by the Company or the Subsidiary of Shares, Options or Convertible Securities (or a combination of units thereof) involving a Variable Rate Transaction.  “Variable Rate Transaction” means a transaction in which the Company:  (i) issues or sells any Convertible Securities or Options that are convertible into, exchangeable or exercisable for, or include the right to receive, Shares either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the Shares at any time after the initial issuance of such Convertible Securities or Options or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or Options or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Shares; or (ii) enters into, or effects a transaction under, any agreement, including an equity line of credit or “at-the-market” offering, whereby the Company may issue securities at a future determined price.

 

4.8 Satisfaction of Closing Conditions.  The Company shall use its reasonable best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Section 5.1 of this Agreement. Without limiting the foregoing, the Company shall use its reasonable best efforts, and shall cause its Affiliates to use their reasonable best efforts, to, take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary to consummate the Qualified Public Transaction as promptly as reasonably possible following the date of this Agreement.

 

4.9 Public Disclosure.  Not later than the fourth (4th) Business Day following the Closing Date, the Company shall file with the SEC a Current Report on Form 8-K (the “Closing Form 8-K”), describing the terms of the transactions contemplated by the Transaction Documents, as required pursuant to applicable SEC rules and regulations, including as exhibits to the Closing Form 8-K a copy this Agreement and the form of Warrant.  The Closing Form 8-K shall include all information that constitutes, or the Company reasonably believes constitutes, material non-public information that has been provided to the Investors on or prior to the Closing Date.  The Company shall not, and shall cause each of its Affiliates and its and each of their respective officers, directors, employees and agents not to, intentionally provide any Investor with any material nonpublic information regarding the Company or the Subsidiary from and after the filing of the Closing Form 8-K with the SEC without the express prior written consent of such Investor.

 

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4.10 Non-Public Information.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant to Section 4.9, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Investor or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Investor shall have consented to the receipt of such information and agreed with the Company to keep such information confidential.  The Company understands and confirms that each Investor shall be relying on the foregoing covenant in effecting transactions in securities of the Company.  To the extent that the Company delivers any material, non-public information to an Investor without such Investor’s consent, the Company hereby covenants and agrees that such purchaser shall not have any duty of confidentiality to the Company, its Subsidiary or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company or its Subsidiary or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that such Investor shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or its Subsidiary, the Company shall simultaneously file or furnish such notice with the SEC pursuant to a Current Report on Form 8-K.  The Company understands and confirms that each Investor shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

4.11 Listing of Shares; DTC. The Company hereby agrees to use reasonable best efforts to maintain the listing or quotation of the Shares on the Trading Market on which it is currently listed, and concurrently with the Closing, the Company shall apply to list or quote all of the Shares and Warrant Shares on such Trading Market and promptly secure the listing of all of the Shares and Warrant Shares on such Trading Market. The Company further agrees, if the Company applies to have the Shares traded on any other Trading Market, it will then include in such application all of the Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Shares and Warrant Shares to be listed or quoted on such other Trading Market as promptly as possible.  The Company will then take all action reasonably necessary to continue the listing or quotation and trading of its Shares on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the applicable Trading Market. The Company agrees to maintain the eligibility of the Shares for electronic transfer through DTC, including by timely payment of fees to DTC in connection with such electronic transfer.

 

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4.12             Registration Under Section 12; Maintenance of Reporting Status.

 

(a) If the Shares are not registered under Section 12(b) or 12(g) of the Exchange Act on the Closing Date, then the Company agrees to cause the Shares to be registered under Section 12(g) of the Exchange Act on or prior to the Closing Date. From such registration until the earliest of the time that (i) no Investor owns any Purchased Securities or (ii) the Warrants shall have expired, the Company covenants to maintain the registration of the Shares under Section 12(b) or 12(g) of the Exchange Act (the “Reporting Period”).

 

(b) From the Closing Date through the end of the Reporting Period, the Company (i) shall not terminate its status as an issuer required to file reports under the Exchange Act, even if the securities laws would otherwise permit any such termination, (ii) shall make and keep public information available, as those terms are understood and defined in Rule 144, (iii) shall timely file with the SEC all reports and other documents required to be filed by the Company under the Exchange Act, and (iv) shall furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company (other than correspondence with the SEC and any document for which confidential treatment is sought), and (v) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144.

 

4.13             Reservation of Shares. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of Shares for the purpose of enabling the Company to issue all of the Shares pursuant to this Agreement and all of the Warrant Shares pursuant to any exercise of the Warrants.

 

ARTICLE V.

