Document:

EXHIBIT 10.1

 

EMPLOYMENT AGREEMENT

(Conformed Copy — Includes all amendments through January 17, 2011)

 

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into by and between Datalink Corporation, a Minnesota corporation (the “Company”), and Paul F. Lidsky (the “Executive”) effective as of the 20th day of July, 2009.

 

R E C I T A L S :

 

WHEREAS, the Company is a leading provider of data storage products and solutions;  and

 

WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms under which Executive will serve as President and Chief Executive Officer of the Company;

 

NOW, THEREFORE, the parties hereto agree as follows:

 

1.             Employment and Duties.  The Company hereby agrees to employ the Executive, and the Executive hereby accepts the Company’s offer to serve, as President and Chief Executive Officer of the Company.  As such, the Executive shall have responsibilities, duties and authority reasonably accorded to and expected of such an officer of the Company and will report to the Company’s Board of Directors (the “Board”) and its committees.  Except for an interim period ending not later than August 20, 2009 (during which period the Executive will expeditiously arrange termination of employment with his current employer), the Executive agrees to devote the Executive’s full business time, attention and efforts to promote and further the business of the Company.  The Executive will faithfully adhere to, execute and fulfill all policies established by the Board and its committees.

 

Except for the interim period described above, the Executive will not, during the Term of Executive’s employment hereunder, be engaged in any other business activity pursued for gain, profit or other pecuniary advantage if such activity interferes with the Executive’s duties and responsibilities hereunder.  The foregoing limitations will not be construed to prohibit the Executive from making personal investments in such form or manner as will neither require the Executive’s services in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of Section 4 hereof.

 

The Executive will continue as a member of the Board after the date of this Agreement.   However, unless a majority of the Board otherwise determines, in the event of (and effective coincident with) any termination of the Executive’s employment with the Company for any reason at any time, the Executive’s service as a member of the Board will automatically

 

 

terminate.  The Executive hereby resigns as a member of the Board’s audit and compensation committees.

 

2.             Compensation.  For all services rendered by the Executive on and after the date hereof, the Company will compensate the Executive as follows:

 

(a)           Base Salary.  Commencing on the date hereof, the base salary payable to the Executive (the “Base Salary”) shall be $325,000 per year, payable on a regular basis in accordance with the Company’s standard payroll procedures but not less than semi-monthly.  Such base salary will be subject to review and adjustment from time to time by the Company’s Compensation Committee (the “Compensation Committee”).

 

(b)           Bonuses.  During the Term, the Executive is entitled to an annual cash bonus (the “Annual Bonus”) based on attainment of particular financial and business milestones (the “Performance Milestones”).  The amount of the Annual Bonus, the relevant Performance Milestones for each year and the payment arrangements will be set from time to time by the Compensation Committee.  Unless the Compensation Committee otherwise determines, 75% of the Annual Bonus will relate to achievement of financial milestones and 25% will relate to business milestones.  The Compensation Committee will have complete discretion to determine the Executive’s level of achievement toward the Performance Milestones.  Unless the Compensation Committee otherwise determines, the percentage of the Executive’s Base Salary payable as an Annual Bonus for achievement of 100% of both the financial and business Performance Milestones (the “Target Bonus”) will be 80%.  To the extent that the Compensation Committee determines that the Executive has achieved less or greater than 100% of the relevant Performance Milestones, and unless the Compensation Committee otherwise determines, the percentage of the Target Bonus payable will be as follows:

 

	
Attainment
    	
 
    	
Payout
    	
 
    
	
80%
    	
 
    	
20
    	
%
    
	
85%
    	
 
    	
40
    	
%
    
	
90%
    	
 
    	
60
    	
%
    
	
95%
    	
 
    	
80
    	
%
    
	
100%
    	
 
    	
100
    	
%
    
	
101 – 150%
    	
 
    	
Linear
    	
 
    
	
Capped at 150%
    	
 
    	
 
    	
 
    

 

For 2009 only, the Executive’s Annual Bonus will be $130,000, conditioned on the Executive’s continuous employment with the Company through December 31, 2009.  This Annual Bonus amount is payable not later than March 15, 2010.

 

(c)           Executive Perquisites, Benefits and Other Compensation.  Commencing on the date hereof, the Executive shall be entitled to receive additional benefits and compensation 

 

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from the Company in such form and to such extent as provided to other senior executive officers from time to time.  Initially, these additional items are specified below:

 

(i)            A car allowance and reimbursement for use of a corporate cell phone, all in accordance with Company policy for similarly situated executive officers.

 

(ii)           Reimbursement for all business travel and other out-of-pocket expenses reasonably incurred by the Executive in the performance of the Executive’s services pursuant to this Agreement.  All reimbursable expenses shall be appropriately documented in reasonable detail by the Executive upon submission of any request for reimbursement, and in a format and manner consistent with the Company’s expense reporting policy.

 

3.             Grant of Stock Options.  In further consideration of this Agreement, the Company hereby awards to the Executive the option to purchase a total of 450,000 shares of common stock, par value $.001 per share, of the Company (the “Common Stock”), subject to the adjustment and the conditions and restrictions set forth below (the “Stock Option”).  The Stock Option is granted pursuant to the Company’s 2009 Incentive Compensation Plan but is not intended to qualify as an incentive option under Section 422 of the Internal Revenue Code, as amended.  The Executive may exercise the Stock Option, in whole or in part, at a purchase price (the “Exercise Price”) of $3.50 per share (the closing price of the Company’s Common Stock on the Nasdaq Stock Market on the date of this Agreement), subject to adjustment as provided below and in compliance with Section 5(f) below, at any time within ten (10) years from the date of this Agreement (subject to the limitations below), but only to the extent that the Executive is vested in the Stock Option.

 

(a)           Vesting.  The Executive will vest in 25% of the Stock Option on the first, second, third and fourth anniversaries hereof;  provided, that the Executive must be employed with the Company continuously to each such vesting date in order to vest in the portion of the Stock Option on such date.  However, subject to Section 5(f) below, all of the Stock Option will vest sooner upon a Change of Control event (as defined below) that occurs during the Term hereof, but only if (i) the Executive has been employed with the Company continuously from the date hereof to the date of the Change of Control, (ii) the Change of Control Price (as defined below) exceeds $3.50 (the closing price of the Company’s Common Stock on the Nasdaq Stock Market on the date of this Agreement) and (iii) such acceleration and vesting will not cause the Stock Option to be subject to the adverse consequences described in Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).  Any portion of the Stock Option that does not vest prior to the Executive’s termination of employment for any reason at any time will lapse and automatically be canceled.  Further, any vested portion of the Stock Option not exercised by the Executive within ninety (90) days after any termination of employment for any reason at any time (12 months, if Executive dies during the Term hereof and the Stock Option is being exercised by the Executive’s estate) will lapse and automatically be canceled.

 

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(b)           Change of Control.  A “Change of Control” means the happening of any of the following events:

 

(i)            An acquisition of outstanding or newly issued Company securities that results in any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1933, as amended (a “Person,” with such Act being the “Exchange Act”) having beneficial ownership within the meaning of Rule 13d-3 under the Exchange Act (“Beneficial Ownership”) of more than 50% (other than any Person who, as of the date hereof, already has Beneficial Ownership of at least 20%) of either (x) the then outstanding shares of the Company’s Common Stock (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”);  or

 

(ii)           A change in the composition of the Board in connection with a tender or exchange offer, a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (a “Corporate Transaction”) or a direct purchase of securities from the Company such that (A) the individuals who, as of the date hereof, constitute the members of the Board (the “Incumbent Board,” it being intended that the Executive is not considered a member of the Incumbent Board at the date hereof) cease to constitute at least a majority of the Board or (B) a majority of the individuals who, as of the date hereof, constitute the Incumbent Board resign or are removed from the Board;  provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents;  or

 

(iii)          The approval by the shareholders of the Company of a Corporate Transaction or, if consummation of such Corporate Transaction is subject, at the time of such approval by shareholders, to the consent of any government or governmental agency, the obtaining of such consent (either explicitly or implicitly by consummation);  excluding, however, such a Corporate Transaction pursuant to which (A) all or substantially all of the Beneficial Owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50% of the outstanding shares of common stock, or more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, of the company resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries)

 

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in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or such corporation resulting from such Corporate Transaction) will Beneficially Own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed with respect to the Company prior to the Corporate Transaction and (C) individuals who were members of the Incumbent Board will constitute at least a majority of the board of directors of the corporation resulting from such Corporate Transaction;  or

 

(iv)          The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

 

Despite all of the foregoing, no Change in Control is deemed to have occurred with respect to the Executive if the Executive is part of a purchasing group which consummates the Change in Control transaction.  The Executive is deemed “part of a purchasing group” for purposes of the preceding sentence if the Executive is an equity participant in the purchasing company or group except for (i) passive ownership of less than three percent (3%) of the stock of the purchasing company or (ii) ownership of an equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the Incumbent Board.

 

(c)           Change of Control Price.  “Change of Control Price” means the higher of (i) the highest reported closing price of a share of Common Stock in any transaction reported on the Nasdaq Stock Market during the 30-day period prior to and including the date of a Change of Control or (ii) if the Change of Control is the result of a tender or exchange offer, a Corporate Transaction or a direct purchase of securities from the Company, the highest price per share of Common Stock paid in such tender or exchange offer, Corporate Transaction or direct purchase of securities.

 

If the Change of Control is the result of a direct purchase of securities from the Company for a consideration consisting in whole or in part other than cash, then:

 

(i)            insofar as the purchase consideration consists of securities and the value of such securities is not determinable by reference to a separate agreement, (A) if the securities are then traded on a national securities exchange or the Nasdaq Stock Market (or a similar national quotation system), then the value shall be computed based on the average of the closing prices of the securities on such exchange or system over the thirty (30)-day period ending on the date of receipt by the Company, (B) if the securities are actively traded over-the-counter, then the value shall be computed based on the average of the closing bid prices over the thirty (30) day ending 

 

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on the date of receipt by the Company and (C) if there is no active public market, then the value shall be computed based on the fair market value thereof on the date of receipt by the Company, as determined in good faith by the Board and

 

(ii)           insofar as the purchase consideration consists of property other than cash and securities, then the value shall be computed at the fair market value thereof at the time of such issuance, as determined in good faith by the Board.

 

(d)           Adjustments to Number of Shares and Exercise Price.  In the event that the Compensation Committee determines that any dividend or other distribution (whether in the form of cash, shares or other securities or property), stock split or combination, forward or reverse merger, reorganization, subdivision, consolidation or reduction of capital, recapitalization, consolidation, scheme of arrangement, split-up, spin-off or combination involving the Company or repurchase or exchange of shares, issuance of warrants or other rights to purchase shares or other securities of the Company, or other similar corporate transaction or event affects the Stock Option or the shares of Common Stock underlying it such that an adjustment is determined by the Compensation Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Stock Option, then the Compensation Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of shares (or other securities or property) subject to the Stock Option or (ii) the Exercise Price with respect to the Stock Option;  provided that the number of shares subject to the Stock Option shall always be a whole number.  Notwithstanding the foregoing, any adjustments made pursuant to this Section 3(d) shall be made in such a manner as to ensure that after such adjustment, the Stock Option continues not to be deferred compensation subject to Code Section 409A (or if the Stock Option is already subject to Code Section 409A, so as not to give rise to liability under Code Section 409A).

