DRIO DarioHealth Corporation

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of Earliest Event Reported): February 21, 2024 (February 15, 2024)

 

DARIOHEALTH CORP.

(Exact name of registrant as specified in its charter)

 

Delaware		001-37704		45-2973162
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

122 W 57th St, #33B

New York, New York 10019

(Address of Principal Executive Offices)

 

972- 4-770-4055

(Issuer’s telephone number)

 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation to the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of exchange on which  registered
Common Stock, par value $0.0001 per share		DRIO		The Nasdaq Capital Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

Item 1.01

Entry into a Material Definitive Agreement.

 

Twill Acquisition

 

DarioHealth Corp., (the “Company”), TWILL Merger Sub, Inc. (“Merger Sub”), Twill, Inc. (“Twill”) and Bilal Khan, solely in his capacity as the representatives of Twill’s stockholders and other equity holders, entered into an Agreement and Plan of Merger (the “Merger Agreement”), dated February 15, 2024 (the “Closing Date”). Pursuant to the provisions of the Merger Agreement, on the Closing Date, (i) Merger Sub was merged with and into Twill (the “Merger”), the separate corporate existence of Merger Sub ceased and Twill continued as the surviving company and a wholly owned subsidiary of the Company, (ii) the Company paid to Twill’s debt holders and equity holders aggregate consideration (“Merger Consideration”) of (A) $10.0 million in cash, (B) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 10,000,400 shares (the “Warrant Shares”) of Company common stock, par value $0.0001 per share (the “Common Stock”), issuable to a trust (the “Trust”) formed for the benefit of certain equity and debt holders of Twill, issuable in 4 equal tranches, (C) stock options to purchase up to 2,963,459 shares of Common Stock issued to employees of Twill as an inducement to their employment with the Company, issued outside of the Company’s equity compensation plans, pursuant to Nasdaq Rule 5635(c)(4), with an exercise price of $2.55 per share, and (D) a combination of warrants and restricted stock units (“RSUs”) to acquire up to 1,766,508 shares of Common Stock issued to certain outgoing board members, consultants and outgoing officers of Twill (all of such RSUs and warrants being subject to the approval of the Company’s stockholders, pursuant to Nasdaq Rule 5635), and (iii) the parties to the Merger Agreement consummated the transactions contemplated thereby. The Merger Agreement contains various customary representations, warranties and covenants. As a result of the Merger, Twill will operate as a wholly owned subsidiary of the Company.

 

The Pre-Funded Warrants are subject to a non-waivable 19.99% ownership blocker and the issuance of any shares of Common Stock underlying such warrants that are in excess of such amount shall be subject to the approval of the Company’s stockholders. In addition, the Company, the Trust and WhiteHawk Capital Partner LP (the “Beneficiary”), have executed a Lock Up/Leak Out Agreement (the “Leak Out Agreement”), pursuant to which until such time as the Trust receives $10,600,000 in aggregate net proceeds (the “Leak Out Period”), (i) the Trust shall only be allowed to sell such Warrant Shares at a rate of up to 10% of the average daily trading volume of the Common Stock in a manner which will not negatively affect the share price, (ii) all such sales shall be conducted pursuant to Rule 144 and (iii) that the Beneficiary shall not cause the Trust to engage in any short selling of such Warrant Shares during the Leak-Out Period. The Company has agreed to seek stockholder approval within 135 days following the closing of the Merger to permit the full exercise of the Pre-Funded Warrants (the “Warrant Vote”). In addition, the Company has entered into voting agreements with certain existing stockholders of the Company to vote in favor of the Warrant Vote. The Company has agreed to call a stockholder meeting each fiscal quarter thereafter to the extent the Warrant Vote is not approved by the Company’s stockholders.

 

Pursuant to the terms of the Merger Agreement, the Company has also agreed to appoint a new member to its board of directors, nominated by Twill equity holders and subject to such nominee being acceptable to the Company, within 90 days following the closing of the Merger. Such appointment right shall continue until the earlier of 540 days following the closing of the Merger, or the date which the Trust exercises its third tranche of Pre-Funded Warrants.

 

The securities to be issued in the Merger will be issued in reliance upon exemptions from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated under Regulation D of the Securities Act.

 

In addition, the Company executed certain consulting agreements (the “Consulting Agreements”) with Ofer Leidner and Bilal Khan, each former officers of Twill. Pursuant to the terms of the Consulting Agreements, the Company agreed to retain the services of Messrs. Leidner and Khan for a period of at least 14 months and 6 months respectively, in exchange for monthly consulting fees of $35,416 and $35,417, respectively. In addition, the Company agreed to issue to Mr. Leidner warrants to purchase up to 1,032,946 shares of Common Stock, of which 717,946 are subject to time vesting and 315,000 are subject to certain performance-based metrics, and to issue to Mr. Khan 350,000 fully vested RSUs which shall be vest subject to stockholder approval.

 

 

The forgoing description of the Merger Agreement, the Leak Out Agreement, and Pre-Funded Warrants are qualified by reference to the full text of these documents, copies of which are filed as Exhibit 10.1, Exhibit 10.2 and Exhibit 4.1, respectively, to this Current Report on Form 8-K.

 

Private Placement Financing Transaction

 

On February 15, 2024, the Company entered into securities purchase agreements (each, a “Series C Purchase Agreement”) with accredited investors relating to an offering (the “Offering”) and the sale of an aggregate of (i) 17,307 shares of newly designated Series C Preferred Stock (the “Series C Preferred Stock”), and (ii) 4,000 shares of Series C-1 Preferred Stock (the “Series C-1 Preferred Stock”), at a purchase price of $1,000 for each share of Preferred Stock. In addition, on February 16, 2024, the Company entered into Series C Purchase Agreements with accredited investors relating to the Offering and the sale of an aggregate of 1,115 shares of Series C-2 Preferred Stock (the “Series C-2 Preferred Stock” and together with the Series C Preferred Stock and the Series C-1 Preferred Stock, the “Preferred Stock”), at a purchase price of $1,000 for each share of Preferred Stock. As a result of the sale of the Preferred Stock, the aggregate gross proceeds to the Company from the Offering are approximately $22,422,000. The closing of the Series C Preferred Stock, Series C-1 Preferred Stock and Series C-2 Preferred Stock is expected to occur on or before February 21, 2024.

