Document:

Exhibit 10.1

 

SETTLEMENT AGREEMENT

 

This SETTLEMENT AGREEMENT, dated April 11, 2019 (this “Agreement”), is by and among Citi Trends, Inc., a Delaware corporation (the “Company”), Macellum SPV III, LP, a Delaware limited partnership (“Macellum SPV”), Macellum Management, LP, a Delaware limited partnership (“Macellum Management”), Macellum Advisors GP, LLC, a Delaware limited liability company (“Macellum GP”), and Jonathan Duskin.  Macellum SPV, Macellum Management, MCM GP and Mr. Duskin are collectively, “Macellum” and each a “Macellum Party”).  The Company and Macellum are referred to herein collectively as the “Parties” or individually as a “Party.”

 

RECITALS:

 

WHEREAS, as of the date hereof, Macellum beneficially owns in the aggregate 494,019 shares of the issued and outstanding common stock of the Company, par value $0.01 per share (“Common Stock”), including 2,397 shares of restricted Common Stock, which will vest on June 6, 2019, provided Mr. Duskin is a director of the Company at such time, representing approximately 3.8% of the outstanding shares of Common Stock;

 

WHEREAS, by letter dated March 8, 2019, Macellum SPV provided notice to the Company in accordance with the Company’s bylaws (the “Stockholder Nomination”) of its intention to nominate certain individuals for election to the Company’s Board of Directors (the “Board”) at the Company’s 2019 annual meeting of stockholders (the “2019 Annual Meeting”); and

 

WHEREAS, the Company and Macellum have agreed that it is in their mutual interests to enter into this Agreement to, among other things, set forth certain agreements concerning the Board and certain other matters as hereinafter described.

 

AGREEMENT:

 

NOW, THEREFORE, in consideration of the foregoing and reliance upon the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

 

1.                                      Board Matters.

 

(a)                                 Retirement of Director; Chairman of the Board.  John S. Lupo, a member of the Board and the current Chairman of the Board, will not stand for re-election as a member of the Board at the 2019 Annual Meeting.  The Company will announce a new Chairman of the Board to be effective as of the conclusion of the 2019 Annual Meeting in the Press Release (as defined in Section 19).

 

(b)                                 Election of New Director.

 

(i)                                     Prior to the mailing of its definitive proxy statement for the 2019 Annual

 

 

Meeting, the Company agrees that the Board and all applicable committees thereof shall take all necessary actions to nominate Peter R. Sachse (the “New Director”) for election to the Board at the 2019 Annual Meeting with a term expiring at the 2020 annual meeting of stockholders of the Company (the “2020 Annual Meeting”).  Upon his election to the Board, the Company will take all action necessary to appoint the New Director to each standing committee of the Board; provided that the New Director meets all applicable standards of the Nasdaq Stock Market (“Nasdaq”) and the Securities and Exchange Commission (“SEC”) for such membership.  The Board agrees to invite the New Director to attend all meetings of the Board and all standing committees thereof in a non-voting observer capacity beginning on May 5, 2019 until his election to the Board at the 2019 Annual Meeting.  As a non-voting observer, the New Director will be provided (concurrently with delivery to the directors of the Company and in the same manner delivery is made to them) copies of all notices, minutes, consents, and all other materials or information (financial or otherwise) that are provided to the directors with respect to a meeting or any written consent in lieu of meeting; provided, however, that the New Director shall agree to hold in confidence and trust with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude the New Director from any meeting or portion thereof pursuant to Section 4(c) or if access to such information or attendance at such meeting could (A) result in disclosure of trade secrets, (B) adversely affect the attorney-client privilege between the Company and its counsel or (C) could result in a conflict of interest.  The observer rights provided for in this Section 1(b)(i) shall terminate if the New Director fails to be elected at the 2019 Annual Meeting.  Effective as of the date of this Agreement, Jonathan Duskin shall be re-appointed as a member of the Nominating and Corporate Governance Committee (the “Nominating Committee”) of the Board.

 

(ii)                                  The Nominating Committee has reviewed and approved the qualifications of the New Director to serve as a member of the Board.  In reliance on the information provided to the Company by Macellum and the New Director, the Board has confirmed that the New Director is “independent” as defined by the listing standards of Nasdaq and by the SEC.  In connection with the foregoing, the Board has relied on information that the New Director has provided to the Company, including information required to be or customarily disclosed by directors or director candidates in proxy statements or other filings under applicable law or stock exchange rules or listing standards, information in connection with assessing eligibility, independence and other criteria applicable to directors, and the Board has assumed that the director questionnaire and other customary director onboarding documentation provided by the New Director is or will be fully completed, true and accurate.

 

(iii)                               If, following the date of this Agreement and prior to the expiration of the Standstill Period (as defined in Section 3), the New Director is unable or unwilling to serve as a director for any reason (other than on account of the failure of the New Director to be elected at the 2019 Annual Meeting) or is removed, Macellum shall have the right to propose and the Board agrees to expeditiously appoint a replacement director to be appointed to the Board who meets the Necessary Qualifications (as defined in Section 1(d))  (any director appointed as a replacement for the New Director, a “Replacement”); provided that the Company’s obligations pursuant to this Section 1(b)(iii) shall terminate at such time as Macellum ceases to have beneficial ownership of at least 3.0% of the outstanding shares of Common Stock.

 

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(iv)                              For the 2019 Annual Meeting, the Company agrees to recommend, support and solicit proxies for the election of the New Director (or any Replacement pursuant to Section 1(b)(iii)) in the same manner as for other independent director candidates nominated by the Company at the 2019 Annual Meeting.

 

(v)                                 Each Party acknowledges that the New Director (and any Replacement), upon election to the Board, shall have the same rights and benefits as any other Board members and shall be governed by and required to comply with (i) all applicable laws and regulations, and (ii) all of the same policies, processes, procedures, codes, rules, standards, and guidelines applicable to members of the Board. For the avoidance of doubt, Macellum acknowledges that the New Director shall be required to strictly adhere to the policies on confidentiality imposed on all members of the Board. The New Director (and any Replacement) shall be required to provide the Company with such information as reasonably requested from all members of the Board as is required to be disclosed under applicable law or stock exchange regulations, in each case as promptly as necessary to enable the timely filing of the Company’s proxy statement and other periodic reports with the SEC.

 

(c)                                  Appointment of Additional Independent Director. The Board will work to identify and select an additional candidate (the “Additional Independent Director”) with the Necessary Qualifications, and will take all such action as is necessary to increase the size of the Board by one member and to appoint the Additional Independent Director as a director to fill the vacancy so created with a term expiring at the 2020 Annual Meeting.  The Nominating Committee will also consider in good faith qualified candidates who have been proposed or may be proposed privately to the Company by Macellum.  The Board will identify, interview, review, select and appoint the Additional Independent Director no later than September 30, 2019.  The Additional Independent Director, upon appointment to the Board, shall have the same rights and benefits as any other Board members and shall be governed by and required to comply with (i) all applicable laws and regulations, and (ii) all of the same policies, processes, procedures, codes, rules, standards, and guidelines applicable to members of the Board. Furthermore, the Additional Independent Director shall be considered by the Nominating Committee for inclusion on committees of the Board in good faith in a manner consistent with other members of the Board, for which purpose his or her respective qualifications and experience will be reasonably considered.