 

(e)           Non-Alienation of Benefits.  Other than pursuant to a qualified domestic relations order or by the Executive’s will upon his death, no right or benefit under this Section 3 shall be subject to transfer, anticipation, alienation, sale, assignment, pledge, encumbrance or charge, whether voluntary, involuntary or by operation of law, and any attempt to transfer, anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void.

 

(f)            Subscription Representations;  Transfer Restrictions.  The Executive understands that the Stock Option constitutes, and any shares of Common Stock acquired upon exercise thereof will constitute, “restricted securities” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).  Accordingly, even if the Executive is fully vested in the Stock Option, the Executive may never be able to resell the underlying shares for a profit, or at all.  In any event, the Executive will be able to resell or otherwise transfer the underlying Common Stock only if the sale or other transfer is registered under the Securities Act and applicable state securities laws or there is an available exemption from this registration.  The Executive confirms that the Executive can bear the loss of the Executive’s entire investment in the Company.

 

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(g)           Lock-Up Agreement.  The Executive agrees that, in the event of each future public offering of the Company’s equity securities (an “Offering”), the Executive will agree to such restrictions on the resale of any shares of the Company’s Common Stock (including the Stock Option and any shares acquired upon exercise thereof) then beneficially owned by Executive as requested by the managing underwriter or underwriters of the Offering;  provided, however, that such restrictions run no longer than the period of resale restriction imposed by such underwriters on the Company’s other executive officers and directors.  The Executive agrees not to sell or otherwise transfer (including upon death) any of the shares of Common Stock (including shares acquired upon exercise of the Stock Option) beneficially owned by the Executive, unless the purchaser or recipient agrees in writing to be bound by the foregoing lock-up agreement.

 

(h)           Stock Certificate Restrictions.  The Executive acknowledges that the Company will place a restrictive legend on any certificate representing shares of Common Stock acquired upon exercise of the Stock Option, and a “stop transfer order” with any transfer agent of the Company’s securities, barring the sale or other transfer of such shares except in compliance with this Agreement and without registration under the Securities Act or an exemption therefrom, and noting the existence of the lock-up agreement above.

 

(i)            Future Grants of Equity Securities.  Future grants of restricted stock, stock options or other equity securities, if any, will be governed by the terms of the grant agreement to which the future grant relates, and not by this Agreement.

 

4.             Non-Competition and Non-Solicitation.

 

(a)           Basic Terms.  In consideration of this Agreement (including the Stock Option grant hereunder), the Executive will not, during the period of the Executive’s employment with the Company and for a period of one (1) year immediately following the termination of the Executive’s employment under this Agreement, for any reason whatsoever, directly or indirectly, for the Executive or on behalf of or in conjunction with any other person, firm, entity, company, business, partnership, corporation, limited liability company or limited liability partnership of whatever nature:

 

(i)            engage, as an officer, director, shareholder, owner, partner, joint venturer or in a  managerial capacity, whether as an employee, independent contractor, consultant or advisor or as a sales representative or executive, in any business that, at the date of the Executive’s termination of employment, manufactures, markets and/or sells hardware and/or software products and/or services in competition with the Company in the United States;

 

(ii)           recruit, solicit, hire or induce, or attempt to recruit, hire or induce, any employee or employees to terminate employment or otherwise cease his, her or their relationship with the Company;

 

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(iii)          solicit, divert or take away, or attempt to solicit, divert or to take away, the hardware and/or software products and/or services business or patronage of any of the Company’s actual or prospective clients, customers or accounts contracted, solicited or served by the Company during Executive’s employment;  or

 

(iv)          call upon or solicit any prospective acquisition candidate or individual or groups of employees of other organizations, which, to the Executive’s actual knowledge after due inquiry, the Company has called upon or for which the Company has made an acquisition or hiring analysis, for the purpose of acquiring such entity or its assets or hiring such individuals.

 

Notwithstanding the above, the Executive may acquire as a passive investment not more than three percent (3%) of the capital stock of a competing business, whose stock is traded on a national securities exchange or over-the-counter.

 

(b)           Equitable Relief.  Because of the difficulty of measuring economic losses to the Company as a result of a breach of the foregoing covenants, and because of the immediate and irreparable damage that could be caused to the Company for which it would have no other adequate remedy, the Executive agrees that the foregoing covenants may be enforced by the Company in the event of breach by the Executive by injunctions and restraining orders.

 

(c)           Severability and/or Reformation.  The covenants in this Section 4 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant.  Moreover, in the event any court of competent jurisdiction determines that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall be reformed in accordance therewith.

 

(d)           Independently Enforceable.  All of the covenants in this Section 4 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of such covenants.  It is specifically agreed that the period of one (1) year following termination of employment stated at the beginning of this Section 4, during which the agreements and covenants of the Executive made in this Section 4 shall be effective, shall be computed by excluding from such computation any time during which the Executive is in violation of any provision of this Section 4.

 

5.             Term;  Termination;  Rights on Termination.

 

The term of Executive’s employment under this Agreement (the “Term”) begins on the date hereof and continues through the earlier to occur of (i) the second anniversary of the date hereof or (ii) the first day of the month next following the Executive’s 65th birthday (the 

 

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“Normal Retirement Date”);  provided, however, that on the second anniversary of the date hereof, and on each successive second anniversary thereafter (such date and each second anniversary thereof shall be hereinafter referred to as the “Renewal Date”), the Term will automatically extend so as to terminate on the earlier of (x) two years from such Renewal Date or (y) the Executive’s Normal Retirement Date, unless at least 90 days prior to the Renewal Date, the Company gives written notice to the Executive that the Company is not extending the Term.  Despite the Term, this Agreement and the Executive’s employment may be terminated in any one of the following ways:

 

(a)           Termination Upon Death.  The Executive’s death will immediately terminate this Agreement.  The Company will pay the Executive’s estate any of Executive’s accrued Base Salary and any earned, but unpaid, Annual Bonus (at the time otherwise payable under this Agreement) through the date of termination and reimbursement of expenses.  The Executive’s estate will forfeit any portion of the Stock Option not vested in the Executive as of the date of the Executive’s death.

 

(b)           Termination on Account of Disability.  If, as a result of incapacity due to physical or mental illness or injury, as reasonably determined by the Executive’s physician, the Executive is absent from the Executive’s full-time duties hereunder for ninety (90) days, then thirty (30) days after receiving written notice (which notice may occur before or after the end of such 90-day period, but which will not be effective earlier than the last day of such 90-day period), the Company may terminate the Executive’s employment hereunder;  provided that the Executive is unable to resume the Executive’s full-time duties at the conclusion of such notice period.  The Company will pay the Executive any of the Executive’s accrued Base Salary and any earned, but unpaid, Annual Bonus (at the time otherwise payable under this Agreement) through the date of termination and reimbursement of expenses.  The Executive will forfeit any portion of the Stock Option not vested as of the date of termination.  For a period of 18 months following the date of termination, the Company will make available to the Executive and the Executive’s eligible family members, at the Executive’s sole expense, health insurance continuation coverage pursuant to Section 4980B of the Code, Sections 601-608 of the Employee Retirement Income Security Act of 1974, as amended, and under any other applicable law, to the extent required by such laws (“COBRA Coverage”).

 

(c)           Termination by the Company for Cause.  The Company may terminate this Agreement at any time for Cause upon written notice to the Executive.  For purposes of this Agreement, “Cause” is (i) the Executive’s willful, material and irreparable breach of this Agreement;  (ii) the Executive’s gross negligence in the performance or intentional nonperformance (continuing for thirty (30) days after receipt of written notice of need to cure) of any of the Executive’s material duties and responsibilities under this Agreement;  (iii) the Executive’s willful dishonesty, fraud or misconduct with respect to the business or affairs of the Company;  or (iv) the Executive’s conviction of a felony crime.  Upon any termination for Cause, the Executive will receive no severance compensation other than base salary accrued through the date of termination and reimbursement of expenses.  The Executive will forfeit any 

 

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portion of the Stock Option not vested as of the date of termination.  For a period of 18 months following the date of termination, the Company will make COBRA Coverage available to the Executive and the Executive’s eligible family members, at the Executive’s sole expense.

 

(d)           Termination by the Company Without Cause or by the Executive for Good Reason.  At any time, either the Executive or the Company may terminate this Agreement and the Executive’s employment, effective thirty (30) days after written notice is provided to the other.  If the Company terminates the Executive’s employment without Cause or if the Executive resigns employment for Good Reason (as defined below), the Executive will receive from the Company, subject to Section 5(f) below, (i) any Base Salary accrued through the date of termination and reimbursement of expenses, (ii) any earned, but unpaid, Annual Bonus (at the time otherwise payable under this Agreement) through the date of termination and (iii) a single, lump sum payment equal to 1.5 times the Executive’s annual Base Salary.  The Executive will forfeit any portion of the Stock Option not vested as of the date of termination.  For a period of 18 months following the date of termination, the Company will make COBRA Coverage available to the Executive and the Executive’s eligible family members.  Subject to Section 5(f) below, the Company will directly pay, or will reimburse the Executive for, the 18 months of premiums for the COBRA Coverage.  However, if the Executive becomes re-employed with another employer and is eligible to receive any health insurance benefits under another employer’s plans, the Company’s obligations to pay or reimburse for medical and dental insurance benefits under this Section 5(d) shall terminate.

 

For purposes of this Agreement, each of the following is a “Good Reason” for the Executive to terminate employment with the Company:  (i) the Company’s imposition of material and adverse changes, without the Executive’s consent, in the Executive’s principal duties (including upon a Change of Control);  (ii) the Company’s move (including upon a Change of Control) of its principal executive offices more than 50 miles from its current location without the Executive’s consent;  and (iii) the reduction by the Company (including upon a Change of Control) in the Executive’s Base Salary without the Executive’s consent by more than the weighted average percentage reduction made contemporaneously by the Company of the base salaries all other executive officers.  Despite the foregoing, if within the 30-day period after receiving the Executive’s notice of intent to terminate employment on account of Good Reason, the Company corrects the deficiency giving rise to such notice, the resignation by the Executive will not constitute a termination for Good Reason (without a new event giving rise therefor).