 CONDITIONS

 

5.1               Conditions Precedent to the Obligations of the Investors.  The obligation of each Investor to acquire Units at the Closing is subject to the satisfaction, unless waived in writing by such Investor, at or before the Closing, of each of the following conditions:

 

(a) Representations and Warranties.  The representations and warranties of the Company contained herein:  (i) that are qualified by materiality or Material Adverse Effect shall be true and correct in all respects as of the date when made and as of the Closing Date as though made on and as of the Closing Date (except for those representations and warranties that are qualified by materiality or Material Adverse Effect and speak as of a specific date, which shall be true and correct in all respects as of such specified date); and (ii) that are not qualified by materiality or Material Adverse Effect shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made on and as of the Closing Date (except for those representations and warranties that are not qualified by materiality or Material Adverse Effect and speak as of a specific date, which shall be true and correct in all material respects as of such specified date); provided, that, the representations and warranties of the Company contained in Sections 3.1(a), 3.1(b), 3.1(c), 3.1(d), 3.1(e), 3.1(f) and 3.1(s) shall be true and correct in all respects as of the date when made and as of the Closing Date as though made on and as of the Closing Date (except for those representations and warranties that speak as of a specific date, which shall be true and correct in all respects as of such specified date).

 

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(b) Performance.  The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing.

 

(c) Approvals.  The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Units (including all Required Approvals), all of which shall be and remain so long as necessary in full force and effect.

 

(d) Absence of Litigation. No Proceeding by or before any court or any governmental body or authority, against the Company or the Subsidiary or pertaining to the transactions contemplated by this Agreement or their consummation, shall have been instituted on or before the Closing Date, which action, suit or proceeding would, if determined adversely, have or reasonably be expected to result in a Material Adverse Effect.

 

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

 

(f) No Injunction. No Proceeding shall have been filed and no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered or promulgated by any court or governmental authority of competent jurisdiction that prohibits or seeks to prohibit or otherwise challenges the consummation of any of the transactions contemplated by the Transaction Documents.

 

(g) Adverse Changes.  Since the execution of this Agreement, no event or series of events shall have occurred that has had, or would be reasonably like to have, a Material Adverse Effect.

 

(h) Officer’s Certificate.  The Company shall have delivered to the Investors a certificate executed by a duly authorized officer of the Company certifying the fulfillment of the conditions specified in Sections 5.1(a) and 5.1(b).

 

(i) Secretary’s Certificate.  The Company shall have delivered to the Investors a certificate executed by the secretary of the Company, dated as of the Closing Date, as to (i) the resolutions adopted by the Company Board approving the transactions contemplated hereby, (ii) the articles of incorporation (or similar organizational documents) of the Company, as in effect on the Closing Date, (iii) the bylaws (or similar governing documents) of the Company, as in effect on the Closing Date, and (iv) the authority and incumbency of the officers of the Company executing the Transaction Documents.

 

(j) Offering Amount.  Investors shall have agreed to purchase an aggregate number of Purchased Units for an aggregate Total Purchase Price equal to or greater than the Minimum Offering Amount but equal to or less than the Maximum Offering Amount.

 

(k) Legal Opinion.  Company counsel shall have delivered to the Investors a legal opinion of Company counsel, addressed to the Investors, in form and substance reasonable satisfactory to the Investors.

 

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5.2 Conditions Precedent to the Obligations of the Company.  The obligation of the Company to sell the Units at the Closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the following conditions:

 

(a) Representations and Warranties.  The representations and warranties of the Investors contained herein shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made on and as of the Closing Date (except for those representations and warranties that speak as of a specific date, which shall be true and correct in all material respects as of such specified date).

 

(b) Performance.  The Investors shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Investors at or prior to the Closing.

 

(c) Approvals.  The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Units (including all Required Approvals).

 

(d) Deliverables.  The Investors shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.  The Investors shall have delivered to the Company those items required by Section 2.2(b).

 

(e) No Injunction. No Proceeding shall have been filed and no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered or promulgated by any court or governmental authority of competent jurisdiction that prohibits or seeks to prohibit or otherwise challenges the consummation of any of the transactions contemplated by the Transaction Documents.

 

(f) Offering Amount.  Investors shall have agreed to purchase an aggregate number of Purchased Units for an aggregate Total Purchase Price equal to or greater than the Minimum Offering Amount but equal to or less than the Maximum Offering Amount.

 

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ARTICLE VI.