 

On February 15, 2024, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of the Series C Preferred Stock (the “Series C Certificate of Designation") and the Certificate of Designation of Preferences, Rights and Limitations of the Series C-1 Preferred Stock (the “Series C-1 Certificate of Designation”) with the Secretary of State of the State of Delaware and on February 20, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of the Series C-2 Preferred Stock (the “Series C-2 Certificate of Designation” and collectively with the Series C Certificate of Designations and the Series C-1 Certificate of Designations, the “Certificates of Designation”) with the Secretary of State of the State of Delaware. Each share of Preferred Stock is convertible at the option of the holder, subject to certain beneficial ownership limitations as set forth in each of the Certificates of Designation, into such number of shares of Company’s Common Stock equal to the number of Preferred Shares to be converted, multiplied by the stated value of $1,000 (the “Stated Value”), divided by the conversion price in effect at the time of the conversion (the initial conversion price of the Series C Preferred Stock and Series C-1 Preferred Stock is $2.02, and the initial conversion price of the Series C-2 Preferred Stock is $2.14) each subject to adjustment in the event of stock splits, stock dividends, and similar transactions.

 

In addition, the Preferred Stock will automatically convert into shares of Common Stock, subject to certain beneficial ownership limitations, including a non-waivable 19.99% ownership blocker, on the 15-month anniversary of the issuance date. The holders of Preferred Stock will also be entitled dividends payable as follows: (i) a number of shares of Common Stock equal to seven and a half five percent (7.5%) of the number of shares of Common Stock issuable upon conversion of the Preferred Stock then held by such holder for each full quarter anniversary of holding for a total of four (4) quarters from the Closing Date, and (ii) a number of shares of Common Stock equal to fifteen percent (15%) of the number of shares of Common Stock issuable upon conversion of the Preferred Stock then held by such holder on the fifth full quarter from the Closing Date.

 

The Series C Preferred Stock and Series C-2 Preferred Stock will vote together with the Common Stock as a single class on an as-converted basis on any matter presented to the shareholders of the Company. The Series C-1 Preferred Stock does not possess any voting rights with respect to such matters. Upon any liquidation, dissolution or winding-up of the Company, after the satisfaction in full of the debts of the Company and payment of the liquidation preference to the Senior Securities, holders of Preferred Stock shall be entitled to be paid, on a pari passu basis with the payment of any liquidation preference afforded to holders of any Parity Securities, the remaining assets of the Company available for distribution to its stockholders. For these purposes, (i) “Parity Securities” means the Common Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, the Series B-3 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and the Series C-2 Preferred Stock, and any other class or series of capital stock of the Company hereinafter created that expressly ranks pari passu with the Series C Preferred Stock, Series C-1 Preferred Stock, and the Series C-2 Preferred Stock; and (ii) “Senior Securities” shall mean any class or series of capital stock of the Company hereafter created which expressly ranks senior to the Parity Securities.

 

The Company entered into a Placement Agency Agreement (the “Placement Agency Agreement”) with a registered broker dealer, which it subsequently amended, which acted as the Company’s exclusive placement agent (the “Placement Agent”) for the Offering. Pursuant to the terms of the Placement Agency Agreement, in connection with each closing of the Offering, the Company agreed to pay the Placement Agent an aggregate cash fee representing 10% of aggregate proceeds raised in the Offering (and fees representing 5% and 1.5% for certain Company introduced investors), non-accountable expense allowance representing 3% of aggregate proceeds raised in the Offering (and fees representing 1.5% and none for certain Company introduced investors). In addition, the Company will issue to the Placement Agent or its designees warrants (the “Placement Agent Warrant”) to purchase shares of Common Stock representing 14.5% of the equivalent shares of Common Stock issuable upon initial conversion of the Preferred Stock at an exercise price equal to the consolidated bid price of the Common Stock as of the date of such closing. The Placement Agent Warrant provides for a cashless exercise feature and are exercisable for a period of five years from the date of closing. The Company also granted the Placement Agent the right of first refusal, for a twelve (12) month period after the final closing of the Offering, to serve as the Company’s lead or co-placement agent for any proposed private placement of the Company’s securities (equity or debt) that is proposed to be consummated to investors in the United States with the assistance of a registered broker dealer.

 

 

The Series C Purchase Agreements contain representations and warranties that the parties made to the others in the context of all of the terms and conditions of that agreement and in the context of the specific relationship between the parties. The provisions of such agreements, including the representations and warranties contained therein, are not for the benefit of any party other than the parties to such agreements and are not intended as documents for investors and the public to obtain factual information about the current state of affairs of the parties to that agreement. Rather, investors and the public should look to other disclosures contained in the Company’s filings with the U.S. Securities and Exchange Commission.

  

The securities to be issued in the Offering are exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder. The securities have not been registered under the Securities Act and may not be resold in the United States absent registration or an exemption from registration. This Current Report on Form 8-K shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

 

The forgoing description of the Series C Certificate of Designation, Series C-1 Certificate of Designation, and Series C-2 Certificate of Designation are qualified in their entirety by reference to the full text of such document, copies of which are filed as Exhibits 3.1, 3.2 and 3.3 to this Current Report on Form 8-K, respectively. The forgoing description of the Series C Purchase Agreement, the Placement Agency Agreement, amendment number 1 to the Placement Agency Agreement and the form of Placement Agent Agreement are qualified by reference to the full text of these documents, copies of which are filed as Exhibit 10.3, Exhibit 10.4, Exhibit 10.5 and Exhibit 4.2, respectively, to this Current Report on Form 8-K.

 

Amendment of Avenue Loan

 

On February 15, 2024, the Company and its subsidiaries, PsyInnovations, Inc. and LabStyle Innovation Ltd., entered into the First Amendment to Loan and Security Agreement and Supplement (the “Avenue Amendment”) with Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund, L.P., as lenders. Pursuant to the Avenue Amendment, the parties agreed to include the Merger Sub and Twill as parties to the Company’s existing loan facility with the lenders. In addition, the Avenue Amendment provides (i) that the Company will seek stockholder approval to reprice the warrants issued to the lenders on May 1, 2023 to permit an amendment to the exercise price of such warrants to the “minimum price” as defined by Nasdaq rules as of the closing of the Twill Agreement and (ii) permit the lenders, subject to Nasdaq rules, to convert up to two million of the principal amount of its loan to the Company at a conversion price of $4.0001 per share.

