Document:

ex4-1form8a12b_040510.htm

  
Exhibit 4.1

SHAREHOLDER RIGHTS PLAN AGREEMENT

 

DATED AS OF APRIL 5, 2010

 

BETWEEN

 

IVANHOE MINES LTD.

 

AND

 

CIBC MELLON TRUST COMPANY

 

AS RIGHTS AGENT

 

 

 

 

  

  

  

SHAREHOLDER RIGHTS PLAN AGREEMENT

 

SHAREHOLDER RIGHTS PLAN AGREEMENT dated as of April 5, 2010, between  Ivanhoe Mines Ltd. (the “Corporation”), a corporation existing under the laws of the Yukon Territory, and CIBC Mellon Trust Company, a company existing under the laws of Canada (the “Rights Agent”);

 

WHEREAS:

 

	
  

	
(a)

	
the Board of Directors of the Corporation, in the exercise of its fiduciary duties, determined that it was advisable and in the best interests of the Corporation to adopt a shareholder rights plan (the “Rights Plan”) to ensure, to the extent possible, that all shareholders of the Corporation are treated fairly in connection with any take-over bid for the Corporation;

 

	
  

	
(b)

	
effective April 5, 2010 the Board of Directors authorized:

 

	
  

	
(i)

	
and declared the issuance of one Right effective the Record Time in respect of each Common Share outstanding at the Record Time; and

 

	
  

	
(ii)

	
the issuance of one Right in respect of each Common Share issued after the Record Time and prior to the earlier of the Separation Time and the Expiration Time;

 

	
  

	
(c)

	
each Right entitles the holder thereof, after the Separation Time, to purchase securities of the Corporation pursuant to the terms and subject to the conditions set forth in this Agreement;

 

	
  

	
(d)

	
the Corporation has appointed the Rights Agent to act on behalf of the Corporation and the holders of Rights, and the Rights Agent has agreed to act on behalf of the Corporation in connection with the issuance, transfer, exchange and replacement of Rights Certificates, the exercise of Rights and other matters referred to in this Agreement; and

 

	
  

	
(e)

	
capitalized terms used above without definition have the meanings given to such terms in Article 1 of this Agreement;

 

NOW THEREFORE, in consideration of the premises and the respective agreements set forth herein, the Corporation and the Rights Agent agree as follows:

 

 

ARTICLE 1 - INTERPRETATION

 

	
1.1

	
Certain Definitions

 

For purposes of this Agreement, the following terms have the meanings indicated;

 

	
  

	
(a)

	
“Acquiring Person” means any Person who is the Beneficial Owner of 20% or more of the outstanding Voting Shares; provided, however, that the term “Acquiring Person” shall not include:

 

  

  

  

- 2 -

 

         

	
  

	
(i)

	
the Corporation or any Subsidiary of the Corporation;

 

	
  

	
(ii)

	
any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of one or any combination of:

 

	
  

	
(A)

	
a Voting Share Reduction,

 

	
  

	
(B)

	
a Permitted Bid Acquisition,

 

	
  

	
(C)

	
an Exempt Acquisition,

 

	
  

	
(D)

	
a Convertible Security Acquisition, or

 

	
  

	
(E)

	
a Pro Rata Acquisition;

 

provided, however, that if a Person becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares by reason of one or any combination of (A), (B), (C), (D) or (E) above and thereafter becomes the Beneficial Owner of any additional Voting Shares (other than pursuant to one or any combination of (A), (B), (C), (D) or (E) above), then as of the date such Person becomes the Beneficial Owner of such additional Voting Shares, such Person shall become an “Acquiring Person”;

 

	
  

	
(iii)

	
for a period of 10 days after the Disqualification Date (as defined below), any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of such Person becoming disqualified from relying on Clause B of the definition of “Beneficial Owner” solely because such Person makes or proposes to make a Take-over Bid, either alone or by acting jointly or in concert with any other Person (for the purposes of this definition, “Disqualification Date” means the first date of public announcement that any Person is making or has announced an intention to make a Take-over Bid, either alone, through such Person’s Affiliates or Associates or by acting jointly or in concert with any other Person, and includes, without limitation, a report filed pursuant to Section 101 of the Securities Act);

 

	
  

	
(iv)

	
an underwriter or member of a banking or selling group that becomes the Beneficial Owner of Voting Shares in connection with a distribution to the public of securities of the Corporation, which includes, without limitation, a distribution of securities pursuant to a prospectus or by way of private placement; or

 

	
  

	
(v)

	
a Person (a “Grandfathered Person”) who is the Beneficial Owner of 20% or more of the outstanding Voting Shares determined as at the Record Time, provided, however, that this exception shall not be, and shall cease to be, applicable to a Grandfathered Person in

 

  

  

  

- 3 -

 

the event that such Grandfathered Person shall, after the Record Time, become the Beneficial Owner of any additional Voting Shares, other than through one or any combination of a Permitted Bid Acquisition, an Exempt Acquisition, a Voting Share Reduction, a Pro Rata Acquisition or a Convertible Security Acquisition.

 

	
  

	
(b)

	
“Affiliate”, when used to indicate a relationship with a Person, means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified Person.

 

	
  

	
(c)

	
“Agreement” means this shareholder rights plan agreement, as the same may be amended or supplemented from time to time; “hereof”, “herein”, “hereto” and similar expressions mean and refer to this Agreement as a whole and not to any particular part of this Agreement.

 

	
  

	
(d)

	
“Associate”, when used to indicate a relationship with a specified Person, means (i) a spouse of that Person, (ii) any Person of the same or opposite sex with whom that Person is living in a conjugal relationship outside marriage, (iii) a child of that Person or (iv) a relative of that Person or of a Person mentioned in items (i), (ii) or (iii) of this definition if that relative has the same residence as that Person.

 

	
  

	
(e)

	
A Person shall be deemed the “Beneficial Owner” of, to have “Beneficial Ownership” of, and to “Beneficially Own”:

 

	
  

	
(i)

	
any securities as to which such Person or any of such Person’s Affiliates or Associates is the owner at law or in equity;

 

	
  

	
(ii)

	
any securities as to which such Person or any of such Person’s Affiliates or Associates has the right to become the owner at law or in equity (whether such right is exercisable immediately or within a period of 60 days thereafter and whether or not on condition or the happening of any contingency) pursuant to any agreement, arrangement, pledge or understanding, whether or not in writing (other than (A) customary agreements with and between underwriters and/or banking group members and/or selling group members with respect to a public offering of securities and (B) pledges of securities in the ordinary course of business), or upon the exercise of any conversion right, exchange right, share purchase right (other than the Rights), warrant or option;

 

	
  

	
(iii)

	
any securities which are beneficially owned, directly or indirectly, by a Counterparty (or any of such Counterparty’s Affiliates or Associates) under any Derivatives Contract (without regard to any short or similar position under the same or any other Derivatives Contract) to which such Person or any of such Person’s Affiliates or Associates is a Receiving Party; provided, however that the number of Common Shares that a Person is

 

  

  

  

- 4 -

 

deemed to Beneficially Own pursuant to this Clause (iii) in connection with a particular Derivatives Contract shall not exceed the number of Notional Securities with respect to such Derivatives Contract; provided, further, that the number of securities beneficially owned by each Counterparty (including their respective Affiliates and Associates) under a Derivatives Contract shall for purposes of this Clause (iii) be deemed to include all securities that are beneficially owned, directly or indirectly, by any other Counterparty (or any of such other Counterparty’s Affiliates or Associates) under any Derivatives Contract to which such first Counterparty (or any of such first Counterparty’s Affiliates or Associates) is a Receiving Party and this proviso shall be applied to successive Counterparties as appropriate; and

 

	
  

	
(iv)

	
securities which are Beneficially Owned within the meaning of Clauses 1.1(e)(i) or (ii) by any other Person with whom such Person is acting jointly or in concert;

 

provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to have “Beneficial Ownership” of, or to “Beneficially Own”, any security because:

 

	
  

	
(A)

	
the holder of such security has agreed pursuant to a Permitted Lock-up Agreement to deposit or tender such security to a Take-over Bid made by such Person, made by any of such Person’s Affiliates or Associates or made by any other Person acting jointly or in concert with such Person, or such security has been deposited or tendered pursuant to any Take-over Bid made by such Person, made by any of such Person’s Affiliates or Associates or made by any other Person acting jointly or in concert with such Person, until such deposited or tendered security has been taken up or paid for, whichever shall first occur;

 

	
  

	
(B)

	
such Person, any of such Person’s Affiliates or Associates or any other Person acting jointly or in concert with such Person holds such security provided that:

 

	
  

	
(1)

	
the ordinary business of any such Person (the “Investment Manager”) includes the management of mutual funds or other investment funds for others (which others, for greater certainty, may include or be limited to one or more employee benefit plans or pension plans) and the Investment Manager holds such security in the ordinary course of such business in the performance of such Investment Manager’s duties for the account of any other Person (a “Client”), including non-discretionary accounts held on behalf of a Client by a broker or dealer registered under applicable law,

 

  

  

  

- 5 -

 

	
  

	
(2)

	
such Person (the “Trust Company”) is licensed to carry on the business of a trust company under applicable laws and, as such, acts as trustee or administrator or in a similar capacity in relation to the estates of deceased or incompetent Persons (each an “Estate Account”) or in relation to other accounts (each an “Other Account”) and holds such security in the ordinary course of such duties for the estate of any such deceased or incompetent Person or for such other accounts,

 

	
  

	
(3)

	
such Person is established by statute for purposes that include, and the ordinary business or activity of such Person (the “Statutory Body”) includes, the management of investment funds for employee benefit plans, pension plans, insurance plans or various public bodies,

 

	
  

	
(4)

	
such Person is a Crown agent or agency (a “Crown Agent”), or

 

	
  

	
(5)

	
such Person (the “Administrator”) is the administrator or trustee of one or more pension funds or plans (a “Plan”) or is a Plan registered under the laws of Canada or any province thereof or the laws of the United States of America or any State thereof;

 

provided, in any of the above cases, that the Investment Manager, the Trust Company, the Statutory Body, the Crown Agent, the Administrator or the Plan, as the case may be, is not then making a Take-over Bid or has not then announced an intention to make a Take-over Bid, other than an Offer to Acquire Voting Shares or other securities by means of a distribution by the Corporation or by means of ordinary market transactions (including prearranged trades) executed through the facilities of a stock exchange or organized over-the-counter market, in each case, alone or by acting jointly or in concert with any other Person;

 

	
  

	
(C)

	
such Person is (1) a Client of the same Investment Manager as another Person on whose account the Investment Manager holds such security, (2) an Estate Account or an Other Account of the same Trust Company as another Person on whose account the Trust Company holds such security or (3) a Plan with the same Administrator as another Plan on whose account the Administrator holds such security;

 

	
  

	
(D)

	
such Person is the registered holder of securities solely as the result of carrying on the business of or acting as a nominee of a securities depositary;

 

  

  

  

- 6 -

 

	
  

	
(E)

	
such Person is (1) a Client of an Investment Manager and such security is owned at law or in equity by the Investment Manager, (2) an Estate Account or an Other Account of a Trust Company and such security is owned at law or in equity by the Trust Company or (3) a Plan and such security is owned at law or in equity by the Administrator of the Plan; or

 

	
  

	
(F)

	
such security having been deposited or tendered pursuant to a Take-over Bid made by such Person or any of such Person’s Affiliates or Associates or any other Person referred to in Clause (iv) of this definition until the earlier of such deposited or tendered security being accepted unconditionally for payment or exchange or being taken up and paid for.

 

	
  

	
(f)

	
“Board of Directors” means the board of directors of the Corporation.

 

	
  

	
(g)

	
“Business Day” means any day other than a Saturday, Sunday or a day on which banking institutions in City of Vancouver, British Columbia, are authorized or obligated by law to close.

 

	
  

	
(h)

	
“Canadian Dollar Equivalent” of any amount, which is expressed in United States dollars means, on any date, the Canadian dollar equivalent of such amount determined by multiplying such amount by the U.S. – Canadian Exchange Rate in effect on such date.

 

	
  

	
(i)

	
“Canadian – U.S. Exchange Rate” means, on any date, the inverse of the U.S. – Canadian Exchange Rate in effect on such date.

 

	
  

	
(j)

	
“Close of Business” on any given date means the time on such date (or, if such date is not a Business Day, the time on the next succeeding Business Day) at which the principal transfer office in the City of Vancouver, British Columbia of the transfer agent for the Common Shares (or, after the Separation Time, the principal transfer office in Vancouver, British Columbia of the Rights Agent) is closed to the public.

 

	
  

	
(k)

	
“Common Shares” means the common shares in the capital of the Corporation.

 

	
  

	
(l)

	
“Competing Permitted Bid” means a Take-over Bid that:

 

	
  

	
(i)

	
is made after a Permitted Bid or another Competing Permitted Bid has been made and prior to the expiry of that Permitted Bid or Competing Permitted Bid (in this definition, the “Prior Bid”);

 

	
  

	
(ii)

	
satisfies all the provisions of the definition of a Permitted Bid, other than the requirement set out in Clause (ii) and (iv)of the definition of Permitted Bid; and

 

  

  

  

- 7 -

 

	
  

	
(iii)

	
contains, and the take-up and payment for securities tendered or deposited thereunder are subject to, irrevocable and unqualified conditions that:

 

	
  

	
(A)

	
no Voting Shares shall be taken up or paid for pursuant to such Take-over Bid (x) prior to the Close of Business on a date that is not earlier than the later of the last day on which the Take-over Bid must be open for acceptance after the date of such Take-over Bid under applicable Canadian provincial securities legislation and the earliest date on which Voting Shares may be taken up or paid for under any Prior Bid, and (y) then only if, at the time that such Voting Shares are first taken up or paid for, more than 50% of the then outstanding Voting Shares held by Independent Shareholders have been deposited or tendered pursuant to such Take-over Bid and not withdrawn provided that if the Take-over Bid is for less than all of the outstanding Voting Shares, no Voting Shares will be taken up or paid for pursuant to the Take-over Bid prior to the end of the 10 Business Day period referenced in 1.1(l)(iii)(B); and

 

	
  

	
(B)

	
in the event that the requirement set forth in Subclause (iii)(A)(y) of this definition is satisfied, the Offeror will make a public announcement of that fact and the Take-over Bid will remain open for deposits and tenders of Common Shares for not less than ten Business Days from the date of such public announcement;

 

provided always that a Competing Permitted Bid will cease to be a Competing Permitted Bid at any time when such bid ceases to meet any of the provisions of this definition and provided that, at such time, any acquisition of Voting Shares made pursuant to such Competing Permitted Bid, including any acquisitions of Voting Shares theretofore made, will cease to be a Permitted Bid Acquisition.

 

	
  

	
(m)

	
A Person is “controlled” by another Person if:

 

	
  

	
(i)

	
in the case of a body corporate:

 

	
  

	
(A)

	
securities entitled to vote in the election of directors carrying more than 50 per cent of the votes for the election of directors are held, directly or indirectly, by or for the benefit of the other Person;

 

	
  

	
(B)

	
the votes carried by such securities are entitled, if exercised, to elect a majority of the board of directors of such corporation;

 

  

  

  

- 8 -

 

	
  

	
(ii)

	
in the case of a Person that is not a body corporate, more than 50% of the voting or equity interests of such entity are held, directly or indirectly, by or on behalf of the Person or Persons;

 

and “controls”, “controlling” and “under common control with” shall be interpreted accordingly.

 

	
  

	
(n)

	
“Convertible Securities” means, at any time, any securities issued by the Corporation from time to time (other than the Rights) carrying any purchase, exercise, conversion or exchange right pursuant to which the holder thereof may acquire Voting Shares or other securities which are convertible into, exercisable into or exchangeable for Voting Shares (in each case, whether such right is exercisable immediately or after a specified period and whether or not on condition or the happening of any contingency).

 

	
  

	
(o)

	
“Convertible Security Acquisition” means the acquisition by a Person of Voting Shares upon the exercise of Convertible Securities received by such Person pursuant to a Permitted Bid Acquisition, Exempt Acquisition or a Pro Rata Acquisition.

 

	
  

	
(p)

	
“Co-Rights Agents” has the meaning ascribed thereto in Subsection 4.1(a).

 

	
  

	
(q)

	
“Corporations Act” means the Business Corporations Act (Yukon Territory), as amended, and the regulations made thereunder, and any comparable or successor laws or regulations thereto.

 

	
  

	
(r)

	
“Derivatives Contract” shall mean a contract between two parties (the “Receiving Party” and the “Counterparty”) that is designed to expose the Receiving Party to economic benefits and risks that correspond substantially to the ownership by the Receiving Party of a number of Voting Shares or Convertible Securities specified or referenced in such contract (the number corresponding to such economic benefits and risks, the “Notional Securities”), regardless of whether obligations under such contract are required or permitted to be settled through the delivery of cash, Voting Shares, Convertible Securities or other property, without regard to any short position under the same or any other Derivatives Contract.  For the avoidance of doubt, interests in broad-based index options, broad-based index futures and broad-based publicly traded market baskets of stocks approved for trading by the appropriate federal governmental authority shall not be deemed to be Derivatives Contracts.

 

	
  

	
(s)

	
“Disposition Date” has the meaning ascribed thereto in Subsection 5.2(c).

 

	
  

	
(t)

	
“Election to Exercise” has the meaning ascribed thereto in Clause 2.2(d)(ii).

 

	
  

	
(u)

	
“Exempt Acquisition” means a Voting Share acquisition or a Convertible Securities Acquisition (i) in respect of which the Board of Directors has waived the application of Section 3.1 pursuant to

 

  

  

  

- 9 -

 

	
  

	
the provisions of Section 5.2, (ii) pursuant to a distribution of Voting Shares or Convertible Securities (and the conversion or exchange of such Convertible Securities) made by the Corporation pursuant to a prospectus or private placement provided that the Person does not acquire a greater percentage of the securities offered in the distribution than the percentage of Voting Shares owned by that Person immediately prior to the distribution, (iii) pursuant to an amalgamation, arrangement or other statutory procedure requiring Shareholder Approval, (iv) pursuant to a distribution of Voting Shares or Convertible Securities (and the exercise of such Convertible Securities) pursuant to any equity incentive stock option plan of the Corporation where the eligible participants include directors, employees (including officers) and consultants of the Corporation, including the existing Employees’ and Directors’ Equity Incentive Plan, (v) pursuant to any of the RT Arrangements, (vi) pursuant to such other written agreements in respect of a Voting Share acquisition from treasury entered into by the Corporation with one or more Grandfathered Persons after the date hereof, or (vii) pursuant to the exercise of Rights.

 

	
  

	
(v)

	
“Exercise Price” means, as of any date from and after the Separation Time, the price at which a holder may purchase the securities issuable upon exercise of one whole Right which, subject to adjustment in accordance with the terms hereof, shall be an amount equal to five times the Market Price per Common Share determined as at the Separation Time.

 

	
  

	
(w)

	
“Expansion Factor” has the meaning ascribed thereto in Clause 2.3(a)(x).

 

	
  

	
(x)

	
“Expiration Time” means the close of business on that date which is the earliest of (i) the Termination Time, and (ii) the date of termination of this Agreement pursuant to Section 5.16 or, if this Agreement is confirmed pursuant to Section 5.16, the date of termination of this Agreement pursuant to Section 5.17 or, if this Agreement is reconfirmed pursuant to Section 5.17, the close of business on the tenth anniversary of the date hereof.

 

	
  

	
(y)

	
“Flip-in Event” means a transaction in or pursuant to which any Person becomes an Acquiring Person.

 

	
  

	
(z)

	
“holder” has the meaning ascribed thereto in Section 2.8.

 

	
  

	
(aa)

	
“Independent Shareholders” shall mean holders of Voting Shares, other than:

 

	
  

	
(i)

	
any Acquiring Person;

 

	
  

	
(ii)

	
any Offeror, other than any Person who by virtue of Clause B of the definition of “Beneficial Owner” is not deemed to Beneficially Own the Voting Shares held by such Person;

 

	
  

	
(iii)

	
any Affiliate or Associate of any Acquiring Person or Offeror;

 

  

  

  

- 10 -

 

	
  

	
(iv)

	
any Person acting jointly or in concert with any Acquiring Person or Offeror; and

 

	
  

	
(v)

	
any employee benefit plan, deferred profit sharing plan, stock participation plan and any other similar plan or trust for the benefit of employees of the Corporation unless the beneficiaries of the plan or trust direct the manner in which the Voting Shares are to be voted or direct whether the Voting Shares are to be tendered to a Take-over Bid.

 

	
  

	
(bb)

	
“Market Price” per security of any securities on any date of determination shall mean the average of the daily closing prices per share of such securities (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if an event of a type analogous to any of the events described in Section 2.3 shall have caused the closing prices used to determine the Market Price on any Trading Days not to be fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day, each such closing price so used shall be appropriately adjusted in a manner analogous to the adjustment provided for in Section 2.3 or as the Board of Directors shall otherwise determine in order to make it fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day. The closing price per security of any securities on any date shall be:

 

	
  

	
(i)

	
the closing board lot sale price or, in case no such sale takes place on such date, the average of the closing bid and asked prices for each of such securities as reported by the principal Canadian stock exchange (as determined by the Board of Directors) on which such securities are listed or admitted to trading;

 

	
  

	
(ii)

	
if for any reason none of such prices is available on such day or the securities are not listed or posted for trading on a Canadian stock exchange, the last sale price or, in case no such sale takes place on such date, the average of the closing bid and asked prices for each of such securities as reported by the principal national United States securities exchange (as determined by the Board of Directors) on which such securities are listed or admitted to trading;

 

	
  

	
(iii)

	
if for any reason none of such prices is available on such day or the securities are not listed or admitted to trading on a Canadian stock exchange or a national United States securities exchange, the last sale price or, in case no sale takes place on such date, the average of the high bid and low asked prices for each of such securities in the over-the-counter market, as quoted by any reporting system then in use (as determined by the Board of Directors); or

 

  

  

  

- 11 -

 

	
  

	
(iv)

	
if for any reason none of such prices is available on such day or the securities are not listed or admitted to trading on a Canadian stock exchange or a national United States securities exchange or quoted by any such reporting system, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities selected by the Board of Directors;

 

provided, however, that if for any reason none of such prices is available on such day, the closing price per share of such securities on such date means the fair value per share of such securities on such date as determined a nationally or internationally recognized firm of investment dealers or investment bankers selected by the Board of Directors and provided further that if an event of a type analogous to any of the events described in Section 2.3 hereof shall have caused any price used to determine the Market Price on any Trading Day not to be fully comparable with the price as so determined on the Trading Day immediately preceding such date of determination, each such price so used shall be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 hereof in order to make it fully comparable with the price on the Trading Day immediately preceding such date of determination. The Market Price shall be expressed in Canadian dollars and, if initially determined in respect of any day forming part of the 20 consecutive Trading Day period in question in United States dollars, such amount shall be translated into Canadian dollars on such date at the Canadian Dollar Equivalent thereof.