 

(e)           Termination in Connection with a Change of Control.  Notwithstanding the other provisions of this Section 5, if during the Term of this Agreement, (x) the Company terminates the Executive’s employment in anticipation of, in connection with, at the time of or within ninety (90) days after a Change of Control or (y) the Executive resigns employment with the Company for Good Reason arising in anticipation of, in connection with, at the time of or within ninety (90) days after a Change of Control, the Executive will receive from the Company, subject to Section 5(f) below, (i) any Base Salary accrued through the date of termination and reimbursement of expenses, (ii) any earned, but unpaid, Annual Bonus (at the time otherwise 

 

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payable under this Agreement) through the date of termination and (iii) a single, lump sum payment equal to 1.5 times the Executive’s annual Base Salary.  The Executive will vest in his Stock Option to the extent provided for by Section 3(a) above.  For a period of 18 months following the date of termination, the Company will make COBRA Coverage available to the Executive and the Executive’s eligible family members.  Subject to Section 5(f) below, the Company will directly pay, or will reimburse the Executive for, the 18 months of premiums for the COBRA Coverage.  However, if the Executive becomes re-employed with another employer and is eligible to receive any health insurance benefits under another employer’s plans, the Company’s obligations to pay or reimburse for medical and dental insurance benefits under this Section 5(e) shall terminate.

 

(f)            Prerequisites to Severance Benefits;  Timing of Cash Payments.  The Company’s obligations to make cash payments under Section 5, and the exercisability of the Stock Option after any termination of the Executive’s employment at any time for any reason, are subject to the following:

 

(i)            the Executive must execute and deliver to the Company a release in the form attached as Exhibit A (the “Release”) and must not revoke it and

 

(ii)           the Executive must continuously comply with the provisions of this Agreement (including the non-competition and non-solicitation provisions of Section 4 above).

 

The Company will pay the lump sum cash severance amounts under Section 5(d) or 5(e) above on the first day of the month following the Executive’s date of termination (or, if later, five business days after expiration of any period for revocation under the Release).

 

6.             Tax Withholdings.  The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.  The Executive may satisfy withholding obligations relating to the vesting of Restricted Stock by instructing the Company to retain and cancel a number of shares of Common Stock having a Market Price on the date of termination (or as of the immediately preceding business day if the date of termination is not a business day) equal to the withholding tax obligation amount.  The term “Market Price” with respect to shares of Common Stock means the closing price on the Nasdaq Stock Market or, if none, the average of the last reported closing bid and asked prices on any other national or regional securities exchange or as quoted in the National Association of Securities Dealers, Inc.’s Automated Quotations System (“Nasdaq”), or if not listed on a national or regional securities exchange or quoted in Nasdaq, the closing price as reported by bigcharts.com (or if this service is discontinued, such other reporting service acceptable to the Company), or if no quotations in such Common Stock are available, the fair market value of the shares as determined in good faith by the Board.

 

7.             Reduction to Avoid Excise Tax.  If any payment or distribution to or for the benefit of the Executive (whether paid or payable or distributed or distributable) pursuant to the terms of 

 

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this Agreement or otherwise (a “Payment”) would constitute a “parachute payment” within the meaning of Section 280G of the Code, the Payment shall be reduced to the extent necessary so that no portion of the Payment is subject to the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax, but only if, by reason of such reduction, the net after-tax benefit to the Executive shall equal or exceed the net after-tax benefit to the Executive if no reduction was made.  Subject to the next paragraph, the Company shall afford the Executive an opportunity to select a reduction of cash or non-cash items, or a combination of both, to reduce the excess Payment.

 

All determinations required to be made under this Section 7, including whether a reduction of any Payment is required and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s independent registered public accountants serving immediately prior to the Change in Control, or such other nationally recognized accounting firm as may be agreed by the Company and the Executive (the “Accounting Firm”);  provided, that the Accounting Firm’s determination shall be made based upon “substantial authority” within the meaning of Section 6662 of the Code.  Any determination by the Accounting Firm hereunder shall be binding upon the Company and the Executive.

 

8.             Return of Company Property.  All records, designs, tradenames and trademarks, service names and service marks, patents, business plans, financial statements, manuals, memoranda, customer and other lists and other property delivered to or compiled by the Executive by or on behalf of the Company, or its representatives, vendors or customers which pertain to the business of the Company are and will remain the property of the Company, and be subject at all times to its discretion and control.  Likewise, all correspondence, reports, records, charts, advertising and marketing materials and other similar data pertaining to the business, activities or future plans of the Company which is collected by or in the possession of the Executive shall be delivered promptly to the Company without request by it upon termination of the Executive’s employment.  Further, upon any termination of employment, the Executive shall return any Company computer (without deleting or tampering with information thereon) and any other physical property of the Company.

 

9.             Inventions.  The Executive will disclose promptly to the Company any and all significant conceptions and ideas for inventions, improvements and valuable discoveries, whether patentable or not, which are conceived or made by the Executive, solely or jointly with another, during the period of employment, and which are directly related to the business or activities of the Company and which the Executive conceives as a result of the Executive’s employment by the Company.  The Executive hereby assigns and agrees to assign all of the Executive’s interests therein to the Company or its nominee.  Whenever requested to do so by the Company, the Executive will execute any and all applications, assignments or other instruments that the Company shall deem necessary to apply for and obtain letters patent of the United States or any foreign country or to otherwise protect the Company’s interest therein.  Nothing in this Agreement shall apply to an invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Executive’s own

 

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time and (i) which does not relate (a) directly to the business of the Company or (b) to the Company’s actual or demonstrably anticipated research or development or (ii) which does not result from any work performed by the Executive for the Company.

 

10.           Confidentiality.  In consideration of this Agreement, the Executive agrees to not at any time use or, other than as required by court order, disclose, or permit use or disclosure of, any of the Company’s confidential information or trade secrets.  This includes all knowledge and information that Executive acquires during employment with the Company which relates to the business, developments, activities, products and services or financial affairs of the Company or any individual or firm that is engaged in or has done business with the Company.  This also includes any information or compilation of information that derives independent economic value from not being generally known or readily ascertainable by proper means by other persons and which relates to any aspect of the Company’s business, including, but not limited to:  trade secrets within the meaning of the Minnesota Trade Secrets Act, customer lists, customer information, costs and selling prices, payment and credit information, customer profiles and analysis, prospect tracking recording, financial information, budget and financial plans, costing, pricing, billing information, tax data, sales and marketing information, business strategies and plans, technical information including software, research, product/product development information, personnel information such as salaries, phone numbers, titles, benefits, bonuses, employment histories, shareholder information and stock data and any discoveries, inventions, ideas, methods, products, equipment, developments, improvements or programs which the Company holds confidential and has not publicly disclosed.  Despite the above, the Executive is not obliged to maintain the confidentiality of information that is or becomes public other than as a result of acts by or through the Executive or that the Executive independently obtains from a third party having no duty of confidentiality to the Company.

 

11.           Indemnification;  Directors’ and Officers’ Insurance.  The Executive shall have the benefit of indemnification to the fullest extent permitted by applicable law, which indemnification shall continue after the termination of this Agreement for such period as may be necessary to continue to indemnify Executive for acts or omissions during the Term hereof to the fullest extent permitted by applicable law.

 

12.           Code Section 409A.  To the extent applicable and notwithstanding any other provision of this Agreement, this Agreement and the Stock Option and other payments and benefits hereunder shall be administered, operated and interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date of this Agreement;  provided, however, in the event that the Compensation Committee determines that any amounts payable hereunder may be taxable to the Executive under Code Section 409A and related Department of Treasury guidance prior to the payment and/or delivery to the Executive of such amount, the Company may (a) adopt such amendments to this Agreement and the related Stock Option or other payments and benefits hereunder, and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Compensation Committee 

 

13

 

determines necessary or appropriate to preserve the intended tax treatment of the benefits provided by this Agreement and/or (b) take such other actions as the Compensation Committee determines necessary or appropriate to comply with or exempt this Agreement and the Stock Option and other payments and benefits hereunder from the requirements of Code Section 409A and related Department of Treasury guidance, including such Department of Treasury guidance and other interpretive materials as may be issued after the date of this Agreement.  The Company makes no guarantees to the Executive regarding the tax treatment of this Agreement and, notwithstanding the above provisions and any agreement or understanding to the contrary, if any stock, payments or other amounts due to the Executive (or his beneficiaries, as applicable) results in, or causes in any manner, the application of an accelerated or additional tax, fine or penalty under Code Section 409A or otherwise to be imposed, then the Executive (or his beneficiaries, as applicable) shall be solely liable for the payment of, and the Company shall have no obligation or liability to pay or reimburse (either directly or otherwise) the Executive (or his beneficiaries, as applicable) for, any such additional taxes, fines or penalties.

 

13.           Complete Agreement.  This Agreement supersedes any other agreements or understandings, written or oral, between the Company and the Executive, and the Executive has no oral representations, understandings or agreements with the Company or any of its officers, directors, employees or representatives covering the same subject matter as this Agreement.  This document is the final, complete and exclusive statement and expression of the agreement between the Company and the Executive and of all the terms of this Agreement, and it cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements.  This document may not be later modified except by a written instrument signed by a duly authorized officer of the Company and the Executive, and no term of this Agreement may be waived except by a written instrument signed by the party waiving the benefit of such term.

 

14.           Notice.  Whenever any notice is required hereunder, it shall be given in writing addressed as follows:

 

	
To   the Company:
    	
Datalink   Corporation
    
	
 
    	
8170   Upland Circle
    
	
 
    	
Chanhassen,   Minnesota 55317
    
	
 
    	
Attention:   Greg R. Meland, Chairman
    
	
 
    	
 
    
	
To   the Executive:
    	
Paul   F. Lidsky
    
	
 
    	
18715   – 24th Avenue North
    
	
 
    	
Plymouth,   Minnesota 55447
    

 

Notice is given and effective three (3) days after the deposit in the U.S. mail of a writing addressed as above and sent first class mail, certified, return receipt requested, or when actually received.  Either party may change the address for notice by notifying the other party of such change in accordance with this Section 14.

 

14

 

15.           Arbitration.  Except as to matters of injunctive or equitable relief (over which the parties agree that the federal and state courts located in Minneapolis, Minnesota will have exclusive jurisdiction and are deemed to be of proper venue and convenience to the parties), any unresolved dispute or controversy arising under or in connection with this Agreement will be settled exclusively by arbitration, conducted before a panel of three (3) arbitrators in Minneapolis, Minnesota, in accordance with the rules of the American Arbitration Association then in effect.  The arbitrators will not have the authority to add to, detract from or modify any provision hereof nor to award punitive damages to any injured party.  A decision by a majority of the arbitration panel will be final and binding.  Judgment may be entered on the arbitrators’ award in any court having jurisdiction.  The direct expense of any arbitration proceedings, including, but not limited to, the administrative fees and the arbitrators’ fees and expenses, will be borne by the Company.

 

16.           Binding  Effect;  Governing Law.  This Agreement will inure to the benefit of the successors or assigns of the Company.  This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, exclusive of its conflicts of laws rules.