 

The forgoing description of the Avenue Amendment is qualified in its entirety by reference to the full text of such document, a copy of which is filed as Exhibit 10.6 to this Current Report on Form 8-K.

 

Item 2.03

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth in Item 1.01 is incorporated by reference into this Item 2.03.

 

 

Item 3.02

Unregistered Sales of Equity Securities.

 

The response to this item is included in Item 1.01, Entry into a Material Definitive Agreement, and is incorporated herein in its entirety.

 

Item 5.02

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

On February 15, 2024, the Company appointed Tomer Ben-Kiki, age 53, as Chief Operating Officer of the Company. Mr. Ben-Kiki will be employed at a rate of 80% of his time in the United States, and the remaining 20% of his time through the Company’s subsidiary located in Israel.

 

Since October 2011, Mr. Ben-Kiki served as Co-Founder and Chief Executive Officer of Twill. From January 2003 through October 2010, he served as owner of Oberon Media, Inc. Mr. Ben-Kiki holds a Bachelor of Science from Tel-Aviv University.

 

The Company intends to enter into an employment agreement with Mr. Ben-Kiki. Mr. Ben-Kiki will earn an annual salary of $340,000 for his work in the United States, and 25,000 NIS per month for his work in Israel. Mr. Ben-Kiki will be entitled to a bonus of up to 20% of his base salary, subject to certain performance objectives as defined by the Company’s Board of Directors. In addition, he will be entitled to receive a stock option to purchase up to 1,017,947 shares of Common Stock, at an exercise price of $2.55 per share, which were granted as an inducement material to Mr. Ben-Kiki becoming an employee of the Company, in accordance with Nasdaq Listing Rule 5635(c)(4). Time-based options to purchase up to 717,947 shares of Common Stock shall vest as follows: 291,742 shares shall vest immediately, and the remaining 426,205 shares will vest over two years in eight equal quarterly amounts, subject to Mr. Ben-Kiki’s continued employment by the Company on the applicable vesting date. The performance-based option to purchase up to 300,000 shares of Common Stock will vest immediately upon achieving certain milestones relating to the achievement of revenues (on a U.S. generally accepted account principals basis) relating to Twill products for the year ending December 31, 2024, the achievement of certain operating expense targets for the years ending December 31, 2024 and December 31, 2025, the ability to generate software value from funds invested and meet product roadmap and the retention of key employees post transaction, subject in each case to Mr. Ben-Kiki's continued employment by the Company on the applicable vesting date. Mr. Ben-Kiki will be employed at-will with a 90-notice period, unless it is terminated for cause.

 

Except as otherwise set forth herein, there is no arrangement or understanding between Mr. Ben-Kiki and any other person pursuant to which he was appointed as Chief Operating Officer and there are no transactions in which Mr. Ben-Kiki has an interest requiring disclosure under Item 404(a) of Regulation S-K.

 

Item 7.01

Regulation FD Disclosure.

 

Attached as Exhibit 99.1 to this Current Report on Form 8-K, and incorporated into this Item 7.01 by reference, is an investor presentation.

 

Item 8.01

Other Information.

 

On February 21, 2024, the Company issued a press release announcing the execution of the Twill Agreement and the Offering. A copy of the press release is attached hereto as Exhibit 99.2 and is incorporated by reference herein.

 

Item 9.01

Financial Statements and Exhibits.

 

(d) Exhibits

 

3.1	Certificate of Designation of Preferences, Rights and Limitations of Series C Preferred Stock
3.2	Certificate of Designation of Preferences, Rights and Limitations of Series C-1 Preferred Stock
3.3	Certificate of Designation of Preferences, Rights and Limitations of Series C-2 Preferred Stock
4.1	Form of Pre-Funded Warrant
4.2	Form of Placement Agent Warrant
10.1	Agreement and Plan of Merger dated February 15, 2024, by and among DarioHealth Corp., Twill Merger Sub, Inc., Twill, Inc. and Bilal Khan solely in his capacity as holders’ representative
10.2	Lock Up/Leak Out Agreement dated February 15, 2024, by and among DarioHealth Corp., Titan Trust 2024 I, a Delaware statutory trust, and WhiteHawk Capital Partners LP, a Delaware limited partnership
10.3	Series C Securities Purchase Agreement
10.4	Placement Agency Agreement dated December 28, 2023
10.5	Amendment No. 1 to Placement Agency Agreement dated January 31, 2024
10.6	First Amendment to Loan and Security Agreement and Supplement, dated February 15, 2024, by and among DarioHealth Corp., PsyInnovations, Inc., LabStyle Innovation Ltd., Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund, L.P.
99.1	Investor presentation (furnished herewith)
99.2	Press release dated February 21, 2024
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: February 21, 2024	DARIOHEALTH CORP.
	By:	/s/ Zvi Ben David
		Name:	Zvi Ben David
		Title:	Chief Financial Officer, Treasurer and Secretary

 

 

Exhibit 3.1

 

FORM OF

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES C PREFERRED STOCK

OF

DARIOHEALTH CORP.

 

It is hereby certified that:

 

1. The name of the Company (hereinafter called the “Company”) is DarioHealth Corp., a Delaware corporation.

 

2. The Certificate of Incorporation (the “Certificate of Incorporation”) of the Company authorizes the issuance of Five Million (5,000,000) shares of preferred stock, $0.0001 par value per share, of which thirty thousand (30,000) shares have been designated as Series B Preferred Stock, fifteen thousand (15,000) shares have been designated as Series B-1 Preferred Stock, fifteen thousand (15,000) shares have been designated as Series B-2 Preferred Stock and fifteen thousand (15,000) shares have been designated as Series B-3 Preferred Stock, and expressly vests in the Board of Directors of the Company the authority to issue any or all of said shares in one (1) or more series and by resolution or resolutions to establish the designation and number and to fix the relative rights and preferences of each series to be issued.

 

3. The Board of Directors approved and adopted the following resolution (this “Certificate of Designations” or this “Certificate”) for purposes of creating a Series C issue of Preferred Stock.

 

RESOLVED, that Seventeen Thousand Four Hundred (17,400) of the Five Million (5,000,000) authorized shares of Preferred Stock of the Company shall be designated Series C Convertible Preferred Stock, $0.0001 par value per share, and shall possess the rights and preferences set forth below:

 

Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:

 

“Affiliate” means any person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act. A Person shall be regarded as in control of the Company if the Company owns or directly or indirectly controls more than fifty percent (50%) of the voting stock or other ownership interest of the other person, or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such person.