 INDEMNIFICATION

 

6.1 Indemnification.

 

(a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor and each of its directors, officers, shareholders, members, partners, employees, agents, advisors and representatives and each Person, if any, who controls such Investor within the meaning of the Securities Act or the Exchange Act and each of the directors, officers, shareholders, members, partners, employees, agents, advisors, representatives of such controlling Persons (each, an “Indemnified Person”), against any losses, obligations, claims, damages, liabilities, contingencies, judgments, fines, penalties, charges, costs (including, without limitation, court costs, reasonable attorneys’ fees and costs of defense and investigation), amounts paid in settlement or expenses, joint or several (collectively, “Claims”),  incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened in writing (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any breach of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents, (ii) any untrue statement or alleged untrue statement of a material fact in the Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) any untrue statement or alleged untrue statement of a material fact contained in the any prospectus (preliminary, final, free-writing or otherwise) or any amendment or supplement thereto, or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iv) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to the Registration Statement (the matters in the foregoing clauses (i) through (iv) being, collectively, “Violations”).  Subject to Section 6.1(c), the Company shall reimburse the Indemnified Persons for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.1(a):  (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person for such Indemnified Person expressly for use in connection with the preparation of, or inclusion in, the Registration Statement or any such amendment thereof or supplement thereto; and (ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld, conditioned or delayed.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of any of the Registrable Securities by any of the Investors.

 

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(b) In connection with the Registration Statement, each Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6.1(a), the Company, and each of its directors and officers and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Ac (each, an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case, to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with the preparation of, or inclusion in, the Registration Statement or any such amendment thereof or supplement thereto; and, subject to Section 6.1(c) and the below provisos in this Section 6.1(b), such Investor will reimburse an Indemnified Party any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such Claim; provided, however, the indemnity agreement contained in this Section 6.1(b) and the agreement with respect to contribution contained in Section 6.2 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld or delayed’ provided, further, that such Investor shall be liable under this Section 6.1(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the applicable sale of Registrable Securities pursuant to the Registration Statement.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of any of the Registrable Securities by any of the Investors.

 

(c) Promptly after receipt by an Indemnified Person or Indemnified Party (as the case may be) under this Section 6.1 of notice of the commencement of any action or proceeding (including, without limitation, any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party (as the case may be) shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6.1, deliver to the applicable indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party (as the case may be); provided, however, an Indemnified Person or Indemnified Party (as the case may be) shall have the right to retain its own counsel with the fees and expenses of such counsel to be paid by the indemnifying party if:  (i) the indemnifying party has agreed in writing to pay such fees and expenses; (ii) the indemnifying party shall have failed promptly to assume the defense of such Claim and to employ counsel reasonably satisfactory to such Indemnified Person or Indemnified Party (as the case may be) in any such Claim; or (iii) the named parties to any such Claim (including, without limitation, any impleaded parties) include both such Indemnified Person or Indemnified Party (as the case may be) and the indemnifying party, and such Indemnified Person or such Indemnified Party (as the case may be) shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Person or such Indemnified Party and the indemnifying party (in which case, if such Indemnified Person or such Indemnified Party (as the case may be) notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, then the indemnifying party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party); provided further that in the case of clause (iii) above the indemnifying party shall not be responsible for the reasonable fees and expenses of more than one (1) separate legal counsel for such Indemnified Person or Indemnified Party (as the case may be).  The Indemnified Party or Indemnified Person (as the case may be) shall reasonably cooperate with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person (as the case may be) which relates to such action or Claim.  The indemnifying party shall keep the Indemnified Party or Indemnified Person (as the case may be) reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect thereto.  No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided, however, the indemnifying party shall not unreasonably withhold, delay or condition its consent.  No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person (as the case may be), consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person (as the case may be) of a release from all liability in respect to such Claim or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnified Party.  , firms or corporations relating to the matter for which indemnification has been made.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party (as the case may be) under this Section 6.1, except to the extent that the indemnifying party is materially and adversely prejudiced in its ability to defend such action.

 

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(d) The indemnity and contribution agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities to which the indemnifying party may be subject pursuant to the law.

 

6.2 Contribution.  To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6.1 to the fullest extent permitted by law; provided, however:  (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6.1; (ii) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the amount of net proceeds received by such seller from the applicable sale of such Registrable Securities pursuant to the Registration Statement.  Notwithstanding the provisions of this Section 6.2, no Investor shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Investor from the applicable sale of the Registrable Securities subject to the Claim exceeds the amount of any damages that such Investor has otherwise been required to pay, or would otherwise be required to pay, under Section 6.1(b), by reason of such untrue or alleged untrue statement or omission or alleged omission.

 

ARTICLE VII.