 

IN WITNESS WHEREOF, the undersigned have hereunto affixed their signatures.

 

	
DATALINK   CORPORATION
    	
 
    	
EXECUTIVE
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By  
    	
/s/   Greg R. Meland
    	
 
    	
/s/   Paul F. Lidsky
    
	
 
    	
Greg   R. Meland, Chairman
    	
 
    	
Paul   F. Lidsky
    

 

15

 

Exhibit A

Release of Claims

 

I release Datalink Corporation and its officers, directors, employees and agents from any claim, cause of action, damages or expenses, including attorneys’ fees, arising out of the relationship between the parties through the signing of this Release.  This is intended to be a complete release of claims by me, whether the claims are known or unknown, matured or unmatured or fixed or contingent.  Therefore, by this release I GIVE UP ANY RIGHT TO MAKE A CLAIM, BRING A LAWSUIT, FILE AN ADMINISTRATIVE CHARGE OF DISCRIMINATION OR OTHERWISE SEEK MONEY DAMAGES OR COURT ORDERS AS A RESULT OF MY EMPLOYMENT BY DATALINK, OR OF MY SEPARATION FROM EMPLOYMENT WITH DATALINK.  I acknowledge and intend that this Release cover claims of wrongful termination, defamation, intentional infliction of emotional distress, any claims under the Federal Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Minnesota Human Rights Act and Minnesota Statute Section 181.81 (which prohibits age discrimination) and any other state or federal statutes prohibiting discrimination in employment.  This Release also binds my heirs, administrators, representatives, executors, successors and assigns.  I have been advised by my legal counsel of the effect of this Release.  Despite the above, this Release does not apply to claims against Datalink for breaching its obligations under an Employment Agreement dated July 20, 2009.

 

NOTICE TO THE UNDERSIGNED:

 

THIS IS A RELEASE OF LEGAL RIGHTS YOU MAY HAVE.  YOU SHOULD CONSULT WITH AN ATTORNEY REGARDING THIS RELEASE AND OTHER ASPECTS OF THIS LETTER BEFORE YOU SIGN IT.

 

YOU HAVE 21 DAYS TO CONSIDER WHETHER OR NOT TO SIGN THIS RELEASE, STARTING FROM THE DATE YOU FIRST RECEIVE A COPY OF IT.  YOU MAY SIGN THIS RELEASE AT ANY TIME DURING THE 21-DAY PERIOD.

 

YOUR EMPLOYMENT BY DATALINK HAS TERMINATED.  YOUR ACCEPTANCE OR FAILURE TO ACCEPT THIS RELEASE DOES NOT AFFECT YOUR TERMINATION.  IF YOU DO NOT ACCEPT THIS RELEASE, OR IF YOU REVOKE YOUR ACCEPTANCE OF IT, DATALINK WILL NOT PROVIDE YOU THE SEVERANCE PAY AND OTHER BENEFITS DESCRIBED IN YOUR EMPLOYMENT AGREEMENT.

 

AFTER YOU ACCEPT THIS RELEASE BY SIGNING IT, YOU MAY REVOKE YOUR ACCEPTANCE FOR A PERIOD OF 15 DAYS AFTER THE DATE YOU SIGN.  THIS RELEASE IS NOT EFFECTIVE UNTIL THIS 15-DAY REVOCATION PERIOD EXPIRES.

 

IF YOU WISH TO REVOKE YOUR ACCEPTANCE OF THIS RELEASE, YOU MUST NOTIFY DATALINK IN WRITING WITHIN THE 15-DAY REVOCATION PERIOD.  YOU 

 

16

 

MUST DELIVER YOUR NOTICE TO DATALINK IN PERSON OR BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO:  Greg R. Meland, Chairman, Datalink Corporation, 8170 Upland Circle, Chanhassen, Minnesota  55317.  IF YOU FAIL TO PROPERLY DELIVER OR MAIL YOUR WRITTEN REVOCATION AS INSTRUCTED, YOUR REVOCATION WILL NOT BE EFFECTIVE.

 

	
Date   this Release is first given by Datalink to the undersigned:
    	
 
    
	
 
    	
 
    
	
Agreed to and accepted by the undersigned:
    	
 
    
	
 
    	
 
    
	
Date   this Release is signed by the undersigned:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Employee
    

 

17Exhibit 4.1

 

INVESTMENT AGREEMENT

 

INVESTMENT AGREEMENT (this “AGREEMENT”), dated as of January 18, 2011 by and between Advanced Life Sciences Holdings, Inc., a Delaware corporation (the “Company”), and Dutchess Opportunity Fund, II, LP, a Delaware Limited Partnership (the “Investor”).

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Investor shall invest up to Five million dollars ($5,000,000) to purchase the Company’s Common Stock, $.01 par value per share (the “Common Stock”);

 

WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2) under the Securities Act of 1933, as amended (the “1933 Act”), Rule 506 of Regulation D, and the rules and regulations promulgated thereunder, and/or upon such other exemption from the registration requirements of the 1933 Act as may be available with respect to any or all of the investments in Common Stock to be made hereunder; and

 

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto (the “Registration Rights Agreement”) pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act, and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

NOW THEREFORE, in consideration of the foregoing recitals, which shall be considered an integral part of this Agreement, the covenants and agreements set forth hereafter, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Investor hereby agree as follows:

 

SECTION 1.         DEFINITIONS.

 

As used in this Agreement, the following terms shall have the following meanings specified or indicated below, and such meanings shall be equally applicable to the singular and plural forms of such defined terms.

 

“1933 Act” shall have the meaning set forth in the recitals of this Agreement.

 

“1934 Act” shall mean the Securities Exchange Act of 1934, as it may be amended.

 

“AAA” shall have the meaning specified in Section 12.

 

“Affiliate” shall have the meaning specified in Section 5(H).

 

“Agreement” shall mean this Investment Agreement.

 

“Articles of Incorporation” shall have the meaning specified in Section 4(C).

 

“By-laws” shall have the meaning specified in Section 4(C).

 

“Closing” shall have the meaning specified in Section 2(F).

 

“Closing Date” shall have the meaning specified in Section 2(F).

 

“Commitment Fee” shall have the meaning set forth in the Section 14.

 

 

“Common Stock” shall have the meaning set forth in the recitals of this Agreement.

 

“Company” shall have the meaning set forth in the preamble of this Agreement.

 

“Control” or “Controls” shall have the meaning specified in Section 5(H).

 

“DTC” shall have the meaning specified in Section 2(F).

 

“DWAC” shall have the meaning specified in Section 2(F).

 

“Effective Date” shall mean the date the SEC declares effective under the 1933 Act the Registration Statement covering the Securities.

 

“Equity Line Transaction Documents” shall mean this Agreement and the Registration Rights Agreement.

 

“FAST” shall have the meaning specified in Section 2(F).

 

“Indemnities” shall have the meaning specified in Section 11.

 

“Indemnified Liabilities” shall have the meaning specified in Section 11.

 

“Indemnitor” shall have the meaning specified in Section 11.

 

“Investor” shall have the meaning indicated in the preamble of this Agreement.

 

“Material Adverse Effect” shall have the meaning specified in Section 4(A).

 

“Maximum Common Stock Issuance” shall have the meaning specified in Section 2(G).

 

“Minimum Acceptable Price” with respect to any Put Notice Date shall be the price defined by the Company in the applicable Put Notice.

 

“Open Market Adjustment Amount” shall have the meaning specified in Section 2(H).

 

“Open Market Share Purchase” shall have the meaning specified in Section 2(H).

 

“Open Period” shall mean the period beginning on and including the Trading Day immediately following the Effective Date and ending on the earlier to occur of (i) the date which is twenty-four (24) months from the Effective Date; or (ii) termination of the Agreement in accordance with Section 9, below.

 

“Pricing Period” shall mean the five (5) consecutive Trading Days beginning on the Put Notice Date and ending on and including the date that is four (4) Trading Days after such Put Notice Date.

 

“Principal Market” shall mean the Nasdaq Capital Market, the NYSE Amex, the New York Stock Exchange, the Nasdaq Global Market, the Nasdaq Global Select Market or the OTC Bulletin Board, whichever is the principal market on which the Common Stock is listed or quoted.

 

2

 

“Prospectus” shall mean the prospectus, preliminary prospectus and supplemental prospectus used in connection with the Registration Statement.

 

“Purchase Amount” shall mean the total amount being paid by the Investor on a particular Closing Date to purchase the Securities.

 

“Purchase Price” shall mean ninety-five percent (95%) of the lowest daily VWAP (as defined herein) of the Common Stock during the Pricing Period.

 

“Put” shall have the meaning set forth in Section 2(B) hereof.

 

“Put Amount” shall have the meaning set forth in Section 2(B) hereof.

 

“Put Notice” shall mean a written notice in the form attached hereto as Exhibit C, sent to the Investor by the Company stating the Put Amount in U.S. dollars the Company intends to sell to the Investor pursuant to the terms of the Agreement and stating the current number of Shares issued and outstanding on such date.

 

“Put Notice Date” shall mean the Trading Day, as set forth below, immediately following the day on which the Investor receives a Put Notice, however a Put Notice shall be deemed delivered on (a) the Trading Day it is received by facsimile or email by the Investor if such notice is received prior to 9:00 am Eastern Time, or (b) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 9:00 am Eastern Time on a Trading Day. No Put Notice may be deemed delivered on a day that is not a Trading Day.

 

“Put Restriction” shall mean the days during the Pricing Period. During this time, the Company shall not be entitled to deliver another Put Notice.

 

“Put Shares Due” shall have the meaning specified in Section 2(H).

 

“Registration Rights Agreement” shall have the meaning set forth in the recitals of this Agreement.

 

“Registration Statement” means the registration statement of the Company filed under the 1933 Act covering the resale by the Investor of the Common Stock issuable hereunder.

 

“Related Party” shall have the meaning specified in Section 5(H).

 

“Resolutions” shall have the meaning specified in Section 8(E).

 

“SEC” shall mean the U.S. Securities & Exchange Commission.

 

“SEC Documents” shall have the meaning specified in Section 4(G).

 

“Securities” shall mean the shares of Common Stock issued pursuant to the terms of the Agreement.

 

“Shares” shall mean the shares of the Company’s Common Stock.

 

“Subsequent Purchasers” shall have the meaning specified in Section 2(I).

 

“Subsidiaries” shall have the meaning specified in Section 4(A).

 

3

 

“Trading Day” shall mean any day on which the Principal Market for the Common Stock is open for trading, from the hours of 9:30 am until 4:00 pm Boston Time.

 

 “VWAP” shall mean the volume weighted average price.

 

SECTION 2.         PURCHASE AND SALE OF COMMON STOCK.