 

	
  

	
(cc)

	
“Nominee” has the meaning ascribed thereto in Subsection 2.2(c).

 

	
  

	
(dd)

	
“Offer to Acquire” includes:

 

	
  

	
(i)

	
an offer to purchase or a solicitation of an offer to sell Voting Shares or Convertible Securities; and

 

	
  

	
(ii)

	
an acceptance of an offer to sell Voting Shares or Convertible Securities, whether or not such offer to sell has been solicited;

 

or any combination thereof, and the Person accepting an offer to sell shall be deemed to be making an Offer to Acquire to the Person that made the offer to sell.

 

	
  

	
(ee)

	
“Offeror” means a Person who has announced a current intention to make or who is making a Take-over Bid;

 

	
  

	
(ff)

	
“Offeror’s Securities” means Voting Shares Beneficially Owned by an Offeror on the date of the Offer to Acquire.

 

	
  

	
(gg)

	
“Permitted Bid” means Take-over Bid made by an Offeror by way of take-over bid circular which also complies with the following provisions:

 

  

  

  

- 12 -

 

	
  

	
(i)

	
the Take-over Bid is made to all holders of Voting Shares, other than the Offeror;

 

	
  

	
(ii)

	
the Take-over Bid contains, and the take-up and payment for securities tendered or deposited is subject to, an irrevocable and unqualified provision that no Voting Shares will be taken up or paid for pursuant to the Take-over Bid prior to the close of business on the date which is not less than 60 days following the date of the Take-over Bid and only if at such date more than 50% of the Voting Shares held by Independent Shareholders shall have been deposited or tendered pursuant to the Take-over Bid and not withdrawn provided that if the Take-over Bid is for less than all of the outstanding Voting Shares, no Voting Shares will be taken up or paid for pursuant to the Take-over Bid prior to the end of the 10 Business Day period referenced in 1.1(gg)(iv);

 

	
  

	
(iii)

	
unless the Take-over Bid is withdrawn, the Take-over Bid contains an irrevocable and unqualified provision that Voting Shares may be deposited pursuant to such Take-over Bid at any time during the period of time described in Clause 1.1(gg)(ii) and that any Voting Shares deposited pursuant to the Take-over Bid may be withdrawn until taken up and paid for; and

 

	
  

	
(iv)

	
the Take-over Bid contains an irrevocable and unqualified provision that in the event the deposit condition set forth in Clause 1.1(gg)(ii) is satisfied, the Offeror will make a public announcement of that fact and the Take-over Bid will remain open for deposits and tenders of Voting Shares for not less than 10 Business Days from the date of such public announcement;

 

provided always that a Permitted Bid will cease to be a Permitted Bid at any time when such bid ceases to meet any of the provisions of this definition and provided that, at such time, any acquisition of Voting Shares made pursuant to such Permitted Bid, including any acquisition of Voting Shares theretofore made, will cease to be a Permitted Bid Acquisition.

 

	
  

	
(hh)

	
“Permitted Bid Acquisition” means an acquisition of Voting Shares made pursuant to a Permitted Bid or a Competing Permitted Bid.

 

	
  

	
(ii)

	
“Permitted Lock-up Agreement” means an agreement between a Person and one or more holders of Voting Shares or Convertible Securities (each a “Locked-up Person”) (the terms of which are publicly disclosed and a copy of which is made available to the public (including the Corporation) not later than the date the Lock-up Bid (as defined below) is publicly announced or, if the Lock-up Bid has been made prior to the date on which such agreement is entered into, forthwith, and in any event not later than the date of such agreement), pursuant to which each such Locked-up Person agrees to deposit or tender Voting Shares or Convertible Securities (or both) to a Take-over Bid (the “Lock-up Bid”) made or to be made by the Person or any of such Person’s

 

  

  

  

- 13 -

 

Affiliates or Associates or any other Person referred to in Clause (iii) of the definition of Beneficial Owner; provided that:

 

	
  

	
(i)

	
the agreement:

 

	
  

	
(A)

	
permits the Locked-up Person to terminate its obligation to deposit or tender, and permits the Locked-up Person to withdraw if already deposited or tendered, the Voting Shares or Convertible Securities (or both) from the Lock-up Bid in order to tender or deposit such securities to another Take-over Bid or to support another transaction that represents a price or value of consideration for each Voting Share or Convertible Security that exceeds the price or value of consideration represented or proposed to be represented by the Lock-up Bid; or

 

	
  

	
(B)

	
1.

	
permits the Locked-up Person to terminate its obligation to deposit or tender, and permits the Locked-up Person to withdraw if already deposited or tendered, the Voting Shares or Convertible Securities from the agreement in order to tender or deposit the Voting Shares or Convertible Securities to another Take-over Bid, or to support another transaction that provides for a price or value of consideration for each Voting Share or Convertible Security that exceeds by as much as or more than a specified amount (the “Specified Amount”) the price or value of consideration for each Voting Share or Convertible Security contained in or proposed to be contained in, and is made for at least the same number of Voting Shares or Convertible Securities as, the Lock-up Bid; and

 

	
  

	
(2)

	
does not by its terms provide for a Specified Amount that is greater than 7% over the price or value of consideration for each Voting Share or Convertible Security contained in or proposed to be contained in the Lockup Bid;

 

and, for greater clarity, the agreement may contain a right of first refusal or permit a period of delay to give such Person an opportunity to at least match a higher price or value of consideration in another Take-over Bid and may provide for any other similar limitation on a Locked-up Person’s right to withdraw Voting Shares or Convertible Securities (or both) from the agreement, as long as the Locked-Up Person can accept another bid or tender to another transaction; and

 

	
  

	
(ii)

	
no “break-up” fees, “top-up” fees, penalties, expenses or other amounts that exceed in the aggregate the greater of:

 

  

  

  

- 14 -

 

	
  

	
(A)

	
the cash equivalent of 21⁄2% of the price or value payable under the Lockup Bid to a Locked-up Person; and

 

	
  

	
(B)

	
50% of the amount by which the price or value payable under another Take-over Bid or transaction to a Locked-up Person exceeds the price or value of the consideration that such Locked-up Person would have received under the Lock-up Bid,

 

is payable by a Locked-up Person pursuant to the agreement in the event a Locked-up Person fails to deposit or tender Voting Shares or Convertible Securities (or both) to the Lock-up Bid, withdraws Voting Shares or Convertible Securities (or both) previously tendered thereto or supports another transaction.

 

	
  

	
(jj)

	
“Person” includes any individual, firm, partnership, association, trust, body corporate, corporation, unincorporated organization, syndicate, governmental entity or other entity.

 

	
  

	
(kk)

	
“Pro Rata Acquisition” means an acquisition by a Person of Voting Shares or Convertible Securities pursuant to:

 

	
  

	
(i)

	
a stock dividend, stock split or other event in respect of securities of the Corporation of one or more particular classes or series pursuant to which such Person becomes the Beneficial Owner of Voting Shares or Convertible Securities on the same pro rata basis as all other holders of securities of the particular class, classes or series;

 

	
  

	
(ii)

	
the acquisition or the exercise by the Person of only those rights to purchase Voting Shares distributed to that Person in the course of a distribution to all holders of securities of the Corporation of one or more particular classes or series pursuant to a rights offering (other than the Rights) or pursuant to a prospectus provided that the Person does not thereby acquire a greater percentage of such Voting Shares, or securities convertible into or exchangeable for Voting Shares, so offered than the Person’s percentage of Voting Shares owned immediately prior to such acquisition; or

 

	
  

	
(iii)

	
a distribution of Voting Shares, or securities convertible into or exchangeable for Voting Shares (and the conversion or exchange of such convertible or exchangeable securities), made pursuant to a prospectus or by way of a private placement, provided that the Person does not thereby acquire a greater percentage of such Voting Shares, or securities convertible into or exchangeable for Voting Shares, so offered than the Person’s percentage of Voting Shares Beneficially Owned immediately prior to such acquisition.

 

	
  

	
(ll)

	
“Record Time” means the close of business on April 5, 2010 .

 

  

  

  

- 15 -

 

	
  

	
(mm)

	
“Redemption Price” has the meaning ascribed thereto in Subsection 5.1(a).

 

	
  

	
(nn)

	
“Right” means a right to purchase a Common Share upon the terms and subject to the conditions set forth in this Agreement.

 

	
  

	
(oo)

	
“Rights Certificate” means the certificates representing the Rights after the Separation Time, which shall be substantially in the form attached hereto as Attachment I.

 

	
  

	
(pp)

	
“Rights Register” has the meaning ascribed thereto in Subsection 2.6(a).

 

	
  

	
(qq)

	
“RT Agreements” means (i) the Private Placement Agreement between the Corporation and Rio Tinto International Holdings Limited (“Rio Tinto”) dated October 18, 2006, as amended prior to the date hereof and as may be further amended after the date hereof (the “Private Placement Agreement”), (ii) the Credit Agreement dated October 24, 2007 between the Corporation and Rio Tinto, as amended prior to the date hereof and as may be further amended after the date hereof, and (iii) the Shareholders Agreement between Rio Tinto and Robert M. Friedland dated October 18, 2006, as amended prior to the date hereof and as may be further amended after the date hereof.

 

	
  

	
(rr)

	
“RT Arrangements” means (i) the Series A Warrants, (ii) the Series B Warrants, (iii) the Series C Warrants, (iv) the Anti-Dilution Ivanhoe Warrants Beneficially Owned by Rio Tinto as at the Record Time, (v) any additional Anti-Dilution Ivanhoe Shares or Anti-Dilution Ivanhoe Warrants that Rio Tinto becomes entitled to acquire after the Record Time, (vi) the Conversion Rights, (vii) the Right of First Offer, (viii) Rio Tinto’s right to acquire Voting Shares or Convertible Securities under Section 6.1 of the Private Placement Agreement, and (ix) any other rights of Rio Tinto under the RT Agreements to acquire Voting Shares or Convertible Securities and, for the purposes of this definition, “Anti-Dilution Ivanhoe Shares”, “Anti-Dilution Ivanhoe Warrants”, “Conversion Rights”, “Right of First Offer”, “Series A Warrants”, “Series B Warrants” and “Series C Warrants” have the meanings assigned to them in the Private Placement Agreement.

 

	
  

	
(ss)

	
“Securities Act” means the Securities Act (Ontario), as amended from time to time, and the regulations thereunder, and any comparable or successor laws or regulations thereto.

 

	
  

	
(tt)

	
“Separation Time” shall mean the close of business on the tenth Trading Day after the earlier of:

 

	
  

	
(i)

	
the Stock Acquisition Date;

 

	
  

	
(ii)

	
the date of the commencement of or first public announcement of the intent of any Person (other than the Corporation or any Subsidiary of the Corporation) to commence a Take-over Bid (other than a Permitted Bid or a Competing Permitted Bid); and

 

	
  

	
(iii)

	
the date upon which a Permitted Bid or Competing Permitted Bid ceases to be such;

 

  

  

  

- 16 -

 

or, in the case of clauses (ii) and (iii) of this definition, such later date as may be determined by the Board of Directors; provided that if any such Take-over Bid expires, is cancelled, terminated or otherwise withdrawn prior to the Separation Time, such Take-over Bid shall be deemed, for the purposes of this provision, never to have been made.

 

	
  

	
(uu)

	
“Shareholder Approval” means approval by a majority of the votes cast by the holders of Voting Shares at a meeting called and held in accordance with applicable laws and the articles and by-laws of the Corporation or a written resolution approved by holders of a majority of the outstanding Voting Shares excluding, in all cases, Voting Shares held by Persons who are not Independent Shareholders.

 

	
  

	
(vv)

	
“Stock Acquisition Date” shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 102.1 of the Securities Act) by the Corporation or an Acquiring Person that an Acquiring Person has become such.

 

	
  

	
(ww)

	
A corporation shall be deemed to be a “Subsidiary” of another corporation if:

 

	
  

	
(i)

	
it is controlled by:

 

	
  

	
(A)

	
that other;

 

	
  

	
(B)

	
that other and one or more corporations each of which is controlled by that other; or

 

	
  

	
(C)

	
two or more corporations each of which is controlled by that other; or

 

	
  

	
(ii)

	
it is a Subsidiary of a corporation that is that other’s Subsidiary.

 

	
  

	
(xx)

	
“Take-over Bid” means an Offer to Acquire, where the Voting Shares subject to the Offer to Acquire, together with (i) the Voting Shares into which securities subject to the Offer to Acquire are convertible and (ii) the Offeror’s Securities, constitute in the aggregate 20% or more of the outstanding Voting Shares at the date of the Offer to Acquire.

 

	
  

	
(yy)

	
“Termination Time” shall mean the time at which the right to exercise Rights shall terminate pursuant to Section 5.1(d) hereof.

 

	
  

	
(zz)

	
“Trading Day”, when used with respect to any securities, means a day on which the principal Canadian stock exchange on which such securities are listed or admitted to trading is open for the transaction of business or, if the securities are not listed or admitted to trading on any Canadian stock exchange, a Business Day.

 

  

  

  

- 17 -

 

	
  

	
(aaa)

	
“U.S. – Canadian Exchange Rate” means, on any date:

 

	
  

	
(i)

	
if on such date the Bank of Canada sets an average noon spot rate of exchange for the conversion of one United States dollar into Canadian dollars, such rate; and

 

	
  

	
(ii)

	
in any other case, the rate for such date for the conversion of one United States dollar into Canadian dollars calculated in such manner as may be determined by the Board of Directors from time to time acting in good faith.

 

	
  

	
(bbb)

	
“U.S. Dollar Equivalent” of any amount, which is expressed in Canadian dollars means, on any date, the United States dollar equivalent of such amount determined by multiplying such amount by the Canadian – U.S. Exchange Rate in effect on such date.

 

	
  

	
(ccc)

	
“Voting Share Reduction” means an acquisition or redemption by the Corporation of Voting Shares or any other transaction which, by reducing the number of Voting Shares outstanding, increases the proportionate number of Voting Shares Beneficially Owned by any person to 20% or more of the Voting Shares then outstanding.

 

	
  

	
(ddd)

	
“Voting Shares” shall mean the Common Shares of the Corporation and any other shares in the capital of the Corporation entitled to vote generally in the election of all directors.

 

	
1.2

	
Currency

 

All sums of money, which are referred to in this Agreement are expressed in lawful money of Canada, unless otherwise specified.

 

	
1.3

	
Headings

 

The division of this Agreement into Articles, Sections, Subsections, Clauses, Paragraphs, Subparagraphs or other portions hereof and the insertion of headings, subheadings and a table of contents are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

 

  

  

  

- 18 -

 

1.4           Calculation of Number and Percentage of Beneficial Ownership of Outstanding Voting Shares

 

For purposes of this Agreement, the percentage of Voting Shares Beneficially Owned by any Person, shall be and be deemed to be the product (expressed as a percentage) determined by the formula:

 

100 x A/B

 

where:

 

	
  

	
A

	
=

	
the number of votes for the election of all directors generally attaching to the Voting Shares Beneficially Owned by such Person; and

 

	
  

	
B

	
=

	
the number of votes for the election of all directors generally attaching to all outstanding Voting Shares.

 

For the purposes of the foregoing formula, where any Person is deemed to Beneficially Own unissued Voting Shares which may be acquired pursuant to Convertible Securities, such Voting Shares shall be deemed to be outstanding for the purpose of calculating the percentage of Voting Shares Beneficially Owned by such Person in both the numerator and the denominator, but no other unissued Voting Shares which may be acquired pursuant to any other outstanding Convertible Securities shall, for the purposes of that calculation, be deemed to be outstanding.

 

	
1.5

	
Acting Jointly or in Concert

 

For the purposes of this Agreement, a Person is acting jointly or in concert with every other Person who, as a result of any agreement, arrangement, or understanding, whether formal or informal, with the first Person or any Associate or Affiliate thereof, acquires or offers to acquire Voting Shares (other than (A) customary agreements with and between underwriters and/or banking group members and/or selling group members with respect to a distribution of securities by way of prospectus or private placement; or (B) pledges of securities in the ordinary course of business).

 

 

ARTICLE 2 - THE RIGHTS

 

	
2.1

	
Issuance and Evidence of Holdings of Rights

 

One Right in respect of each Common Share outstanding at the Record Time and each Common Share which may be issued after the Record Time and prior to the earlier of the Separation Time and the Expiration Time shall be issued in accordance with the terms hereof. Notwithstanding the foregoing, one Right in respect of each Common Share issued after the Record Time upon the exercise of rights pursuant to Convertible Securities outstanding at the Record Time may be issued after the Separation Time but prior to the Expiration Time.

 

Certificates representing Common Shares which are issued after the Record Time but prior to the earlier of the Separation Time and the Expiration Time shall also evidence one Right for each Common Share represented thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend:

 

  

  

  

- 19 -

 

“Until the Separation Time (as defined in the Shareholder Rights Agreement referred to below), this certificate also evidences and entitles to holder hereof to certain Rights described in a Shareholder Rights Plan Agreement dated as of April 5, 2010 (the “Shareholder Rights Agreement”) between Ivanhoe Mines Ltd. (the “Corporation”) and CIBC Mellon Trust Company (the “Rights Agent”), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. Under certain circumstances set out in the Shareholder Rights Agreement, the rights may expire, may be amended or redeemed, may become null and void or may be evidenced by separate certificates and no longer evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Shareholder Rights Agreement to the holder of this certificate without charge as soon as practicable, after the receipt of a written request therefor.”

 

Certificates representing Common Shares that are issued and outstanding at the Record Time shall evidence one Right for each Common Share represented thereby, notwithstanding the absence of the foregoing legend, until the close of business on the earlier of the Separation Time and the Expiration Time.

 

Registered holders of Common Shares who have not received a share certificate and are entitled to do so on the earlier of the Separation Time and the Expiration Time shall be entitled to Rights as if such certificates had been issued and such Rights shall for all purposes hereof be evidenced by the corresponding entries on the Corporation’s securities register for common shares.

 

	
2.2

	
Exercise of Rights; Detachment of Rights

 

	
  

	
(a)

	
Subject to adjustment as herein set forth, each Right will entitle the holder thereof, from and after the Separation Time and prior to the Expiration Time, to purchase one Common Share for the Exercise Price (which Exercise Price and number of Common Shares are subject to adjustment as set forth below). Notwithstanding any other provision of this Agreement, any Rights held by the Corporation or any of its Subsidiaries shall be void.

 

	
  

	
(b)

	
Until the Separation Time:

 

	
  

	
(i)

	
the Rights shall not be exercisable and no Right may be exercised; and

 

	
  

	
(ii)

	
each Right will be evidenced by the certificate for the associated Common Share registered in the name of the holder thereof (which certificate shall also be deemed to represent a Rights Certificate) and will be transferable only together with, and will be transferred by a transfer of, such associated Common Share.

 

	
  

	
(c)

	
From and after the Separation Time and prior to the Expiration Time:

 

	
  

	
(i)

	
the Rights shall be exercisable; and

 

  

  

  

- 20 -

 

	
  

	
(ii)

	
the registration and transfer of Rights shall be separate from and independent of the Common Shares.

 

Promptly following the Separation Time, the Corporation will prepare and the Rights Agent will mail to each holder of record of Common Shares as of the Separation Time (other than an Acquiring Person and, in respect of any Rights Beneficially Owned by such Acquiring Person which are not held of record by such Acquiring Person, the holder of record of such Rights (a “Nominee”)) at such holder’s address as shown by the records of the Corporation (the Corporation hereby agreeing to furnish copies of such records to the Rights Agent for this purpose):

 

	
  

	
(x)

	
a Rights Certificate appropriately completed, representing the number of Rights held by such holder at the Separation Time and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law, rule or regulation or with any rule or regulation of any self-regulatory organization, stock exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage; and

 

	
  

	
(y)

	
a disclosure statement describing the Rights,

 

provided that a Nominee shall be sent the materials provided for in (x) and (y) in respect of all Common Shares held of record by it which are not Beneficially Owned by an Acquiring Person.

 

	
  

	
(d)

	
Rights may be exercised, in whole or in part, on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent:

 

	
  

	
(i)

	
the Rights Certificate evidencing such Rights;

 

	
  

	
(ii)

	
an election to exercise such Rights (an “Election to Exercise”) substantially in the form attached to the Rights Certificate appropriately completed and executed by the holder or his executors or administrators or other personal representatives or his or their legal attorney duly appointed by an instrument in writing in form and executed in a manner satisfactory to the Rights Agent; and

 

	
  

	
(iii)

	
payment by certified cheque, banker’s draft or money order payable to the order of the Rights Agent, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Common Shares in a name other than that of the holder of the Rights being exercised.

 

  

  

  

- 21 -

 

	
  

	
(e)

	
Upon receipt of a Rights Certificate, together with a duly completed Election to Exercise executed in accordance with Clause 2.2(d)(ii), which does not indicate that such Right is null and void as provided by Subsection 3.1(b), and payment as set forth in Clause 2.2(d)(iii), the Rights Agent (unless otherwise instructed by the Corporation in the event that the Corporation is of the opinion that the Rights cannot be exercised in accordance with this Agreement) will thereupon promptly:

 

	
  

	
(i)

	
requisition from the transfer agent for the Common Shares certificates representing the number of such Common Shares to be purchased (the Corporation hereby irrevocably agreeing to authorize its transfer agent to comply with all such requisitions);

 

	
  

	
(ii)

	
when appropriate, requisition from the Corporation the amount of cash to be paid in lieu of issuing fractional Common Shares;

 

	
  

	
(iii)

	
after receipt of the certificates referred to in Clause 2.2(e)(i), deliver the same to or upon the order of the registered holder of such Rights Certificates, registered in such name or names as may be designated by such holder;

 

	
  

	
(iv)

	
after receipt of the certificates referred to in Clause 2.2(e)(i), deliver any cash referred to in Clause 2.2(e)(ii) to or to the order of the registered holder of such Rights Certificate; and

 

	
  

	
(v)

	
tender to the Corporation all payments received on exercise of the Rights.