        

“Alternate Consideration” shall have the meaning set forth in Section 7(d).

 

“Attribution Parties” shall have the meaning set forth in Section 6(e).

 

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(e).

 

“Business Day” means any day except Saturday, Sunday, and any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

“Certificate of Designations” means this Certificate of Designation of Preferences, Rights and Limitations of Series C Preferred Stock.

 

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

 

“Common Stock” means the Company’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed into.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries of the Company, whether or not vested or otherwise convertible or exercisable into shares of Common Stock at the time of such issuance, which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock, and excluding shares of Common Stock issuable upon conversion of the Series C Preferred Stock.

 

“Company Conversion Notice” means a notice delivered by the Company to effect a Mandatory Conversion of all the outstanding Series C Preferred Stock (which for these purposes shall include the shares of Series C Preferred Stock, along with any and all sub-series designated Series C-1 Preferred Stock, Series C-2 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering), provided that the effective date of such Mandatory Conversion shall be no less than ten (10) Business Days following the date that such notice is deemed to have been given.

 

“Conversion Amount” means the Stated Value at issue.

 

“Conversion Date” shall have the meaning set forth in Section 6(b).

 

“Conversion Price” means $2.02, subject to adjustment as set forth in Section 7.

 

“Conversion Shares” means the shares of Common Stock issuable upon conversion of the shares of Series C Preferred Stock in accordance with the terms hereof.

 

“Dividend” shall have the meaning set forth in Section 3.

 

“Dividend Shares” shall have the meaning set forth in Section 3.

 

 

“Effective Date” means the date that this Certificate of Designations is filed with the Secretary of State of Delaware.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options or other equity awards to employees, officers, directors or consultants of the Company pursuant to any equity incentive plan duly adopted for such purpose, by the administrator administering such plan in accordance with its terms, or as an inducement grant pursuant to Nasdaq Listing Rule 5635(c)(4), (b) shares of Common Stock or options to consultants for services rendered to the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith (including shares issuable upon the exercise of any options), (c) securities upon the exercise or exchange of or conversion of any securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement and (d) securities issued pursuant to acquisitions or strategic transactions or issued in connection with any joint venture, commercial or collaborative relationship, or the acquisition or license by the Company of the securities, business, property or other assets of another person, in each case approved by a majority of the disinterested directors of the Company.

 

“Fundamental Transaction” shall have the meaning set forth in Section 7(d).

 

“Holder” shall mean an owner of shares of Series C Preferred Stock.

 

“Junior Securities” shall be any class or series of capital stock of the Company hereafter created which does not expressly rank pari passu with or senior to the Series C Preferred Stock.

 

“Liquidation” shall have the meaning set forth in Section 5(a).

 

“Mandatory Conversion” shall have the meaning set forth in Section 6(b).

 

“Mandatory Conversion Date” shall have the meaning set forth in Section 6(b).

 

“Mandatory Conversion Determination” shall have the meaning set forth in Section 6(b).

 

“New York Courts” shall have the meaning set forth in Section 8(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 6(a).

 

“Optional Conversion Date” shall have the meaning set forth in Section 6(a).

 

“Original Issue Date” means the date of the first issuance of any shares of Series C Preferred Stock regardless of the number of transfers of any particular shares of Series C Preferred Stock and regardless of the number of certificates which may be issued, if any, to evidence such Series C Preferred Stock.

 

 

“Parity Securities” means Common Stock, the Series B Preferred Stock the Series B-1 Preferred Stock, the Series B-2 Preferred Stock, the Series B-3 Preferred Stock, the Series C-1 Preferred Stock (including any sub-series designated Series C-2 Preferred Stock, Series C-3 Preferred Stock, Series C-1-1 Preferred Stock, Series C-1-2 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering) and any other class or series of capital stock of the Company hereinafter created that expressly ranks pari passu with the Series C Preferred Stock.

 

“Person” means an individual, entity, corporation, partnership, association, limited liability company, limited liability partnership, joint-stock company, trust or unincorporated organization.

 

“PIK Shares” shall have the meaning set forth in Section 3.

 

“Preferred Stock” means the Company’s preferred stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed into.

 

“Primary Market Limitation” shall have the meaning set forth in Section 6(f).

 

“Private Offering” means the Company’s private offering of Series C Preferred Stock and Series C-1 Preferred Stock (and any sub-series designated Series C-2 Preferred Stock, Series C-3 Preferred Stock, Series C-1-1 Preferred Stock, Series C-1-2 Preferred Stock and so on) in which Aegis Capital Corp. is acting as exclusive placement agent.

 

“Purchase Rights” shall have the meaning set forth in Section 7(b).

  

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Senior Securities” shall be any class or series of capital stock of the Company hereafter created which expressly ranks senior to the Series C Preferred Stock with respect to the distribution of assets on Liquidation or with respect to any other rights, preferences, or privileges. No Senior Securities exist as of the date hereof.

 

 “Series C Preferred Stock” shall have the meaning set forth in Section 2.

 

“Share Delivery Date” shall have the meaning set forth in Section 6(d).

 

“Stated Value” means $1,000.00 per share of Series C Preferred Stock.

 

“Subsidiary” means any subsidiary of the Company as set forth on Exhibit 21 to the Company’s Annual Report on Form 10-K most recently filed with the Commission, and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the Effective Date.

  

 

“Trading Day” means a day on which the principal Trading Market is open for business.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

“Transfer Agent” means VStock Transfer LLC, the current transfer agent of the Company, with a mailing address of 18 Lafayette Pl, Woodmere, NY 11598, a facsimile number of 646-536-3179 and an email address of info@vstocktransfer.com, and any successor transfer agent of the Company.

 

Section 2. Designation and Authorized Shares. The series of Preferred Stock designated by this Certificate of Designations shall be designated as the Company’s Series C Convertible Preferred Stock (the “Series C Preferred Stock”) and the number of shares so designated shall be Seventeen Thousand Four Hundred (17,400). So long as any of the Series C Preferred Stock are issued and outstanding, the Company shall not issue any Senior Securities without the approval of the Holders of a majority of the issued and outstanding shares of Series C Preferred Stock (inclusive of any sub-series designated Series C-1 Preferred Stock, Series C-2 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering). The Series C Preferred Stock shall not be redeemed for cash and under no circumstances shall the Company be required to net cash settle the Series C Preferred Stock.