 

(A)          PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions set forth herein, the Company may issue and sell to the Investor, and the Investor shall purchase from the Company, up to that number of Shares having an aggregate Purchase Price of Five million dollars ($5,000,000).

 

(B)          DELIVERY OF PUT NOTICES. Subject to the terms and conditions of the Equity Line Transaction Documents, and from time to time during the Open Period, the Company may, in its sole discretion, deliver a Put Notice to the Investor which states the dollar amount (designated in U.S. Dollars) (the “Put Amount”) of Shares which the Company intends to sell to the Investor on a Closing Date (the “Put”). The Put Notice shall be in the form attached hereto as Exhibit C and incorporated herein by reference. The Put Amount shall not exceed the greater of either 1) two hundred percent (200%) of the average daily volume (U.S. market only) of the Common Stock for the three (3) Trading Days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing prices immediately preceding the Put Date or 2) three hundred thousand dollars ($300,000). Beginning on any Put Notice Date, the Company shall not be entitled to submit another Put Notice until the applicable Pricing Period has been completed. The Common Stock identified in the Put Notice shall be purchased for a price equal to the Purchase Price.

 

(C)          COMPANY’S RIGHT TO SUSPEND.  On each Put Notice submitted to the Investor by the Company, the Company shall have the option to specify a Suspension Price for that Put.  In the event the Common Stock falls below the Suspension Price, the Put shall be temporarily suspended.  The Put shall resume at such time as the Common Stock is above the Suspension Price, provided the dates for the Pricing Period for that particular Put are still valid.   In the event the Pricing Period has been complete, any shares above the Suspension Price due to the Investor shall be sold to the Investor by the Company at the Suspension Price under the terms of this Agreement. The Suspension Price for a Put may not be changed by the Company once submitted to the Investor.

 

(D)          CONDITIONS TO INVESTOR’S OBLIGATION TO PURCHASE SHARES. Notwithstanding anything to the contrary in this Agreement, the Company shall not be entitled to deliver a Put Notice and the Investor shall not be obligated to purchase any Shares at a Closing unless each of the following conditions are satisfied:

 

(1)           a Registration Statement shall have been declared effective and shall remain effective and available for the resale of all the Registrable Securities (as defined in the Registration Rights Agreement) at all times until the Closing with respect to the subject Put Notice;

 

(2)           at all times during the period beginning on the related Put Notice Date and ending on and including the related Closing Date, the Common Stock shall have been listed or quoted on the Principal Market and shall not have been suspended from trading thereon for a period of two (2) consecutive Trading Days during the Open Period and the Company shall not 

 

4

 

have been notified of any pending or threatened proceeding or other action to suspend the trading of the Common Stock;

 

(3)           the Company has complied with its obligations and is otherwise not in breach of or in default under this Agreement, the Registration Rights Agreement or any other agreement executed in connection herewith which has not been cured prior to delivery of the Put Notice;

 

(4)           no injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Securities; and

 

(5)           the issuance of the Securities pursuant to this Agreement will not violate any shareholder approval requirements of the Principal Market.

 

If any of the events described in clauses (1) through (5) above occurs during a Pricing Period, then the Investor shall have no obligation to purchase the Common Stock subject to the applicable Put Notice.

 

(E)           INTENTIONALLY OMITTED.

 

(F)           MECHANICS OF PURCHASE OF SHARES BY INVESTOR. The closing of the purchase by the Investor of Shares (a “Closing”) shall occur on the date which is no later than ten (10) Trading Days following the applicable Put Notice Date (each a “Closing Date”). On each Closing Date, (I) the Company shall deliver to the Investor pursuant to this Agreement, certificates representing the Shares to be issued to the Investor on such date and registered in the name of the Investor; and (II) the Investor shall deliver to the Company the Purchase Price to be paid for such Shares, based on the Put Amount set forth in Section 2(B). In lieu of delivering physical certificates representing the Securities and provided that the Company’s transfer agent then is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Investor, the Company shall use all commercially reasonable efforts to cause its transfer agent to electronically transmit the Securities by crediting the account of the Investor’s prime broker (as specified by the Investor within a reasonable period in advance of the Investor’s notice) with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

The Company understands that a delay in the issuance of Securities beyond the Closing Date could result in economic damage to the Investor. After the Effective Date, as compensation to the Investor for such loss, the Company agrees to make payments to the Investor for late issuance of Securities (delivery of Securities after the applicable Closing Date) in accordance with the following schedule (where “No. of Days Late” is defined as the number of trading days beyond the Closing Date, with the Amounts being cumulative.):

 

LATE PAYMENT FOR EACH NO. OF DAYS LATE

 

	
1
    	
 
    	
$100
    
	
2
    	
 
    	
$200
    
	
3
    	
 
    	
$300
    
	
4
    	
 
    	
$400
    
	
5
    	
 
    	
$500
    
	
6
    	
 
    	
$600
    
	
7
    	
 
    	
$700
    

 

5

 

	
8
    	
 
    	
$800
    
	
9
    	
 
    	
$900
    
	
10
    	
 
    	
$1000
    
	
Over 10
    	
 
    	
$1,000 + $200 for each Business Day late beyond   10 days
    

 

The Company shall make any payments incurred under this Section in immediately available funds upon demand by the Investor. Nothing herein shall limit the Investor’s right to pursue actual damages for the Company’s failure to issue and deliver the Securities to the Investor, except that such late payments shall offset any such actual damages incurred by the Investor, and any Open Market Adjustment Amount, as set forth below.

 

(G)          OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything contained herein to the contrary, if during the Open Period the Company becomes listed on an exchange that limits the number of shares of Common Stock that may be issued without shareholder approval, then the number of Shares issuable by the Company and purchasable by the Investor, shall not exceed that number of the shares of Common Stock that may be issuable without shareholder approval (the “Maximum Common Stock Issuance”). If such issuance of shares of Common Stock could cause a delisting on the Principal Market, then the Maximum Common Stock Issuance shall first be approved by the Company’s shareholders in accordance with applicable law and the By-laws and Articles of Incorporation of the Company, as amended. The parties understand and agree that the Company’s failure to seek or obtain such shareholder approval shall in no way adversely affect the validity and due authorization of the issuance and sale of Securities or the Investor’s obligation in accordance with the terms and conditions hereof to purchase a number of Shares in the aggregate up to the Maximum Common Stock Issuance limitation, and that such approval pertains only to the applicability of the Maximum Common Stock Issuance limitation provided in this Section 2(H).

 

(H)          OPEN MARKET ADJUSTMENT. If, by the third (3rd) business day after a Closing Date, the Company fails to deliver any portion of the Securities subject to a Put Notice to the Investor (the “Put Shares Due”) and the Investor purchases, in an open market transaction or otherwise, shares of Common Stock necessary to make delivery by the Investor of shares in respect of sales to subsequent purchasers, pursuant to transactions entered into before the Closing Date (“Subsequent Purchasers”), which such shares of Common Stock would have been delivered to the Investor by the Company but for the Company’s failure to so deliver (the “Open Market Share Purchase”), then the Company shall pay to the Investor, in addition to any other amounts due to Investor pursuant to the Put, and not in lieu thereof, the Open Market Adjustment Amount (as defined below). The “Open Market Adjustment Amount” is the amount equal to the excess, if any, of (x) the Investor’s total purchase price (including brokerage commissions, if any) for the Open Market Share Purchase minus (y) the net proceeds (after brokerage commissions, if any) received by the Investor from the sale of the Put Shares Due to such Subsequent Purchasers. The Company shall pay the Open Market Adjustment Amount to the Investor in immediately available funds within five (5) business days of written demand by the Investor.  By way of illustration and not in limitation of the foregoing, if the Investor purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover an Open Market Share Purchase with respect to shares of Common Stock it sold to Subsequent Purchasers for net proceeds of $10,000, the Open Market Adjustment Amount which the Company will be required to pay to the Investor will be $1,000.

 

6

 

(I)            LIMITATION ON AMOUNT OF OWNERSHIP. Notwithstanding anything to the contrary in this Agreement, in no event shall the Investor be entitled to purchase that number of Shares, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the 1934 Act), by the Investor, would exceed 4.99% of the number of shares of Common Stock outstanding on the Closing Date, as determined in accordance with Rule 13d-1(j) of the 1934 Act.

 

SECTION 3.         INVESTOR’S REPRESENTATIONS, WARRANTIES AND COVENANTS.  The Investor represents and warrants to the Company, and covenants, that:

 

(A)          SOPHISTICATED INVESTOR. The Investor has, by reason of its business and financial experience, such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that it is capable of (1) evaluating the merits and risks of an investment in the Securities and making an informed investment decision; (2) protecting its own interest; and (3) bearing the economic risk of such investment for an indefinite period of time.  A substantial part of the Investor’s business activities consists of investing, purchasing, selling or trading in securities issued by others.

 

(B)          AUTHORIZATION; ENFORCEMENT. The Investor has the requisite power and authority to enter into and perform this Agreement and the Registration Rights Agreement. The execution and delivery of the Equity Line Transaction Documents by the Investor and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly authorized by the Investor’s general partners and no further consent or authorization is required by its partners. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Investor and is a valid and binding agreement of the Investor enforceable against the Investor in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

(C)          SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the Investor will comply with the provisions of Section 9 of the 1934 Act, and the rules promulgated thereunder, with respect to transactions involving the Common Stock. The Investor agrees not to sell the Company’s stock short, either directly or indirectly through its affiliates, principals or advisors, the Company’s common stock during the term of this Agreement.

 

(D)          ACCREDITED INVESTOR. Investor is an “Accredited Investor” as that term is defined in Rule 501(a) of Regulation D of the 1933 Act.

 

(E)           NO CONFLICTS. The execution, delivery and performance of the Transaction Documents by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby will not (1) result in a violation of the partnership agreement or other organizational documents of the Investor, (2) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Investor is a party, or to the Investor’s knowledge result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations) applicable to the Investor or by which any property or asset of the Investor is bound or affected.

 

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(F)           NO VIOLATIONS. The Investor is not in violation of any term of, or in default under, the partnership agreement of other organizational documents of the Investor or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Investor, except for conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not, individually or in the aggregate, constitute or reasonably be expected to constitute a material adverse effect on the Investor.  The business of the Investor is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for violations the sanctions for which either, individually or in the aggregate, would not have or reasonably be expected to have a material adverse effect on the Investor.  Except as specifically contemplated by this Agreement and as required under the 1933 Act or any securities laws of any states, to the Investor’s knowledge, the Investor is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing of a registration statement as outlined in the Registration Rights Agreement) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Equity Line Transaction Documents in accordance with the terms hereof or thereof except for those consents, authorizations, permits, orders or filings as have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof.  Except as disclosed in Schedule 3(f), the Investor is unaware of any facts or circumstances which might give rise to any violation or default set forth in this Section 3(F).