 

	
  

	
(f)

	
In case the holder of any Rights exercises less than all the Rights evidenced by such holder’s Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised (subject to the provisions of Subsection 5.6(a)) will be issued by the Rights Agent to such holder or to such holder’s duly authorized assigns.

 

	
  

	
(g)

	
The Corporation covenants and agrees that it will:

 

	
  

	
(i)

	
take all such action as may be necessary and within its power to ensure that all Common Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such Common Shares (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered and fully paid and non-assessable.

 

	
  

	
(ii)

	
take all such actions as may be necessary and within its power to comply with the requirements of the Corporations Act, the Securities Act and the securities laws or comparable legislation of each of the provinces of Canada and any other applicable law, rule or regulation, in connection with the issuance and delivery of the Rights Certificates and the issuance of any Common Shares upon exercise of Rights;

 

  

  

  

- 22 -

 

	
  

	
(iii)

	
use reasonable efforts to cause all Common Shares issued upon exercise of Rights to be listed on the stock exchanges on which such Common Shares were traded immediately prior to the Stock Acquisition Date;

 

	
  

	
(iv)

	
cause to be reserved and kept available out of the authorized and unissued Common Shares, the number of Common Shares that, as provided in this Agreement, will from time to time be sufficient to permit the exercise in full of all outstanding Rights;

 

	
  

	
(v)

	
pay when due and payable, if applicable, any and all federal, provincial and municipal transfer taxes and charges (not including any income or capital taxes of the holder or exercising holder or any liability of the Corporation to withhold tax) which may be payable in respect of the original issuance or delivery of the Rights Certificates, or certificates for Common Shares to be issued upon exercise of any Rights, provided that the Corporation shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Common Shares in a name other than that of the holder of the Rights being transferred or exercised; and

 

	
  

	
(vi)

	
after the Separation Time, except as permitted by Section 5.1, not take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.

 

	
2.3

	
Adjustments to Exercise Price; Number of Rights

 

The Exercise Price, the number and kind of securities subject to purchase upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 2.3.

 

	
  

	
(a)

	
In the event the Corporation at any time after the Separation Time and prior to the Expiration Time:

 

	
  

	
(i)

	
declares or pays a dividend on Common Shares payable in Common Shares (or capital stock or other securities exchangeable for or convertible into or giving a right to acquire Common Shares or other capital stock) other than pursuant to any optional stock dividend program, dividend reinvestment plan or a dividend payable in Voting Shares in lieu of a regular periodic cash dividend;

 

	
  

	
(ii)

	
subdivides or changes the then outstanding Common Shares into a greater number of Common Shares;

 

  

  

  

- 23 -

 

	
  

	
(iii)

	
consolidates or changes the then outstanding Common Shares into a smaller number of Common Shares; or

 

	
  

	
(iv)

	
otherwise issues any Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire Common Shares) in respect of, in lieu of or in exchange for existing Common Shares in a reclassification, amalgamation, merger, statutory arrangement, or consolidation,

 

the Exercise Price, the number of Rights outstanding and the securities purchasable upon exercise of the Rights shall be adjusted as of the record or effective date as follows:

 

	
  

	
(x)

	
the Exercise Price in effect after such adjustment will be equal to the Exercise Price in effect immediately prior to such adjustment divided by the number of Common Shares (the “Expansion Factor”) that a holder of one Common Share immediately prior to such dividend, subdivision, change, consolidation or issuance would hold thereafter as a result thereof (assuming the exercise of any such exchange, conversion or acquisition rights); and

 

	
  

	
(y)

	
each Right held prior to such adjustment shall become that number of Rights equal to the Expansion Factor;

 

and the adjusted number of Rights will be deemed to be allocated among the Common Shares with respect to which the original Rights were associated (if they remain outstanding) and the shares issued in respect of such dividend, subdivision, change, consolidation or issuance, so that each such Common Share will have exactly one Right associated with it.

 

To the extent that any such exchange, conversion or acquisition rights are not exercised prior to the expiration thereof, the Exercise Price shall be readjusted to the Exercise Price which would be in effect, based on the number of Common Shares actually issued on the exercise of such rights.

 

In the event the Corporation at any time after the Record Time and prior to the Separation Time issues any Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire Common Shares), each such Common Share shall automatically have one new Right associated with it, which Right shall be evidenced by the certificate representing such associated Common Share.

 

	
  

	
(b)

	
If, after the Separation Time and prior to the Expiration Time, the Corporation shall issue any shares of capital stock other than Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire shares of any such capital stock) in a transaction of a type described in Clause 2.3(a)(i) or (iv), the shares of such capital stock shall be treated herein as nearly equivalent to Common Shares to the extent practicable and appropriate under the

 

  

  

  

- 24 -

 

circumstances, as determined by the Board of Directors, and the shares purchasable upon exercise of Rights shall be adjusted as necessary such that the shares purchasable upon exercise of each Right after such adjustment will be the shares that a holder of the shares purchasable upon exercise of one Right immediately prior to such issuance would hold thereafter as a result of such issuance. Notwithstanding Section 5.5, the Corporation and the Rights Agent are authorized and agree to amend this Agreement in order to give effect to the foregoing.

 

	
  

	
(c)

	
In the event that at any time after the Record Time and prior to the Expiration Time there shall occur:

 

	
  

	
(i)

	
a reclassification or redesignation of the Common Shares or any change of the Common Shares into other shares (other than as the result of an event described in Subsection 2.3(a));

 

	
  

	
(ii)

	
a consolidation, merger or amalgamation of the Corporation with or into another body corporate (other than a consolidation, merger or amalgamation which does not result in a reclassification of the Common Shares or a change of the Common Shares into other shares); or

 

	
  

	
(iii)

	
the transfer of all or substantially all of the assets of the Corporation to another body corporate;

 

a holder of a Right shall thereafter be entitled to receive and shall accept upon exercise of such Right, in lieu of the number of Common Shares to which such holder was theretofor entitled to acquire upon such exercise, the kind and amount of shares and/or other securities or property which such holder would have been entitled to receive as a result of such occurrence if, on the effective date thereof, such holder had been the holder of the number of Common Shares to which such holder was then entitled upon exercise of such Right. The Corporation shall take all necessary steps so that holders of Rights shall thereafter be entitled to acquire such shares and/or other securities or property, subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained in this Section 2.3.

 

	
  

	
(d)

	
Notwithstanding anything herein to the contrary, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one percent in the Exercise Price; provided, however, that any adjustments which by reason of this Subsection 2.3(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2.3 shall be made to the nearest cent or to the nearest ten-thousandth of a share. Notwithstanding the first sentence of this Subsection 2.3(d), any adjustment required by this Section 2.3 shall be made no later than the earlier of:

 

  

  

  

- 25 -

 

 

 

	
  

	
(i)

	
 
three years from the date of the transaction which gives rise to such adjustment; and

 

	
  

	
(ii)

	
 
the Expiration Time.

 

	
  

	
(e)

	
Irrespective of any adjustment or change in the Exercise Price or the number of Common Shares issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Exercise Price per Common Share and the number of Common Shares which were expressed in the initial Rights Certificates issued hereunder.

 

	
  

	
(f)

	
In any case in which this Section 2.3 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Corporation may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of Common Shares and other securities of the Corporation, if any, issuable upon such exercise over and above the number of Common Shares and other securities of the Corporation, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; provided, however, that the Corporation shall deliver to such holder an appropriate instrument evidencing such holder’s right to receive such additional shares (fractional or otherwise) or other securities upon the occurrence of the event requiring such adjustment.

 

	
  

	
(g)

	
Notwithstanding anything contained in this Section 2.3 to the contrary, the Corporation shall be entitled to make such reductions in the Exercise Price, in addition to those adjustments expressly required by this Section 2.3, as and to the extent that in their good faith judgment the Board of Directors shall determine to be advisable, in order that any:

 

	
  

	
(i)

	
consolidation or subdivision of Common Shares;

 

	
  

	
(ii)

	
issuance (wholly or in part for cash) of Common Shares or securities that by their terms are convertible into or exchangeable for Common Shares;

 

	
  

	
(iii)

	
stock dividends; or

 

	
  

	
(iv)

	
issuance of rights, options or warrants, hereafter made by the Corporation to holders of its Common Shares, shall not be taxable to such shareholders.

 

	
  

	
(h)

	
Whenever an adjustment to the Exercise Price or a change in the securities purchasable upon exercise of the Rights is made pursuant to this Section 2.3, the Corporation shall promptly and in any event, where such change or adjustment occurs prior to the Separation Time, not later than the Separation Time:

 

	
  

	
(i)

	
file with the Rights Agent and with each transfer agent for the Common Shares a certificate specifying the particulars of such adjustment or change; and

 

  

  

  

- 26 -

 

	
  

	
(ii)

	
cause notice of the particulars of such adjustment or change to be given to the holders of the Rights.

 

Failure to file such certificate or to cause such notice to be given as aforesaid, or any defect therein, shall not affect the validity of such adjustment or change.

 

	
  

	
(i)

	
The Corporation covenants and agrees that, after the Separation Time, it will not, except as permitted by the provisions hereof, take (or permit any Subsidiary of the Corporation to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.

 

	
2.4

	
Date on Which Exercise Is Effective

 

Each Person in whose name any certificate for Common Shares or other securities, if applicable, is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Shares or other securities, if applicable, represented thereon, and such certificate shall be dated the date upon which the Rights Certificate evidencing such Rights was duly surrendered in accordance with Subsection 2.2(d) (together with a duly completed Election to Exercise) and payment of the Exercise Price for such Rights (and any applicable transfer taxes and other governmental charges payable by the exercising holder hereunder) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Share transfer books of the Corporation are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Common Share transfer books of the Corporation are open.

 

	
2.5

	
Execution, Authentication, Delivery and Dating of Rights Certificates

 

	
  

	
(a)

	
The Rights Certificates shall be executed on behalf of the Corporation by its Chief Executive Officer, Chief Financial Officer or any director under the corporate seal of the Corporation reproduced thereon. The signature of any of these individuals on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporation shall bind the Corporation, notwithstanding that such individuals or any of them have ceased to hold such offices either before or after the countersignature and delivery of such Rights Certificates.

 

	
  

	
(b)

	
Promptly after the Corporation learns of the Separation Time, the Corporation will notify the Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Corporation to the Rights Agent for countersignature and disclosure statements describing the Rights, and the Rights Agent shall manually countersign (in a manner satisfactory to the Corporation) and send such Rights Certificates to the holders of the Rights pursuant to Subsection

 

  

  

  

- 27 -

 

2.2(c) hereof. No Rights Certificate shall be valid for any purpose until countersigned by the Rights Agent as aforesaid.

 

	
  

	
(c)

	
Each Rights Certificate shall be dated the date of countersignature thereof.

 

	
2.6

	
Registration, Transfer and Exchange

 

	
  

	
(a)

	
After the Separation Time, the Corporation will cause to be kept a register (the “Rights Register”) in which, subject to such reasonable regulations as it may prescribe, the Corporation will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed registrar for the Rights (the “Rights Registrar”) for the purpose of maintaining the Rights Register for the Corporation and registering Rights and transfers of Rights as herein provided and the Rights Agent hereby accepts such appointment. In the event that the Rights Agent shall cease to be the Rights Registrar, the Rights Agent will have the right to examine the Rights Register at all reasonable times.

 

After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of Subsection 2.6(c), the Corporation shall execute, and the Rights Agent shall manually countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder’s instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificates so surrendered.

 

	
  

	
(b)

	
All Rights issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obligations of the Corporation, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange.

 

	
  

	
(c)

	
Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Corporation or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder’s attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.6, the Corporation or the Rights Agent may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Rights Agent) connected therewith.

 

	
2.7

	
Mutilated, Destroyed, Lost and Stolen Rights Certificates

 

	
  

	
(a)

	
If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, the Corporation shall execute and the Rights Agent shall countersign and deliver in exchange

 

  

  

  

- 28 -

 

therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered.

 

	
  

	
(b)

	
If there shall be delivered to the Corporation and the Rights Agent prior to the Expiration Time:

 

	
  

	
(i)

	
evidence to their reasonable satisfaction of the destruction, loss or theft of any Rights Certificate; and

 

	
  

	
(ii)

	
such security or indemnity as may be reasonably required by each of them in their sole discretion to save each of them and any of their agents harmless;

 

then, in the absence of notice to the Corporation or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Corporation shall execute and upon the Corporation’s request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen.

 

	
  

	
(c)

	
As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Corporation or the Rights Agent may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Rights Agent) connected therewith.

 

	
  

	
(d)

	
Every new Rights Certificate issued pursuant to this Section 2.7 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an original additional contractual obligation of the Corporation, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights, duly issued hereunder.

 

	
2.8

	
Persons Deemed Owners of Rights

 

The Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the Person, in whose name a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever. In this Agreement, unless the context otherwise requires, the term “holder” of any Right means the registered holder of such Right (or, prior to the Separation Time, the associated Common Share).

 

	
2.9

	
Delivery and Cancellation of Certificates

 

All Rights Certificates surrendered upon exercise or for redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Corporation may at any time deliver to the Rights Agent for

 

  

  

  

- 29 -

 

cancellation any Rights Certificates previously countersigned and delivered hereunder which the Corporation may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.9, except as expressly permitted by this Agreement. The Rights Agent shall, subject to applicable laws, destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Corporation on request.

 

	
2.10

	
Agreement of Rights Holders

 

Every holder of Rights, by accepting the same, consents and agrees with the Corporation and the Rights Agent and with every other holder of Rights that:

 

	
  

	
(a)

	
such holder of Rights shall be bound by and subject to the provisions of this Agreement, as amended from time to time in accordance with the terms hereof, in respect of all Rights held;

 

	
  

	
(b)

	
prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the associated Common Share certificate representing such Right;

 

	
  

	
(c)

	
after the Separation Time, the Rights Certificates will be transferable only on the Rights Register as provided herein;

 

	
  

	
(d)

	
prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the Person in whose name the Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on such Rights Certificate or the associated Common Share certificate made by anyone other than the Corporation or the Rights Agent) for all purposes whatsoever, and neither the Corporation nor the Rights Agent shall be affected by any notice to the contrary;

 

	
  

	
(e)

	
such holder of Rights has waived his right to receive any fractional Rights or any fractional shares or other securities upon exercise of a Right (except as provided herein);

 

	
  

	
(f)

	
that, subject to the provisions of Section 5.5, without the approval of any holder of Rights or Voting Shares and upon the sole authority of the Board of Directors, this Agreement may be supplemented or amended from time to time to cure any ambiguity or to correct or supplement any provision contained herein which may be inconsistent with the intent of this Agreement or is otherwise defective, as provided here; and

 

  

  

  

- 30 -

 

	
  

	
(g)

	
notwithstanding anything in this Agreement to the contrary, neither the Corporation nor the Rights Agent shall have any liability to any holder of a Right or any other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation.

 

	
2.11

	
Rights Certificate Holder Not Deemed a Shareholder

 

No holder, as such, of any Rights or Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose whatsoever the holder of any Common Share or any other share or security of the Corporation which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed or deemed or confer upon the holder of any Right or Rights Certificate, as such, any right, title, benefit or privilege of a holder of Common Shares or any other shares or securities of the Corporation or any right to vote at any meeting of shareholders of the Corporation whether for the election of directors or otherwise or upon any matter submitted to holders of Common Shares or any other shares of the Corporation at any meeting thereof, or to give or withhold consent to any action of the Corporation, or to receive notice of any meeting or other action affecting any holder of Common Shares or any other shares of the Corporation except as expressly provided herein, or to receive dividends, distributions or subscription rights, or otherwise, until the Right or Rights evidenced by Rights Certificates shall have been duly exercised in accordance with the terms and provisions hereof.

 

 

ARTICLE 3 - ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS

 

	
3.1

	
Flip-in Event

 

	
  

	
(a)

	
Subject to Subsection 3.1(b) and Sections 5.1 and 5.2, in the event that prior to the Expiration Time a Flip-in Event shall occur, the Corporation shall take such action as shall be necessary to ensure and provide, within 10 Business Days thereafter or such longer period as may be required to satisfy the requirements of applicable securities laws or comparable legislation so that, except as provided below, each Right shall thereafter constitute the right to purchase from the Corporation, upon exercise thereof in accordance with the terms hereof, that number of Common Shares having an aggregate Market Price on the date of consummation or occurrence of such Flip-in Event equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 in the event that after such occurrence, an event of a type analogous to any of the events described in Section 2.3 shall have occurred).

 

  

  

  

- 31 -

 

	
  

	
(b)

	
Notwithstanding anything in this Agreement to the contrary, upon the occurrence of any Flip-in Event, any Rights that are or were Beneficially Owned on or after the earlier of the Separation Time or the Stock Acquisition Date by:

 

	
  

	
(i)

	
an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person); or

 

	
  

	
(ii)

	
a transferee of Rights, directly or indirectly, from an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person), where such transferee becomes a transferee concurrently with or subsequent to the Acquiring Person becoming such in a transfer that the Board of Directors has determined is part of a plan, understanding or scheme of an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person), that has the purpose or effect of avoiding this Clause 3.1(b),

 

shall become null and void without any further action, and any holder of such Rights (including transferees) shall thereafter have no right to exercise such Rights under any provision of this Agreement and further shall thereafter not have any other rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise.

 

	
  

	
(c)

	
Any Rights Certificate that represents Rights Beneficially Owned by a Person described in either Clause 3.1(b)(i) or (ii) or transferred to any nominee of any such Person, and any Rights Certificate issued upon the transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain the following legend:

 

“The Rights represented by this Rights Certificate were issued to a Person who was an Acquiring Person or an Affiliate or an Associate of an Acquiring Person or a Person who was acting jointly or in concert with an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Shareholder Rights Plan Agreement). This Rights Certificate and the Rights represented hereby are void or shall become void in the circumstances specified in Subsection 3.1(b) of the Shareholder Rights Plan Agreement.”

 

provided, however, that the Rights Agent shall not be under any responsibility to ascertain the existence of facts that would require the imposition of such legend but shall impose such legend only if instructed to do so by the Corporation in writing or if a holder fails to certify upon transfer

 

  

  

  

- 32 -

 

or exchange in the space provided on the Rights Certificate that such holder is not a Person described in such legend.

 

 

ARTICLE 4 - THE RIGHTS AGENT

 

	
4.1

	
General

 

	
  

	
(a)

	
The Corporation hereby appoints the Rights Agent to act as agent for the Corporation and the holders of the Rights in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Corporation may from time to time appoint such co-Rights Agents (the “Co-Rights Agents”) as it may deem necessary or desirable subject to the approval of the Rights Agent. In the event the Corporation appoints one or more Co-Rights Agents, the respective duties of the Rights Agent and Co-Rights Agents shall be as the Corporation may determine subject to the approval of the Rights Agent. The Corporation agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and other disbursements reasonably incurred in the execution and administration of this Agreement and the exercise and performance of its duties hereunder, with the prior approval of the Corporation. The Corporation will fully indemnify and hold the Rights Agent, its officers, directors and employees and agents harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liabilities arising directly or indirectly out of its agency relationship to the Corporation as set forth in this Agreement (which right to indemnification will survive the termination of this Agreement or the resignation or removal of the Rights Agent) except for any liability arising out of the negligence or intentional misconduct by the Rights Agent. In the absence of negligence or intentional misconduct on its part, the Rights Agent shall not be liable for any action taken, suffered, omitted by it or for any error of judgement made by it in the performance of its duties under this Agreement. In no event will the Rights Agent be liable for special, indirect, consequential or punitive loss or damages of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the possibility of such damages.

 

	
  

	
(b)

	
The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any certificate for Common Shares, Rights Certificate, certificate for other securities of the Corporation, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons.

 

	
  

	
(c)

	
The Corporation shall inform the Rights Agent in a reasonably timely manner of events which may materially affect the administration of this Agreement by the Rights Agent and, at any time

 

  

  

  

- 33 -

 

upon request shall provide to the Rights Agent an incumbency certificate certifying the then current officers of the Corporation.

 

	
  

	
(d)

	
In the event any questions or dispute arises with respect to the Rights Agent’s duties hereunder, the Rights Agent shall not be required to act or be held liable or responsible for its failure or refusal to act until the question or dispute has been (i) judicially settled (and, if appropriate the Rights Agent may file a suit in interpleader or for a declaratory judgement for such purpose) by final judgement by a court of competent jurisdiction that is binding on all parties in the matter and is no longer subject to review or appeal, or (ii) settled by written document in form and substance satisfactory to the Rights Agent and executed by the Corporation. In addition, the Rights Agent may require for such purpose, but shall not be obligated to require, the execution of such written settlement by parties that may have an interest in the settlement.

 

	
4.2

	
Merger, Amalgamation or Consolidation or Change of Name of Rights Agent

 

	
  

	
(a)

	
Any corporation into which the Rights Agent may be merged or amalgamated or with which it may be consolidated, or any corporation resulting from any merger, amalgamation, statutory arrangement or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the shareholder or stockholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4 hereof. In case, at the time such successor Rights Agent succeeds to the agency created by this Agreement, any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights have not been countersigned, any successor Rights Agent may countersign such Rights Certificates in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement.

 

	
  

	
(b)

	
In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

 

  

  

  

- 34 -

 

	
4.3

	
Duties of Rights Agent

 

The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, all of which the Corporation and the holders of certificates for Common Shares and the holders of Rights Certificates, by their acceptance thereof, shall be bound:

 

	
  

	
(a)

	
the Rights Agent may retain and consult with legal counsel (who may be legal counsel for the Corporation) and the opinion of such counsel will be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion; the Rights Agent may also, with the prior approval of the Corporation, consult with such other experts as the Rights Agent shall consider necessary or appropriate to properly carry out the duties and obligations imposed under this Agreement;

 

	
  

	
(b)

	
whenever in the performance of its duties under this Agreement, the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Corporation prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to he conclusively proved and established by a certificate signed by a Person believed by the Rights Agent to be the Chief Executive Officer, Chief Financial Officer or any director of the Corporation and delivered to the Rights Agent, and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate;

 

	
  

	
(c)

	
the Rights Agent will be liable hereunder for its own negligence, bad faith or wilful misconduct;

 

	
  

	
(d)

	
the Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for Common Shares or the Rights Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and will be deemed to have been made by the Corporation only;

 

	
  

	
(e)

	
the Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any certificate for a Common Share or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Corporation of any covenant or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Subsection 3.1(b) hereof) or any adjustment required under the provisions of Section 2.3 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate

 

  

  

  

- 35 -

 

contemplated by Section 2.3 describing any such adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization of any Common Shares to be issued pursuant to this Agreement or any Rights or as to whether any Common Shares will, when issued, be duly and validly authorized, executed, issued and delivered and fully paid and non-assessable;

 

	
  

	
(f)

	
the Corporation agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement;

 

	
  

	
(g)

	
the Rights Agent is hereby authorized and directed to accept instructions in writing with respect to the performance of its duties hereunder from any individual believed by the Rights Agent to be the Chief Executive Officer, Chief Financial Officer or any director of the Corporation, and to apply to such individuals for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such individual;

 

	
  

	
(h)

	
the Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in Common Shares, Rights or other securities of the Corporation or become pecuniarily interested in any transaction in which the Corporation may be interested, or contract with or lend money to the Corporation or otherwise act as fully and freely as though it were not Rights Agent under this Agreement;

 

	
  

	
(i)

	
nothing herein shall preclude the Rights Agent from acting in any other capacity for the Corporation or for any other legal entity; and

 

	
  

	
(j)

	
the Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Corporation resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof.