 

Section 3. Dividends. Holders of shares of Series C Preferred Stock will be entitled to receive, to the extent accrued, upon any conversion of the Series C Preferred Stock: (a) dividends (the “Dividends”) payable as follows: a number of shares of Common Stock equal to seven and a half percent (7.5%) of the number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock then held by such Holder (collectively, the “PIK Shares”) for each full quarter anniversary of holding such Series C Preferred Stock for a total of four (4) quarters from the closing date and a dividend of fifteen percent (15%) for the fifth full quarter from the closing date (or 45% in the aggregate) and (b) dividends equal, on an as-if-converted to shares of Common Stock basis, to and in the same form as dividends actually paid on shares of the Common Stock when, as, and if such dividends are paid on shares of the Common Stock. The Dividends will be satisfied solely by delivery of shares of Common Stock. The Dividends shall be accelerated and paid (to the extent not previously paid) upon the consummation of a Fundamental Transaction. The Dividends shall also be paid (to the extent accrued and not previously paid) upon the Mandatory Conversion Date. Notwithstanding the foregoing, to the extent that a Holder’s right to participate in any Dividend of PIK Shares or any stock dividend declared on the Common Stock to which such Holder is entitled to (“Dividend Shares”) would result in such Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation, then such Holder shall not be entitled to participate in any such dividend to such extent (or in the beneficial ownership of any Dividend Shares as a result of such dividend to such extent) and the portion of such Dividend Shares that would cause such Holder to exceed the Beneficial Ownership Limitation or the Primary Market Limitation shall be held by the Company in abeyance for the benefit of such Holder (which shall not give the Holder any power to vote or dispose of such Dividend Shares) until such time, if ever, as such Holder’s beneficial ownership thereof would not result in such Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation.

 

 

Section 4. Voting Rights. On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), and subject to the limitations set forth in Section 6(f), each Holder of outstanding shares of Series C Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series C Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, Holders of Series C Preferred Stock shall vote together with the holders of Common Stock as a single class. The Holders shall be entitled to the same notice of any regular or special meeting of the stockholders as may or shall be given to holders of Common Stock entitled to vote at such meetings. As long as any shares of Series C Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the Holders of the majority of the then outstanding shares of the Series C Preferred Stock voting as a separate class, (a) alter or change adversely the powers, preferences or rights given to the Series C Preferred Stock or alter or amend this Certificate of Designation, (b) authorize, issue, or obligate itself to issue any Senior Securities, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series B Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock or Series B-3 Preferred Stock, (e) increase the number of authorized shares of Series C Preferred Stock or Series C-1 Preferred Stock, excluding for these purposes any sub-series designated Series C-2 Preferred Stock, Series C-3 Preferred Stock, Series C-1-1 Preferred Stock, Series C-1-2 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering); (f) enter into any agreement with respect to any of the foregoing. Notwithstanding anything contained herein to the contrary, no holder of Series C Preferred Stock shall be entitled to vote on any matter presented to the Company’s stockholders relating to approving the conversion of such holder’s Series C Preferred Stock into an amount in excess of the Primary Market Limitation.

 

Section 5. Liquidation.

 

(a) The Series C Preferred Stock shall, with respect to distributions of assets and rights upon the occurrence of any liquidation, dissolution or winding-up of the Company (“Liquidation”), rank: (i) junior to the Senior Securities, (ii) pari passu with the Parity Securities; and (iii) senior to the Junior Securities of the Company. As of the date hereof, there are no outstanding Senior Securities. Upon any Liquidation, after the satisfaction in full of the debts of the Company and payment of the liquidation preference to the Senior Securities, if any, the Holders of shares of Series C Preferred Stock shall be entitled to be paid, on a pari passu basis with the payment of any liquidation preference afforded to holders of any Parity Securities, out of (but only to the extent) the assets of the Company are legally available for distribution to its stockholders, in the manner described in (b) below.

 

 

(b) After the Holders of all shares of Senior Securities shall have been paid in full the amounts to which they are entitled pursuant to their applicable liquidation preference as forth in any certificate of designation on the Senior Securities, the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of shares of Series C Preferred Stock and any other holders of Parity Securities, pro rata based on the number of shares held by each such holder, treating for this purpose all such Series C Preferred Stock and other Parity Securities as if it had been fully converted into Common Stock (without giving effect to the Beneficial Ownership Limitation) pursuant to the terms of this Certificate of Designations and any certificate of designation on the Junior Securities, each as in effect immediately prior to such Liquidation.

 

(c)       After the Holders of all shares of Parity Securities shall have been paid in full the amounts to which they are entitled in pursuant to Section 5(b), the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of shares of Series C Preferred Stock, the holders of other Parity Securities and holders of any Junior Securities, pro rata based on the number of shares held by each such holder, treating for this purpose all such Series C Preferred Stock, other Parity Securities and Junior Securities as if it had been fully converted into Common Stock (without giving effect to the Beneficial Ownership Limitation) pursuant to the terms of this Certificate of Designations and any certificate of designation on the Junior Securities, each as in effect immediately prior to such Liquidation.

 

Section 6 Conversion.

 

(a) Conversions at Option of Holder. Each share of Series C Preferred Stock (or fraction thereof) shall be convertible, at any time and from time to time, from and after the Original Issue Date at the option of the Holder thereof into that number of shares of Common Stock (subject to the Beneficial Ownership Limitation set forth in Section 6(e) and the Primary Market Limitation set forth in Section 6(f)) determined by dividing the Stated Value by the Conversion Price then in effect. Holders shall effect conversions by providing the Company and the Transfer Agent, with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series C Preferred Stock to be converted, the number of shares of Series C Preferred Stock owned prior to such conversion, the number of shares of Series C Preferred Stock owned subsequent to such conversion and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers such Notice of Conversion to the Company pursuant to Section 6 and in accordance with Section 9 (such date, the “Optional Conversion Date”). Such Holder shall be deemed for all corporate purposes to have become the holder of record of the Conversion Shares with respect to which the shares of Series C Preferred Stock have been converted as of the Optional Conversion Date. If no Optional Conversion Date is specified in a Notice of Conversion, the Optional Conversion Date shall be the date that such Notice of Conversion and Cancellation Request are deemed delivered to the Company in accordance with Section 9. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions of shares of Series C Preferred Stock, a Holder shall not be required to surrender any Certificated Series C Preferred Stock to the Company unless all of the shares of Series C Preferred Stock represented by any such certificate are so converted, in which case such Holder shall deliver the Certificated Series C Preferred Stock promptly following the Optional Conversion Date. To the extent that the Beneficial Ownership Limitation contained in Section 6(e) or the Primary Market Limitation contained in Section 6(f) applies to the converting Holder, the determination of whether the Series B Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Series C Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Series C Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and how many shares of the Series C Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation or the Primary Market Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this Section and the Company shall have no obligation to verify or confirm the accuracy of such determination.