 

(d)                                 Evaluation Criteria.  In evaluating any potential director candidates identified pursuant to Section 1(c) or any Replacement pursuant to Section 1(a)(iii), the Nominating Committee will evaluate whether each individual candidate (i) has the requisite skill and experience to serve as a director of a publicly traded company, (ii) has business experience in such areas as would reasonably be expected to enhance the overall skills, experience and competence of the Board, (iii) meets the historical standards and criteria applied by the Company in nominating and appointing directors, including but not limited to the absence of behavior or conduct that may be inconsistent with the Company’s policies, codes of conduct and ethics, corporate governance guidelines or may cause the Company embarrassment or reputational harm if such behavior or conduct would become public, (iv) is not prohibited or disqualified from serving as a director of the Company pursuant to the Company’s bylaws, policies, codes of conduct and ethics, corporate governance guidelines or any rule or regulation of the SEC, Nasdaq or by applicable law, (v) qualifies as an “independent director” under the applicable standards of Nasdaq and by the SEC,

 

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(vi) is not or within the past five years has not been (A) an officer, director, employee or Affiliate of Macellum or the Company or any of their respective Affiliates and Associates (as such terms are defined in Section 11) or (B) an investor owning more than 5% in any Macellum fund or other fund managed by Mr. Duskin, and (vii) is otherwise reasonably acceptable to the Nominating Committee after exercising in good faith its fiduciary duties (the “Necessary Qualifications”).  As part of this assessment process, each of the potential director candidates will be required to complete a director questionnaire and undergo a background check as well as provide the Nominating Committee with any additional information regarding such potential candidate as it deems reasonably necessary. Any director candidate presented to the Board by the Nominating Committee will be nominated by the Board as the Additional Independent Director or a Replacement only if approved by a majority of the entire Board.

 

(e)                                  Size of Board. The Board hereby agrees that it (i) will not nominate more than seven incumbent directors for re-election at the 2020 Annual Meeting and (ii) will take all such action as is necessary to decrease the size of the Board to seven members immediately following the 2020 Annual Meeting unless in connection with nominating directors for the 2020 Annual Meeting the Board and all applicable committees or subcommittees thereof by unanimous consent agree that the Board will remain at eight directors following the 2020 Annual Meeting.

 

2.                                      Matters Related to the 2019 Annual Meeting and Future Annual Meetings.

 

(a)                                 2019 Annual Meeting.  The Company will hold its 2019 Annual Meeting on June 6, 2019.

 

(b)                                 Withdrawal of Stockholder Nomination.  Effective as of the execution of this Agreement, Macellum SPV hereby irrevocably withdraws the Stockholder Nomination and its director nominations in connection with the 2019 Annual Meeting.  Each Macellum Party shall immediately cease, and shall cause all of their Affiliates and Associates to cease, any and all efforts, direct or indirect, in furtherance of the Stockholder Nomination and any related solicitation.

 

(c)                                  Macellum Voting.  During the Standstill Period, each Macellum Party shall cause, and shall cause its respective Affiliates and Associates to cause, all shares of Voting Securities for which they have the right to vote to be present for quorum purposes and to be voted at any meeting of stockholders or at any adjournments or postponements thereof, and to consent in connection with any action by consent in lieu of a meeting, (i) in favor of each director nominated and recommended by the Board for election at any such meeting and (ii) against any stockholder nominations for director that are not approved and recommended by the Board for election at any such meeting and against any proposals or resolutions to remove any member of the Board.  During the Standstill Period, each Macellum Party shall also cause, and shall cause its respective Affiliates and Associates to cause, all Voting Securities for which they have the right to vote to be present for quorum purposes and to be voted in accordance with this Section 2(c) at each of the Company’s annual meetings of stockholders, and any adjournments or postponements thereof.  During the Standstill Period, not later than five business days prior to each of the Company’s annual meetings of stockholders, each Macellum Party shall vote in accordance with this Section 2(c) and shall not revoke or change any such vote.

 

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3.                                      Termination. This Agreement will remain in full force and effect and will be fully binding on the parties hereto in accordance with the provisions hereof until completion of the 2020 Annual Meeting (the “Standstill Period”); provided, however, that the Board shall provide the Representative with a notice at least 30 days before the last day on which a stockholder of the Company may submit nominations for the Board in connection with the 2020 Annual Meeting pursuant to the advance notice provisions for nominations of directors contained in the Company’s bylaws (the “Notice Date”) as to whether the Board will nominate Mr. Duskin, the New Director and the Additional Independent Director (the “Subject Directors”) for re-election at the 2020 Annual Meeting, and if the Board does not nominate any of the Subject Directors for re-election at the 2020 Annual Meeting (other than as a result of such Subject Directors refusing or declining to serve as a nominee), the Standstill Period shall expire as of the Notice Date. Section 9 and Section 12 will survive any termination of this Agreement.

 

4.                                      Standstill.

 

(a)                                 Abstention from Certain Actions. Each Macellum Party agrees that, following the date of this Agreement and prior to the expiration of the Standstill Period, without the prior written consent of the Board specifically expressed in a written resolution adopted by a majority vote of the entire Board, it will not, and will cause each of its Affiliates, Associates, officers, agents and other Persons (as such terms are defined in Section 11) acting on its behalf not to, directly or indirectly, in any manner, alone or in concert with others:

 

(i)                                     nominate any person for appointment to the Board or election at any annual meeting of the stockholders of the Company held between the date hereof and the expiration of the Standstill Period, submit any proposal for consideration at, or bring any other business before, any annual meeting of the stockholders of the Company held between the date hereof and the expiration of the Standstill Period, or initiate, encourage or participate in any “withhold” or similar campaign with respect to any annual meeting of the stockholders of the Company held between the date hereof and the expiration of the Standstill Period, or take any such actions at any special meeting of the stockholders of the Company held between the date hereof and the expiration of the Standstill Period;

 

(ii)                                  engage, or in any way participate, directly or indirectly, in any “solicitation” (as such term is defined in Rule 14a-1(l) promulgated by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of proxies or written consents (whether or not relating to the election or removal of directors), or otherwise become a “participant in a solicitation” (as such term is defined in Instruction 3 of Schedule 14A of Regulation 14A under the Exchange Act) in opposition to the recommendation or proposal of the Board, or seek to advise, encourage or influence any Person with respect to the voting of any Voting Securities; initiate, propose or otherwise “solicit” (as such term is defined in Rule 14a-1(l) promulgated by the SEC under the Exchange Act) stockholders of the Company for the approval of shareholder proposals whether made pursuant to Rule 14a-8 or Rule 14a-4 under the Exchange Act or otherwise; induce or attempt to induce any other Person to initiate any such shareholder proposal; otherwise communicate or seek to communicate with the Company’s stockholders or others pursuant to Rule 14a-1(l)(2)(iv) under the Exchange Act; or seek to advise, encourage, support or influence any

 

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Person with respect to the voting of any Voting Securities at any annual or special meeting of stockholders (other than such encouragement, support or influence that is consistent with Company’s management or the Board’s recommendation in connection with such matter);

 

(iii)                               form, join or in any way participate in any “group” (within the meaning of Rule 13d-5 of Regulation 13D-G and Section 13(d)(3) of the Exchange Act) with respect to any Voting Securities, other than a “group” that includes all or some lesser number of the Macellum Parties, but does not include any other members who are not currently identified as a Macellum Party other than an Affiliate of a Macellum Party who agrees to be bound by the terms and conditions of this Agreement;

 

(iv)                              deposit any Voting Securities in any voting trust or subject any Voting Securities to any arrangement or agreement with respect to the voting of any Voting Securities, except as expressly set forth in this Agreement (other than such voting trust, arrangement or agreement among Macellum and any of its Affiliates who are bound by the terms and conditions of this Agreement);

 

(v)                                 seek to have called, or cause to be called, any meeting of stockholders of the Company;

 

(vi)                              seek, propose, make any statement with respect to, or participate in any way in, or solicit, negotiate with, or provide any information to any Person with respect to, a merger, acquisition, consolidation, acquisition of control or other business combination, tender or exchange offer, purchase, sale or transfer of assets or securities, dissolution, liquidation, reorganization, spinoff, splitoff, restructuring, change in capital structure, recapitalization, dividend, share repurchase or similar transaction involving the Company, its subsidiaries or its business, whether or not any such transaction involves a change of control of the Company (it being understood that the foregoing shall not prohibit any Macellum Party from acquiring or disposing of Common Stock within the limitations set forth in Section 4(a)(xi) and Section 4(a)(xii));

 