 

(G)          OPPORTUNITY TO DISCUSS. The Investor has received all materials relating to the Company’s business, finance and operations which it has requested. The Investor has had an opportunity to discuss the business, management and financial affairs of the Company with the Company’s management.  The Investor understands that its investment involves a high degree of risk.  The investor is in a position regarding the Company that enables the Investor to obtain information from the Company in order to evaluate the merits and risks of its investment.  The Investor has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to this transaction.

 

(H)          INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own account for investment purposes and not with a view towards distribution.  The Investor agrees not to sell, hypothecate or otherwise transfer the Investor’s Securities unless such sale, hypothecation or transfer is registered under the Federal and applicable state securities laws or unless, in the opinion of counsel satisfactory to the Company, an exemption from such laws is available.  The Investor acknowledges that it will be named as an underwriter for purposes of the Registration Statement.

 

(I)            NO REGISTRATION AS A DEALER. The Investor is not and will not be required to be registered as a “dealer” under the 1934 Act, either as a result of its execution and performance of its obligations under this Agreement or otherwise.

 

(J)            GOOD STANDING.  The Investor is a Limited Partnership, duly organized, validly existing and in good standing in the state of Delaware.

 

(K)          TAX LIABILITIES. The Investor understands that it is liable for its own tax liabilities.

 

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(L)           REGULATION M.  The Investor’s trading activities with respect to the Company’s Common Stock shall be in compliance with all applicable federal and state securities laws, rules and regulations and the rules and regulations of the Principal Market on which the Common Stock is listed or quoted.  Neither the Investor nor its affiliates has an open short position in the Common Stock, the Investor agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales of the Common Stock.  The Investor will comply with Regulation M under the 1934 Act, if applicable.

 

SECTION 4.         REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  Except as set forth in the Schedules attached hereto, or as disclosed in the Company’s SEC Documents, the Company represents and warrants to the Investor that:

 

(A)          ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware, USA and has the requisite corporate power and authorization to own its properties and to carry on its business as now being conducted. Both the Company and the companies it owns or controls (“Subsidiaries”) are duly qualified to do business and are in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on (1) the properties, assets, operations, results of operations, or financial condition of the Company and its Subsidiaries, if any, taken as a whole, (2) the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or (3) the authority or ability of the Company to perform its obligations under the Equity Line Transaction Documents other than as a result of (a) changes adversely affecting the United States economy (so long as the Company is not disproportionately affected thereby), (b) changes adversely affecting the industry in which the Company operates (so long as the Company is not disproportionately affected thereby), (c) the announcement or consummation of the transactions contemplated by this Agreement, and (d) changes in the market price of the Common Stock.

 

(B)          AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.

 

(1)           The Company has the requisite corporate power and authority to enter into and perform the Equity Line Transaction Documents, and to perform its obligations contemplated hereby and thereby.

 

(2)           The execution and delivery of the Equity Line Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the reservation for issuance and the issuance of the Securities pursuant to this Agreement, have been duly and validly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its shareholders.

 

(3)           The Equity Line Transaction Documents have been duly and validly executed and delivered by the Company.

 

(4)           The Equity Line Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable

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bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.

 

(C)          CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company includes 620,000,000 shares of Common Stock with $.01 par value per share, of as of January 18, 2011, 276,223,915 were issued and outstanding.  Except as disclosed in the Company’s publicly available filings with the SEC: (1) no shares of the Company’s capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (2) there are no outstanding debt securities; (3) there are no outstanding shares of capital stock, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries; (4) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement); (5) there are no outstanding securities of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (6) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in this Agreement; (7) the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (8) there is no dispute as to the classification of any shares of the Company’s capital stock.

 

The Company has furnished to the Investor, or the Investor has had access through the SEC’s EDGAR website to, true and correct copies of the Company’s Articles of Incorporation, as amended and in effect on the date hereof (the “Articles of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto.

 

(D)          ISSUANCE OF SHARES. The Company has reserved 72,161,601 Shares for issuance pursuant to this Agreement, which have been duly authorized and reserved for issuance (subject to adjustment pursuant to the Company’s covenant set forth in Section 5(F) below) pursuant to this Agreement. Upon issuance in accordance with this Agreement, the Securities will be validly issued, fully paid for and non-assessable and free from all taxes, liens and charges with respect to the issue thereof.

 

(E) NO CONFLICTS. The execution, delivery and performance of the Equity Line Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (I) result in a violation of the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws; or (II) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Company or any of its Subsidiaries is a party, or to the Company’s knowledge result in a

 

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violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the rules and regulations of the Principal Market or principal securities exchange or trading market on which the Common Stock is traded or listed) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Except as disclosed in Schedule 4(e), neither the Company nor its Subsidiaries is in violation of any term of, or in default under, the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws or their organizational charter or by-laws, respectively, or any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not individually or in the aggregate have or constitute a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for possible violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act or any securities laws of any states, to the Company’s knowledge, the Company is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing of a registration statement as outlined in the Registration Rights Agreement between the Parties) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Equity Line Transaction Documents in accordance with the terms hereof or thereof. All consents, authorizations, permits, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof. Except as disclosed in Schedule 4(e), the Company and its Subsidiaries are not aware of any facts or circumstances which might give rise to any violation or default of any of the foregoing. The Company is not, and will not be, in violation of the listing requirements of the Principal Market as in effect on the date hereof and on each of the Closing Dates and is not aware of any facts which would reasonably lead to delisting of the Common Stock by the Principal Market in the foreseeable future.

 

(F) SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act for the two years preceding the date hereof (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”). The Company has delivered to the Investor or its representatives, or they have had access through the SEC’s EDGAR website to, true and complete copies of the SEC Documents. As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with

 

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generally accepted accounting principles, and audited by a firm that is a member of the Public Companies Accounting Oversight Board (“PCAOB”) consistently applied, during the periods involved (except (I) as may be otherwise indicated in such financial statements or the notes thereto, or (II) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other written information provided by or on behalf of the Company to the Investor which is not included in the SEC Documents, including, without limitation, information referred to in Section 4(D) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its Subsidiaries or, to the Company’s knowledge, any of their officers, directors, employees or agents have provided the Investor with any material, nonpublic information which was not publicly disclosed prior to the date hereof and any material, nonpublic information provided to the Investor by the Company or its Subsidiaries or any of their officers, directors, employees or agents prior to any Closing Date shall be publicly disclosed by the Company prior to such Closing Date.

 

(G) ABSENCE OF CERTAIN CHANGES. Except as otherwise set forth in the SEC Documents, the Company does not intend to change the business operations of the Company in any material way. The Company has not taken any steps to seek protection pursuant to any bankruptcy law.

 

(H) ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS. Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company’s Subsidiaries or any of the Company’s or the Company’s Subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could reasonably be expected to have a Material Adverse Effect.

 

(I) ACKNOWLEDGMENT REGARDING INVESTOR’S PURCHASE OF SHARES. The Company acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length purchaser with respect to the Equity Line Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Equity Line Transaction Documents and the transactions contemplated hereby and thereby and any advice given by the Investor or any of its respective representatives or agents in connection with the Equity Line Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Investor’s purchase of the Securities, and is not being relied on by the Company. The Company further represents to the Investor that the Company’s decision to enter into the Equity Line Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

 

(J) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as set forth in the SEC Documents, as of the date hereof, no event, liability, development or circumstance has occurred or exists, or to the Company’s knowledge is contemplated to occur, with respect to the Company or its Subsidiaries or their respective

 

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business, properties, assets, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced.

 

(K) EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that relations with their employees are good.  No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company’s employ or otherwise terminate such officer’s employment with the Company.

 

(L) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. Except as set forth in the SEC Documents, none of the Company’s trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights necessary to conduct its business as now or as proposed to be conducted have expired or terminated, or are expected to expire or terminate within two (2) years from the date of this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth in the SEC Documents, there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its Subsidiaries are not aware of any facts or circumstances which might give rise to any of the foregoing. The Company and its Subsidiaries have taken commercially reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties.

 

(M) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (I) are, to the knowledge of the Company and its Subsidiaries, in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”); (II) have, to the knowledge of the Company, received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (III) are in compliance, to the knowledge of the  Company, with all terms and conditions of any such permit, license or approval where, in each of the three (3) foregoing cases, the failure to so comply would have, individually or in the aggregate, a Material Adverse Effect.

 

(N) TITLE. The Company and its Subsidiaries have good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as

 

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are described in the SEC Documents or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries. Any real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

 

(O) INSURANCE. Each of the Company’s Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company reasonably believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any of its Subsidiaries has been refused any insurance coverage sought or applied for and neither the Company nor its Subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

(P) REGULATORY PERMITS. The Company and its Subsidiaries have in full force and effect all certificates, approvals, authorizations and permits from the appropriate federal, state, local or foreign regulatory authorities and comparable foreign regulatory agencies, necessary to own, lease or operate their respective properties and assets and conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, approval, authorization or permit, except for such certificates, approvals, authorizations or permits which if not obtained, or such revocations or modifications which, would not have a Material Adverse Effect.

 

(Q) INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (I) transactions are executed in accordance with management’s general or specific authorizations; (II) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles by a firm with membership to the PCAOB and to maintain asset accountability; (III) reasonable controls to safeguard assets are in place; and (IV) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

(R) INTENTIONALLY OMITTED.

 

(S) TAX STATUS. The Company and each of its Subsidiaries has made or filed all United States federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

 

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(T) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents and except for arm’s length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from disinterested third parties and other than the grant of stock options disclosed in the SEC Documents or stock options granted in the future as contemplated by current compensation agreements or plans disclosed in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

 

(U) DILUTIVE EFFECT. The Company understands and acknowledges that the number of shares of Common Stock issuable upon purchases pursuant to this Agreement will increase in certain circumstances including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines during the period between the Effective Date and the end of the Open Period. The Company acknowledges that the transactions contemplated by this Agreement have a potential dilutive effect on the shareholders of the Company. The Board of Directors of the Company has concluded that the transactions contemplated by this Agreement are in the best interests of the Company. The Company specifically acknowledges that, subject to such conditions and limitations as are expressly set forth in the Equity Line Transaction Documents, its obligation to issue shares of Common Stock under the terms of Put Notices delivered by the Company from time to time pursuant to this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.

 

(V) LOCK-UP. The Company shall cause its executive officers and directors to refrain from selling Common Stock during each Pricing Period.

 

(W) NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Common Stock to be offered as set forth in this Agreement.

 

(X) NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS.  No brokers, finders or financial advisory fees or commissions will be payable by the Company, its agents or Subsidiaries, with respect to the transactions contemplated by this Agreement, except as otherwise contemplated by this Agreement.

 

SECTION 5.                              COVENANTS OF THE COMPANY

 

(A)                              EFFORTS. The Company shall use all commercially reasonable efforts to timely satisfy each of the conditions set forth in Section 8 of this Agreement.