 

 

(b) Mandatory Conversion. On the fifteen (15) month anniversary of the Original Issue Date) (the “Mandatory Conversion Date” and together with an Optional Conversion Date, the “Conversion Date”), each outstanding share of Series C Preferred Stock will automatically convert (subject to the Beneficial Ownership Limitation set forth in Section 6(e) and the Primary Market Limitation set forth in Section 6(f)) into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Stated Value by the Conversion Price in effect on the Mandatory Conversion Date (a “Mandatory Conversion”). Within two Trading Days of (x) the Mandatory Conversion Date, if the shares of Series C Preferred Stock are held in book entry form, or (y) such Holder’s surrender of Certificated Series C Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and an indemnity or security reasonably acceptable to the Company (which shall not include the posting of any bond) to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate), the Company shall deliver: (I) to each Holder, the Conversion Shares issuable upon conversion of such Holder’s Series C Preferred Stock via the Certificated Preferred Stock, and (II) the PIK Shares issuable upon Mandatory Conversion under Section 3, to Holders as of the Mandatory Conversion Date; provided that, any failure by the Holder to return Certificated Series C Preferred Stock, if any, will have no effect on the Mandatory Conversion pursuant to this Section 6(b), which Mandatory Conversion will be deemed to occur on the Mandatory Conversion Date. To the extent that the Beneficial Ownership Limitation contained in Section 6(e) or the Primary Market Limitation contained in Section 6(f) applies to any Holder, such Holder shall within five Business Days of such Holder’s receipt of the Company Conversion Notice, provide the Company with a written determination (a “Mandatory Conversion Determination”), delivered in accordance with Section 9, of whether such Holder’s Series C Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Series C Preferred Stock are convertible, and the submission of a Mandatory Conversion Determination shall be deemed to be such Holder’s determination of the maximum number of shares of Series C Preferred Stock that may be converted, subject to the Beneficial Ownership Limitation or the Primary Market Limitation and the portion of the shares of Common Stock issuable upon such Mandatory Conversion hereunder that would cause such Holder to exceed the Beneficial Ownership Limitation or the Primary Market Limitation shall be held by the Company in abeyance for the benefit of such Holder (which shall not give the Holder any power to vote or dispose of such shares) until such time, if ever, as such Holder’s beneficial ownership thereof would not result in such Holder exceeding the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Mandatory Conversion Determination that such determination has not violated the restrictions set forth in Section 6(e) or Section 6(f) and the Company shall have no obligation to verify or confirm the accuracy of such determination.

 

 

(c) Conversion Shares. The aggregate number of Conversion Shares which the Company shall issue upon conversion of the Series C Preferred Stock (whether pursuant to Section 6(a) or 6(b)) will be equal to the number of shares of Series C Preferred Stock to be converted, multiplied by the Stated Value, divided by the Conversion Price in effect at the time of the conversion.

 

(d) Mechanics of Conversion.

 

(i) Delivery of Conversion Shares upon Conversion. Promptly after the applicable Conversion Date, but in any case within the earlier of (i) two (2) Trading Days and (ii) the Standard Settlement Period (as defined below) thereof (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the converting Holder the number of Conversion Shares being acquired upon the conversion of the Series C Preferred Stock pursuant to Section 6(a) or 6(b), as applicable, any PIK Shares to which the Holder is entitled pursuant to Section 3 that have not been previously issued, if any, and a wire transfer of immediately available funds in the amount of accrued and unpaid cash dividends, if any. Conversion Shares issuable hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with DTC through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Conversion Shares and PIK Shares, if any, to which the Holder is entitled pursuant to such conversion to the address specified by the Holder in the Notice of Conversion or the Company Conversion Notice, as the case may be. The Company shall (A) deliver (or cause to be delivered) to the converting Holder who has converted less than all of such Holder’s Certificated Series C Preferred Stock (1) a certificate or certificates, of like tenor, for the number of shares of Series C Preferred Stock evidenced by any surrendered certificate or certificates less the number of shares of Series C Preferred Stock converted. The Company agrees to maintain a transfer agent that is a participant in the DTC’s FAST program so long as any shares of Series C Preferred Stock remain outstanding. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

(ii) Failure to Deliver Conversion Shares upon an Optional Conversion. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, in addition to any other rights herein, the Holder shall be entitled to elect by written notice to the Transfer Agent, on behalf of the Company, at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any Certificated Series C Preferred Stock delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion.

 

 

(iii) Obligation Absolute. The Company’s obligation to issue and deliver the Conversion Shares upon conversion of Series C Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action that the Company may have against such Holder.

 

(iv) [Reserved].

 

(v) Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holders of the Series C Preferred Stock, not less than such aggregate number of shares of the Common Stock as shall be issuable (i) upon the conversion of all outstanding shares of Series C Preferred Stock (taking into account the adjustments and restrictions of Section 7) and (ii) in respect of the PIK Shares. The Company covenants that all Conversion Shares and PIK Shares shall, when issued, be duly authorized, validly issued, fully paid and nonassessable.

 

(vi) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of or as dividends on the Series C Preferred Stock. As to any fraction of a share which a Holder would otherwise be entitled to upon such conversion or in respect of any such dividend, the Company shall round up to the next whole share of Common Stock.