(vii)                           institute, commence, solicit, encourage, support or join any litigation, arbitration or other proceeding (including a derivative action) against the Company, its current or former directors or officers, including any action challenging the validity or enforceability of this Agreement or this Section 4, or make any demand for a list of the Company’s stockholders or to inspect the books and records of the Company, including pursuant to any statutory right that any Macellum Party may have (except any such litigation against the Company as may be necessary to enforce the terms of this Agreement) provided, however, that the foregoing shall not prevent any Macellum Party from (A) making counterclaims with respect to any proceeding initiated by, or on behalf of, the Company against a Macellum Party or (B) responding to or complying with a validly issued legal process that neither a Macellum Party nor any of its Affiliates initiated, encouraged or facilitated;

 

(viii)                        seek, alone or in concert with others, representation on the Board;

 

(ix)                              seek the removal of any member of the Board, a change in the size, structure

 

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or composition of the Board, a change in executive officers of the Company or a change to the policies and procedures of the Company, except as specifically contemplated in this Agreement;

 

(x)                                 make any public proposals for changes in or recommendations concerning the Company’s strategies, extraordinary or other transactions, the Board or management items, or other matters relating to the Company’s business;

 

(xi)                              acquire, offer or propose to acquire, or agree to acquire (except by way of stock dividends or other distributions or offerings made available to holders of Voting Securities generally on a pro rata basis, provided that any such securities so received will be subject to the provisions hereof), directly or indirectly, whether by purchase, tender or exchange offer, through the acquisition of control of another Person, by joining a partnership, limited partnership, syndicate or other “group” (within the meaning of Rule 13d-5 of Regulation 13D-G and Section 13(d)(3) of the Exchange Act) or otherwise, any Voting Securities, or otherwise become the economic owner (as such term is defined in Section 11) of any such securities, if after giving effect to such acquisition it (by itself or together with any other Macellum Party, its respective Affiliates and Associates and any other Person with whom it, such other Macellum Party or any such Affiliate or Associate has any agreement, understanding or arrangement with respect to Voting Securities) would be the beneficial owner or economic owner of more than 9.9% of the Company’s outstanding Voting Securities. For the purposes of computing the beneficial ownership at the time of any purchase, the number of outstanding Voting Securities will be determined by the latest available Company filing with the SEC;

 

(xii)                           other than in sale transactions on Nasdaq or through a broker or dealer where the identity of the purchaser is not known, sell or agree to sell, directly or indirectly, through swap or hedging transactions or otherwise, any securities of the Company or any derivatives relating to securities of the Company to any third party that (A) has filed a Schedule 13D with respect to the Company or (B) will as a result of the transaction have beneficial ownership of more than 5% of any Voting Securities; or

 

(xiii)                        make any proposal, statement or inquiry, or disclose any intention, plan or arrangement (whether written or oral) inconsistent with the foregoing, or make or publicly disclose any request to amend, waive or terminate any provision of this Agreement.

 

Notwithstanding the foregoing, nothing in this Section 4(a) or elsewhere in this Agreement shall prohibit or restrict (A) Mr. Duskin, in his capacity as a member of the Board, from communicating privately with the Board or any officer or director of the Company, regarding any matter, so long as such communications are not intended to, and would not reasonably be expected to, require any public disclosure of such communications and are otherwise in accordance with the Company’s practices and policies or (B) Macellum from: (i) taking any action necessary to comply with any law, rule or regulation or any action required by any governmental or regulatory authority or stock exchange that has, or may have, jurisdiction over any Macellum Party or any of their respective Affiliates or Associates, provided that a breach by any Macellum Party of this Agreement is not the cause of the applicable requirement, (ii) privately communicating to any of Macellum’s potential investors or investors in a manner that (I) is consistent with ordinary course communications with their investors or potential investors, (II) is not intended to result in public

 

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dissemination, (III) does not otherwise violate any applicable laws and (IV) is limited to publicly-available information, or (iii) privately communicating to any shareholders of the Company and others in a manner that (I) does not otherwise violate any provision of this Agreement (including, for the avoidance of doubt, this Section 4(a)), (II) does not otherwise violate any applicable laws, (III) is limited to publicly-available information, (IV) is consistent with the Company’s practices and policies regarding stockholder communications, including its policies regarding the communications by board members with the Company’s stockholders, and (V) is not initiated by any Macellum Party.

 

(b)                                 Fiduciary Duties. Nothing in Section 4(a) or elsewhere in this Agreement shall be deemed to limit in any respect the exercise in good faith by any director of the Company of their fiduciary duties solely in their capacity as directors of the Company (it being understood that Macellum shall not seek to do indirectly through any director anything that would be inconsistent with Macellum’s obligations under this Agreement).

 

(c)                                  Enforcement of Agreement.  Macellum agrees that the Board or any applicable committee or subcommittees thereof, in the exercise of its fiduciary duties, may recuse the New Director and Mr. Duskin from the portion of any Board or committee or subcommittee meeting at which the Board or any such committee or subcommittee is evaluating and/or taking action with respect to (i) Macellum’s ownership of Common Stock, (ii) the exercise of any of the Company’s rights or enforcement of any of the obligations under this Agreement, (iii) any action taken in response to actions taken by Macellum or its Affiliates with respect to the Company or (iv) any transaction with Macellum or its Affiliates.

 

5.                                      Representations and Warranties of Macellum.  Each Macellum Party represents and warrants as follows:

 

(a)                                 Each Macellum Party has the power and authority to execute, deliver and carry out the terms and provisions of this Agreement and to consummate the transactions and perform its obligations contemplated hereby.

 

(b)                                 This Agreement has been duly and validly authorized, executed and delivered by each Macellum Party, constitutes a valid and binding obligation and agreement of each Macellum Party, and is enforceable against each Macellum Party in accordance with its terms.

 

(c)                                  This Agreement will not result in a violation of any terms or conditions of any agreements to which such Macellum Party is a party or by which such Macellum Party may otherwise be bound or of any law, rule, license, regulation, judgment, order or decree governing or affecting such Macellum Party.

 

(d)                                 No Macellum Party is a party to any agreement, arrangement or understanding with any Person (other than another Macellum Party) with respect to the securities, management or control of the Company.

 

(e)                                  Macellum, together with its Affiliates and Associates, are beneficial owners and/or economic owners, directly or indirectly, of an aggregate of shares of Common Stock as set forth

 

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by beneficial owner and amount on Exhibit A attached hereto and such shares of Common Stock constitute all of the Voting Securities of the Company owned by each Macellum Party and its respective Affiliates and Associates.

 

6.             Representations and Warranties of the Company.  The Company hereby represents and warrants as follows:

 

(a)           The Company has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Agreement and to consummate the transactions and perform its obligations contemplated hereby.

 

(b)           This Agreement has been duly and validly authorized, executed and delivered by the Company, constitutes a valid and binding obligation and agreement of the Company, and is enforceable against the Company in accordance with its terms.

 

(c)           This Agreement will not result in a violation of any terms or conditions of any agreements to which the Company is a party or by which the Company may otherwise be bound or of any law, rule, license, regulation, judgment, order or decree governing or affecting the Company.

 

7.             Non-Disparagement and Confidentiality.

 

(a)           Each Macellum Party agrees that, during the Standstill Period, it will not, and it will cause each of its Affiliates and Associates not to, directly or indirectly, in any capacity or manner, make, express, transmit, speak, write, verbalize or otherwise communicate in any way (or cause, further, assist, solicit, encourage, support or participate in any of the foregoing), any remark, comment, message, information, declaration, communication or other statement of any kind, whether verbal, in writing, electronically transferred or otherwise, (i) publicly, or in the case of any of the foregoing with customers, suppliers, stockholders or employees of the Company, publicly or privately, that might reasonably be construed to be derogatory or critical of, or negative toward, the Company or any of its directors, officers, Affiliates, subsidiaries, employees, agents or representatives (collectively, the “Company Representatives”), or (ii) that reveals, discloses, incorporates, is based upon, discusses, includes or otherwise involves any confidential or proprietary information of the Company or its subsidiaries or Affiliates, or (iii) publicly, or in the case of any of the foregoing with customers, suppliers, stockholders or employees of the Company, publicly or privately, to malign, harm, disparage, defame or damage the reputation or good name of the Company, its business or any of the Company Representatives. For the avoidance of doubt, Macellum shall not be prohibited by the foregoing from privately discussing with other stockholders of the Company facts about the Company and the Company Representatives that have been publicly disclosed by the Company so long as Macellum does not provide commentary with respect to such facts that might reasonably be construed to be derogatory or critical of, or negative toward, the Company or the Company Representatives and such discussions are not reasonably expected to be made public.