 

	
4.4

	
Change of Rights Agent

 

The Rights Agent may resign and be discharged from its duties under this Agreement upon 60 days’ notice (or such lesser notice as is acceptable to the Corporation) in writing mailed to the Corporation and to each transfer agent of Common Shares by registered or certified mail. The Corporation may remove the Rights Agent upon 30 days’ notice in writing, mailed to the Rights Agent and to each transfer agent of the Common Shares by registered or certified

 

  

  

  

- 36 -

 

mail. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Corporation will appoint a successor to the Rights Agent. If the Corporation fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent, then by prior written notice to the Corporation the resigning Rights Agent at the Corporation’s expense or the holder of any Rights (which holder shall, with such notice, submit such holder’s Rights Certificate, if any, for inspection by the Corporation), may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Corporation or by such a court, shall be a corporation incorporated under the laws of Canada or a province thereof authorized to carry on the business of a trust company in the province of British Colombia. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall, following payment of all outstanding fees and expenses owed to it under this agreement, deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Corporation will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares and mail a notice thereof in writing to the holders of the Rights in accordance with Section 5.10. Failure to give any notice provided for in this Section 4.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of any successor Rights Agent, as the case may be.

 

 

ARTICLE 5 – MISCELLANEOUS

 

	
5.1

	
Redemption of Rights

 

	
  

	
(a)

	
Until the occurrence of a Flip-in Event, as to which the application of Section 3.1 has not been waived pursuant to Section 5.2, the Board of Directors,

 

	
  

	
(i)

	
may, at any time prior to the Separation Time, subject to receipt of Shareholder Approval,

 

	
  

	
(ii)

	
may, at any time after the Separation Time, subject to receipt of the consent of holders of Rights given in accordance with 5.5,

 

elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $0.00001 per Right, appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3, if an event of the type analogous to any of the events described in Section 2.3 shall have occurred (such redemption price being herein referred to as the “Redemption Price”).

 

	
  

	
(b)

	
If a Person acquires, pursuant to a Permitted Bid or a Competing Permitted Bid or pursuant to an Exempt Acquisition occurring under Subsection 5.2(b) hereof, outstanding Voting Shares, the

 

  

  

  

- 37 -

 

Board of Directors of the Corporation shall, immediately upon such acquisition and without further formality, be deemed to have elected to redeem the Rights at the Redemption Price.

 

	
  

	
(c)

	
Where a Take-over Bid that is not a Permitted Bid or Competing Permitted Bid expires, is withdrawn or otherwise terminated after the Separation Time has occurred and prior to the occurrence of a Flip-in Event, the Board of Directors may elect to redeem all of the outstanding Rights at the Redemption Price.

 

	
  

	
(d)

	
If the Board of Directors elects to or is deemed to have elected to redeem the Rights (i) the right to exercise the Rights will thereupon, without further action and without notice, terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price, and (ii) subject to Subsection 5.1(f), no further Rights shall thereafter be issued.

 

	
  

	
(e)

	
Within 10 Business Days of the Board of Directors electing or having been deemed to have elected to redeem the Rights, the Corporation shall give notice of redemption to the holders of the then outstanding Rights by mailing such notice to each such holder at his last address as it appears upon the Rights Register of the Rights Agent, or, prior to the Separation Time, on the share register maintained by the Corporation’s transfer agent or transfer agents. Each such notice of redemption shall state the method by which the payment of the Redemption Price shall be made.

 

	
  

	
(f)

	
Upon the Rights being redeemed pursuant to Subsection 5.1(c), all the provisions of this Agreement shall continue to apply as if the Separation Time had not occurred and Rights Certificates representing the number of Rights held by each holder of record of Common Shares as of the Separation Time had not been mailed to each such holder and for all purposes of this Agreement, the Separation Time shall be deemed not to have occurred.

 

	
5.2

	
Waiver of Flip-In Events

 

	
  

	
(a)

	
With the prior consent of holders of Voting Shares, the Board of Directors may, at any time prior to the occurrence of a Flip-in Event that would occur by reason of an acquisition of Voting Shares of Convertible Securities otherwise than pursuant to a Take-over Bid made by means of a take-over bid circular to all holders of Voting Shares or otherwise than in the circumstances set forth in Subsection 5.2(c) and subject to receipt of Shareholder Approval, waive the application of Section 3.1 to such Flip-in Event by written notice delivered to the Rights Agent.

 

	
  

	
(b)

	
The Board of Directors may, at any time prior to the occurrence of a Flip-in Event that would occur as a result of a Take-over Bid made by way of a take-over bid circular sent to all holders of Voting Shares, waive the application of Section 3.1 to such Flip-in Event by written notice delivered to the Rights Agent; provided, however, that if the Board of Directors waives the application of Section 3.1 to such a Flip-in Event, the Board of Directors shall be deemed to have

 

  

  

  

- 38 -

 

waived the application of Section 3.1 to any other Flip-in Event occurring by reason of any Take-over Bid which is made by means of a take-over bid circular to all holders of Voting Shares prior to the expiry of any Take-over Bid in respect of which a waiver is, or is deemed to have been, granted under this Subsection 5.2(b).

 

	
  

	
(c)

	
The Board of Directors may waive the application of Section 3.1 in respect of the occurrence of any Flip-in Event if the Board of Directors has determined that a Person became an Acquiring Person by inadvertence and without any intention to become, or knowledge that it would become, an Acquiring Person under this Agreement and, in the event that such a waiver is granted by the Board of Directors, such Stock Acquisition Date shall be deemed not to have occurred. Any such waiver pursuant to this Subsection 5.2(c) must be on the condition that such Person, within 14 days after the foregoing determination by the Board of Directors or such earlier or later date as the Board of Directors may determine (the “Disposition Date”), has reduced its Beneficial Ownership of Voting Shares such that the Person is no longer an Acquiring Person. If the Person remains an Acquiring Person at the close of business on the Disposition Date, the Disposition Date shall be deemed to be the date of occurrence of a further Stock Acquisition Date and Section 3.1 shall apply thereto.

 

	
5.3

	
Expiration

 

No Person shall have any rights whatsoever pursuant to this Agreement or in respect of any Right after the Expiration Time, except the Rights Agent as specified in Subsection 4.1(a) of this Agreement.

 

	
5.4

	
Issuance of New Rights Certificates

 

Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Corporation may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by the Board of Directors to reflect any adjustment or change in the number or kind or class of securities purchasable upon exercise of Rights made in accordance with the provisions of this Agreement.

 

	
5.5

	
Supplements and Amendments

 

	
  

	
(a)

	
The Corporation may, at any time without the approval of any holders of Rights or Shareholder Approval, make amendments to this Agreement to correct any clerical or typographical error or which are required to maintain the validity of this Agreement as a result of any change in any applicable legislation or regulations or rules thereunder. The Corporation may, prior to the date of the shareholders’ meeting referred to in Section 5.16, supplement, amend, vary, rescind or delete any of the provisions of this Agreement without the approval of any holders of Rights or Voting Shares where the Board of Directors acting in good faith deems such action necessary or desirable. Notwithstanding anything in this Section 5.5 to the contrary, no such supplement or amendment

 

  

  

  

- 39 -

 

shall be made to the provisions of Article 4 except with the written concurrence of the Rights Agent to such supplement or amendment.

 

	
  

	
(b)

	
Subject to Subsection 5.5(a), the Corporation may, with the prior consent of the holders of Voting Shares obtained as set forth below, at any time prior to the Separation Time, supplement, amend, vary, rescind or delete any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally). Such consent shall be deemed to have been given if the action requiring such approval is authorized by the affirmative vote of a majority of the votes cast by Independent Shareholders present or represented at and entitled to be voted at a meeting of the holders of Voting Shares duly called and held in compliance with applicable laws and the articles of the Corporation.

 

	
  

	
(c)

	
The Corporation may, with the prior consent of the holders of Rights, at any time on or after the Separation Time, amend supplement, amend, vary, rescind or delete any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally), provided that no such amendment, variation or deletion shall be made to the provisions of Article 4 except with the written concurrence of the Rights Agent thereto. Such consent shall be deemed to have been given if such amendment, variation or deletion is authorized by the affirmative votes of the holders of Rights present or represented at and entitled to be voted at a meeting of the holders and representing 50% plus one of the votes cast in respect thereof.

 

	
  

	
(d)

	
Any approval of the holders of Rights shall be deemed to have been given if the action requiring such approval is authorized by the affirmative votes of the holders of Rights present or represented at and entitled to be voted at a meeting of the holders of Rights and representing a majority of the votes cast in respect thereof. For the purposes hereof, each outstanding Right (other than Rights which are void pursuant to the provisions hereof) shall be entitled to one vote, and the procedures for the calling, holding and conduct of the meeting shall be those, as nearly as may be, which are provided in the Corporation’s articles and the Corporations Act with respect to meetings of shareholders of the Corporation.

 

	
  

	
(e)

	
Any amendments made by the Corporation to this Agreement pursuant to Subsection 5.5(a) which are required to maintain the validity of this Agreement as a result of any change in any applicable legislation or regulation thereunder shall:

 

	
  

	
(i)

	
if made before the Separation Time, be submitted to the shareholders of the Corporation at the next meeting of shareholders and the shareholders may, by the majority referred to in Subsection 5.5(b), confirm or reject such amendment; or

 

  

  

  

- 40 -

 

	
  

	
(ii)

	
if made after the Separation Time, be submitted to the holders of Rights at a meeting to be called for on a date not later than immediately following the next meeting of shareholders of the Corporation and the holders of Rights may, by resolution passed by the majority referred to in Subsection 5.5(d), confirm or reject such amendment.

 

	
  

	
(f)

	
The Corporation shall give notice in writing to the Rights Agent of any supplement, amendment, deletion, variation or rescission to this Agreement pursuant to Section 5.10 within five Business Days of the date of any such supplement, amendment, deletion, variation or rescission, provided that failure to give such notice, or any defect therein, shall not affect the validity of any such supplement, amendment, deletion, variation or rescission.

 

Any such amendment shall, unless the Board of Directors otherwise stipulates, be effective from the date of the resolution of the Board of Directors adopting such amendment, until it is confirmed or rejected or until it ceases to be effective (as described in the next sentence) and, where such amendment is confirmed, it continues in effect in the form so confirmed. If such amendment is rejected by the shareholders or the holders of Rights or is not submitted to the shareholders or holders of Rights as required, then such amendment shall cease to be effective from and after the termination of the meeting at which it was rejected or to which it should have been but was not submitted or from and after the date of the meeting of holders of Rights that should have been but was not held, and no subsequent resolution of the Board of Directors to amend this Agreement to substantially the same effect shall be effective until confirmed by the shareholders or holders of Rights, as the case may be.

 

	
5.6

	
Fractional Rights and Fractional Shares

 

	
  

	
(a)

	
The Corporation shall not be required to issue fractions of Rights or to distribute Rights Certificates which evidence fractional Rights. After the Separation Time, in lieu of issuing fractional Rights, the Corporation shall pay to the holders of record of the Rights Certificates (provided the Rights represented by such Rights Certificates are not void pursuant to the provisions of Subsection 3.1(b), at the time such fractional Rights would otherwise be issuable), an amount in cash equal to the fraction of the Market Price of one whole Right that the fraction of a Right that would otherwise be issuable is of one whole Right.

 

	
  

	
(b)

	
The Corporation shall not be required to issue fractions of Common Shares upon exercise of Rights or to distribute certificates which evidence fractional Common Shares. In lieu of issuing fractional Common Shares, the Corporation shall pay to the registered holders of Rights Certificates, at the time such Rights are exercised as herein provided, an amount in cash equal to the fraction of the Market Price of one Common Share that the fraction of a Common Share that would otherwise be issuable upon the exercise of such Right is of one whole Common Share at the date of such exercise.

 

  

  

  

- 41 -

 

	
  

	
(c)

	
The Rights Agent shall have no obligation to make any payments in lieu of issuing fractions of Rights or Common Shares pursuant to paragraphs (a) or (b), respectively, unless and until the Corporation shall have provided to the Rights Agent the amount of cash to be paid in lieu of issuing such fractional Rights or Common Shares, as the case may be.

 

	
5.7

	
Rights of Action

 

Subject to the terms of this Agreement, all rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective holders of the Rights. Any holder of Rights, without the consent of the Rights Agent or of the holder of any other Rights, may, on such holder’s own behalf and for such holder’s own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Corporation to enforce such holder’s right to exercise such holder’s Rights, or Rights to which such holder is entitled, in the manner provided in such holder’s Rights and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement.

 

	
5.8

	
Regulatory Approvals

 

Any obligation of the Corporation or action or event contemplated by this Agreement shall be subject to the receipt of any requisite approval or consent from any governmental or regulatory authority. Without limiting the generality of the foregoing, any issuance of or delivery of debt or equity securities (other than non-convertible debt securities) of the Corporation upon the exercise of Rights and any amendment or supplement to this Agreement shall be subject to the prior written consent of the Toronto Stock Exchange and any other exchange upon which the Common Shares may be listed.

 

	
5.9

	
Declaration as to Non-Canadian Holders

 

If in the opinion of the Board of Directors (who may rely upon the advice of counsel) any action or event contemplated by this Agreement would require compliance by the Corporation with the securities laws or comparable legislation of a jurisdiction outside Canada, the Board of Directors acting in good faith shall take such actions as it may deem appropriate to ensure such compliance. In no event shall the Corporation or the Rights Agent be required to issue or deliver Rights or securities issuable on exercise of Rights to Persons who are citizens, residents or nationals of any jurisdiction other than Canada, in which such issue or delivery would be unlawful without registration of the relevant Persons or securities for such purposes. If it would be necessary in any jurisdiction other than Canada to register any of the Rights or securities issuable on exercise of Rights prior to such issue or delivery, the Corporation will use its best efforts to establish procedures whereby shareholders entitled to such Rights, or holders of Rights entitled to securities upon the exercise of Rights, will have the ability to trade or exercise such Rights, or and be issued such securities, without the need to register those securities in the jurisdiction

 

  

  

  

- 42 -

 

in which they reside, through the establishment of a trustee to hold and sell such securities in Canada, or such other mechanism as the Board of Directors believes is appropriate.

 

	
5.10

	
Notices

 

	
  

	
(a)

	
Notices or demands authorized or required by this Agreement to be given or made by the Rights Agent or by the holder of any Rights to or on the Corporation shall be sufficiently given or made if delivered, sent by first class mail, postage prepaid, or sent by facsimile or other form of recorded electronic communication, charges prepaid and confirmed in writing, as follows:

 

Ivanhoe Mines Ltd.

654-999 Canada Place

Vancouver, British Columbia

V6C 3E1

Attention:          Corporate Secretary

Telecopy No.:    604.682.2060

with a copy to:

Goodmans LLP

355 Burrard Street, Suite 1900

Vancouver, British Columbia

V6C 2G8

Attention:           Paul Goldman

Telecopy No.:     604.682.7131

Notices or demands authorized or required by this Agreement to be given or made by the Corporation or by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if delivered, sent by first class mail, postage prepaid, or sent by facsimile or other form of recorded electronic communication, charges prepaid and confirmed in writing, as follows:

 

CIBC Mellon Trust Company

1600 - 1066 West Hastings Street

Vancouver, British Columbia

V6E 3X

Attention:            Vice President, Client Services

Telecopy No.:      604.688.4301

 

  

  

  

- 43 -

 

	
  

	
(b)

	
Notices or demands authorized or required by this Agreement to be given or made by the Corporation or the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered or sent by first class mail, postage prepaid, addressed to such holder at the address of such holder as it appears upon the register of the Rights Agent or, prior to the Separation Time, on the register of the Corporation for the Common Shares. Any notice which is mailed or sent in the manner herein provided shall be deemed given, whether or not the holder receives the notice.

 

	
  

	
(c)

	
Any notice given or made in accordance with this Section 5.10 shall be deemed to have been given and to have been received on the day of delivery, if so delivered, on the third Business Day (excluding each day during which there exists any general interruption of postal service due to strike, lockout or other cause) following the mailing thereof, if so mailed, and on the day of telegraphing, telecopying or sending of the same by other means of recorded electronic communication (provided such sending is during the normal business hours of the addressee on a Business Day and if not, on the first Business Day thereafter).

 

	
  

	
(d)

	
Each of the Corporation and the Rights Agent may from time to time change its address for notice under Subsection 5.10(a) by notice to the other given in the manner aforesaid.

 

	
5.11

	
Costs of Enforcement

 

The Corporation agrees that if the Corporation fails to fulfil any of its obligations pursuant to this Agreement, then the Corporation will reimburse the holder of any Rights for the costs and expenses (including legal fees) reasonably incurred by such holder to enforce his rights pursuant to any Rights or this Agreement.

 

	
5.12

	
Successors

 

All the covenants and provisions of this Agreement by or for the benefit of the Corporation or the Rights Agent shall bind and enure to the benefit of their respective successors and assigns hereunder.

 

	
5.13

	
Benefits of this Agreement

 

Nothing in this Agreement shall be construed to give to any Person other than the Corporation, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement; further, this Agreement shall be for the sole and exclusive benefit of the Corporation, the Rights Agent and the holders of the Rights.

 

	
5.14

	
Governing Law

 

This Agreement and each Right issued hereunder shall be deemed to be a contract made under the laws of the province of British Colombia and for all purposes shall be governed by and construed in accordance with the laws of such province applicable to contracts to be made and performed entirely within such province.

 

  

  

  

- 44 -

 

5.15           Severability

 

If any term or provision hereof or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective only as to such jurisdiction and to the extent of such invalidity or unenforceability in such jurisdiction without invalidating or rendering unenforceable or ineffective the remaining terms and provisions hereof in such jurisdiction or the application of such term or provision in any other jurisdiction or to circumstances other than those as to which it is specifically held invalid or unenforceable.

 

	
5.16

	
Effective Date

 

This Agreement is effective and in full force and effect in accordance with its terms from and after April 5, 2010. If this Agreement is not confirmed by resolution passed by a majority of greater than 50% of the votes cast by (i) the Independent Shareholders and (ii) holders of Voting Shares, only to the extent such a separate vote is required by a stock exchange on which  Voting Shares are listed, in each case present in person or voting by proxy at a meeting of those shareholders of the Corporation who vote in respect of such confirmation at a meeting to be held not later than six months from April 5, 2010, then this Agreement and all outstanding Rights shall terminate and be void and of no further force and effect on and from date which is the earlier of (a) the date of termination of the meeting called to consider the confirmation of the Agreement and (b) the close of business on the date of termination of such meeting.

 

	
5.17

	
Reconfirmation

 

Notwithstanding the confirmation of this Agreement pursuant to Section 5.16, this Agreement must be reconfirmed by a resolution passed by a majority of greater than 50% of the votes cast by the Independent Shareholders in each case present in person or voting by proxy at a meeting of those shareholders of the Corporation who vote in respect of such reconfirmation at every third annual meeting following the meeting at which this Agreement is confirmed pursuant to Section 5.16. If the Agreement is not so reconfirmed or is not presented for reconfirmation at such annual meeting, the Agreement and all outstanding Rights shall terminate and be void and of no further force and effect on and from the date of termination of the annual meeting; provided that termination shall not occur if a Flip-in Event has occurred (other than a Flip-in Event which has been waived pursuant to Subsection 5.2), prior to the date upon which this Agreement would otherwise terminate pursuant to this Section 5.17.

 

	
5.18

	
Determinations and Actions by the Board of Directors

 

All actions, calculations and determinations (including all omissions with respect to the foregoing) which are done or made by the Board of Directors, in good faith, shall not subject the Board of Directors or any director of the Corporation to any liability whatsoever to the holders of the Rights.

 

  

  

  

- 45 -

 

5.19           Regulatory Approvals

 

Any obligation of the Corporation or action or event contemplated by this Agreement, or any amendment or supplement to this Agreement, shall be subject to receipt of any requisite approval or consent from any governmental or regulatory authority having jurisdiction including, while any securities of the Corporation are listed and admitted to trading thereon, the Toronto Stock Exchange.

 

	
5.20

	
Time of the Essence

 

Time shall be of the essence in this Agreement.

 

	
5.21

	
Execution in Counterparts

 

This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute one and the same instrument.

 

  

  

  

- 46 -

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

 

	  	  	
IVANHOE MINES LTD.

 

	  	  	
By:

	  
	  	  	  	
Name:

Title:

 

	  	  	
CIBC MELLON TRUST COMPANY

 

	
By:

	  
	  	
Name:

Title:

 

	
By:

	  
	  	
Name:

Title:

 

  

  

  

ATTACHMENT I

 

IVANHOE MINES LTD.

 

SHAREHOLDER RIGHTS PLAN AGREEMENT

 

FORM OF RIGHTS CERTIFICATE

 

 

	Certificate No.	 	 	 Rights	 

 

 

THE RIGHTS ARE SUBJECT TO TERMINATION ON THE TERMS SET FORTH IN THE SHAREHOLDER RIGHTS PLAN AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SUBSECTION 3.1(b) OF THE SHAREHOLDER RIGHTS PLAN AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR CERTAIN RELATED PARTIES OR TRANSFEREES OF AN ACQUIRING PERSON OR CERTAIN RELATED PARTIES, MAY BECOME VOID.