 

(B)                                BLUE SKY. The Company shall, at its sole cost and expense, on or before each of the Closing Dates, take such action as the Company shall reasonably determine is necessary to qualify the Securities for, or obtain exemption for the Securities for, sale to the Investor at each of the Closings pursuant to this Agreement under applicable securities or “Blue Sky” laws

 

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of such states of the United States, as reasonably specified by the Investor, and shall provide evidence of any such action so taken to the Investor on or prior to the Closing Date.

 

(C)                                REPORTING STATUS. Until one of the following occurs, the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status, or take an action or fail to take any action, which would terminate its status as a reporting company under the 1934 Act: (1) this Agreement terminates pursuant to Section 9, or (2) the date on which the Investor has sold all the Securities; provided that the Investor shall promptly notify the Company after the Investor has sold all the Securities.

 

(D)                               USE OF PROCEEDS. The Company will use the proceeds from the sale of the Securities (excluding amounts paid by the Company for fees as set forth in the Equity Line Transaction Documents) for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith, deems to be in the best interest of the Company.

 

(E)                                 FINANCIAL INFORMATION. During the Open Period, the Company agrees to make available to the Investor via the SEC’s EDGAR website or other electronic means the following documents and information on the forms set forth: (1) within five (5) Trading Days after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any Registration Statements or amendments filed pursuant to the 1933 Act; (2) copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with the making available or giving thereof to the shareholders; and (3) within two (2) calendar days of filing or delivery thereof, copies of all documents filed with, and all correspondence sent to, the Principal Market, any securities exchange or market, or the Financial Industry Regulatory Authority, unless such information is material nonpublic information.

 

(F)                                 RESERVATION OF SHARES. The Company shall reserve at least 72,162,601 Shares for the issuance of the Securities to the Investor as required hereunder.

 

(G)                                LISTING. The Company shall promptly secure and maintain the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) on the Principal Market and each other national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, such listing of all Registrable Securities from time to time issuable under the terms of the Equity Line Transaction Documents. Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market (excluding suspensions of not more than one (1) trading day resulting from business announcements by the Company). The Company shall promptly provide to the Investor copies of any notices it receives from the Principal Market regarding the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 5(G).

 

(H)                               TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any Subsidiary’s officers, directors, persons who were officers or directors at any time during the previous two (2) years, shareholders who beneficially own 5% or more of the Common Stock, or Affiliates or with any individual related by

 

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blood, marriage or adoption to any such individual or with any entity in which any such entity or individual owns a 5% or more beneficial interest (each a “Related Party”), except for (1) customary employment arrangements and benefit programs on reasonable terms, (2) any agreement, transaction, commitment or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a disinterested third party other than such Related Party,(3) any agreement, transaction, commitment or arrangement which is approved by a majority of the disinterested directors of the Company, or (4) extensions or amendments of any existing employment agreement. For purposes hereof, any director who is also an officer of the Company or any Subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment or arrangement. “Affiliate” for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (1) has a 5% or more equity interest in that person or entity, (2) has 5% or more common ownership with that person or entity, (3) controls that person or entity, or (4) is under common control with that person or entity. “Control” or “Controls” for purposes hereof means that a person or entity has the power, directly or indirectly, to conduct or govern the policies of another person or entity.

 

(I)                                    FILING OF FORM 8-K. On or before the date which is four (4) Trading Days after the date of execution of this Agreement, the Company shall file a Current Report on Form 8-K with the SEC describing the terms of the transaction contemplated by the Equity Line Transaction Documents in the form required by the 1934 Act, if such filing is required.

 

(J)                                   CORPORATE EXISTENCE. The Company shall use all commercially reasonable efforts to preserve and continue the corporate existence of the Company.

 

(K)                               NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall promptly notify the Investor upon the occurrence of any of the following events in respect of a Registration Statement or related prospectus in respect of an offering of the Securities: (1) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related prospectus; (2) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (3) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Securities for sale in any jurisdiction or the initiation or notice of any proceeding for such purpose; (4) the happening of any event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (5) the Company’s reasonable determination that a post-effective amendment to the Registration Statement would be appropriate, and the Company shall promptly make available to Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to the Investor any Put Notice during the continuation of any of the foregoing events in this Section 5(K).

 

17

 

(L)                                 INTENTIONALLY OMITTED.

 

(M)                            TRANSFER AGENT. Upon effectiveness of the Registration Statement, and for so long as the Registration Statement is effective,  the Company shall deliver instructions to its transfer agent to issue Shares to the Investor that are covered for resale by the Registration Statement free of restrictive legends.

 

(N)                               ACKNOWLEDGEMENT OF TERMS. The Company hereby represents and warrants to the Investor that: (1) it is voluntarily entering into this Agreement of its own freewill, (2) it is not entering this Agreement under economic duress, (3) the terms of this Agreement are reasonable and fair to the Company, and (4) the Company has had independent legal counsel of its own choosing review this Agreement, advise the Company with respect to this Agreement, and represent the Company in connection with this Agreement.

 

SECTION 6.                              INTENTIONALLY OMITTED.

 

SECTION 7.                              CONDITIONS OF THE COMPANY’S OBLIGATION TO SELL.  The obligation hereunder of the Company to issue and sell the Securities to the Investor is further subject to the satisfaction, at or before each Closing Date, of each of the following conditions set forth below. These conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion.

 

(A)                              The Investor shall have executed this Agreement and the Registration Rights Agreement and delivered the same to the Company.

 

(B)                                The Investor shall have delivered to the Company the Purchase Price for the Securities being purchased by the Investor between the end of the Pricing Period and the Closing Date via a Put Settlement Sheet (hereto attached as Exhibit D).  Immediately after receipt of confirmation of delivery of such Securities to the Investor, the Investor, by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company, will disburse the funds constituting the Purchase Amount.

 

(C)                                The representations and warranties of the Investor shall be true and correct in all material respects as of the date when made and as of the applicable Closing Date as though made at that time and the Investor shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by the Equity Line Transaction Documents to be performed, satisfied or complied with by the Investor on or before such Closing Date.

 

(D)                               No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

SECTION 8.                              FURTHER CONDITIONS OF THE INVESTOR’S OBLIGATION TO PURCHASE.  The obligation of the Investor hereunder to purchase Shares is subject to the satisfaction, on or before each Closing Date, of each of the following conditions set forth below.

 

(A)                              The Company shall have executed the Equity Line Transaction Documents and delivered the same to the Investor.

 

18

 

(B)                                The Common Stock shall be authorized for quotation on the Principal Market and trading in the Common Stock shall not have been suspended by the Principal Market or the SEC, at any time beginning on the date hereof and through and including the respective Closing Date (excluding suspensions of not more than one (1) Trading Day resulting from business announcements by the Company, provided that such suspensions occur prior to the Company’s delivery of the Put Notice related to such Closing).

 

(C)                                The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the applicable Closing Date as though made at that time and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by the Equity Line Transaction Documents to be performed, satisfied or complied with by the Company on or before such Closing Date. The Investor may request an update as of such Closing Date regarding the representation contained in Section 4(C) above.

 

(D)                               The Company shall have executed and delivered to the Investor the certificates representing, or have executed electronic book-entry transfer of, the Securities (in such denominations as the Investor shall request) being purchased by the Investor at such Closing.

 

(E)                                 The Board of Directors of the Company shall have adopted resolutions consistent with Section 4(B)(2) above (the “Resolutions”) and such Resolutions shall not have been amended or rescinded prior to such Closing Date.

 

(F)                                 INTENTIONALLY OMITTED.

 

(G)                                No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

(H)                               The Registration Statement shall be effective on each Closing Date and no stop order suspending the effectiveness of the Registration Statement shall be in effect or to the Company’s knowledge shall be pending or threatened. Furthermore, on each Closing Date (1) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC’s concerns have been addressed and Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (2) no other suspension of the use or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist.

 

(I)                                    At the time of each Closing, the Registration Statement (including information or documents incorporated by reference therein) and any amendments or supplements thereto shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or which would require public disclosure or an update supplement to the prospectus.

 

(J)                                   If applicable, the shareholders of the Company shall have approved the issuance of any Shares in excess of the Maximum Common Stock Issuance in accordance with the rules of the Principal Market.

 

19

 

(K)                               INTENTIONALLY OMITTED.

 

(L)                                 The Company shall have certified to the Investor the number of Shares of Common Stock outstanding when a Put Notice is given to the Investor.  The Company’s delivery of a Put Notice to the Investor constitutes the Company’s certification of the reservation for issuance of the necessary number of shares of Common Stock subject to a Put Notice.

 

SECTION 9.                              TERMINATION. This Agreement shall terminate upon any of the following events:

 

(A)                              when the Investor has purchased an aggregate of Five million dollars $5,000,000 in the Common Stock of the Company pursuant to this Agreement; or,

 

(B)                                on the date which is twenty-four (24) months after the Effective Date; or,

 

(C)                                upon written notice of the Company to the Investor.  Any and all shares, or penalties, if any, due under this Agreement shall be immediately payable and due upon termination of this Agreement.

 

SECTION 10.                        SUSPENSION.  The Company’s right to cause the Investor to purchase Shares pursuant to a Put Notice, and the Investor’s obligation to purchase Shares under this Agreement shall be suspended upon any of the following events, and shall remain suspended until such event is rectified:

 

(A)                              The trading of the Common Stock is suspended by the SEC, the Principal Market or FINRA for a period of two (2) consecutive Trading Days during the Open Period; or,

 

(B)                                The Common Stock ceases to be registered under the 1934 Act or listed or traded on the Principal Market.  Immediately upon the occurrence of one of the above-described events, the Company shall send written notice of such event to the Investor.

 

SECTION 11.                        INDEMNIFICATION.  In consideration of the parties’ mutual obligations set forth in the Equity Line Transaction Documents, each of the parties (in such capacity, an “Indemnitor”) shall defend, protect, indemnify and hold harmless the other and all of the other party’s shareholders, officers, directors, employees, counsel, and direct or indirect investors and any of the foregoing person’s agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and reasonable expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (A) any material misrepresentation or breach of any representation or warranty made by the Indemnitor in the Equity Line Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; (B) any material breach of any covenant, agreement or obligation of the Indemnitor contained in the Equity Line Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; or (C) any cause of action, suit or claim brought or made against such Indemnitee by a third party and arising out of or resulting from the execution, delivery, performance or enforcement of the Equity Line Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, except insofar as (Y) any such misrepresentation, breach or any untrue statement,

 

20

 

alleged untrue statement, omission or alleged omission is made in reliance upon and in conformity with information furnished to Indemnitor which is specifically intended for use in the preparation of any such Registration Statement, preliminary prospectus, prospectus or amendments to the prospectus, (Z) any such Indemnified Liabilities resulted or arose from the breach by the Indemnitee party hereto of any representation, warranty, covenant or agreement of such Indemnitee contained in the Equity Line Transaction Documents or the negligence, recklessness, willful misconduct or bad faith of such Indemnitee. To the extent that the foregoing undertaking by the Indemnitor may be unenforceable for any reason, the Indemnitor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The indemnity provisions contained herein shall be in addition to any cause of action or similar rights Indemnitor may have, and any liabilities the Indemnitor or the Indemnitees may be subject to.