 

(b)           The Company hereby agrees that, during the Standstill Period, it will not, and it will cause each of its Affiliates not to, directly or indirectly, in any capacity or manner, make,

 

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express, transmit, speak, write, verbalize or otherwise communicate in any way (or cause, further, assist, solicit, encourage, support or participate in any of the foregoing), any remark, comment, message, information, declaration, communication or other statement of any kind, whether verbal, in writing, electronically transferred or otherwise, (i) publicly, or in the case of any of the foregoing with customers, suppliers, stockholders or employees of the Company, publicly or privately, that might reasonably be construed to be derogatory or critical of, or negative toward, any Macellum Party or any of its agents or representatives (collectively, the “Macellum Representatives”), or (ii) that reveals, discloses, incorporates, is based upon, discusses, includes or otherwise involves any confidential or proprietary information of any Macellum Party or its subsidiaries or Affiliates, or (iii) publicly, or in the case of any of the foregoing with customers, suppliers, stockholders or employees of the Company, publicly or privately, to malign, harm, disparage, defame or damage the reputation or good name of any Macellum Party or any of the Macellum Representatives.

 

(c)           Notwithstanding the foregoing, nothing in this Section 7 or elsewhere in this Agreement shall prohibit any Party from making any statement or disclosure required under the federal securities laws or other applicable laws; provided, that such Party must provide written notice to the other Parties at least two business days prior to making any such statement or disclosure required under the federal securities laws or other applicable laws that would otherwise be prohibited by the provisions of this Section 7, and reasonably consider any comments of such other Parties.

 

(d)           The limitations set forth in Section 7(a) and Section 7(b) shall not prevent any Party from responding to any public statement made by the other Parties of the nature described in Section 7(a) and Section 7(b) if such statement by the other Party was made in breach of this Agreement.

 

8.             Specific Performance.  Each of Macellum, on the one hand, and the Company, on the other hand, acknowledges and agrees that irreparable injury to the other Party would occur in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and that such injury would not be adequately compensable in damages.  It is accordingly agreed that Macellum, on the one hand, and the Company, on the other hand (the “Moving Party”), will each be entitled to specific enforcement of, and injunctive relief to prevent any violation of, the terms hereof and the other Party will not take action, directly or indirectly, in opposition to the Moving Party seeking such relief on the grounds that any other remedy or relief is available at law or in equity.  This Section 8 is not the exclusive remedy for any violation of this Agreement.

 

9.             Forum and Governing Law.  In the event that any action will be brought in equity to enforce the provisions of this Agreement, no Party will allege, and each Party hereby waives the defense, that there is an adequate remedy at law.  Furthermore, each of the Parties (a) consents to submit itself to the personal jurisdiction of the Court of Chancery or other federal or state courts of the State of Delaware in the event any dispute arises out of this Agreement or the transactions or obligations contemplated by this Agreement, (b) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (c) agrees that it shall not bring any action relating to this Agreement or the transactions contemplated by this Agreement in any court other than the Court of Chancery or other federal or state courts of the

 

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State of Delaware, (d) irrevocably waives the right to trial by jury, (e) agrees to waive any bonding requirement under any applicable law, in the case any other Party seeks to enforce the terms by way of equitable relief and (f) irrevocably consents to service of process by a reputable overnight mail delivery service, signature requested, to the address of such Party’s principal place of business or as otherwise provided by applicable law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE.

 

10.          No Waiver.  All waivers of this Agreement shall be in writing. Any waiver by either the Representative (as hereinafter defined), on behalf of any Macellum Party, or the Company of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of either the Representative or the Company to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

 

11.          Certain Definitions.  As used in this Agreement, (a) the term “Person” will mean any individual, partnership, corporation, group, syndicate, trust, government or agency, or any other organization, entity or enterprise; (b) the terms “Affiliates” and “Associates” will have the meanings set forth in Rule 12b-2 under the Exchange Act, and will include Persons who become Affiliates or Associates of any Person subsequent to the date hereof; (c) the term “Voting Securities” will mean any securities of the Company entitled, or which may be entitled, to vote in the election of directors, or securities convertible into or exercisable or exchangeable for such securities, whether or not subject to passage of time or other contingencies; (d) the terms “beneficial owner” and “beneficially own” have the same meanings as set forth in Rule 13d-3 promulgated by the SEC under the Exchange Act; and (e) the terms “economic owner” and “economically own” will have the same meanings as “beneficial owner” and “beneficially own,” except that a Person will also be deemed to economically own and to be the economic owner of (i) all shares of the Common Stock that such Person has the right to acquire pursuant to the exercise of any rights in connection with any securities or any agreement, regardless of when such rights may be exercised and whether they are conditional and (ii) all shares of Common Stock in which the Person has any economic interest, including, without limitation, pursuant to a cash-settled call option or other derivative security, contract or instruction in any way related to the price of shares of Common Stock.

 

12.          Notices.  All notices, consents, requests, instructions, approvals and other communications provided for herein and all legal process in regard hereto will be in writing and will be deemed validly given, made or served, if (a) given by e-mail, when email is sent to the e-mail address set forth below or (b) if given by any other means, when actually received during normal business hours at the address specified in this subsection:

 

	
If to the Company:
    	
 
    	
Citi Trends, Inc.
    
	
 
    	
 
    	
104 Coleman Boulevard
    

 

11

 

	
 
    	
 
    	
Savannah, Georgia 31408
    
	
 
    	
 
    	
Attn: Bruce D. Smith, President and Chief Executive   Officer
    
	
 
    	
 
    	
E-mail: bsmith@cititrends.com
    
	
 
    	
 
    	
 
    
	
with a copy to:
    	
 
    	
Alston & Bird LLP
    
	
 
    	
 
    	
950 F Street NW
    
	
 
    	
 
    	
Washington, DC 20004
    
	
 
    	
 
    	
Attn: Julie A. Mediamolle
    
	
 
    	
 
    	
E-mail: julie.mediamolle@alston.com
    
	
 
    	
 
    	
 
    
	
If to Macellum
    	
 
    	
 
    
	
or the Representative:
    	
 
    	
Macellum Advisors GP, LLC
    
	
 
    	
 
    	
99 Hudson Street, 5th Floor
    
	
 
    	
 
    	
New York, NY 10013
    
	
 
    	
 
    	
Attention: Jonathan Duskin
    
	
 
    	
 
    	
E-mail: Jduskin@macellumcap.com
    
	
 
    	
 
    	
 
    
	
with a copy to:
    	
 
    	
Olshan Frome Wolosky LLP
    
	
 
    	
 
    	
1325 Avenue of the Americas
    
	
 
    	
 
    	
New York, New York 10019
    
	
 
    	
 
    	
Attention: Elizabeth Gonzalez-Sussman
    
	
 
    	
 
    	
E-mail: EGonzalez@olshanlaw.com
    

 

or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above.

 

13.          Severability.  If any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality or unenforceability of such provision shall have no effect upon the legality or enforceability of any other provision of this Agreement.

 

14.          Counterparts.  This Agreement may be executed in counterparts, each of which will be an original, but all of which together will constitute one and the same Agreement.

 

15.          Successors or Assigns.  Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any Party without the prior written consent of the other Parties and any attempt to do so will be void.  Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the Parties and their respective successors and assigns.

 

16.          Entire Agreement; Amendments.  This Agreement contains the entire understanding of the Parties with respect to the subject matter hereof.  There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings between or among the Parties other than those expressly set forth herein.  This Agreement may be amended only by a written instrument duly executed by the Parties or their respective successors or assigns.