 

Rights Certificate

 

This certifies that , or registered assigns, is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Shareholder Rights Plan Agreement, dated as of April 5, 2010, as the same may be amended or supplemented from time to time (the “Shareholder Rights Agreement”), between Ivanhoe Mines Ltd., a corporation continued under the laws of the Yukon Territory (the “Corporation”) and CIBC Mellon Trust Company, a company existing under the laws of Canada (the “Rights Agent”) (which term shall include any successor Rights Agent under the Shareholder Rights Agreement), to purchase from the Corporation at any time after the Separation Time (as such term is defined in the Shareholder Rights Agreement) and prior to the Expiration Time (as such term is defined in the Shareholder Rights Agreement), one fully paid common share of the Corporation (a “Common Share”) at the Exercise Price referred to below, upon presentation and surrender of this Rights Certificate with the Form of Election to Exercise (in the form provided hereinafter) duly executed and submitted to the Rights Agent at its principal office in the City of Vancouver. The Exercise Price shall be an amount expressed in Canadian dollars equal to five times the Market Price (as such term is defined in the Shareholder Rights Agreement) per Common Share at the Separation Time, subject to adjustment in certain events as provided in the Shareholder Rights Agreement.

 

This Rights Certificate is subject to all of the terms and provisions of the Shareholder Rights Agreement, which terms and provisions are incorporated herein by reference and made a part hereof and to which Shareholder Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Rights Agent, the Corporation and the holders of the Rights Certificates. Copies of the Shareholder Rights Agreement are on file at the registered office of the Corporation.

 

  

  

  

- 2 -

 

This Rights Certificate, with or without other Rights Certificates, upon surrender at any of the offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for the number of whole Rights not exercised.

 

Subject to the provisions of the Shareholder Rights Agreement, the Rights evidenced by this Rights Certificate may be, and under certain circumstances are required to be, redeemed by the Corporation at a redemption price set out in the Shareholder Rights Agreement.

 

No fractional Common Shares will be issued upon the exercise of any Rights evidenced hereby, but in lieu thereof a cash payment will be made, as provided in the Shareholder Rights Agreement.

 

No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Common Shares or of any other securities which may at any time be issuable upon the exercise hereof; nor shall anything contained in the Shareholder Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Shareholder Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this Rights Certificate shall have been exercised as provided in the Shareholder Rights Agreement.

 

This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

 

WITNESS the facsimile signature of the proper officers of the Corporation and its corporate seal.

 

 

Date:  __________________________         

 

 

IVANHOE MINES LTD.

 

 

By:    _____________________     

         Authorized Signature

 

  

  

  

- 3 -

 

 

Countersigned:

 

CIBC MELLON TRUST COMPANY

 

 

By:  ______________________        

       Authorized Signature

 

 

  

  

  

FORM OF ELECTION TO EXERCISE

 

	
(To be exercised by the registered holder if such holder desires to exercise the Rights represented by this Certificate.)

	  	  
	
TO:

	
___________________________________

	  	  
	
The undersigned hereby irrevocably elects to exercise  ____________________________________ whole Rights represented by the attached Rights Certificate to purchase the Common Shares or other securities, if applicable, issuable upon the exercise of such Rights and requests that certificates for such securities be issued in the name of:

	  	  
	  
	
(Name)

	  
	  
	
(Address)

	  
	  
	
(City and Province)

	  
	  
	
(Social Insurance Number or other taxpayer identification number)

	  
	
If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to:

	  
	  
	
(Name)

	  
	  
	
(Address)

	  
	  
	
(City and Province)

	  
	  
	
(Social Insurance Number or other taxpayer identification number)

	  
	
Dated:

	  	  	
Signature:

	  

 

	
Signature Guaranteed:

	
(Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.)

 

Signature must be guaranteed by a member firm of a recognized stock exchange in Canada, a Canadian Schedule I chartered bank or a member of a recognized Medallion (STAMP, MSP or SEMP) Program.

 

  

  

 - 2 -

  

 

CERTIFICATE

 

(To be completed if true.)

 

The undersigned party exercising Rights hereunder hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof or a Person acting jointly or in concert with an Acquiring Person or an Affiliate or Associate thereof. Capitalized terms shall have the meaning ascribed thereto in the Shareholder Rights Agreement.

 

	  	  	  	  
	  	  	  	
Signature

 

	  	  	  	  
	  	  	  	
(please print name of signatory)

 

 

 

  

  

  

NOTICE

 

In the event the certification set forth above in the Form of Election to Exercise is not completed upon exercise of the Right(s) evidenced hereby, the Corporation will deem the Beneficial Owner of the Right(s) evidenced by this Rights Certificate to be an Acquiring Person (as defined in the Rights Agreement) and, accordingly, such Rights shall be null and void and not transferable or exercisable.

 

 

(To be attached to each Rights Certificate.)

 

 

  

  

  

FORM OF ASSIGNMENT

 

	
(To be executed by the registered holder if such holder desires to transfer the Rights represented by this Certificate.)

	  
	
FOR VALUE RECEIVED _____________________________ hereby sells, assigns and transfers unto

	  
	  
	
(Please print name and address of transferee.)

	  
	
the Rights represented by this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _______________________________, as attorney, to transfer the within Rights on the books of the Corporation, with full power of substitution.

	  
	
Dated:

	  	  	
Signature:

	  

 

	
Signature Guaranteed:

	
(Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.)

 

Signature must be guaranteed by a member firm of a recognized stock exchange in Canada, a Canadian Schedule I chartered bank or a member of a recognized Medallion (STAMP, MSP or SEMP) Program.

 

 

  

  

  

CERTIFICATE

 

(To be completed if true.)

 

The undersigned party transferring Rights hereunder hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof or by any Person acting jointly or in concert with an Acquiring Person or an Affiliate or Associate thereof. Capitalized terms shall have the meaning ascribed thereto in the Shareholder Rights Agreement.

 

	  	  	  	  
	  	  	  	
Signature

 

	  	  	  	  
	  	  	  	
(please print name of signatory)

(To be attached to each Rights Certificate.)

 

  

  

  

NOTICE

 

In the event the certification set forth above in the Form of Assignment is not completed, the Corporation will deem the Beneficial Owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person (as defined in the Rights Agreement) and, accordingly, such Rights shall be null and void and not transferable or exercisable.wmti8kex101040510.htm

 

 

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of March 3, 2010, is entered into by and between Wound Management Technologies, Inc., (the “Company”), a Texas corporation, having its address at 777 Main Street, Suite 3100, Fort Worth, TX  76102, and each entity named on the signature page hereto as a buyer and the permitted assigns of such entity (each, a “Buyer”) (each agreement with a Buyer being deemed a separate and independent agreement between the Company and such Buyer, except that each Buyer acknowledges and consents to the rights granted to each other Buyer under this Agreement and the Transaction Documents (as defined below).

WITNESSETH:

WHEREAS, the Company and the Buyers are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded, inter alia, by Rule 506 under Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), and/or Section 4(2) of the Securities Act; and

 

WHEREAS, the Buyers severally, and not jointly, wish to purchase, upon the terms and subject to the conditions of this Agreement, a minimum aggregate amount of $50,000 and a maximum aggregate amount of $1,000,000 of Convertible Debentures of the Company (the “Debentures”), in the form of Exhibit A hereto, which will be convertible into shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), upon the terms and subject to the conditions of the Debentures, and subject to acceptance of this Agreement by the Company;

 

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

 

1. AGREEMENT TO PURCHASE; PURCHASE PRICE.

 

a. Purchase.

 

(i) The undersigned Buyers hereby severally agree to purchase the Debentures from the Company on the terms and conditions set forth below in this Agreement and the other Transaction Documents (as defined below).

 

(ii) Subject to the terms and conditions of this Agreement and the other Transaction Documents the Buyers will purchase the Debentures at one or more closings (each, a “Closing”) to be held on the respective Closing Dates (as defined below).

 

(iii) The purchase price to be paid respectively by the Buyers shall equal 100% of the face amount of the Debentures being purchased on the Closing Date by each Buyer as set forth on the signature page to this Agreement.

 

b. Certain Definitions.

 

  

  

  

c.   As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

 

(i) “Affiliate” means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.

 

(ii) “Certificates” means the relevant Debentures duly executed on behalf of the Company and issued in the name of the respective Buyer.

 

(iii) “Closing Date” means the respective dates on which the Closings referred to in this Agreement are held.

 

(iv) “Conversion Shares” means the shares of Common Stock issuable upon conversion of the Debentures.

 

(v) “Dollars” or “$” means United States Dollars.

 

(vi) “Effective Date” means the effective date of the Registration Statement covering the Registrable Securities (as those terms are defined in the Registration Rights Agreement defined below) for the Debentures issued hereunder.

 

(vii) “Escrow” means the Escrow Account maintained at Branch Banking and Trust Company in connection with the purchase and sale of the Debentures hereunder.

 

(viii) “Existing Liens” shall have the meaning ascribed to such term in Section 4(i).

 

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

 

(x) “Final Closing Date” shall have the meaning ascribed to such term in Section 6(a).

 

(xi) “Person” means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.

 

(xii) “Placement Agent” means Divine Capital Markets, LLC.

 

(xiii) “Placement Agent Shares” shall have the meaning ascribed to such term in Section 12(a).

 

(xiv) “Purchase Price” means the purchase price for the Debentures.

 

(xv) “Registration Rights Agreement” shall have the meaning ascribed to such term in Section 3(d).

 

(xvi) “Securities” means the Debentures and the Shares.

 

  

2

  

(xvii) “Shares” means the Conversion Shares and the shares issued to the Placement Agent or any of its designees in connection with its services in connection with this offering of Debentures.

 

(xviii) “Subsidiary” shall have the meaning ascribed to such term in Section 3(b).

 

(xix) “Transaction Documents” means, collectively, this Agreement, the Debentures, the Registration Rights Agreement and the other agreements, documents and instruments contemplated hereby or thereby.

 

(xx) “Transfer Agent” shall have the meaning ascribed to such term in Section 4(a).

 

c. Form of Payment; Delivery of Certificates.

 

(i) Each of the Buyers shall pay the Purchase Price for the Debentures to be purchased by such Buyer by delivering immediately available good funds in United States Dollars to the Escrow prior to the respective Closing on the applicable Closing Date, determined as provided in Section 6.

 

(ii) Promptly following payment to the Company from the Escrow of the Purchase Price to be paid for the purchase of the Debentures being purchased by such Buyer, the Company shall deliver to the Buyers the Certificates purchased at such Closing.

 

d. Payment to the Escrow.  All payments to the Escrow for the purchase of the Debentures shall be made at or prior to the Closing by wire transfer of funds to the Escrow, as follows:

 

Beneficiary Account Name:  Wound Management Technologies, Inc. - Special Escrow Account

	
FBO: For the benefit of Purchasers of Debentures of

	
          Wound Management Technologies, Inc.

	
Beneficiary Account No.:

	
________________________

	
ABA/Transit No.:

	
________________________

	
Beneficiary Bank:

	
________________________

 

 

2. BUYERS REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.

 

Each Buyer represents and warrants to, and covenants and agrees with, the Company as follows:

 

a. Without limiting any Buyer’s right to sell the Common Stock pursuant to the Registration Statement, each Buyer is purchasing the Debentures and will be acquiring the Conversion Shares for its own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.

 

 

 

  

3

  

 

b. Each Buyer is (i) an “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under the Securities Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the Securities.

 

c. All subsequent offers and sales of the Securities by each Buyer shall be made pursuant to registration of the Shares under the Securities Act or pursuant to an exemption from registration and compliance with applicable states’ securities laws.

 

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

 

e. Each Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer.  Each Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and have received complete and satisfactory answers to any such inquiries.  Without limiting the generality of the foregoing, each Buyer has also had the opportunity to obtain and to review the Company’s (1) Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed March 31, 2009, (2) Quarterly Reports on Form 10-Q for the fiscal quarter ended September 30, 2009, filed November 20, 2009, the fiscal quarter ended June 30, 2009, filed August 14, 2009, and the fiscal quarter ended March 31, 2009, filed May 15, 2009 and (3) Current Reports on Form 8-K filed March 1, 2010, February 9, 2010, January 14, 2010, October 2, 2009, September  21, 2009 (as amended by Amendment No. 1, filed February 26, 2010), June 18, 2009, June 16, 2009 and January 20, 2009 (collectively, the “SEC Documents”).

 

f. Each Buyer understands that its investment in the Securities involves a high degree of risk, including the risk of loss of the Buyer’s entire investment.

 

g. Each Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities.

 

h. Each Buyer is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.  This Agreement and the other Transaction Documents have been duly and validly authorized, executed and delivered on behalf of the Buyer and create a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors’ rights generally.

 

 

  

4

  

 

i. The state in which any offer to purchase shares hereunder was made to or accepted by such Buyer is the state shown as the Buyer’s address on the signature page hereof.

 

j. Each Buyer understands that the Placement Agent is acting as the Company’s agent in this Offering and is being compensated by the Company for such services (as detailed in Section 12(a)).  Moreover, each Buyer understands and agrees that, to the extent such Buyer utilizes the brokerage services of the Placement Agent in respect of Securities (whether in the form of Debentures or Shares), the Placement Agent shall do so at the direction of such Buyer and the Placement Agent shall not have investment power or investment discretion over such Securities. Each Buyer further represents, acknowledges and agrees that its decision to invest in the securities of the Company was arrived at in the sole discretion of such Buyer, and that, unless and until a separate familial, contractual or other relationship exists between or among specific Buyers providing the basis for such Buyers to be Affiliates of each other, the Buyers have exercised, and shall continue to exercise, their investment power and investment discretion independently of one another.

 

k. Each Buyer acknowledges and agrees that (i) upon funding the Purchase Price for the Debentures it agrees to purchase hereunder into the Escrow, Buyer shall not be entitled to withdraw from the Escrow such funds without the written consent of the Company and the Placement Agent, even though a Closing with respect to such purchase has not yet occurred, (ii) funds representing the Purchase Price furnished into the Escrow may be held for an indefinite period of time, pending the purchase and sale of Debentures at a subsequent Closing and (iii) the Buyer’s funding of the Purchase Price into the Escrow shall not constitute its purchase of Debentures unless and until the funds are released from Escrow at a Closing, and accordingly, the Buyer will not own Debentures, and will not be deemed to have invested in Debentures (and accordingly, the holding period for purposes of determining the availability of an exemption from registration under Rule 144 promulgated pursuant to the Securities Act in connection with any Securities will not commence) unless and until the purchase and sale of Debentures occurs at a Closing with respect to such funds.

3. COMPANY REPRESENTATIONS, ETC.

 

  The Company represents and warrants to the Buyers that:

 

a. Concerning the Debentures and the Shares.  There are no preemptive rights of any stockholder of the Company to acquire the Debentures or the Shares.

 

 

  

5

  

 

b. Organization; Subsidiaries; Reporting Company Status.  Attached hereto as Schedule 3(b) is an organizational chart describing the Company’s majority-owned subsidiaries (the “Subsidiaries”) and the relationships among the Company and such Subsidiaries, including as to each Subsidiary its jurisdiction of organization and the percentage of ownership held by the Company, and the parent company of the Company, including the percentage of ownership of the Company held by it.  The Company and each Subsidiary is a corporation or other form of businesses entity duly organized, validly existing and in good standing under the laws its respective jurisdiction of organization, and each of them has the requisite corporate or other power to own its properties and to carry on its business as now being conducted.  The Company and each Subsidiary is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a material adverse effect on the business, operations or condition (financial or otherwise) or results of operation of the Company taken as a whole, including, without limitation, a finding that the Company or any Subsidiary, or any of their respective customers, in using any product or service provided by the Company or any Subsidiary, has violated any provision of the Health Insurance Portability and Accountability Act or any regulation promulgated thereunder, irrespective of any finding of fault, magnitude of liability (or lack of financial liability) or purported lack of materiality (it being understood that the mere finding of any such violation is in itself material and adverse (each, a “Material Adverse Effect”).  The Company has registered its Common Stock pursuant to Section 12 of the Exchange Act, and the Common Stock is listed and traded on the OTC Bulletin Board Market of the National Association of Securities Dealers, Inc. (trading symbol:  WNDM.otcbb).  The Company has received no notice, either oral or written, with respect to the continued eligibility of the Common Stock for such listing, and the Company has maintained all requirements for the continuation of such listing.

 

c. Authorized Shares.  The following table sets fort all capital stock and derivative securities of the Company is that are authorized for issuance and that are issued and outstanding:

 

	  Capitalization Table Wound Management Technologies, Inc. as of March 3, 2010
	  (stated on a common stock basis)
	  	 	 	  
	
Common Stock

	 	 	  
	
Authorized

	100,000,000	 	
Par value

$0.001 per share

	
Issued and Outstanding

	32,933,221	(1)	  
	  	 	 	  
	
Preferred Stock

	 	 	  
	
Authorized

	5,000,000	 	
Par value

$5.00 per share

	
Issued and Outstanding:  zero

	 	 	  
	
 

Common Stock Equivalents

	 	 	  
	
Plan Options                  Authorized

	0	 	  
	 
                                        Granted

	0	 	  
	  	 	 	  
	
Non-Options/Other

	0	 	  
	  	 	 	  
	  	 	 	  
	
Warrants

	0	 	  
	  	 	 	  
	
Convertible Debt

	69,231	(2)	  
	  	 	 	  
	  	 	 	  
	
TOTALOUTSTANDING

(Fully Diluted)

	33,002,452	 	  

 

 

  

6

  

 

(1)  Excludes Common Stock to be issued to the Placement Agent in connection with the sale of the Common Stock to the Investors.  See Section 12(a).

 

(2)  $45,000 principal amount of convertible debt, convertible at 65% of the average of the lowest three closing prices over the ten trading day period prior to conversion.

 

All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable.  The Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares, assuming the prior issuance and exercise, exchange or conversion, as the case may be, of all  derivative securities authorized, as indicated in the above table.  The Shares have been duly authorized and, when issued upon conversion of, or as interest on, the Debentures, the Shares will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder.  At all times, the Issuer shall keep available and reserved for issuance to the holders of the Debentures Common Stock duly authorized for issuance against the Debentures.

 

d. Registration Rights Agreement.  This Agreement and the Registration Rights Agreement, dated as of the date hereof, between the Company and the Buyers, substantially in the form of Exhibit B annexed hereto (the “Registration Rights Agreement”), and the issuance of the Debentures (including without limitation the incurrence of indebtedness thereunder) and the other transactions contemplated by the Transaction Documents, have been duly and validly authorized by the Company, and this Agreement has been duly executed and delivered by the Company.  Each of the Transaction Documents, when executed and delivered by the Company, are and will be, valid, legal and binding agreements of the Company, enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally.

e. Non-contravention.  The execution and delivery of the Transaction Documents, the issuance of the Securities and the consummation by the Company of the other transactions contemplated by this Agreement, the Registration Rights Agreement and the Debentures (including without limitation the incurrence of indebtedness thereunder) do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the articles of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock, except as herein set forth or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the triggering of any preemptive or anti-dilution rights or rights of first refusal or first offer on the part of holders of the Company’s securities, (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, or (iv) the Company’s listing agreement for its Common Stock (if applicable), except such conflict, breach or default which would not have a Material Adverse Effect.

 

 

  

7

  

 

f. Approvals.  No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the entering into and performing this Agreement and the other Transaction Documents (including without limitation the issuance and sale of the Securities to the Buyers as contemplated by this Agreement) except such authorizations, approvals and consents that have been obtained, or such authorizations, approvals and consents, the failure of which to obtain would not have a Material Adverse Effect.

 

g. SEC Filings.  None of the SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading.  The Company timely filed all requisite forms, reports and exhibits thereto with the SEC as required as required.  The Company is not aware of any event occurring on or prior to a Closing Date or the Delivery Date (other than the transactions effected hereby) that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after such date.

 

h. Absence of Certain Changes.  Since September 30, 2009, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company, except as disclosed in the SEC Documents. Since September 30, 2009, except as provided in the SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

 

i. Full Disclosure.  There is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the SEC Documents) that has not been disclosed in writing to the Buyers that (i) would reasonably be expected to have a Material Adverse Effect, (ii) would reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to the Transaction Documents, or (iii) would reasonably be expected to materially and adversely affect the value of the rights granted to the Buyers in the Transaction Documents.

 

j. Absence of Litigation.  Except as described in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Documents.  The Company is not a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could reasonably be expected to have a Material Adverse Effect.

 

k. Absence of Events of Default.  No Event of Default (or its equivalent term), as defined in the respective agreement, indenture, mortgage, deed of trust or other instrument, to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (or its equivalent term) (as so defined in such document), has occurred and is continuing, which would have a Material Adverse Effect.

 

 

l. No Undisclosed Liabilities or Events.  The Company has no liabilities or obligations other than those disclosed in the SEC Documents or those incurred in the ordinary course of the Company’s business since September 30, 2009, and which individually or in the aggregate, do not or would not have a Material Adverse Effect.  No event or circumstances has occurred or exists with respect to the Company or its properties, business, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed.  There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive officers of the Company which proposal would (x) change the articles of incorporation, by-laws or any other charter document of the Company, each as currently in effect, with or without shareholder approval, which change would reduce or otherwise adversely affect the rights and powers of the shareholders of the Common Stock or (y) materially or substantially change the business, assets or capital of the Company.

m. No Integrated Offering.  Neither the Company nor any of its affiliates nor any Person acting on its or their behalf has, directly or indirectly, at any time during the six month period immediately prior to the date of this Agreement made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Rule 506 of Regulation D in connection with the offer and sale of the Securities as contemplated hereby.

 

n. Dilution.  The number of Shares issuable upon conversion of the Debentures may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the market price of the Common Stock declines prior to the conversion of the Debentures.  The Company’s executive officers and directors have studied and fully understand the nature of the securities being sold hereby and recognize that they have a potential dilutive effect and further that the conversion of the Debentures and/or sale of the Conversion Shares may have an adverse effect on the market price of the Common Stock.  The board of directors of the Company has concluded, in its good faith business judgment that such issuance is in the best interests of the Company.  The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Debentures is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.

 

 

  

8

  

 

o. Regulatory Permits.  The Company has all such permits, easements, consents, licenses, franchises and other governmental and regulatory authorizations from all appropriate federal, state, local or other public authorities (“Permits”) as are necessary to own and lease its properties and conduct its businesses in all material respects in the manner described in the SEC Documents and as currently being conducted.  All such Permits are in full force and effect and the Company has fulfilled and performed all of its material obligations with respect to such Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or will result in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be disclosed in the Prospectus.  Such Permits contain no restrictions that would materially impair the ability of the Company to conduct businesses in the manner consistent with its past practices.  The Company has not received notice or otherwise has knowledge of any proceeding or action relating to the revocation or modification of any such Permit.