 MISCELLANEOUS

 

7.1 Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Investors and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

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7.2 Termination.  This Agreement shall automatically terminate if the Closing has not been consummated on or prior to March 31, 2017 (the “Outside Date”); provided, that no such termination will affect the right of any party to sue for any breach by the other party (or parties).

 

7.3 Fees and Expenses.  Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and issuance of the applicable Units.

 

7.4 Entire Agreement; Further Assurances.  The Transaction Documents, together with the Exhibits, Annexes and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.  At or after the Closing, and without further consideration, the Company and the Investors will execute and deliver to the Investors such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.

 

7.5                Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address specified in this Section 7.5 prior to 6:30 p.m. (New York City time) on a Business Day (subject to the sender’s receipt of good transmission, in the case of a facsimile, or the absence of a message back to the sender of undeliverability, in the case of email), (b) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address specified in this Section 7.5 on a day that is not a Business Day or later than 6:30 p.m. (New York City time) on any Business Day, (c) the Business Day following the date of deposit with a nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.  The addresses, facsimile numbers and email addresses for such notices and communications are those set forth on the signature pages hereof, or such other address or facsimile number as may be designated in writing hereafter, in the same manner, by any such Person.

 

7.6 Amendments; Waivers.  No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Investors holding or having the right to acquire a majority of the Units at the time of such amendment or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No amendment shall be effective to the extent that it does not apply on the same basis to all of the Investors.  No consideration shall be offered or paid to any Investor to amend or consent to a waiver or modification or supplement of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the Investors.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

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7.7 Construction.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

7.8 Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investors; provided, however this Agreement shall be assigned to any corporation or association into which the Company may be merged or converted or with which it may be consolidated, or any corporation, association or other similar entity resulting from any merger, conversion or consolidation to which the Company shall be a party without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties to this Agreement except where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding.  Prior to the Closing, any Investor may assign some or all of its rights hereunder without the consent of the Company; provided that (i) such Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company after such assignment, (ii) the Company is furnished with written notice of the name and address of such transferee or assignee, and (iii) such transferee agrees in writing to be bound by the provisions hereof that apply to the “Investors” (including, at the time of such assignment, the making, and the truthfulness and accuracy, of all representations and warranties of an Investor hereunder); provided, further, however, that any such assignment shall not release such Investor from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption, which consent shall not be unreasonably withheld, conditioned or delayed.  Any Investor may assign its rights with respect to any Purchased Securities under this Agreement to any Person to whom such Investor assigns or transfers such Purchased Securities, provided (i) such transferor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company after such assignment, (ii) the Company is furnished with written notice of the name and address of such transferee or assignee, (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, (iv) such transferee agrees in writing to be bound, with respect to the transferred Purchased Securities, by the provisions hereof that apply to the “Investors” and (v) such transfer shall have been made in accordance with the applicable requirements of this Agreement.  Notwithstanding anything to the contrary contained in the Transaction Documents, any Investor shall be entitled to pledge the Purchased Securities in connection with a bona fide margin account or other loan or financing arrangement secured by the Purchased Securities.

 

7.9 No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, other than Indemnified Persons and Indemnified Parties who are not parties to this agreement, who shall be third-party beneficiaries to Article VI.

 

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7.10                Governing Law; Venue; Waiver of Jury Trial.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.  THE COMPANY AND INVESTORS HEREBY IRREVOCABLY SUBMIT 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 BROUGHT BY THE COMPANY OR ANY INVESTOR HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  THE COMPANY AND INVESTORS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.

 

7.11 Survival.  Unless this Agreement is terminated under Section 7.2, the representations and warranties, agreements and covenants contained herein shall survive indefinitely.

 

7.12 Execution.  This Agreement may be executed in counterparts, all of which when taken together shall be considered one and the same agreement.  In the event that any signature is delivered by facsimile transmission or email attachment, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or email-attached signature page were an original thereof.

 

7.13 Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

 

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7.14 Independent Nature of Investors’ Obligations and Rights.  The obligations of each Investor under any Transaction Document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Transaction Documents.  The decision of each Investor to purchase Units pursuant to this Agreement has been made by such Investor independently of any other Investor and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company which may have been made or given by any other Investor or by any agent or employee of any other Investor, and no Investor or any of its agents or employees shall have any liability to any other Investor (or any other person) relating to or arising from any such information, materials, statements or opinions. Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Investor acknowledges that no other Investor has acted as agent for such Investor in connection with making its investment hereunder and that no other Investor will be acting as agent of such Investor in connection with monitoring its investment hereunder.  Each Investor shall be entitled to independently protect and enforce its rights, including the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Investor to be joined as an additional party in any Proceeding for such purpose.