 

12

 

17.          Fees and Expenses.  Within five business days following the date hereof, the Company will reimburse Macellum, by certified check or wire transfer of immediately available funds, for its reasonable, documented out-of-pocket costs, fees and expenses incurred and paid by Macellum in connection with the Company’s 2017 annual meeting of stockholders, the 2019 Annual Meeting and the negotiation and execution of this Agreement; provided, that such reimbursement shall not exceed $500,000.  An officer of Macellum Capital Management, LLC shall certify to the Company in writing that such funds were solely used to cover the out-of-pocket costs, fees and expenses incurred by Macellum in connection with the matters described in the preceding sentence.  Except as provided in this Section 17, neither the Company, on the one hand, nor Macellum on the other hand, will be responsible for any costs, fees or expenses of the other in connection with this Agreement or in connection with the proxy solicitation relating to the 2019 Annual Meeting and related matters.

 

18.          Interpretation and Construction.  Each of the Parties acknowledges that it has been represented by counsel of its choice throughout all negotiations that have preceded the execution of this Agreement, and that it has executed the same with the advice of said independent counsel.  Each Party and its counsel cooperated and participated in the drafting and preparation of this Agreement and the documents referred to herein, and any and all drafts relating thereto exchanged among the Parties will be deemed the work product of all of the Parties and may not be construed against any Party by reason of its drafting or preparation.  Accordingly, any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against any Party that drafted or prepared it is of no application and is hereby expressly waived by each of the Parties, and any controversy over interpretations of this Agreement will be decided without regards to events of drafting or preparation.  The section headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement.  The term “including” will be deemed to mean “including without limitation” in all instances.

 

19.          Press Release. Promptly following the execution of this Agreement, the Company and Macellum shall issue a mutually agreeable press release (the “Press Release”) announcing this Agreement, substantially in the form attached to this Agreement as Exhibit B. Prior to the issuance of the Press Release, neither the Company nor any Macellum Party shall issue any press release or make any public announcement regarding this Agreement or take any action that would require public disclosure relating to such action without the prior written consent of the other Party. No Party or any of its Affiliates shall make any public statement (including, without limitation, in any filing required under the Exchange Act) concerning the subject matter of this Agreement inconsistent with the Press Release.

 

20.          Macellum Representative.  Macellum hereby irrevocably appoints Jonathan Duskin as its attorney-in-fact and representative (the “Representative”), in its place and stead, to do any and all things and to execute any and all documents and give and receive any and all waivers, notices or instructions in connection with this Agreement.  The Company will be entitled to rely, as being binding on Macellum, upon any action taken by the Representative or upon any document, notice, instruction or other writing given or executed by the Representative.

 

[The remainder of this page intentionally left blank]

 

13

 

IN WITNESS WHEREOF, each of the undersigned parties has executed or caused this Agreement to be executed on its behalf on the date first above written.

 

	
 
    	
CITI   TRENDS, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Bruce D. Smith
    
	
 
    	
Name:
    	
Bruce   D. Smith
    
	
 
    	
Title:
    	
President   and Chief Executive Officer
    

 

Signature Page — Settlement Agreement

 

 

	
 
    	
MACELLUM   SPV III, LP
    
	
 
    	
 
    
	
 
    	
By:
    	
Macellum   Advisors GP, LLC,
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Jonathan Duskin
    
	
 
    	
Name:
    	
Jonathan   Duskin
    
	
 
    	
Title:
    	
Sole   Member
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
MACELLUM   MANAGEMENT LP
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
Macellum   Advisors GP, LLC,
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Jonathan Duskin
    
	
 
    	
Name:
    	
Jonathan   Duskin
    
	
 
    	
Title:
    	
Sole   Member
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
MACELLUM   ADVISORS GP, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Jonathan Duskin
    
	
 
    	
Name:
    	
Jonathan   Duskin
    
	
 
    	
Title:
    	
Sole   Member
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Jonathan Duskin
    
	
 
    	
Jonathan   Duskin
    

 

Signature Page — Settlement Agreement

 

 

Exhibit A

 

Macellum Ownership

 

	
Owner
    	
 
    	
Beneficially
   Owned(1)
    	
 
    	
Economically
   Owned
    	
 
    	
Percent of
   Class
    	
 
    
	
Macellum SPV III, LP (“Macellum SPV”)
    	
 
    	
489,010 shares of Common Stock
    	
 
    	
 
    	
 
    	
3.8
    	
%
    
	
Macellum Management, LP
    	
 
    	
As the investment manager of Macellum SPV, 489,010 shares of   Common Stock
    	
 
    	
 
    	
 
    	
3.8
    	
%
    
	
Macellum Advisors GP, LLC (“Macellum GP”)
    	
 
    	
As the general partner of Macellum SPV, 489,010   shares of Common Stock
    	
 
    	
 
    	
 
    	
3.8
    	
%
    
	
Jonathan Duskin
    	
 
    	
As the sole member of Macellum GP, 489,010 shares of   Common Stock.
    
   Mr. Duskin also beneficially owns 5,009 shares of Common Stock directly,   including 2,397 shares of restricted stock awarded to Mr. Duskin in his   capacity as a director of the Company, which will vest on June 6, 2019,   provided Mr. Duskin is a director of the Company at such time (as   reported elsewhere in this table)
    	
 
    	
2,397 shares of restricted stock awarded to   Mr. Duskin in his capacity as a director of the Company, which will vest   on June 6, 2019, provided Mr. Duskin is a director of the Company   at such time
    	
 
    	
3.8
    	
%
    

 

(1)  As a member of a “group” for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, each of the Persons in the table above may be deemed to beneficially own the 494,019 shares of Common Stock owned collectively by all members of the Section 13(d) group, including 2,397 shares of restricted stock awarded to Mr. Duskin in his capacity as a director of the Company, which will vest on June 6, 2019, provided Mr. Duskin is a director of the Company at such time . Each of the Persons above disclaims beneficial ownership of such shares of Common Stock owned by the other members of the Section 13(d) group except to the extent of his or its pecuniary interest therein.

 

 

Exhibit B

Press Release

 

Citi Trends Reaches Agreement with Macellum

 

Peter R. Sachse to be Nominated to Stand for Election at the 2019 Annual Meeting

 

John S. Lupo to Retire from the Board; Brian P. Carney to be Chairman After the 2019 Meeting

 

Nominating and Corporate Governance Committee to Initiate Search for

Additional Qualified Independent Director

 

Macellum Agrees to Standstill Provisions through 2020 Annual Meeting

 

SAVANNAH, Ga. — April 11, 2019 — Citi Trends, Inc. (NASDAQ: CTRN) (“Citi Trends” or “the Company”) today announced that it has entered into an agreement with Macellum SPV III, LP (“Macellum”), pursuant to which the Board intends to nominate Peter R. Sachse to stand for election at the 2019 Annual Meeting of Stockholders (“2019 Annual Meeting”) with a term expiring at the 2020 Annual Meeting of Stockholders (“2020 Annual Meeting”). The Company also announced that John S. Lupo will retire from the Board and not stand for re-election at the 2019 Annual Meeting. Following Mr. Lupo’s retirement and effective as of the conclusion of the 2019 Annual Meeting, Brian P. Carney will serve as Chairman of the Board.

 

Citi Trends also today announced that the Nominating and Corporate Governance Committee will undergo a search for an additional independent director to be identified no later than September 30, 2019. Upon the identified individual being appointed to the Board, the Board will increase from seven to eight members. The Board expects to reduce the size of the Board back to seven members at the 2020 Annual Meeting, unless its members unanimously agree to remain at eight directors.