 

p. Hazardous Materials.  The Company is in compliance with all applicable Environmental Laws in all respects except where the failure to comply does not have and could not reasonably be expected to have a Material Adverse Effect.  For purposes of the foregoing:

 

“Environmental Laws” means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other “Superfund” or “Superlien” law or any other applicable federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, the environment or any Hazardous Material.

“Hazardous Material” means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law.

q. Independent Public Accountants. Pritchett, Siler & Hardy, PC, who has certified the consolidated financial statements of the Company, including the notes thereto, included in the Company’s Annual Report on Forms 10-K for the year ended December 31, 2008, is an independent registered public accounting firm with respect to the Company, as required by the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder.

 

r. Internal Accounting Controls.  The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (1) transactions are executed in accordance with management’s general or specific authorization; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management’s general or specific authorization; and (4) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

s.      Brokers.  The Company engaged the Placement Agent in connection with the offering of the Debentures and the Shares to the Buyers hereunder.  No Person (other than the Placement Agent and its principals, employees and agents) is entitled to receive any consideration from the Company or any Buyer arising from any finder’s agreement, brokerage agreement or other agreement to which the Company is a party.

4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

 

a. Transfer Restrictions.  The parties acknowledge and agree that:

 

(1) the Debentures have not been and are not being registered under the provisions of the Securities Act and, except as provided in the Registration Rights Agreement, the Shares have not been and are not being registered under the Securities Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration under applicable law;

 

(2) any sale of the Securities made in reliance on Rule 144 promulgated under the Securities Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the Securities Act, may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder;

 

(3) at the request of any Buyer, the Company shall, from time to time, within two (2) business days of such request, at the sole cost and expense of the Company, either (i) deliver to its transfer agent and registrar for the Common Stock (the “Transfer Agent”) a written letter (“Company Instructions”) instructing and authorizing the Transfer Agent to process transfers of the Shares at such time as the Buyer has held the Securities for the minimum holding period permitted under Rule 144 (currently, six (6) months), subject to the Buyer’s providing to the Transfer Agent certain customary representations contemporaneously with any requested transfer, or (ii) an opinion of the Company’s counsel (a “Company Trading Opinion”) in favor of the Buyer and the Transfer Agent, reasonably satisfactory in form, scope and substance to the Buyer and the Transfer Agent, to the effect that registration in connection with a resale by such Buyer of any of the Securities in accordance with clause (1)(B) of this Section 4(a) is not required under the Securities Act, the Company shall (except as otherwise provided in clause (2) of this Section 4(a)) permit the transfer of the Securities and, in the case of the Shares, instruct the Company’s Transfer Agent to issue one or more certificates for Common Stock without any restrictive legend in such name and in such denominations as specified by the Buyer; and

 

 

  

9

  

 

(4) neither the Company nor any other Person is under any obligation to register the Securities (other than pursuant to the Registration Rights Agreement) under the Securities Act or to comply with the terms and conditions of any exemption thereunder.

 

b. Restrictive Legend.  The Buyers acknowledge and agree that the Debentures, and, unless Company Instructions or a Trading Opinion has been issued in respect of the Shares or the Shares have been registered under the Securities Act as contemplated by the Registration Rights Agreement and sold in accordance with an effective Registration Statement, certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):

 

THESE SECURITIES (THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.

 

c. Registration Rights Agreement.  The parties hereto agree to enter into the Registration Rights Agreement on or before the Closing Date.

 

d. Securities Filings.  The Company undertakes and agrees to make all necessary filings in connection with the sale of the Securities to the Buyers required under any United States laws and regulations applicable to the Company (including without limitation a Form D filing under Regulation D promulgated pursuant to the Securities Act and any filings required under state “blue sky” laws), or by any domestic securities exchange or trading market, and to provide copies thereof to any Buyer upon their request.

e. Reporting Status; Public Trading Market.  So long as any of the Buyers beneficially own any Securities and any Shares are outstanding, (i) the Company shall timely file, prior to or on the date when due, all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination, (ii) the Company shall not be operated as, or report, to the SEC or any other Person, that the Company is a “shell company” or indicate to the contrary to the SEC or any other Person, (iii) the Company shall take all other action under its control necessary to ensure the availability of Rule 144 under the Securities Act for the sale of Shares by the Buyers.  Except as otherwise set forth in Transaction Documents, the Company shall take all action under its control necessary to obtain and to continue the listing and trading of its Common Stock (including, without limitation, all Registrable Securities) on the OTC Bulletin Board Market (“OTCBB”) of the National Association of Securities Dealers, Inc. and will comply in all material respects with the Company’s reporting, filing and other obligations under the by-laws or rules of the National Association of Securities Dealers, Inc. (“NASD”).  If, so long as any of the Buyers beneficially own any of the 

 

 

  

10

  

 

 

Securities,  the Company receives any written notice from the OTCBB, NASD or the SEC with respect to either any alleged deficiency in the Company’s compliance with applicable rules and regulations (including without limitation any comments from the SEC on any of the Company’s documents filed (or the failure to have made any such filing)  under the Securities Act or the Exchange Act) (each, a “Regulatory Notice”), then the Company shall promptly, and in any event within two business days, provide copies of the Regulatory Notice to the Buyers, and shall promptly, and in any event , respond in writing to the OTCBB, NASD and/or SEC (as the case may be)(the “Regulatory Response”),  within the time period requested in the Regulatory Notice, setting forth the Company’s explanation and/or response to the issues raised in the Regulatory Notice, with a view towards maintaining and/or regaining full compliance with the applicable rules and regulations of the OTCBB, NASD and/or SEC and maintaining or regaining good standing of the Company with the OTCBB, NASD and/or SEC, as the case may be, the intent being to ensure that the Company maintain its reporting company status with the SEC and that its Common Stock be and remain available for trading on the OTCBB (excluding the “pink sheets”).

 

f. Use of Proceeds.   The Company will use the proceeds from the sale of the Debentures (excluding amounts paid by the Company for legal fees in connection with the sale of the Debentures) for internal working capital purposes.  Except in connection with the possible redemption of Placement Agent Shares as described in Section 12(a), absent the prior written approval of a majority of the principal amount of the Debentures then outstanding, the Company shall not use any portion of the proceeds of the sale of the Debentures to (i) repay any indebtedness or other obligation of the Company incurred prior to the date of this Agreement outside the normal course of business, (ii) pay any dividends or redemption amount on any of the Company’s equity or equity equivalents or (iii) pay deferred compensation or any compensation to any of the directors or officers of the Company in excess of the rate or amount paid or accrued during the fiscal year ended December 31, 2009, other than modest increases consistent with prior practice that are approved by the Company’s Board of Directors.

 

g. Available Shares.  The Company shall have at all times authorized and reserved for issuance to the Holders of Debentures, free from preemptive rights, shares of Common Stock equal to three hundred percent (300%) of the number of shares of Common Stock issuable upon conversion of the then-outstanding Debentures (including accrued interest thereon) as may be required to satisfy the conversion rights of the Buyers pursuant to the terms and conditions of the Debentures.  The Company shall monitor the foregoing on an ongoing basis.  If at any time the Company does not have available an amount of authorized and unissued Shares required to be so reserved, then the Company shall, without notice or demand by the Buyers, call within thirty (30) days of such occurrence and hold within sixty (60) days of such occurrence a special meeting of shareholders, for the sole purpose of increasing the number of shares of Common Stock authorized for issuance..  At the meeting, management of the Company shall recommend to shareholders that they vote in favor of increasing the number of shares of Common Stock authorized.  Members of the Company’s Management shall also vote all of their own shares in favor of increasing the number of shares of Common Stock authorized at the meeting.  If the increase in authorized shares is approved by the stockholders at the meeting, the Company shall implement the increase in authorized shares within one (1) business day following approval at such meeting.  Alternatively, to the extent permitted by applicable law, in lieu of calling and holding a meeting of stockholders as described above, within thirty (30) days of the date when the Company does not have available an amount of authorized and non-issued Shares required to be reserved as described above, the Company may procure the written consent of stockholders to approve the increase the number of shares of Common Stock authorized and provide the stockholders with notice thereof as may be required under applicable law (including without limitation Section 14(c) of the Exchange Act and Regulation 14C thereunder).  Upon obtaining stockholder approval as aforesaid, the Company shall implement the appropriate increase in its authorized shares of Common Stock within one (1) business day or as soon thereafter as permitted by applicable law.

 

h. Reimbursement.  If (i) any Buyer, other than by reason of its gross negligence, willful misconduct or breach of law, becomes a party defendant in any capacity in any action or proceeding brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if such Buyer is impleaded in any such action, proceeding or investigation by any Person, or (ii) any Buyer, other than by reason of its gross negligence, willful misconduct or breach of law, becomes a party defendant in any capacity in any action or proceeding brought by the SEC against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if such Buyer is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company will reimburse such Buyer for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of the Buyers who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling Persons (if any), as the case may be, of the Buyers and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Buyers and any such Affiliate and any such Person.  Except as otherwise set

 

i.  forth in the Transaction Documents, the Company also agrees that neither any Buyer nor any such Affiliate, partners, directors, agents, employees or controlling Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the

 

  

11

  

k. Company in connection with or as a result of the consummation of the Transaction Documents except to the extent that any losses, claims, damages, liabilities or expenses incurred by the Company result from the gross negligence or willful misconduct of such Buyer or  from a breach of the representations, covenants and conditions contained herein or from a breach of law.

 

j. No New Indebtedness or Liens.  So long as any of the Debentures remain outstanding, the Company shall not, absent the prior written consent of the holders of all Debentures then outstanding, enter into, create, incur, assume or suffer to exist any indebtedness or liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior to, or pari passu with, in any respect, the Company’s obligations under the Debentures, other than purchase money security interests granted to suppliers to the Company and any of the foregoing that are made in the ordinary course of business of the Company and its Subsidiaries.  Schedule 4(j) hereto sets forth all liens and encumbrances upon the assets of the Company as of the date hereof (the “Existing Liens”).  Notwithstanding the restrictions set forth above in this Section 4(j), the Existing Liens shall be permitted to remain in place until the Company’s underlying obligations have been satisfied, provided, however, that the incurrence of additional indebtedness or other obligations of the Company in connection with the Existing Liens shall not be permitted.  For example, if a creditor has an Existing Lien on certain assets of the Company to secure an obligation consisting of $100,000 indebtedness of the Company, then the Company shall not be permitted to increase the amount of indebtedness above the amount extant on the date of this Agreement (inclusive of interest which may accrue under the terms of such indebtedness) or to transfer or continue the Existing Lien in alternate indebtedness, notwithstanding any agreement between the Company and such creditor to do so.

 

 

  

12

  

 

k. No Payments to Affiliates or Related Parties.  So long as any of the Debentures remain outstanding, the Company shall not, absent the prior written consent of the holders of all Debentures then outstanding, make any payments using any portion of the gross proceeds from any Closing, to any of the Company’s or the Subsidiaries’ respective affiliates or related parties, including without limitation payments or prepayments of principal or interest accrued on any indebtedness or obligation in favor of affiliates or related parties as described in the SEC Documents.

 

l. Notice of Material Adverse Effect.  The Company shall notify the Buyers (and any subsequent holder of the Debentures), as soon as practicable and in no event later than five (5) business days of the Company’s knowledge of any Material Adverse Effect on the Company.  For purposes of the foregoing, “knowledge” means the earlier of the Company’s actual knowledge or the Company’s constructive knowledge upon due inquiry.

 

5. TRANSFER AGENT INSTRUCTIONS.

 

a. The Company shall at all times while any Debentures are outstanding engage a Transfer Agent.  As of the date of this Agreement, the Transfer Agent is Securities Transfer Corporation. Within five (5) business days following the purchase by the Buyers of the Debentures in accordance with Section 1(c) hereof, the Company will irrevocably instruct its Transfer Agent in writing (with copies to be provided to the Placement Agent) to (i) reserve that number of shares of Common Stock as is equal to three hundred percent (300%) of the number of shares of Common Stock issuable upon conversion of the then-outstanding Debentures (including accrued interest thereon) as may be required to satisfy the conversion rights of the Buyers pursuant to the terms and conditions of the Debentures, and (ii) issue Common Stock from time to time upon conversion of the Debentures in such amounts as specified from time to time by the Company to the Transfer Agent, bearing the restrictive legend specified in Section 4(b) of this Agreement prior to registration of the Shares under the Securities Act, registered in the name of the respective Buyer or its permitted assigns and in such denominations to be specified by such Buyer in its Conversion Notice (as defined in the Debenture) given in connection with each conversion of the Debentures, provided, that if at the time of delivery of a Conversion Notice, (i) the Buyer requests, or there has previously been delivered to the Transfer Agent, either (a) Company Instructions or (b) a Company Trading Opinion, or (ii) any Buyer provides the Company with an opinion of counsel reasonably satisfactory to the Company (a “Buyer Trading Opinion” and, together with a Company Trading Opinion, a “Trading Opinion”) that registration of a resale by such Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is not required under the Securities Act, the Company shall permit the transfer of the Securities and, in the case of the Converted Shares, instruct the Company’s Transfer Agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Buyer.

 

b. Periodically, if and to the extent necessary to increase the number of reserved shares to remain at 300% to account for any decrease in the market price of the Common Stock, the Company shall notify its registrar and Transfer Agent in writing of the reservation of such additional shares.  The Company shall provide the Placement Agent with a copy of such written instructions to the Company’s Transfer Agent simultaneously with the issuance of such instructions to the Transfer Agent.  The Company agrees that if the Buyer is not in breach of its representations and warranties contained in this Agreement, no instruction other than such instructions referred to in this Section 5 and stop transfer instructions to give effect to Section 4(a) hereof prior to registration and sale of the Converted Shares under the Securities Act, will be given by the Company to the Transfer Agent and that the Converted Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the Registration Rights Agreement, Company Instructions or any Trading Opinion and applicable law.  Nothing in this Section 5(a) shall affect in any way the Buyers’ obligations and agreement to comply with all applicable securities laws upon resale of the Securities.

 

c. (i)      The Company will permit the Buyers to exercise their rights to convert the Debentures by telecopying or delivering an executed and completed Notice of Conversion to the Company.  The Company will within two (2) business days respond with its endorsement so as to confirm the outstanding principal amount of any Debenture submitted for conversion or shall reconcile any difference with the Buyer promptly after receiving such Notice of Conversion.

 

(ii) The term “Conversion Date” means, with respect to any conversion elected by the holder of the Debentures, the date specified in the Notice of Conversion, provided the copy of the Notice of Conversion is given either via mail or facsimile to or otherwise delivered to the Company in accordance with the provisions hereof so that it is received by the Company on or before such specified date.

(iii) The Company will transmit the certificates representing the Converted Shares issuable upon conversion of any Debentures (together, unless otherwise instructed by the Buyer, with Debentures not being so converted) to the Buyer at the address specified in the Notice of Conversion (which may be the Buyer’s address for notices as contemplated by Section 12 hereof or a different address) via express courier, by electronic transfer or otherwise, within five (5) business days if the address for delivery is in the United States and within seven (7) business days if the address for delivery is outside the United States (such fifth business day or seventh business day, as the case may be, the “Delivery Date”) after (A) the business day on which the Company has received the Notice of Conversion (by facsimile or other delivery) or (B) the date on which payment of interest and principal on the Debentures, which the Company has elected to pay by the issuance of Common Stock, as contemplated by the Debentures, was due, as the case may be.

 

 

  

13

  

 

d. From and after the date on which the Shares have been registered under the Securities Act as contemplated by the Registration Rights Agreement, the failure to issue unrestricted, freely tradable Conversion Shares to the Buyers upon Conversion shall be considered an Event of Default, which if not cured after five (5) days, shall entitle the Buyer(s) whose Debentures are being converted to demand that the Debentures held by such Buyer(s) be immediately redeemed in full by a cash payment equal to 130% of the aggregate of the unpaid principal amount of and accrued interest on such Debentures (whether or not the terms of such Debentures expressly permit the redemption thereof).  The Company acknowledges that its failure to honor a Notice of Conversion shall cause definable financial hardship on the Buyer(s).

 

e. The Company shall inform the Transfer Agent of the reservation of shares contemplated by Section 4(g) and this Section 5, and shall keep current in its payment obligations to the Transfer Agent such that the Transfer Agent will continue to process share transfers and the initial issuance of shares of Common Stock upon the conversion of Debentures.  The Company hereby authorizes the Transfer Agent to correspond and otherwise communicate with the Buyers or their representatives in connection with the foregoing and other matters related to the Common Stock.  Further, the Company hereby authorizes the Buyers or their representatives to provide instructions to the Transfer Agent that are consistent with the foregoing and instructs the Transfer Agent to honor any such instructions.  Should the Company fail for any reason to keep current in its payment obligations to the Transfer Agent, the Buyers may pay such amounts as are necessary to return the Company to good standing with the Transfer Agent, and all amounts so paid shall be promptly reimbursed by the Company.  If not so reimbursed within thirty (30) days, such amounts shall, at the option of the Buyer(s) who paid amounts to the Transfer Agent but without prior notice to or consent of the Company, be added to the principal amount due under the Debenture(s) held by such Buyer(s), whereupon interest will begin to accrue on such amounts at the rate specified in the Debentures.

 

f. Each Buyer shall be entitled to exercise its conversion privilege with respect to the Debentures notwithstanding the commencement of any case under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”).  In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of such Buyer’s conversion privilege.  The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the Debentures.  The Company agrees, without cost or expense to such Buyer, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C. §362.

 

6. CLOSING DATES.

 

a. The purchases and sales of Debentures will occur at one or more Closings under this Agreement, the first of which will occur after Buyers have deposited not less than $50,000 of the Purchase Price in the Escrow for the transactions contemplated under this Agreement, on a Closing Date determined by the Placement Agent and the Company.  Subsequent Closing(s) under this Agreement will occur after Buyers who will purchase the balance or a portion thereof of the Debentures to be purchased and sold under this Agreement have deposited the  amount of their Purchase Prices in the Escrow, with the Closing Date(s) from time to time.  The final Closing shall occur after the Buyers who will purchase the balance of the Debentures to be purchased and sold under this Agreement (which may be in any amount up to $1,000,000, in the aggregate) have deposited the full amount of their Purchase Prices in the Escrow, with the Closing Date of such final 

 

 

  

14

  

 

Closing (the “Final Closing Date”) to occur on the date determined by the Placement Agent or the Company; provided, that should no additional amounts be deposited into the Escrow, the Final Closing Date shall be a date determined by the Placement Agent, acting in its sole discretion.  If any of the conditions precedent to Closing set forth in Sections 7 or 8 are not satisfied and are not waived within thirty (30) days by the party which benefits from such conditions (i.e., the Company, in the case of those conditions set forth in Section 7 and the Buyer(s), in the case of those conditions set forth in Section 8), then the Offering shall terminate, and the Company shall provide written notice of termination to the escrow agent administering the Escrow so stating and instructing the escrow agent to return to the Buyer(s) the amounts held in the Escrow furnished by the Buyer(s), provided, that if the Company does not promptly so furnish such notice and instructions, then the Placement Agent may, in the Company’s stead, provide such notice and instructions, which shall for all purposes be construed as if the same was provided by the Company.

 

b. In the case of each Closing, the Closing Date shall occur after each of the conditions contemplated by Sections 7 and 8 hereof shall have either been satisfied or been waived by the party in whose favor such conditions run.  It is anticipated that the initial Closing will occur as soon as reasonably practical after the minimum investment in the Offering has been deposited into the Escrow.  Following the initial Closing, assuming additional funds representing the Purchase Price of Debentures sought to be acquired are furnished by Buyers into the Escrow, absent a contrary agreement by the Placement Agent and the Company, subsequent Closing(s) will occur on or about the second-to-last last business day of each month while the Offering is being made, prior to the final Closing.

 

c. In the case of each Closing, the Closing of the purchase and issuance of Debentures shall occur on the respective Closing Date at the offices of the Placement Agent’s counsel, Zabatta Group, LLP, 91 Central Park West, Suite 1H, New York, NY  10023, and shall take place no later than 3:00 P.M., New York time, on such day or at such other place, date or time as is mutually agreed upon by the Company and the Buyers (acting through the Placement Agent).

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

 

The Company’s obligation to sell the Debentures to the Buyer pursuant to this Agreement on each Closing Date is conditioned upon:

 

a. Delivery from the Escrow to the Company of good funds as payment in full of an amount equal to the Purchase Price for the Debentures in accordance with this Agreement;

 

b. The accuracy on the Closing Date of the representations and warranties of the Buyers contained in this Agreement, each as if made on such date, and the performance by the Buyers on or before such date of all covenants and agreements of the Buyers required to be performed on or before such date; and

 

 

  

15

  

 

c. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

 

8. CONDITIONS TO THE BUYERS’ OBLIGATION TO PURCHASE.

 

The Buyer’s obligation of those Buyers who are purchasing Debentures at a particular closing to purchase the Debentures on the applicable Closing Date is conditioned upon:

 

a. The execution and delivery of this Agreement and the Registration Rights Agreement by the Company;

 

b. Delivery by the Company to the Buyers of the Debentures to be purchased in accordance with this Agreement;

 

c. Delivery by the Company to the Buyers of an opinion of counsel to the Company, substantially in the form attached hereto as Exhibit D and dated as of the Closing Date;

 

d. The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;

 

e. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained; and

 

f. From and after the date hereof to and including the Closing Date, (i) the trading of the Common Stock shall not have been suspended by the SEC or the NASD and trading in securities generally on OTCBB shall not have been suspended or limited, nor shall minimum prices been established for securities traded on the OTCBB, (ii) there shall not have occurred any outbreak or escalation of hostilities involving the United States or any material adverse change in any financial market that in either case in the reasonable judgment of the Buyers makes it impracticable or inadvisable to purchase the Debentures.  Additionally, in the event of each Closing following the initial Closing, it shall be a condition precedent to such Closing that no material adverse change to the Company’s financial condition or operations shall have occurred in the interim period following the immediately preceding Closing.

 

9. GOVERNING LAW; MISCELLANEOUS.

 

a. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws.  Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City and County of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions.  To the extent determined by such court, the Company shall reimburse the Buyers for any reasonable legal fees and disbursements incurred by the Buyers in enforcement of or protection of any of its rights under any of the Transaction Documents.

 

 

  

16

  

 

b. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

 

c. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

 

d. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

 

e. A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto.

 

f. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.