 

SECTION 12.                        GOVERNING LAW; DISPUTES SUBMITTED TO ARBITRATION. All disputes arising under this agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflict of laws.  The parties to this agreement will submit all disputes arising under this agreement to arbitration in Boston, MA before a single arbitrator of the American Arbitration Association (“AAA”).  The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to practice law in Commonwealth of Massachusetts.  No party to this Agreement will challenge the jurisdiction or venue provisions as provided in this section. No party to this agreement will challenge the jurisdiction or venue provisions as provided in this section.  Nothing contained herein shall prevent the party from obtaining an injunction.

 

SECTION 13.                        LEGAL EXPENSES; AND MISCELLANEOUS EXPENSES. Except as otherwise set forth in the Equity Line Transaction Documents, each party shall pay the fees and expenses of its advisers, counsel, the accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. Any attorneys’ fees and expenses incurred by either the Company or the Investor in connection with the preparation, negotiation, execution and delivery of any amendments to this Agreement or relating to the enforcement of the rights of any party, after the occurrence of any breach of the terms of this Agreement by another party or any default by another party in respect of the transactions contemplated hereunder, shall be paid on demand by the party which breached the Agreement and/or defaulted, as the case may be. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of any Securities.  The Company has paid fifteen thousand dollars ($15,000) for the preparation of the Equity Line Transaction Documents.  The Company shall pay $250 on each Closing Date to cover costs associated with, but not limited to: DWAC costs, legal review fees and wire fees.

 

SECTION 14.                        COMMITMENT FEE.  The Company agrees to issue to the Investor two million four hundred seventy-five thousand two hundred and forty-eight (2,475,248) shares of Common Stock as an inducement to enter in this Agreement (“Commitment Fee”). The Commitment Fee shall be included in the Registration Statement.

 

SECTION 15.                        COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature or an email with a signature attached in PDF format shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original signature.

 

21

 

SECTION 16.         HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine.

 

SECTION 17.         SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 

SECTION 18.         ENTIRE AGREEMENT; AMENDMENTS. This Agreement is the FINAL AGREEMENT between the Company and the Investor with respect to the terms and conditions set forth herein, and, the terms of this Agreement may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the Parties. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Investor, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. The execution and delivery of the Equity Line Transaction Documents shall not alter the force and effect of any other agreements between the Parties, and the obligations under those agreements.

 

SECTION 19.         NOTICES. Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (A) upon receipt, when delivered personally; (B) upon receipt, when sent by facsimile or email with the signed document attached in PDF format (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (C) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

Advanced Life Sciences Holdings, Inc.

1440 Davey Road
 Woodridge, IL 60517

Telephone: (630) 754-4343

Facsimile:

Email: jflavin@advancedlifesciences.com

Attention: John L. Flavin

 

With a copy to (which shall not constitute notice):

 

Winston & Strawn LLP

35 West Wacker Drive

Chicago, IL 60601

Telephone: (312) 558-6376

Facsimile: (312) 558-5700

 

22

 

If to the Investor:

 

Dutchess Opportunity Fund, II, LP 
 50 Commonwealth Avenue, Suite 2  
 Boston, MA 02116 
 Telephone: 617-301-4700  
 Facsimile: 617-249-0947

Email:

Attention:

 

Each party shall provide five (5) days prior written notice to the other party of any change in address or facsimile number.

 

SECTION 20.         NO ASSIGNMENT. This Agreement and any rights, agreements or obligations hereunder may not be assigned, by operation of law, merger or otherwise, without the prior written consent of the other party hereto, and any purported assignment by a party without prior written consent of the other party will be null and void and not binding on such other party.  Subject to the preceding sentence, all of the terms, agreements, covenants, representations, warranties and conditions of this Agreement are binding upon, and inure to the benefit of and are enforceable by, the parties and their respective successors and assigns.

 

SECTION 21.         NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provision hereof be enforced by, any other person, except that the Company acknowledges that the rights of the Investor may be enforced by its general partner.

 

SECTION 22.         SURVIVAL. The indemnification provisions set forth in Section 11, shall survive each of the Closings and the termination of this Agreement.

 

SECTION 23.         PUBLICITY. The Company and the Investor shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior consent of the other party, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other party with prior notice of such public statement. The Investor acknowledges that this Agreement and all or part of the Equity Line Transaction Documents may be deemed to be “material contracts” as that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore be required to file such documents as exhibits to reports or registration statements filed under the 1933 Act or the 1934 Act.  The Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by the Company, in consultation with its counsel.

 

SECTION 24.         FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

SECTION 25.         INTENTIONALLY OMITTED.

 

23

 

SECTION 26.         NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party, as the parties mutually agree that each has had a full and fair opportunity to review this Agreement and seek the advice of counsel on it.

 

SECTION 27.         REMEDIES. The Investor shall have all rights and remedies set forth in this Agreement and the Registration Rights Agreement and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which the Investor has by law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any default or breach of any provision of this Agreement, including the recovery of reasonable attorneys fees and costs, and to exercise all other rights granted by law.

 

SECTION 28.         PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Investor hereunder or under the Registration Rights Agreement or the Investor enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

SECTION 29.         PRICING OF COMMON STOCK. For purposes of this Agreement, the VWAP of the Common Stock shall be as reported on a direct feed service.

 

SECTION 30.         NON-DISCLOSURE OF NON-PUBLIC INFORMATION.

 

(A)                              The Company shall not disclose material non-public information concerning the Company to the Investor, its advisors, or its representatives.

 

(B)                                Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the Investor of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting material non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 30 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement or necessary to

 

24

 

make the statements contained therein, in light of the circumstances in which they were made, not misleading.

 

SECTION 31.         ACKNOWLEDGEMENTS OF THE PARTIES.  Notwithstanding anything in this Agreement to the contrary, the parties hereto hereby acknowledge and agree to the following: (A) the Investor makes no representations or covenants that it will not engage in trading in the securities of the Company, other than the Investor will not sell any of the Company’s common stock at any time during a Pricing Period; (B) the Company has not and shall not provide material non-public information to the Investor unless prior thereto the Investor shall have executed a written agreement regarding the confidentiality and use of such information; and (C) the Company understands and confirms that the Investor will be relying on the acknowledgements set forth in clauses (A) and (B) above if the Investor effects any transactions in the securities of the Company.

 

[Signature Page Follows]

 

25

 

SIGNATURE PAGE OF INVESTMENT AGREEMENT

 

Your signature on this Signature Page evidences your agreement to be bound by the terms and conditions of the Investment Agreement and the Registration Rights Agreement as of the date first written above.

 

The undersigned signatory hereby certifies that he has read and understands the Investment Agreement, and the representations made by the undersigned in this Investment Agreement are true and accurate, and agrees to be bound by its terms.

 

	
 
    	
DUTCHESS OPPORTUNITY   FUND, II, LP
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Douglas H. Leighton
    
	
 
    	
 
    	
Douglas H. Leighton
    
	
 
    	
 
    	
Managing Member of:
    
	
 
    	
 
    	
Dutchess Capital Management, II, LLC
    
	
 
    	
 
    	
General Partner to:
    
	
 
    	
 
    	
Dutchess Opportunity Fund, II, LP
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
ADVANCED LIFE SCIENCES HOLDINGS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Michael T. Flavin
    
	
 
    	
 
    	
Michael T. Flavin, Ph.D.
    
	
 
    	
 
    	
Chairman of the Board and Chief Executive Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ John L. Flavin
    
	
 
    	
 
    	
John L. Flavin
    
	
 
    	
 
    	
President and Chief Financial Officer
    

 

Signature Page to Investment Agreement

 

 

LIST OF EXHIBITS

 

	
EXHIBIT A
    	
 
    	
Registration Rights Agreement
    
	
EXHIBIT B
    	
 
    	
Opinion of Company’s Counsel
    
	
EXHIBIT C
    	
 
    	
Put Notice
    
	
EXHIBIT D
    	
 
    	
Put Settlement Sheet
    

 

 

EXHIBIT A

 

REGISTRATION RIGHTS AGREEMENT

 

(Attached)

 

A-1

 

EXHIBIT B

 

OPINION OF COMPANY’S COUNSEL

 

(Attached)

 

B-1

 

EXHIBIT C

 

FORM OF PUT NOTICE

 

Date:

 

RE: Put Notice Number

 

Dear Mr. Leighton:

 

This is to inform you that as of today, Advanced Life Sciences Holdings, Inc., a Delaware corporation (the “Company”), hereby elects to exercise its right pursuant to the Investment Agreement entered into with Dutchess Opportunity Fund II, LP (“Dutchess”) to require Dutchess to purchase shares of its common stock.  The Company hereby certifies that:

 

The amount of this put is $                                                             .

 

The Pricing Period runs from                             until                                        .

 

The Suspension Price is $                                  .

 

The current number of shares issued and outstanding as of the Company are:

 

The number of shares currently available for resale pursuant to the Registration Statement on Form S-1 for the Equity Line are:                                 .

 

 

	
 
    	
Regards,
    
	
 
    	
 
    
	
 
    	
Advanced Life Sciences Holdings, Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

C-1

 

EXHIBIT D

 

FORM OF PUT SETTLEMENT SHEET

 

Date:

 

RE: Advanced Life Sciences Holdings, Inc.

 

Dear                                        :

 

Pursuant to the Put given by Advanced Life Sciences Holdings, Inc. to Dutchess Opportunity Fund, II, LP on                              200 , we are now submitting the amount of common shares for you to issue to Dutchess.

 

Please deliver                      shares without restrictive legend via book entry to Dutchess Opportunity Fund, II, LP immediately and send via DWAC to the following account:

 

XXXXXX

 

Once these shares are received by us, we will have the funds wired to the Company.

 

 

Regards,

 

 

Douglas H. Leighton

 

 

	
DATE
    	
 
    	
PRICE
    
	
Date of Day 1
    	
 
    	
VWAP of Day 1
    
	
Date of Day 2
    	
 
    	
VWAP of Day 2
    
	
Date of Day 3
    	
 
    	
VWAP of Day 3
    
	
Date of Day 4
    	
 
    	
VWAP of Day 4
    
	
Date of Day 5
    	
 
    	
VWAP of Day 5
    

 

LOWEST VWAP IN PRICING PERIOD

 

PUT AMOUNT

 

PURCHASE PRICE (NINETY-FIVE PERCENT (95%))

 

AMOUNT OF SHARES DUE

 

The undersigned has completed this Put as of this       th day of                   , 200 .

 

	
 
    	
ADVANCED LIFE SCIENCES HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:

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