 

Mr. Sachse brings to Citi Trends more than three decades of experience at Macy’s, Inc. in various positions, including Chief Growth Officer, Chief of Innovation and Business Development, Chief Stores Officer, Chief Marketing Officer and President of Corporate Marketing. In addition, Mr. Sachse served as Chairman and Chief Executive Officer of the macys.com division of Macy’s, Inc. and was involved in launching Macy’s successful off-price concept Back Stage. From February 2010 to December 2018 and from October 2006 to April 2007, Mr. Sachse served as a director of XO Group Inc., a media and technology company that provides content, tools, products and services for couples who are planning weddings, creating a home, and starting a family. Mr. Sachse also previously served as a director of Charitybuzz Inc., a for-profit internet company that raises funds for nonprofit organizations through online charity auctions with celebrities and brands from 2012 until 2015. Prior to serving in these roles, Mr. Sachse was President and Chief Operating Officer of The Bon Marche, a department store chain launched in Seattle.

 

“We have made significant progress over the last several years on our strategic plan to grow the business, increase our profitability and provide meaningful returns to our stockholders,” said Bruce Smith, Chief Executive Officer of Citi Trends. “Our agreement with Macellum underscores our commitment to adding qualified directors who can help drive long-term stockholder value. We look forward to welcoming Peter to the Board and benefiting from his decades of retail experience as we continue to focus on improving our merchandising, planning and allocation, while driving efficiencies, reducing costs and optimizing our store footprint.”

 

“On behalf of the entire Board and management team, I want to thank John for his valuable contributions to Citi Trends over the last 15 years, including in his role as Chairman,” said Mr. Carney.

 

“We are pleased we could reach this agreement with the Company,” said Jonathan Duskin, sole member of Macellum Advisors GP, LLC and current member of the Citi Trends Board. “Citi Trends is a great company with significant value potential, and we are confident that the addition of Peter, together with a director we will identify through a search process, will bring fresh perspectives and added expertise to the Board.”

 

 

Under the terms of the agreement, Macellum has agreed to withdraw its slate of nominees and will vote all of its shares in favor of all of the Board’s nominees. Further, Macellum has agreed to standstill provisions through the 2020 Annual Meeting; provided that the Company agrees to nominate Mr. Duskin, Mr. Sachse and the additional independent director to be identified at the 2020 Annual Meeting.

 

This agreement will be filed on a Form 8-K with the U.S. Securities and Exchange Commission.

 

About Citi Trends

 

Citi Trends, Inc. is a value-priced retailer of urban fashion apparel and accessories for the entire family. The Company operates 562 stores located in 32 states. Citi Trends’ website address is www.cititrends.com. CTRN-G

 

Forward-Looking Statements

 

All statements other than historical facts contained in this news release, including statements regarding our future financial results and position, business policy and plans, objectives of management for future operations and our intentions and ability to pay dividends and complete any share repurchase authorizations, are forward-looking statements that are subject to material risks and uncertainties. The words “believe,” “may,” “could,” “plans,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions, as they relate to Citi Trends, are intended to identify forward-looking statements, although not all forward-looking statements contain such language. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Actual results or developments may differ materially from those included in the forward-looking statements as a result of various factors which are discussed in Citi Trends filings with the U.S. Securities and Exchange Commission (the “SEC”), including those set forth under the heading “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018. These risks and uncertainties include, but are not limited to, uncertainties relating to economic conditions, growth risks, consumer spending patterns, competition within the industry, competition in our markets and the ability to anticipate and respond to fashion trends. Any forward-looking statements by the Company are intended to speak only as of the date such statements are made. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, Citi Trends does not undertake to publicly update any forward-looking statements in this news release or with respect to matters described herein, whether as a result of any new information, future events or otherwise.

 

Important Additional Information

 

Citi Trends, its directors and certain of its executive officers may be deemed to be participants in the solicitation of proxies from Citi Trends stockholders in connection with the matters to be considered at Citi Trends’ 2019 Annual Meeting. Citi Trends intends to file a proxy statement with the SEC in connection with any such solicitation of proxies from Citi Trends stockholders. INVESTORS AND STOCKHOLDERS ARE STRONGLY ENCOURAGED TO READ ANY SUCH PROXY STATEMENT AND ACCOMPANYING PROXY CARD AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION. Detailed information regarding the identity of potential participants, and their direct or indirect interests, by security holdings or otherwise, will be set forth in the proxy statement and other materials to be filed with the SEC in connection with Citi Trends’ 2019 Annual Meeting. Information regarding the direct and indirect beneficial ownership of Citi Trends’ directors and executive officers in Citi Trends securities is included in their SEC filings on Forms 3, 4 and 5, and additional information can also be found in Citi Trends’ Annual Report on Form 10-K for the year ended February 3, 2018, filed with the SEC on April 18, 2018 and its Quarterly Reports on Form 10-Q for the first three quarters of the fiscal year ended February 2, 2019 filed on June 11, 2018, September 6, 2018 and December 10, 2018, respectively. Stockholders will be able to obtain any proxy statement, any amendments or supplements to the proxy statement and other documents filed by Citi Trends with the SEC for no charge at the SEC’s

 

 

website at www.sec.gov. Copies will also be available at no charge at the Investor Relations section of our corporate website at www.cititrends.com.

 

Contact:

 

Bruce Smith

President and Chief Executive Officer

(912) 443-2075

 

Media Contact:

 

Andy Brimmer / Greg Klassen / Jill Kary

Joele Frank, Wilkinson Brimmer Katcher

(212) 355-4449

 

Investor Contact:

 

Bruce Goldfarb / Chuck Garske / Teresa Huang

Okapi Partners LLC

(212) 297-0720Exhibit

Exhibit 4.1

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
EVOFEM BIOSCIENCES, INC.
FORM OF WARRANT TO PURCHASE COMMON STOCK
Number of Warrant Shares: [ ]
(subject to adjustment)
	
			
	Warrant No.         
	  
	Original Issue Date: [        ], 2019

Evofem Biosciences, Inc., a Delaware corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [ ] or its registered assigns (the “Holder”), is entitled, upon the terms and subject to the limitations and conditions set forth below, at any time on or after the date that is six (6) months following the Original Issue Date and on or prior to 5:00 p.m., New York City time, on the date that is seven (7) years after the Original Issue Date (the “Termination Date”), to purchase from the Company up to [ ] shares of common stock, $0.0001 par value per share (the “Common Stock”), of the Company (each such share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price per share equal to $6.38 per share (as adjusted from time to time as provided in Section 9 herein, the “Exercise Price”), upon surrender of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”) at any time and from time to time on or after the date hereof (the “Original Issue Date”) until the Termination Date, subject to the following terms and conditions:
1.    Definitions.  All capitalized terms that are used but not defined herein shall have the respective meanings ascribed to them in the Securities Purchase Agreement, dated April 10, 2019, by and between the Company and Holder (the “Securities Purchase Agreement”).  For all purposes of and under this Warrant, the following terms shall have the following respective meanings:
(a)    “Affiliate” means any Person directly or indirectly controlled by, controlling or under common control with, a Holder, but only for so long as such control shall continue.  For purposes of this definition, “control” (including, with correlative meanings, “controlled by”, “controlling” and “under common control with”) means, with respect to a Person, possession, direct or indirect, of (a) the power to direct or cause direction of the management and policies of such Person (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), or (b) at least 50% of the voting securities (whether directly or pursuant to any option, warrant or other similar arrangement) or other comparable equity interests.
(b)    “Commission” means the United States Securities and Exchange Commission.
(c)    “Closing Sale Price” means, for any security as of any date, the last trade price for such security on the Principal Trading Market for such security, as reported by Bloomberg Financial Markets, or, if such Principal Trading Market begins to operate on an extended hours basis and does not designate the last trade price, then the last trade price of such security prior to 4:00 P.M., New York City time, as reported by Bloomberg Financial Markets, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg Financial Markets.  If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date 