 

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

 

h. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

 

i. This Agreement may be amended only by the written consent of a majority in interest of the holders of the Debentures and an instrument in writing signed by the Company.

 

j. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

10. NOTICES.

 

  Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:

 

a. the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile transmission,

 

b. the seventh business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or

 

c. the third business day after mailing by next-day express courier, with delivery costs and fees prepaid, in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) days’ advance written notice similarly given to each of the other parties hereto):

 

 

  

17

  

 

	
COMPANY:

	
Wound Management Technologies, Inc.

	  	
777 Main Street, Suite 3100

	  	
Fort Worth, TX  76102

	  	
Fax No.  888-746-7566

Attention:  Scott Haire, Chief Executive Officer

	  	  
	
BUYERS:

	
At the address set forth on the signature pages of this Agreement.

	 	 
	  	
With copies to:

	  	
Divine Capital Markets, LLC

	  	
39 Broadway, 36th Floor

New York, NY  10006

	  	
Fax No. 212-509-5867

Attention:  Jason Goldstein, Senior Vice President

11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company’s and the Buyers’ representations and warranties herein shall survive for a period of fifteen (15) months after the execution and delivery of this Agreement and shall inure to the benefit of the Buyers and the Company and their respective successors and assigns.

 

12. FEES; EXPENSES.

 

a. At each Closing, the Placement Agent shall receive cash compensation (inclusive of expenses) equal to thirteen percent (13%) of the gross proceeds of the Debentures (payable at each Closing), and in addition, at the initial Closing under this Offering, the Company shall at each Closing issue shares of Common Stock (the “Placement Agent Shares”) in an amount equal to twenty percent (20%) of the gross proceeds of the Debentures issued and sold at such Closing (calculated using the closing bid price on the day of Closing), in the form of restricted securities and appropriately legended, to be issued to the Placement Agent or to such Persons as the Placement Agent shall designate to the Company in writing.  The Company shall also reimburse the Placement Agent for expenses it incurs in connection with its services to the Company in its capacity as Placement Agent in accordance with the terms of the agreement, dated February 9, 2010 between the Company and the Placement Agent.  The cash compensation and expenses shall be deducted from the proceeds of the sale of the Debentures at each Closing.

 

b. The Company will pay the legal fees of the Placement Agent in the amount of $12,500 and will pay the 100% of the disbursements actually incurred by counsel to the Placement Agent.  The Company will pay $12,500 to such counsel at the initial Closing under this Offering, and in that connection the Company and the Placement Agent shall authorize the deduction of such amount from the Escrow at the initial Closing and disbursement of the same to the Placement Agent’s legal counsel at the initial Closing.  The Company will pay disbursements of the Placement Agent’s legal counsel within ten (10) days of invoice therefor.  The $12,500 in respect of fees of the Placement Agent’s counsel shall include only those fees paid for services rendered up to the Final Closing Date, and any other reasonable legal fees incurred by the Placement Agent’s counsel in connection with the Transaction Documents (including enforcement of the Company’s obligations or the exercise of the Placement Agent’s or the Buyers’ remedies thereunder) or, if requested by the Placement Agent, review of the Registration Statement (including review and comment on drafts thereof and advice concerning sales of Registrable Securities (as defined in the Registration Rights Agreement) shall be payable by the Company to such counsel within ten (10) days of the invoice therefor.

 

[Signature Page Follows]

 

  

18

  

IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyers and the Company as of the date set forth below.

 

Date:           As of March 3, 2010

 

	 	
COMPANY:

 

	 	
Wound Management Technologies, Inc.

 

 

	 	
By:   /s/ Scott Haire

	 	
Name:  Scott Haire

Title:    Chief Executive Officer

	 	  
	 	  
	 	
BUYER:

 

	 	
Name:

 

	 	
By:                                                                        

	 	
                       (Signature of Authorized Person)

	 	
Print Name:

 

	 	
Date Signed:

	 	
Address:

 

	 	
Telephone:

	 	
Facsimile:

	 	
Principal Amount of Debentures to be Purchased:

$_______________

	 	
Tax ID No.  _____________________

 

 

 

[Signature Page to Securities Purchase Agreement]

 

  

  

  

 

	
Exhibit A

	
FORM OF DEBENTURE

 

	
Exhibit B

	
REGISTRATION RIGHTS AGREEMENT

 

	
Exhibit C

	
FORM OF OPINION OF COUNSEL

  

  

  

EXHIBIT A

 

DEBENTURE

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION REQUIREMENTS THEREOF OR EXEMPTION THEREFROM.

 

	
$_____________

 

WOUND MANAGEMENT TECHNOLOGIES, INC.

 

CONVERTIBLE DEBENTURE DUE [_________________, 2013]

[THIRD ANNIVERSARY OF FINAL CLOSING DATE]

 

Date of Issuance:  [_________________] [CLOSING DATE OF THIS BUYER’S FUNDING]

FOR VALUE RECEIVED, WOUND MANAGEMENT TECHNOLOGIES, INC., a corporation organized and existing under the laws of the State of Texas (the "Company"), hereby promises to pay to [________________], having its address at [_________________________________________] or its assigns (the "Holder" and together with the other holders of Debentures issued pursuant to the Securities Purchase Agreement (as defined below), the "Holders"), the principal sum of [___________________] and 00/100 Dollars ($_______________) on [___________, 2013] [THIRD ANNIVERSARY OF FINAL CLOSING DATE] (the "Maturity Date") and to pay simple interest on the principal sum outstanding from time to time in arrears (i) upon conversion as provided herein or (ii) on the Maturity Date, at the rate of six percent (6%) per annum (subject to adjustment pursuant to Section 10 hereof).  Interest shall commence to accrue on this Debenture on the first such business day to occur after the date hereof and shall continue on a daily basis until payment in full of the principal sum has been made or duly provided for or until the full outstanding amount of this Debenture has been converted in accordance with the provisions hereof.  The Company has the option to redeem this Debenture prior to the Maturity Date pursuant to Section 2(b).  All unpaid principal and interest due and payable on the Maturity Date shall be paid in the form of Common Stock of the Company, par value $0.001 per share ("Common Stock") pursuant to Section 3.  The Holder has the option to cause any outstanding principal and interest on this Debenture to be converted into Common Stock at any time prior to the Redemption Date (as defined below) or the Maturity Date pursuant to Section 2(a).

 

This Debenture is the Debenture referred to in the Securities Purchase Agreement (the "Securities Purchase Agreement") dated as of March 3, 2010, between the Company and the Holder, is subject to the provisions of the Securities Purchase Agreement and further is subject to the following additional provisions:

 

  

  

  

 

1. This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only (a) with the Company’s prior written consent, which consent the Company may grant or withhold, in its sole discretion, and (b) in compliance with the Securities Act and other applicable state and foreign securities laws.  In the event of any proposed transfer of this Debenture to which the Company has granted its consent, the Company may require, prior to issuance of a new Debenture in the name of such other Person, that it receive reasonable transfer documentation including legal opinions that the issuance of the Debenture in such other name does not and will not cause a violation of the Securities Act or any applicable state or foreign securities laws. Prior to due presentment for transfer of this Debenture to which the Company has consented, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

2. Conversion at Holder’s Option; Redemption at Company’s Option.

 

a.           The Holder is entitled to, at any time or from time to time, convert the Conversion Amount into shares of Common Stock, at a conversion price for each share of Common Stock (the “Conversion Price") equal to seventy percent (70%) of the lowest closing bid price per share (as reported by Bloomberg LP) of Common Stock for the twenty (20) trading days immediately preceding the date of conversion (subject to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events occurring during such 20-day period).  Notwithstanding the foregoing, the Holder shall not be entitled to convert any part of this Debenture as to which the Company has previously issued to the Holder a Redemption Notice in accordance with Section 2(b).  If the Debenture is the subject of an acceleration following the occurrence of an Event of Default, the delivery by a Holder of a Conversion Notice following such acceleration shall be deemed a waiver of such Event of Default by such Holder only, which waiver shall only be applicable to the amount of the Debenture that is sought to be converted pursuant to the Conversion Notice, with the unconverted balance of the indebtedness represented by such Debenture remaining subject to the Event of Default and acceleration notwithstanding such waiver.  The Conversion Price will be adjusted as provided in Section 6.  For purposes of this Debenture, the following terms have the meanings indicated below:

 

(i) “Conversion Amount” shall mean the sum of (A) all or any portion of the outstanding principal amount of this Debenture, as designated by the Holder upon exercise of its right of conversion plus (B) all interest that has accrued on the portion of the principal amount that has been designated for payment pursuant to (A).

 

(ii) “Market Price of the Common Stock” means (x) the closing bid price of the Common Stock for the period indicated in the relevant provision hereof (unless a different relevant period is specified in the relevant provision), as reported by Bloomberg, LP or, if not so reported, as reported on the over-the-counter market or (y) if the Common Stock is listed on a stock exchange, the closing price on such exchange, as reported in The Wall Street Journal.

 

  

2

  

(iii) “Trading Day” shall mean any day on which the New York Stock Exchange is open for business.

 

Conversion shall be effectuated by delivering by facsimile or other delivery to the Company of the completed form of conversion notice attached hereto as Exhibit A, executed by the Holder of the Debenture evidencing such Holder's intention to convert this Debenture or a specified portion hereof.  No fractional shares of Common Stock or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share.  The date on which notice of conversion is given (the "Conversion Date") shall be deemed to be the date on which the Company receives by fax or by mail the conversion notice (“Notice of Conversion”), substantially in the form annexed hereto as Exhibit A, duly executed, to the Company.  Facsimile delivery of the Notice of Conversion shall be accepted by the Company at facsimile number 888-746-7566, Attention: Corporate Secretary (or to such other facsimile number as the Company may hereafter advise the Holder in writing).  Certificates representing Common Stock upon conversion (and, if applicable, a Trading Opinion) must be delivered to the Holder within five (5) business days from the date of delivery of the Notice of Conversion.

Notwithstanding the foregoing, unless the Holder delivers to the Company written notice at least sixty-one (61) days prior to the effective date of such notice that the provisions of this paragraph (the “Limitation on Ownership”) shall not apply to such Holder, in no event shall a holder of Debentures have the right to convert Debentures into, nor shall the Company issue to such Holder, shares of Common Stock to the extent that such conversion would result in the Holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of Common Stock.  For purposes hereof, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.

 

b.           So long as no Event of Default (as defined in Section 10) shall have occurred and be continuing, the Company may at its option call for redemption all or part of the Debentures prior to the Maturity Date, as follows:

 

 

	
(i)  

	
The Debentures called for redemption shall be redeemable for an amount (the “Redemption Price”) equal to (x) if this Debenture is called for redemption prior to the date which is earlier than six months from the Issuance Date set forth on the first page of this Debenture (the “Issuance Date”), one hundred twenty percent (120%), or if this Debenture is called for redemption on or after the date that is six months from the Issuance Date, one hundred thirty one percent (131%), in either case of the principal amount called for redemption, plus (y) interest accrued through the day immediately preceding the date of redemption (the “Redemption Date”).

 

 

	
(ii)  

	
If fewer than all outstanding Debentures are to be redeemed, then all Debentures shall be partially redeemed on a pro rata basis.

 

 

	
(iii)  

	
Prior to the Redemption Date, the Company shall deposit into escrow an amount sufficient for the payment of the aggregate Redemption Price of the Debentures being called for redemption and shall make such funds 
available on and after the Redemption Date for payment to the Holders who present their Debentures and otherwise comply with the Company’s instructions contained in the Redemption Notice (as defined below).

 

 

  

3

  

 

	
(v)  

	
On the Redemption Date, the Company shall cause the Holders whose Debentures have been presented for redemption to be issued payment of the Redemption Price.  In the case of a partial redemption, the Company shall also issue new Debentures to the Holders for the principal amount remaining outstanding after the Redemption Date promptly after the Holders’ presentation of the Debentures called for redemption.

 

 

	
(vi)  

	
Not less than ten (10) days prior to the Redemption Date, the Company shall issue a notice (the “Redemption Notice”) to each Holder setting forth the following:

 

 

	
1.  

	
the Redemption Date;

 

 

	
2.  

	
the Redemption Price;

 

 

	
3.  

	
the aggregate principal amount of the Debentures being called for redemption;

 

 

	
4.  

	
a statement instructing the Holders to surrender their Debentures for redemption and payment of the Redemption Price, including the name and address of the Company or, if applicable, the paying agent of the Company, where Debentures are to be surrendered for redemption;

 

 

	
5.  

	
a statement advising the Holders that (x) interest will cease to accrue on the Debentures (or, in the case of a partial redemption, that portion of the Debentures being called for redemption) as of the Redemption Date, and (y) that the Debentures (or, in the case of a partial redemption, that portion of the Debentures being called for redemption) as of the Redemption Date will cease to be convertible into Common Stock as of the Redemption Date; and

 

 

	
6.  

	
in the case of a partial redemption, a statement advising the Holders that after the Redemption Date a substitute Debenture will be issued by the Company after deduction the portion thereof called for redemption, at no cost to the Holder.

 

 

3. Unless demand has otherwise been made by the Holder in writing for payment in cash as provided hereunder, any Debentures not previously tendered to the Company for conversion as of the Maturity Date shall be deemed to have been surrendered for conversion, without further action of any kind by the Company or any of its agents, employees or representatives, as of the Maturity Date at the Conversion Price applicable on the Maturity Date (“Mandatory Conversion”).

 

  

4

  

4.  No provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional to convert this Debenture into Common Stock, at the time, place, and rate herein prescribed.  This Debenture is a direct obligation of the Company.

 

5. If the Company (a) merges or consolidates with another corporation or business entity and the Company is not the surviving entity or (b) sells or transfers all or substantially all of its assets to another Person and the holders of the Common Stock are entitled to receive stock, securities or property in respect of or in exchange for Common Stock, then as a condition of such merger, consolidation, sale or transfer, the Company and any such successor, purchaser or transferee will agree that this Debenture may thereafter be converted on the terms and subject to the conditions set forth above into the kind and amount of stock, securities or property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock into which this Debenture might have been converted immediately before such merger, consolidation, sale or transfer, subject to adjustments which shall be as nearly equivalent as may be practicable.  In the event of any (i) proposed merger or consolidation where the Company is not the surviving entity or (ii) sale or transfer of all or substantially all of the assets of the Company (in either such case, a "Sale"), the Holder shall have the right to convert by delivering a Notice of Conversion to the Company within fifteen (15) days of receipt of notice of such Sale from the Company.

 

6. If, at any time while any portion of this Debenture remains outstanding, the Company effectuates a stock split or reverse stock split of its Common Stock or issues a dividend on its Common Stock consisting of shares of Common Stock or otherwise recapitalizes its Common Stock, the Conversion Price shall be equitably adjusted to reflect such action.  By way of illustration, and not in limitation, of the foregoing (i) if the Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such split, the Conversion Price shall be deemed to be one-half of what it had been calculated to be immediately prior to such split; (ii) if the Company effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such reverse split, the Conversion Price shall be deemed to be the amount of such Conversion Price calculated immediately prior to the record date multiplied by 10; and (iii) if the Company declares a stock dividend of one share of Common Stock for every 10 shares outstanding, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such dividend, the Conversion Price shall be deemed to be the amount of such Conversion Price calculated immediately prior to such record date multiplied by a fraction, of which the numerator is the number of shares for which a dividend share will be issued and the denominator is such number of shares plus the dividend share(s) issuable or issued thereon.

 

7. All payments contemplated hereby to be made “in cash” shall be made by wire transfer of immediately available funds in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.  All payments of cash and each delivery of shares of Common Stock issuable to the Holder as contemplated hereby shall be made to the Holder to an account designated by the Holder to the Company and if the Holder has not designated any such accounts at the address last appearing on the Debenture Register of the Company as designated in writing by the Holder from time to time; except that the Holder may designate, by notice to the Company, a different delivery address for any one or more specific payments or deliveries.

 

  

5

  

8.  The Holder of the Debenture, by acceptance hereof, agrees that this Debenture is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Debenture or the Shares of Common Stock issuable upon conversion thereof except in compliance with the terms of the Securities Purchase Agreement and the Registration Rights Agreement and under circumstances which will not result in a violation of the Securities Act or any applicable state Blue Sky or foreign laws or similar laws relating to the sale of securities.

 

 

9. This Debenture shall be governed by and construed in accordance with the laws of the State of New York. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City and County of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions.  To the extent determined by such court, the Company shall reimburse the Holder for any reasonable legal fees and disbursements incurred by the Holder in enforcement of or protection of any of its rights under this Debenture or the Securities Purchase Agreement.

 

10. The following shall constitute an "Event of Default":

 

a.           The Company fails in the payment of principal or interest on this Debenture as required to be paid in cash hereunder, and payment shall not have been made for a period of two (2) business days following the payment due date; or

b.           Any of the representations or warranties made by the Company herein, in the Securities Purchase Agreement, the Registration Rights Agreement, dated as of March 3, 2010, between the Company and the Investors therein (the "Registration Rights Agreement"), or in any certificate or financial or other written statements heretofore or hereafter furnished by the Company to in connection with the execution and delivery of this Debenture, the Securities Purchase Agreement or the Registration Rights Agreement, shall be false or misleading (including without limitation by way of the misstatement of a material fact or the omission of a material fact) in any material respect at the time made; or

 

c.           The Company (i) fails to timely file required SEC reports when due, becomes, is deemed to be or asserts that it is a “shell company” for purposes of the Securities Act, and Rule 144 promulgated thereunder or otherwise takes any action, or refrains from taking any action, the result of which makes Rule 144 under the Securities Act unavailable to the Buyers for the sale of their Securities, (ii) fails to issue shares of Common Stock to the Holder or to cause its Transfer Agent to issue shares of Common Stock upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Debenture (as to which no cure period shall apply), (iii) fails to transfer or to cause its Transfer Agent to transfer any certificate for shares of Common Stock issued to the Holder upon conversion of this Debenture as and when required by this Debenture or the Registration Rights Agreement, and such transfer is otherwise lawful or (iv) fails to remove any restrictive legend or to cause its Transfer Agent to transfer any certificate or any shares of Common Stock issued to the Holder upon conversion of this Debenture as and when required by this Debenture, the Agreement or the Registration Rights Agreement and such legend removal is otherwise lawful, and in the case of clauses (iii) and (iv) such failure shall continue uncured for two (2) business days (matters set forth in clauses (i) and (ii) having no cure period); or

 

  

6

  

d.           The Company shall fail to perform or observe, in any material respect (i) any other covenant, term, provision, condition, agreement or obligation of the Debenture, provided that, other than in the case of such failure under Section 5 hereof, as to which no cure period shall apply, such failure shall continue uncured for a period of thirty (30) days after written notice from the holder of such failure, or (ii) any covenant, term, provision, condition, agreement or obligation of the Company under the Securities Purchase Agreement or the Registration Rights Agreement and such failure shall continue uncured for a period of either (a) three (3) days after the occurrence of the Company’s failure under Section 4(d), (e) (except as described in clause (i) of Section 10(c), as to which Section 10(c) shall control), (f), (g) or (h) of the Securities Purchase Agreement, or (b) thirty (30) days after the occurrence of the Company’s failure under any other provision of the Securities Purchase Agreement or of the Registration Rights Agreement, as the case may be; or

 

e.           The Company shall (1) admit in writing its inability to pay its debts generally as they mature; (2) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (3) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or

 

f.           A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or

 

g.           Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within sixty (60) days thereafter; or

 

h.           Any final money judgment, writ or warrant of attachment, or similar process (including an arbitral determination), not subject to appeal, in excess of Fifty Thousand Dollars ($50,000) in the aggregate shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or

 

i.           The occurrence of an event of default under the terms of any indebtedness of the Company or any subsidiary (including but not limited to any Subsidiary) of the Company in the aggregate amount of $50,000 or more which is not waived by the creditors under such indebtedness (as to which no cure period shall apply); or

 

j.           Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within sixty (60) days after such institution or the Company shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding; or

 

k.           The issuance of an order, ruling, finding or similar adverse determination by the Securities and Exchange Commission, the Secretary of State of the State of Nevada, the National Association of Securities Dealers, Inc. or any other securities regulatory body (whether in the United States, Canada or elsewhere) having proper jurisdiction that the Company and/or any of its past or present directors or officers have committed a material violation of applicable securities laws or regulations; or

 

  

7

  

 

l.           The Company shall have its Common Stock suspended or delisted from an exchange for a period in excess of five (5) trading days; or

 

m.           Any of the following shall occur:  (i) any promissory notes or other indebtedness to any related party of the Company shall be repaid in an amount equal to $50,000 or more, singly or in the aggregate, (ii) any of the other commitments, contingencies or notes payable described in the SEC Documents which remain outstanding as of the date of the Securities Purchase Agreement shall be paid in cash or shall become immediately due and payable by the Company, in each case in an amount equal to $50,000 or more, singly or in the aggregate or (iii) any other event, circumstance or combination thereof shall have occurred which, singly or when taken as a whole, result in a Material Adverse Effect.

 

Then, or at any time thereafter, the Company shall immediately give written notice of the occurrence of such Event of Default to the Holders of all Debentures then outstanding, and in each and every such case, unless such Event of Default shall have been waived in writing by a majority in interest of the Holders of the Debentures (which waiver shall not be deemed to be a waiver of any subsequent default), then at the option of a majority in interest of the Holders and in the discretion of a majority in interest of the Holders, (i) the interest rate applicable to the Debentures shall be increased to the lesser of eighteen percent (18%) per annum and the maximum interest rate allowable under applicable law, and (ii) the Holder may at its option and discretion declare this Debenture, together with all accrued and unpaid interest thereon, in an amount equal to 130% of the principal plus accrued and unpaid interest (the “Acceleration Amount”), to be immediately due and payable, without presentment, demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding.  A majority in interest of the Holders may immediately enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law.  Notwithstanding the foregoing, in the case of a default under Section 10(c), the Holder of the Debenture sought to be converted, transferred or de-legended, as the case may be, acting singly, shall have the sole and absolute discretion to increase the applicable interest rate on the Debentures held by such Holder and/or to declare the Debenture(s) held by such Holder to be immediately due and payable.  The Company expressly acknowledges and agrees that the Acceleration Amount as so increased in the event of a default is reasonable and appropriate due to the inability to define the financial hardship that the Company’s default would impose on the Holders.  For the avoidance of doubt, for purposes of the foregoing, notices and other communications may be made on behalf of the Holders by the Holders’ Representative (as defined in the Registration Rights Agreement).