 

(vii) Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Series C Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series C Preferred Stock and the Company shall not be required to issue or deliver such Conversion Shares and shall not be responsible for partial liquidated damages under Section 6(d)(iii) or penalties under Section 6(d)(iv) unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

 

 

(e) Beneficial Ownership Limitation. The Company shall not effect any conversion of the Series C Preferred Stock, including, without limitation, a Mandatory Conversion, and a Holder shall not have the right to receive dividends hereunder or convert any portion of the Series C Preferred Stock, to the extent that, after giving effect to the receipt of Dividend Shares hereunder or conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates (which for purposes of this Section 6(e) and Section 7(b), shall include any employee of such Holder and any person having beneficial ownership of shares of Common Stock beneficially owned by the Holder), and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock received as Dividend Shares or issuable upon conversion of the Series C Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Series C Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Series C Preferred Stock) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith (other than as it relates to a Holder relying on the number of shares issued and outstanding as provided by the Company pursuant to this Section). In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. The “Beneficial Ownership Limitation” shall be 4.99% (or, at the written election of any Holder delivered to the Company pursuant to the terms of Section 9 prior to the issuance of any shares of Series C Preferred Stock, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Series C Preferred Stock held by the applicable Holder. A Holder, upon at least sixty-one (61) days advance notice to the Company, may terminate, increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(e); provided, however, that the Holder shall not be entitled to increase or terminate the limitation contained in this Section 6(e) if the Holder has acquired (or if any of the Holder’s Attribution Parties has acquired) the Series C Preferred Stock with the purpose or effect of changing or influencing the control of the Company. The limitations contained in this Section 6(e) shall apply to a successor holder of Series C Preferred Stock. The limitations contained in this Section 6(e) and Section 7(b) shall terminate immediately at any time at which the Common Stock ceases to be an “equity security” as defined in Rule 13d-1(i) promulgated under the Exchange Act (or any successor rule).

 

 

(f) Primary Market Limitation. Unless the Company obtains the approval of its stockholders as required by the applicable rules of the applicable Trading Market for issuances of Common Stock in excess of the Primary Market Limitation defined below, the Company shall not effect any conversion of the Series C Preferred Stock, including, without limitation, a Mandatory Conversion, and a Holder shall not have the right to receive dividends hereunder or convert any portion of the Series C Preferred Stock, to the extent that, after giving effect to the receipt of dividends hereunder or conversion set forth on the applicable Notice of Conversion, the Holder, together with the Attribution Parties, would beneficially own in excess of the Primary Market Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock received as dividends or issuable upon conversion of the Series C Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Series C Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Series C Preferred Stock) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith (other than as it relates to a Holder relying on the number of shares issued and outstanding as provided by the Company pursuant to this Section). For purposes of this Section 6(f), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. The “Primary Market Limitation” shall be 19.99% of the number of shares of the Common Stock outstanding immediately before giving effect to the issuance of shares of Common Stock issuable upon conversion of the Series C Preferred Stock and/or the issuance of the Dividend Shares. The limitations contained in this paragraph shall apply to a successor holder of the Series C Preferred Stock.

 

 

Section 7. Certain Adjustments.

 

(a) Stock Dividends and Stock Splits. If the Company, at any time while the Series C Preferred Stock is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, will not include any shares of Common Stock issued by the Company upon conversion of this Series C Preferred Stock or payment of a dividend on this Series C Preferred Stock); (B) subdivides outstanding shares of Common Stock into a larger number of shares; (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (D) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price will be multiplied by a fraction of which the numerator will be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator will be the number of shares of Common Stock, or in the event that clause (D) of this Section 7(a) will apply shares of reclassified capital stock, outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) will become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and will become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

(b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Series C Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance by the Company for the Holder (which shall not give the Holder any power to vote or dispose of such Purchase Rights) until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation).

 

  

(c) Pro Rata Distributions. During such time as this Series C Preferred Stock is outstanding, if the Company declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Series C Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Series C Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance by the company for the benefit of the Holder (which shall not give the Holder any power to vote or dispose of such shares) until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation).

 

(d) Fundamental Transaction. If, at any time while the Series C Preferred Stock is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, or (C) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of the Series C Preferred Stock, the Holders shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall adjust the Conversion Price in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holders shall be given the same choice as to the Alternate Consideration they receive upon any conversion of the Series C Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 7(d) and insuring that the Series C Preferred Stock (or any such replacement security) will be substantially similar in form and substance to this Certificate of Designations and insuring that the Series C Preferred Stock will be convertible for a corresponding number of shares of capital stock of such successor entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Series C Preferred Stock (without regard to any limitations on the conversion of this Series C Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Series C Preferred Stock immediately prior to the consummation of such Fundamental Transaction) and will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

 

(e) [RESERVED].

  

(f) Calculations. All calculations under this Section 7 will be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

 

(g) Notice to the Holders.

 

	(i)	Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
	(ii)	Notice to Allow Conversion by Holder. If (A) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (B) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the Series C Preferred Stock, and shall cause to be delivered to each Holder pursuant to Section 9, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a written notice stating (x) the date on which a record is to be taken for the purpose of seeking such stockholder approval or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert such Holder’s Series C Preferred Stock pursuant to Section 6(a) (subject to the Beneficial Ownership Limitation and the Primary Market Limitation) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

 

Section 8. Miscellaneous.

 

(a) Notices. Any and all notices or other communications or deliveries to be provided to the Holders, the Company or the Transfer Agent hereunder, including, without limitation, any Notice of Conversion or Company Conversion Notice, shall be in writing and delivered personally, by facsimile, by e-mail, or sent by a nationally recognized overnight courier service (i) if to the Holders, at the Holder’s address set forth in the book and records of the Company or to another address of such Holder as may be specified by such Holder to the Company in a written notice delivered in accordance with this Section, or (ii) if to the Company, at 8 HaTokhen Street Caesarea Industrial Park, Israel 3088900, email: zvi@mydario.com or to another address as the Company may specify for such purposes by written notice to the Holders delivered in accordance with this Section. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. To the extent that any notice provided pursuant to this Certificate of Designations constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.

 

(b) Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of Designations shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay liquidated damages and accrued dividends, as applicable, on the shares of Series C Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.

 

(c) Lost or Mutilated Series C Preferred Stock Certificate. If a Holder alleges that such Holder’s Series C Preferred Stock certificate has been lost, stolen or destroyed, the Company will only be obligated to issue a replacement certificate if the Holder delivers to the transfer agent, or the Company, as applicable: (i) a lost certificate affidavit; (ii) an indemnity bond in a form acceptable to the Company’s transfer agent, or if the Company acts as its own transfer agent, an agreement reasonably acceptable to the Company to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate; and (iii) any other documentation that the transfer agent or the Company, if the Company acts as its own transfer agent, may reasonably require.