 

7.15 Replacement of Securities.  If any certificate or instrument evidencing any Purchased Securities is mutilated, lost, stolen or destroyed, then the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction.  The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Purchased Securities, but without any requirement to post a bond (unless required by the Company’s transfer agent, in which case the cost of such bond shall be paid by the Company).

 

7.16 Interpretative Matters.  Unless the context otherwise requires, (i) all references to Sections, Schedules or Exhibits are to Sections, Schedules or Exhibits contained in or attached to this Agreement, (ii) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (iii) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, (iv) the use of the word “including” in this Agreement shall be by way of example rather than limitation and (v) the word “or” shall not be exclusive.

 

[SIGNATURE PAGES FOLLOW]

 

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IN WITNESS WHEREOF, the parties hereto have executed or caused this Securities Purchase and Registration Rights Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

	
 

	

AIT Therapeutics, Inc.

 

By: /s/ Amir Avniel

Name: Amir Avniel

Title: Chief Executive Officer

Address for Notice:

 

Facsimile No.: ____________________

Telephone No.: ___________________

Attn: ___________________________

With a copy to:

Greenberg Traurig, P.A.

333 S.E. 2nd Avenue

Suite 4400

Miami, FL 33131

Facsimile No.: 305.961.5756

Telephone No.: 305.579.0756

Attn: Robert L. Grossman and Drew M. Altman

 

SUBSCRIBERS:

 

Each of the Subscribers set forth on Schedule A to this Agreement has executed a Subscription Agreement which provides, among other things, that by executing the Subscription Agreement each Subscriber is deemed to have executed this SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT in all respects and is bound by all terms contained in this Agreement, including the obligation to purchase the Units set forth in such Subscription Agreement and Schedule A to this Agreement.

 

SCHEDULE A

 SCHEDULE OF SUBSCRIBERS

	
Name of Subscriber

	
Units

	
Shares of Common Stock

	
Warrant Shares

	
Total Purchase

Price

	 	 	
 

 

	 	 
	 	 	
 

 

	 	 

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Exhibit A

[Form of Warrant – Attached]

 

Exhibit B

[Form of Subscription Agreement – Attached]

 

 

Schedule 3.1(ee)

The Company has agreed to pay Laidlaw & Company (UK) Ltd. (the “Placement Agent”) an activation fee of $20,000 (which shall be set off against the cash commissions described in this Schedule 3.1(ee). The Placement Agent also will receive (a) a cash commission in the amount of (a) ten percent (10%) of the aggregate gross proceeds received on a Closing date from all investors who are not a qualified institutional buyer, as such term is defined under Rule  144A of the Securities Act of 1933, as amended and (b) a cash non-allocable expense reimbursement equal to two percent (2%) of the gross amount raised in from investors who are not a qualified institutional buyer. For those investors deemed to be a qualified institutional buyer, the cash fee will be equal to seven percent (7%) of the proceeds; provided, that the following four institutional investors, SHN, Nexthera, Dafna and MVM, including their respective affiliates, if any invest, such investment would result in a cash fee equal to 1% of the gross proceeds of their respective investments.

In addition, the Company shall issue Laidlaw and or its designee(s) warrants (the “Laidlaw Warrants”) exercisable, at any time and from time to time during the five-year period immediately following their issuance, for a number of shares of common stock equal to 10% (ten percent) of the shares of common stock (which, for the avoidance of doubt, shall not include shares of common stock underlying any warrants or other convertible securities sold to investors in the Offering) sold to investors in the offering who are not qualified institutional buyers, (the “Laidlaw Warrant Shares”). The Laidlaw Warrants shall have an exercise price equal to $6.90 per Laidlaw Warrant Share.  The Laidlaw Warrants will contain normal and customary provisions for dilution protection and cashless exercise and registration rights in respect of the Laidlaw Warrant Shares, all to be the same as provided for in respect of the Purchased Securities with the exception that the Laidlaw Warrants shall have cashless exercise provisions even if the Purchased Securities do not.  If Laidlaw Warrants are issuable, then the Company shall issue the Laidlaw Warrants on or prior to the second (2nd) business day immediately following the later of (i) the 90th day following the date on which the Registration Statement is declared effective by the SEC and (ii) September 30, 2017.  For purposes of this Section 2(b)(ii), the term “Registration Statement” has the meaning ascribed thereto in that certain Securities Purchase and Registration Rights Agreement, dated December 13, 2016, by and among Advanced Inhalation Therapies Ltd. and the investors party thereto.

In addition to any other fees due to Laidlaw, the Company will be responsible for the prompt payment of all documented legal fees and expenses incurred by Laidlaw in connection with the Offering, in an amount of up to $60,000.

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