 

11. Nothing contained in this Debenture shall be construed as conferring upon the Holder the right to vote or to receive dividends or to consent or receive notice as a shareholder in respect of any meeting of shareholders or any rights whatsoever as a shareholder of the Company, unless and to the extent converted in accordance with the terms hereof.

 

12. This Debenture may be amended only by the written consent of the parties hereto. Notwithstanding the foregoing, the principal amount of this Debenture shall automatically be reduced by any and all Conversion Amounts (to the extent that the same relate to principal hereof).  In the absence of manifest error, the outstanding principal amount of the Debenture on the Company’s book and records shall be the correct amount.

 

13. No waivers or consents in regard to any provision of this Debenture may be given other than by an instrument in writing signed by the Holder.

 

  

8

  

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by an officer thereunto duly authorized.

 

WOUND MANAGEMENT TECHNOLOGIES, INC.

By:  _____________________________

        Scott Haire

        Chief Executive Officer

[Signature Page to Convertible Debenture]

 

  

  

  

 

 

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

(To Be Executed by the Registered Holder in order to Convert the Debenture)

 

The undersigned hereby irrevocably elects to convert $ ________________ of the principal amount of the above Debenture into Shares of Common Stock of Wound Care Technologies, Inc. (the "Company") according to the conditions hereof, as of the date written below.  After giving effect to the conversion requested hereby, the outstanding principal amount of such debenture is $ ____________________, absent manifest error.

Conversion Date

 

Applicable Conversion Price

 

Signature

 

Print Name

 

Address

 

 

  

  

  

EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

 

 

(CONVERTIBLE DEBENTURES)

 

THIS REGISTRATION RIGHTS AGREEMENT, dated as of (this "Agreement"), is made by and between Wound Care Management Technologies, Inc., a Texas corporation, with headquarters located at 777 Main Street, Suite 3100, Fort Worth, TX 76102 (the “Company”), and each entity named on the signature page hereto as “Investors” (each, an “Investor”).

 

W I T N E S S E T H:

 

WHEREAS, upon the terms and subject to the conditions of the Securities Purchase Agreement, dated as of March 3, 2010, between the Buyers listed therein and the Company (the "Securities Purchase Agreement"; terms not otherwise defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement), the Company has agreed to issue and sell to the Investors one or more debentures of the Company, in a minimum aggregate principal amount of $50,000 and a maximum aggregate amount of $1,000,000 (the "Debentures"); and

 

WHEREAS, the Debentures are convertible into shares of Common Stock (the "Conversion Shares"; which term, for purposes of this Agreement, shall be 300% of that number of shares of Common Stock into which the Debentures, including without limitation all shares of Common Stock issuable by the Company in lieu of accrued interest on conversion as contemplated by the Debentures) upon the terms and subject to the conditions contained in the Debentures.

 

WHEREAS, to induce the Investors to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "Securities Act"), with respect to the Conversion Shares;

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investors hereby agree as follows:

 

1. Definitions.                           As used in this Agreement, the following terms shall have the following meanings:

 

a. “Holders’ Representative” means the Person appointed as the Holders’ Representative by the Investors pursuant to Section 11 hereof.

 

b. "Investor" means a Buyer and any permitted transferee or assignee of a Buyer who agrees to become bound by the provisions of this Agreement in accordance with Section 9 hereof and who holds Debentures or Registrable Securities.

 

  

  

  

c. "Potential Material Event" means any of the following: (i) the possession by the Company of material information not ripe for disclosure in a registration statement, which shall be evidenced by determinations in good faith by the Board of Directors of the Company that disclosure of such information in the registration statement would be detrimental to the business and affairs of the Company; or (ii) any material engagement or activity by the Company which would, in the good faith determination of the Board of Directors of the Company, be adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Board of Directors of the Company that the registration statement would be materially misleading absent the inclusion of such information.

 

d. "Register," "Registered," and "Registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the SEC.

 

e. "Registrable Securities" means the Conversion Shares and, to the extent applicable, any other shares of capital stock or other securities of the Company or any successor to the Company that are issued upon exchange of the Conversion Shares.

 

f. "Registration Statement" means a registration statement of the Company under the Securities Act.

 

g. “SEC” means the United States Securities and Exchange Commission.

 

2. Piggy-back Registration.  From and after the date that is ninety (90) days after the date of this Agreement and until the  third anniversary of the Closing Date, for so long as any of the Registrable Securities are outstanding and are not the subject of an effective registration statement, if the Company contemplates making an offering of Common Stock (or other equity securities convertible into or exchangeable for Common Stock) registered for sale under the Securities Act or proposes to file a Registration Statement covering any of its securities other than (i) a registration on Form S-8 or S-4, or any successor or similar forms; and (ii) a shelf registration under Rule 415 for the sole purpose of registering shares to be issued in connection with the acquisition of assets, the Company will at each such time give prompt written notice to the Holders’ Representative and the Investors of its intention to do so and of the Investor’s rights under this Agreement.  Upon the written request of any Investor made within thirty (30) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), the Company will use its best efforts to effect the registration of all Registrable Securities which the Company has been so requested to register by the Investors, to the extent requisite to permit the disposition (in accordance with the intended methods of disposition) of the Registrable Securities by the Investors requesting registration, by inclusion of such Registrable Securities in the Registration Statement which covers the securities which the Company proposes to register; provided, that if the Company is unable to register the full amount of Registrable Securities in an “at the market offering” under Commission rules and regulations due to the high percentage of

 

  

2

  

 the Company’s Common Stock the Registrable Securities represents (giving effect to all other securities being registered in the Registration Statement), then the Company may reduce, on a pro rata basis, the amount of Registrable Securities subject to the Registration Statement to a lesser amount which equals the maximum number of Registrable Securities that the Company is permitted to register in an “at the market offering”; and provided, further, that if, at any time after giving written notice of its intention to register any Registrable Securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such Registrable Securities, the Company may, at its election, give written notice of such determination to the Holders’ Representative and the Investors requesting registration and, thereupon, (i) in the case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the expenses of registration in connection therewith), and (ii) in the case of a determination to delay registering such Registrable Securities, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities.

 

3. Obligations of the Company.  In connection with the registration of the Registrable Securities, the Company shall do each of the following:

 

(a)           Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement as set forth in Section 2 and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the period through the earliest of (i) the date that is five (5) years after the last day of the calendar month following the month in which the Registration Statement so filed is declared effective by the SEC, (ii) the date when the Investors may sell all Registrable Securities under Rule 144, or (iii) the date the Investors no longer own any of the Registrable Securities (the “Registration Period”), Registration Period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement;

 

(b)           The Company shall permit a single firm of legal counsel designated by the Holders’ Representative (the “Investors’ Counsel”) to review drafts of the Registration Statement and all amendments and supplements thereto a reasonable period of time (but not less than three (3) business days) prior to their filing with the SEC, and not file any document in a form to which such Investors’ Counsel reasonably objects.  If the Investors’ Counsel objects, the Company shall take under advisement such objections and shall endeavor to promptly make such revisions to the Registration Statement (or ancillary documents and/or SEC filings in connection therewith) as are necessary to satisfy the objections of the Investors’ Counsel;

 

(c)           Notify the Holders’ Representative and the Investors’ Counsel, and any managing underwriters immediately (and, in the case of (i)(A) below, not less than five (5) days prior to the contemplated date of such filing) and (if requested by any the Holders' Representative) confirm such notice in writing no later than one (1) business day following the

 

  

3

  

day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) whenever the SEC notifies the Company whether there will be a “review” of  Registration Statement; (C) whenever the Company receives (or a representative of the Company receives on its behalf) any oral or written comments from the SEC relating to a Registration Statement (copies or, in the case of oral comments, summaries of such comments shall be promptly furnished by the Company to the Holders’ Representative and the Investor’s Counsel); and (D) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) if at any time the Company has actual knowledge that any of the representations or warranties of the Company contained in any agreement (including any underwriting agreement) contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (vi) of the occurrence of any event that to the best knowledge of the Company makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  In addition, the Company shall respond to the SEC in writing to comments on the Registration Statement by the SEC within fifteen (15) business days of the Company’s receipt thereof, plus any additional time reasonably required by the Company’s independent auditors to respond to accounting comments and, if requested by the Holders' Representative and the Investors’ counsel, the Company shall furnish the Holders' Representative with copies of all intended written responses to the comments contemplated in clause (C) of this Section 3(c) not later than one (1) business day in advance of the filing of such responses with the SEC so that the Holders’ Representative and the Investors’ Counsel shall have the opportunity to comment thereon;

 

(d)          Furnish to the Holders’ Representative and the Investors’ Counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one (1) copy of the Registration Statement, each preliminary Prospectus and Prospectus, and each amendment or supplement thereto, and (ii) if so requested by any Investor, such number of copies of a Prospectus, and all amendments and supplements thereto and such other documents, as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor;

 

(e)           As promptly as practicable after becoming aware thereof, notify the Holders’ Representative of the happening of any event of which the Company has actual knowledge, 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 omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement or other appropriate filing with the SEC to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to the Holders' Representative and each Investor as such Investor may reasonably request;

 

  

4

  

 

(f)           As promptly as practicable (and in any event not later than one (1) business day) after becoming aware thereof, notify the Holders’ Representative of the issuance by the SEC of a Notice of Effectiveness or any notice of effectiveness or any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time;

 

(g)           Notwithstanding the foregoing, if at any time or from time to time after the date of effectiveness of a Registration Statement, the Company notifies the Holders’ Representative in writing of the existence of a Potential Material Event, the Investors shall not offer or sell any Registrable Securities, or engage in any other transaction involving or relating to the Registrable Securities, from the time of the giving of notice with respect to a Potential Material Event until such Investor receives written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event; provided, however, that the Company may not so suspend the right to such Holders of Registrable Securities for more than two twenty (20) business day periods in the aggregate during any 12-month period ("Suspension Period") with at least a ten (10) business day interval between such periods, during the periods the Registration Statement is required to be in effect;

 

(h)           Use its  reasonable efforts to secure and maintain the designation of all the Registrable Securities covered by the Registration Statement on the NASDAQ/National Market System or the "OTC Bulletin Board Market" or any successor thereto of the National Association of Securities Dealers Automated Quotations System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the quotation of the Registrable Securities on The NASDAQ National Market System; and further use its efforts to arrange for at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities;

 

(i)           Provide a Transfer Agent and registrar, which may be a single entity, for the Registrable Securities not later than one (1) business day after the effective date of the Registration Statement;

 

(j)           Cooperate with the Investors to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts as the case may be, as the Investors may reasonably request, and, within five (5) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the Transfer Agent for the Registrable Securities (with copies to theInvestors whose Registrable Securities are included in such Registration Statement) an appropriate instruction and opinion of such counsel; 

 

  

5

  

(k)           Take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of the Registrable Securities pursuant to the Registration Statement;

 

(l)           Not take, or omit to take, any actions that would preclude the filing or effectiveness of the Registration Statement or require the withdrawal of the Registration Statement;

 

(m)           If the Registration Statement has been filed but has not been declared effective by the SEC, not complete any acquisitions or business combinations until the SEC has declared effective the Registration Statement that registers the Registrable Securities.

 

4. Payments by the Company.  Unless the Company's performance is waived in writing by the Holders' Representative:

 

(i) If the Company fails to satisfy its obligations under Sections 2 or 3, then the Company shall immediately pay to the Investors without demand therefor a cash amount equal to 2% per month of the outstanding principal amount of the Debentures and, until such time as all such obligations shall have been satisfied, the same amount shall accrue and become payable to the Investors within three days on each subsequent month until such obligations shall have been satisfied.  In light of the difficulty of ascertaining the amount of damage that the Investors will suffer as a result of the Company’s failure to comply with its obligations under Sections 2 or 3, all amounts payable under this Section 4 shall be payable as liquidated damages, and not as a penalty.  The Company shall keep the Registration Statement effective throughout the Registration Period.

 

(ii) The parties acknowledge that the damages which may be incurred by the Investors if the Company fails to satisfy any of its obligations under Sections 2 or 3 may be difficult to ascertain.  The parties agree that the payments to be paid to the Investors under this Section 4 represent a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of such damages.

 

5. Obligations of the Investors.  In connection with the registration of the Registrable Securities, the Investors shall have the following obligations:

 

(a) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.  At least ten (10) business days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor of the information the Company requires from each such Investor (the "Requested Information") if such Investor elects to have any of such Investor's Registrable Securities included in the Registration Statement.  If at least two (2) business days prior to the filing date the Company has not received the Requested Information from an Investor (a "Non-Responsive Investor"), then the Company may file the Registration Statement without including Registrable Securities of such Non-Responsive Investor;

 

  

6

  

 

(b) 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 hereunder, 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; and

 

(c) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(d) or 3(e), above, such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(d) or 3(e) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

 

(d) Each holder of Registrable Securities that sells Registrable Securities pursuant to a registration under this Agreement agrees that in connection with registration as follows:

 

(i) Such seller shall cooperate as reasonably requested by the Company with the Company in connection with the preparation of the registration statement, and for as long as the Company is obligated to file and keep effective the registration statement, shall provide to the Company, in writing, for use in the registration statement, all such information regarding such seller and its plan of distribution of the Registrable Securities as may reasonably be necessary to enable the Company to prepare the registration statement and prospectus covering the Registrable Securities, to maintain the currency and effectiveness thereof and otherwise to comply with all applicable requirements of law in connection therewith; and

 

(ii) During such time as such seller may be engaged in a distribution of the Registrable Securities, such seller shall comply with Rules 10b-6 and 10b-7 promulgated under the Securities Exchange Act and pursuant thereto it shall, among other things; (x) not engage in any stabilization activity in connection with the securities of the Company in contravention of such rules; (y) distribute the Registrable Securities under the registration statement solely in the manner described in the registration statement; and (z) cease distribution of such Registrable Securities pursuant to such registration statement upon written notice from the Company that the prospectus covering the Registrable Securities contains any untrue statement of a material fact required to be stated therein or necessary to make the statements therein not misleading. 
 

 

  

7

  

6. Expenses of Registration.

 

(a) All reasonable expenses (other than underwriting discounts and commissions of the Investors) incurred for the Registration Statement covering the Registrable Securities applicable to the Debentures shall be borne by the Company, up to an aggregate amount of $75,000 in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, a fee for the Investors’ Counsel of not more than $10,000 and including, without limitation, all registration, listing, and qualifications fees, printers, legal and accounting fees and the fees and disbursements of counsel for the Company.

 

(b) The Company does not have, as of the date hereof, and neither the Company nor any of its subsidiaries (including but not limited to any Subsidiary) shall have, on or after the date of this Agreement, entered into any agreement with respect to its securities that is inconsistent with the rights granted to the Investors in this Agreement or otherwise conflicts with the provisions hereof.  Except as disclosed in the Securities Purchase Agreement or the other documents entered into simultaneously therewith, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person.  Without limiting the generality of the foregoing, without the written consent of the Investors holding a majority of the Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Investors set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement and the other Transaction Documents.

 

7. Indemnification.  In the event any Registrable Securities are included in a Registration Statement under this Agreement:

 

(a) To the extent permitted by law, the Company will indemnify and hold harmless the Holders’ Representative, the Investor’s Counsel and each Investor who holds such Registrable Securities, the directors, managers, partners, stockholders and members, if any, of the Holders’ Representative, the Investor’s Counsel or such Investor, the officers and employees, if any, of the Holders’ Representative, the Investor’s Counsel or such Investor, and each Person, if any, who controls the Holders’ Representative, the Investors Counsel or any Investor within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person" or "Indemnified Party"), against any losses, claims, damages, liabilities or expenses (joint or several) incurred (collectively, "Claims") to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements, omissions or violations in the Registration Statement, or any post-effective amendment thereof, or any prospectus included therein: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue

 

  

8

  

statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) 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 (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the Exchange Act or any state securities law (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations").  Subject to clause (b) of this Section 7, the Company shall reimburse the Investors, promptly as such expenses are incurred and are due and payable, 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 7(a) shall not (I) apply to a Claim 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 or on behalf of any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(b) hereof;  (II) be available to the extent such Claim is based on a failure of the Investor to deliver or cause to be delivered the prospectus made available by the Company;  (III) 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; or (IV) apply to any violation or alleged violation by an Indemnified Person of the Securities Act, the Exchange Act, any state securities laws or any rule or regulation under the Securities Act, the Exchange Act, or any state securities laws.   Each Investor will indemnify the Company and its officers, directors and agents (each, an "Indemnified Person" or "Indemnified Party") against any claims 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 or on behalf of such Investor, expressly for use in connection with the preparation of the Registration Statement, subject to such limitations and conditions as are applicable to the Indemnification provided by the Company to this Section 7.  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 the Registrable Securities by the Investors.

 

(b) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 7 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume 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.  In case any such action is brought against any Indemnified Person or Indemnified Party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, assume the defense thereof, subject to the provisions herein stated and after notice from the indemnifying party to such Indemnified Person or Indemnified Party of its election so to assume the defense thereof, the indemnifying party will

 

  

9

  

 not be liable to such Indemnified Person or Indemnified Party under this Section 7 for any legal or other reasonable out-of-pocket expenses subsequently incurred by such Indemnified Person or Indemnified Party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its final conclusion.  The Indemnified Person or Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and reasonable out-of-pocket expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the Indemnified Person or Indemnified Party. 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 under this Section 7, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.  The indemnification required by this Section 7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable.

 

8. 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 7 to the fullest extent permitted by law; provided, however, that (a) 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 7; (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation; and (c) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

 

9. Reports under Exchange Act.  With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to:

 

a. make and keep public information available, as those terms are understood and defined in Rule 144;

 

b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act;

 

c. furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration; and

 

d.   cause its counsel to deliver to its Transfer Agent such opinions of law as shall be required to remove restrictive legends on the shares to be sold in the standard form then employed for such purpose by such counsel or in such other form as is reasonably acceptable to such Transfer Agent.

 

  

10

  

 

10. Amendment of Registration Rights.  Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who hold a fifty (50%) percent interest of the Registrable Securities.  Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company.

 

11. Appointment and Indemnification of Holders’ Representative.  Each of the Investors hereby appoints as the Holders’ Representative Divine Capital Markets, LLC to so act until such time as all Registrable Securities have become Registered and there shall be no Debentures issued and outstanding, or such time as a successor to the then-acting Holders’ Representative is appointed in writing signed by the Investors representing greater than 50% of the then-outstanding Debentures and Registrable Securities.  The Holders’ Representative shall have full discretion and authority, without consultation with the Holders, to accept and give notices on behalf of the Holders, to communicate with the Holders at such times and in such manner as the Holders’ Representative in its discretion determines is appropriate and to grant extensions of deadlines or waive any payment obligations set forth in Sections 2 and 3 hereof.  The Holders' Representative shall not have discretion or authority to exercise any investment discretion over the Debentures, including causing the conversion of any Debentures, absent a Holder's express written authority.  Notwithstanding any provision to the contrary contained elsewhere herein or in the Securities Purchase Agreement or the Debentures, the Holders’ Representative shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Holders’ Representative have or be deemed to have any fiduciary relationship with any Holder, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the Securities Purchase Agreement or Debentures or otherwise exist against the Holders’ Representative.  The Holders shall indemnify upon demand the Holders’ Representative (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so under Section 7 hereof or under any other agreement or applicable law), pro rata, and hold harmless the Holders’ Representative from and against any and all against any losses, claims, damages, liabilities or expenses (joint or several) incurred (collectively, "Holders’ Representative’s Claims") incurred by it; provided, however, that no Holder shall be liable for the payment to the Holders’ Representative of any portion of such Holders’ Representative’s Claims to the extent determined in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from the Holders’ Representative’s own gross negligence or willful misconduct; provided, however, that no action taken in accordance with the directions of the Holders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section 11.  Without limitation of the foregoing, each Holder shall reimburse the Holders’ Representative upon demand for its ratable share of any costs or out-of-pocket expenses incurred by the Holders’ Representative in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, the Securities Purchase Agreement, the Debentures, or any document contemplated by or referred to herein, to the extent that the Holders’ Representative is not reimbursed for such expenses by or on behalf of the Company.

 

  

11

  

 

12 Miscellaneous.

 

a. A Person or entity is deemed to be a holder of Registrable Securities whenever such Person or entity owns of record such Registrable Securities.  If the Company receives conflicting instructions, notices or elections from two or more Persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

 

b. Notices required or permitted to be given hereunder shall be given in the manner contemplated by the Securities Purchase Agreement, (i) if to the Company or to the Investors, to their respective address contemplated by the Securities Purchase Agreement, and (iii) if to any other Investor, at such address as such Investor shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 12(b).

 

c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

 

d. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws.  Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions.  To the extent determined by such court, the Company shall reimburse the Buyer for any reasonable legal fees and disbursements incurred by the Buyer in enforcement of or protection of any of its rights under this Agreement.

 

e. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

 

f. Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

 

g. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

 

h. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning thereof.

 

  

12

  

i. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may be delivered to the other party hereto by telephone line facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

 

j. The Company acknowledges that any failure by the Company to perform its obligations under Sections 2 or 3 or any delay in such performance could result in loss to the Investors, and the Company agrees that, in addition to any other liability the Company may have by reason of such failure or delay, the Company shall be liable for all direct damages caused by any such failure or delay, unless the same is the result of force majeure.  Neither party shall be liable for consequential damages.

 

k. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein.  This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement thereof.

 

 

[Signature Page Follows]

 

  

13

  

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

 

	 	
COMPANY:

	  
	 	 	 
	 	
Wound Management Technologies, Inc.

	  
	 	 	 
	 	
By:   _______________________

	  
	 	
       Name:  Scott Haire

	  
	 	       Title:           Chief Executive Officer
	 	 	 
	 	
INVESTOR:

 

	  
	 	 	  	  
	 	
Print Name of Investor Above

	  
	 	 	 
	 	
By:                                                       

	  
	 	       Investor Signature Above 	 
	 	       Print Name of Signatory:  _______________ 	 
	 	       Title of Signatory:   ____________________ 	 

[Signature Page to Registration Rights Agreement]

  

  

  

SCHEDULE I

 

	
Buyer Name and Address

	
Amount Invested (Principal Amount of Debentures Purchased)

	
Closing Date

	  	  	  
	  	  	  
	
     TOTAL

	
$

	  

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

	
Buyer Name and Address

	
Amount Invested (Principal Amount of Debentures Purchased)

	
Closing Date

	  	  	  
	  	  	  
	
     TOTAL

	
$

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00171-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00171-of-00352.parquet"}]]