1

shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then the Board of Directors of the Company shall use its good faith judgment to determine the fair market value.  The Board of Directors’ determination shall be binding upon all parties absent demonstrable error.  All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
(d)    “Principal Trading Market” means the national securities exchange or other trading market on which the Common Stock is primarily listed on and quoted for trading on the date in question, which, as of the Original Issue Date, shall be the Nasdaq Capital Market.
(e)    “Securities Act” means the Securities Act of 1933, as amended.
(f)    “Trading Day” means any weekday on which the Principal Trading Market is open for trading.
(g)    “Transfer Agent” means Philadelphia Stock Transfer, Inc., the Company’s transfer agent and registrar for the Common Stock, and any successor appointed in such capacity.
2.    Issuance of Securities.  The Warrant, as initially issued by the Company, is offered and sold pursuant to the Securities Purchase Agreement.  The Company shall register ownership of this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder (which shall include the initial Holder or, as the case may be, any assignee to which this Warrant is assigned hereunder) from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
3.    Registration of Transfers.  Subject to compliance with all applicable securities laws, the Company shall, or will cause its Transfer Agent to, register the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, and payment for all applicable transfer taxes (if any).  Upon any such registration or transfer, a new warrant to purchase Common Stock in substantially the form of this Warrant (any such new warrant, a “New Warrant”) evidencing the portion of this Warrant so transferred shall be issued to the transferee, and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder.  The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the New Warrant that the Holder has in respect of this Warrant.  The Company shall, or will cause its Transfer Agent to, prepare, issue and deliver at the Company’s own expense any New Warrant under this Section 3.  Until due presentment for registration of transfer, the Company may treat the registered Holder hereof as the owner and holder for all purposes, and the Company shall not be affected by any notice to the contrary.
4.    Exercise and Duration of Warrants.
(a)    All or any part of this Warrant shall be exercisable by the registered Holder in any manner permitted by this Warrant at any time and from time to time until the Termination Date.
(b)    The Holder may exercise this Warrant by delivering (as determined in accordance with the notice provisions hereof) to the Company an exercise notice, in the form attached as Schedule 1 hereto (the “Exercise Notice”), completed and duly signed.  Within one (1) Trading Day following the date of delivery of the Exercise Notice, the Holder shall make payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice pursuant to Section 10 below).  The date on which the Notice of Exercise is delivered to the Company (as determined in accordance with the notice provisions hereof) is an “Exercise Date,” provided, that if the Exercise Price is not delivered on or before one (1) Trading Day following the date of delivery of the Exercise Notice, the Exercise Date shall be deemed to be one (1) Trading Day following the date of that the Exercise Price is delivered to the Company.  No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any 

2

Notice of Exercise be required.  The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares, if any.
5.    Delivery of Warrant Shares.
(a)    Upon exercise of this Warrant, the Company shall promptly (but in no event later than two (2) Trading Days after the Exercise Date), upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with The Depository Trust Company (“DTC”) through its Deposit / Withdrawal At Custodian system, or if the Transfer Agent is not participating in the Fast Automated Securities Transfer Program (the “FAST Program”) or if the certificates are required to bear a legend regarding restriction on transferability, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.  The Holder, or any natural person or legal entity (each, a “Person”) so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the time of delivery of the Exercise Notice on the Exercise Date, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be.  While this Warrant remains outstanding, the Company shall maintain a transfer agent that participates in the FAST Program.
(b)    If by the close of the second (2nd) Trading Day after the Exercise Date, the Company fails to deliver to the Holder a certificate representing the required number of Warrant Shares in the manner required pursuant to Section 5(a) or, provided such Warrant Shares are not required to bear a restrictive legend, fails to credit the Holder’s balance account with DTC for such number of Warrant Shares to which the Holder is entitled, and if after such second (2nd) Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall, within two (2) Trading Days after the Holder’s request and in the Holder’s sole discretion, either (1) pay in cash to the Holder an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased, at which point the Company’s obligation to deliver such certificate (and to issue such Warrant Shares) shall terminate or (2) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Warrant Shares and pay cash to the Holder in an amount equal to the excess (if any) of Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased in the Buy-In over the product of (A) the number of shares of Common Stock purchased in the Buy-In, times (B) the Closing Sale Price of a share of Common Stock on the Exercise Date.
(c)    To the extent permitted by law and subject to Section 5(b), the Company’s obligations to issue and deliver Warrant Shares in accordance with and subject to the terms hereof (including the limitations set forth in Section 11 below) are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance that might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares.  Subject to Section 5(b), nothing herein shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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6.    Charges, Taxes and Expenses.  Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, transfer agent fee or other incidental tax or expense (excluding any applicable stamp duties) in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or the Warrants in a name other than that of the Holder or an Affiliate thereof.  The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.  The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
7.    Replacement of Warrant.  If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction (in such case) and, in each case, a customary and reasonable indemnity (but not the posting of any surety or other bond), if requested by the Company.  Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures.  If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.
8.    Reservation of Warrant Shares.  The Company covenants that it will, at all times while this Warrant is outstanding, reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares that are initially issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9).  The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and non-assessable.  The Company will take all such action as may be reasonably necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Stock may be listed.  The Company further covenants that it will not, without the prior written consent of the Holder, take any actions to increase the par value of the Common Stock at any time while this Warrant is outstanding.
9.    Certain Adjustments.  The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9.
(a)    Stock Dividends and Splits.  If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock issued and outstanding on the Original Issue Date and in accordance with the terms of such stock on the Original Issue Date, that is payable in shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock into a larger number of shares of Common Stock, (iii) combines its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issues by reclassification of shares of capital stock any additional shares of Common Stock of the Company, then in each such case the Exercise Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately before such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, provided, however, that if such record date shall have been fixed and such dividend is not fully paid on the date fixed therefor, the Exercise Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Exercise Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends.  Any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

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(b)    Pro Rata Distributions.  If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock for no consideration (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph) or (iii) rights or warrants to subscribe for or purchase any security, or (iv) cash or any other asset (in each case, “Distributed Property”), then, upon any exercise of this Warrant that occurs after the record date fixed for determination of stockholders entitled to receive such distribution, the Holder shall be entitled to receive, in addition to the Warrant Shares otherwise issuable upon such exercise (if applicable), the Distributed Property that such Holder would have been entitled to receive in respect of such number of Warrant Shares had the Holder been the record holder of such Warrant Shares immediately prior to such record date without regard to any limitation on exercise contained therein.  
(c)    Fundamental Transactions.  If, at any time while this Warrant is outstanding (i) the Company effects any merger or consolidation of the Company with or into another Person, in which the Company is not the surviving entity and in which the stockholders of the Company immediately prior to such merger or consolidation do not own, directly or indirectly, at least 50% of the voting power of the surviving entity immediately after such merger or consolidation, (ii) the Company effects any sale to another Person of all or substantially all of its assets in one transaction or a series of related transactions, (iii) pursuant to any tender offer or exchange offer (whether by the Company or another Person), holders of capital stock tender shares representing more than 50% of the voting power of the capital stock of the Company and the Company or such other Person, as applicable, accepts such tender for payment, (iv) the Company consummates a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the voting power of the capital stock of the Company (except for any such transaction in which the stockholders of the Company immediately prior to such transaction maintain, in substantially the same proportions, the voting power of such Person immediately after the transaction) or (v) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock covered by Section 9(a) above) (in any such case, a “Fundamental Transaction”), then following such Fundamental Transaction the Holder shall have the right to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant without regard to any limitations on exercise contained herein (the “Alternate Consideration”).  The Company shall not effect any Fundamental Transaction in which the Company is not the surviving entity or the Alternate Consideration includes securities of another Person unless (i) the Alternate Consideration is solely cash and the Company provides for the simultaneous “cashless exercise” of this Warrant pursuant to Section 10 below or (ii) prior to or simultaneously with the consummation thereof, any successor to the Company, surviving entity or other Person (including any purchaser of assets of the Company) shall assume the obligation to deliver to the Holder such Alternate Consideration as, in accordance with the foregoing provisions, the Holder may be entitled to receive, and the other obligations under this Warrant.  The provisions of this paragraph (c) shall similarly apply to subsequent transactions analogous of a Fundamental Transaction type.
(d)    Number of Warrant Shares.  Simultaneously with any adjustment to the Exercise Price pursuant to Section 9, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.
(e)    Calculations.  All calculations under this Section 9 shall be made to the nearest one-tenth of one cent or the nearest share, as applicable.
(f)    Notice of Adjustments.  Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will, at the written request of the Holder, promptly compute such adjustment, in good faith, in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the 

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adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s transfer agent.
(g)    Notice of Corporate Events.  If, while this Warrant is outstanding, the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including, without limitation, any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then, except if such notice and the contents thereof shall be deemed to constitute material non-public information, the Company shall deliver to the Holder a notice of such transaction at least ten (10) days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.  In addition, if while this Warrant is outstanding, the Company authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction contemplated by Section 9(c), other than a Fundamental Transaction under clause (iii) of Section 9(c), the Company shall deliver to the Holder a notice of such Fundamental Transaction at least thirty (30) days prior to the date such Fundamental Transaction is consummated.  Holder agrees to maintain any information disclosed pursuant to this Section 9(g) in confidence until such information is publicly available, and shall comply with applicable law with respect to trading in the Company’s securities following receipt any such information.
10.    Payment of Exercise Price.  This Warrant shall be exercised for cash; provided, however, that if at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for, the issuance of the Warrant Shares, then the Holder may, in its sole discretion, satisfy its obligation to pay the Exercise Price through a “cashless exercise”, in which event the Company shall issue to the Holder the number of Warrant Shares in an exchange of securities effected pursuant to Section 3(a)(9) of the Securities Act, as determined as follows:
X = Y [(A-B)/A]
where:
“X” equals the number of Warrant Shares to be issued to the Holder;
“Y” equals the total number of Warrant Shares with respect to which this Warrant is then being exercised;
“A” equals (i) the last Closing Sale Price of the shares of Common Stock (as reported by Bloomberg Financial Markets) on the Trading Day immediately preceding the Exercise Date if the Exercise Notice is delivered prior to market close on the Exercise Date, or (ii) the last Closing Sale Price of the shares of Common Stock (as reported by Bloomberg Financial Markets) on the Exercise Date if the Exercise Notice is delivered following market close on the Exercise Date; and B” equals the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a “cashless exercise” transaction shall be deemed to have been acquired by the Holder, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued (provided that the Commission continues to take the position that such treatment is proper at the time of such exercise).  Except as set forth in Section 5(b) (Buy-In remedy) and Section 12 (payment of cash in lieu of fractional shares), under such circumstances in no event will the exercise of this Warrant be settled in cash.

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11.    Limitations on Exercise.
(a)    Notwithstanding anything to the contrary contained herein, the number of Warrant Shares that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to ensure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by the Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed 4.99% (or, in the case of PDL BioPharma, Inc. only, 19.99%, until the Stockholder Approval has been obtained) (the “Maximum Percentage”) of the total number of then issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise).  For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Person and its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by the Holder and its Affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein; provided that in no event shall the aggregate number of shares beneficially owned by the Holder and its Affiliates, calculated in accordance with Section 13(d) of the Exchange Act, exceed 9.99% (or, in the case of PDL BioPharma, Inc. only, 19.99%, until the Stockholder Approval has been obtained).  Except as set forth in the preceding sentence (other than the proviso thereto), for purposes of this paragraph (including the proviso in the immediately preceding sentence), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act; it being acknowledged by the Holder that the Company is not representing to such Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and such Holder is solely responsible for any schedules required to be filed in accordance therewith.  To the extent that the limitation contained in this Section 11 applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of a Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.  In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 11, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written request of the Holder, the Company shall within three (3) Trading Days confirm in writing to such Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Warrants, by the Holder and its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  By written notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% (other than in the case of PDL BioPharma, Inc., as to which there shall be no Maximum Percentage following the Stockholder Approval) specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder and not to any other holder of Warrants.  The provisions of this paragraph shall not apply to (i) the Holder if the aggregate number of shares beneficially owned by the Holder and its Affiliates, calculated in accordance with Section 13(d) of the Exchange Act, exceed 19.99% immediately prior to the Closing or (ii) PDL BioPharma, Inc. following the Stockholder Approval.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 12 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.     

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(b)    This Section 11 shall not restrict the number of shares of Common Stock which a Holder may receive or beneficially own in order to determine the amount of securities or other consideration that such Holder may receive in the event of a Fundamental Transaction as contemplated in Section 9(c) of this Warrant.
12.    No Fractional Shares.  No fractional Warrant Shares will be issued in connection with any exercise of this Warrant.  In lieu of any fractional shares that would otherwise be issuable, the number of Warrant Shares to be issued shall be rounded down to the next whole number and the Company shall pay the Holder in cash the fair market value (based on the Closing Sale Price) for any such fractional shares.
13.    Notices.  Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via facsimile or e-mail at the facsimile number or e-mail address specified in the books and records of the Transfer Agent prior to 5:30 P.M., New York City time, on a Trading Day so long as the sender of an e-mail has not received an automated notice of delivery failure from the proposed recipient's computer server, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or e-mail at the facsimile number or e-mail address specified in the books and records of the Transfer Agent on a day that is not a Trading Day or later than 5:30 P.M., New York City time, on any Trading Day so long as the sender of an e-mail has not received an automated notice of delivery failure from the proposed recipient's computer server, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service specifying next business day delivery, or (iv) upon actual receipt by the Person to whom such notice is required to be given, if by hand delivery.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.
14.    Warrant Agent.  The Company shall initially serve as warrant agent under this Warrant.  Upon thirty (30) days’ notice to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act.  Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.  Notwithstanding anything to the contrary contained herein or in any warrant agency agreement that the Company be enter into in the future, the Holder shall be entitled to elect to receive, or continue to hold, this Warrant in certificated form, in which case the terms set forth in any such warrant agency agreement shall not apply to this Warrant.
15.    Miscellaneous.
(a)    No Rights as a Stockholder.  The Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, amalgamation, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
(b)    Authorized Shares.  (i) Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate or articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary 

8

action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.
(ii)    Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
(c)    Successors and Assigns.  Subject to compliance with applicable securities laws, this Warrant may be assigned by the Holder.  This Warrant may not be assigned by the Company without the written consent of the Holder, except to a successor in the event of a Fundamental Transaction.  This Warrant shall be binding on and inure to the benefit of the Company and the Holder and their respective successors and assigns.  Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant.  This Warrant may be amended only in writing signed by the Company and the Holder, or their successors and assigns.
(d)    Amendment and Waiver.  Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.
(e)    Acceptance.  Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
(f)    Governing Law; Jurisdiction.  All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Securities Purchase Agreement.  
(g)    Headings.  The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.
(h)    Severability.  In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby, and the Company and the Holder will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the undersigned has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.  

	
		
	COMPANY: EVOFEM BIOSCIENCES, INC.

	By:
	 

	Name:
	Justin J. File

	Title:
	Chief Financial Officer

10

SCHEDULE 1
FORM OF EXERCISE NOTICE
[To be executed by the Holder to purchase shares of Common Stock under the Warrant]
Ladies and Gentlemen:
(1)    The undersigned is the Holder of Warrant No. (the “Warrant”) issued by Evofem Biosciences, Inc., a Delaware corporation (the “Company”).  Capitalized terms used herein and not otherwise defined herein have the respective meanings set forth in the Warrant.
(2)    The undersigned hereby exercises its right to purchase Warrant Shares pursuant to the Warrant.
(3)    The Holder intends that payment of the Exercise Price shall be made as (check one):
☐    Cash Exercise
☐    “Cashless Exercise” under Section 10 of the Warrant
(4)    If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $ in immediately available funds to the Company in accordance with the terms of the Warrant.
(5)    Pursuant to this Exercise Notice, the Company shall deliver to the Holder Warrant Shares determined in accordance with the terms of the Warrant.
(6)    By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended) permitted to be owned under Section 11(a) of the Warrant to which this notice relates.
	
			
	Dated:
	 
	 

	 
	 

	Name of Holder:  
	 
	 

	 
	 

	By:
	 
	 

	Name:
	 
	 

	Title:
	 
	 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

Schedule 1-1

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