 

(d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designations shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Certificate of Designations (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Certificate of Designations and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Certificate of Designations or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

 

(e) Waiver. Any waiver by the Company or a Holder of a breach of any provision of this Certificate of Designations shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designations or a waiver by any other Holders. The failure of the Company or a Holder to insist upon strict adherence to any term of this Certificate of Designations on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation. Any waiver by the Company or a Holder must be in writing.

 

(f) Severability. If any provision of this Certificate of Designations is invalid, illegal or unenforceable, the balance of this Certificate of Designations shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any dividend or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

 

(g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

 

(h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

 

(i) Status of Converted Series C Preferred Stock. If any shares of Series C Preferred Stock shall be converted or reacquired by the Company, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series C Convertible Preferred Stock.

 

[Signature page follows.]

 

 

IN WITNESS WHEREOF, this Certificate of Designations has been executed by a duly authorized officer of the Company as of this 15th day of February 2024.

 

	/s/ Zvi Ben-David
Name:	Zvi Ben-David
Title:	Chief Financial Officer

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES C PREFERRED STOCK)

 

The undersigned hereby elects to convert the number of shares of Series C Convertible Preferred Stock indicated below into shares of common stock, no par value per share (the “Common Stock”), of DarioHealth Corp., a Delaware corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.

 

Conversion calculations:

 

Date to Effect Conversion: _______________________________________________________________

 

Number of shares of Series C Preferred Stock owned prior to Conversion: ____________________________

 

Number of shares of Series C Preferred Stock to be Converted: ____________________________________

 

Stated Value of shares of Series C Preferred Stock to be Converted: _________________________________

 

Number of shares of Common Stock to be Issued: ______________________________________________

 

Applicable Conversion Price: _____________________________________________________________

 

Number of shares of Series C Preferred Stock subsequent to Conversion: ____________________________

 

Address for Delivery: ___________________________________________________________________

 

Or

 

DWAC Instructions:

 

Broker no: ___________________________________

 

Account no: _________________________________

 

	[Holder]
	By:
	Name:
	Title:

 

 

 

Exhibit 3.2

 

FORM OF

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES C-1 PREFERRED STOCK

OF

DARIOHEALTH CORP.

 

It is hereby certified that:

 

1. The name of the Company (hereinafter called the “Company”) is DarioHealth Corp., a Delaware corporation.

 

2. The Certificate of Incorporation (the “Certificate of Incorporation”) of the Company authorizes the issuance of Five Million (5,000,000) shares of preferred stock, $0.0001 par value per share, of which thirty thousand (30,000) shares have been designated as Series B Preferred Stock, fifteen thousand (15,000) shares have been designated as Series B-1 Preferred Stock, fifteen thousand (15,000) shares have been designated as Series B-2 Preferred Stock and fifteen thousand (15,000) shares have been designated as Series B-3 Preferred Stock, and expressly vests in the Board of Directors of the Company the authority to issue any or all of said shares in one (1) or more series and by resolution or resolutions to establish the designation and number and to fix the relative rights and preferences of each series to be issued.

 

3. The Board of Directors approved and adopted the following resolution (this “Certificate of Designations” or this “Certificate”) for purposes of creating a Series C-1 issue of Preferred Stock.

 

RESOLVED, that Four Thousand (4,000) of the Five Million (5,000,000) authorized shares of Preferred Stock of the Company shall be designated Series C-1 Convertible Preferred Stock, $0.0001 par value per share, and shall possess the rights and preferences set forth below:

 

Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:

 

“Affiliate” means any person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act. A Person shall be regarded as in control of the Company if the Company owns or directly or indirectly controls more than fifty percent (50%) of the voting stock or other ownership interest of the other person, or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such person.

        

“Alternate Consideration” shall have the meaning set forth in Section 7(d).

 

“Attribution Parties” shall have the meaning set forth in Section 6(e).

 

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(e).

 

“Business Day” means any day except Saturday, Sunday, and any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

“Certificate of Designations” means this Certificate of Designation of Preferences, Rights and Limitations of Series C-1 Preferred Stock.

 

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

 

“Common Stock” means the Company’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed into.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries of the Company, whether or not vested or otherwise convertible or exercisable into shares of Common Stock at the time of such issuance, which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock, and excluding shares of Common Stock issuable upon conversion of the Series C-1 Preferred Stock.

 

“Company Conversion Notice” means a notice delivered by the Company to effect a Mandatory Conversion of all the outstanding Series C-1 Preferred Stock (which for these purposes shall include the shares of Series C-1 Preferred Stock, along with any and all sub-series designated Series C-1-1 Preferred Stock, Series C-1-2 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering), provided that the effective date of such Mandatory Conversion shall be no less than ten (10) Business Days following the date that such notice is deemed to have been given.

 

“Conversion Amount” means the Stated Value at issue.

 

“Conversion Date” shall have the meaning set forth in Section 6(b).

 

“Conversion Price” means $2.02, subject to adjustment as set forth in Section 7.

 

“Conversion Shares” means the shares of Common Stock issuable upon conversion of the shares of Series C-1 Preferred Stock in accordance with the terms hereof.

 

“Dividend” shall have the meaning set forth in Section 3.

 

“Dividend Shares” shall have the meaning set forth in Section 3.

 

 

“Effective Date” means the date that this Certificate of Designations is filed with the Secretary of State of Delaware.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options or other equity awards to employees, officers, directors or consultants of the Company pursuant to any equity incentive plan duly adopted for such purpose, by the administrator administering such plan in accordance with its terms, or as an inducement grant pursuant to Nasdaq Listing Rule 5635(c)(4), (b) shares of Common Stock or options to consultants for services rendered to the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith (including shares issuable upon the exercise of any options), (c) securities upon the exercise or exchange of or conversion of any securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement and (d) securities issued pursuant to acquisitions or strategic transactions or issued in connection with any joint venture, commercial or collaborative relationship, or the acquisition or license by the Company of the securities, business, property or other assets of another person, in each case approved by a majority of the disinterested directors of the Company.

 

“Fundamental Transaction” shall have the meaning set forth in Section 7(d).

 

“Holder” shall mean an owner of shares of Series C-1 Preferred Stock.

 

“Junior Securities” shall be any class or series of capital stock of the Company hereafter created which does not expressly rank pari passu with or senior to the Series C-1 Preferred Stock.

 

“Liquidation” shall have the meaning set forth in Section 5(a).

 

“Mandatory Conversion” shall have the meaning set forth in Section 6(b).

 

“Mandatory Conversion Date” shall have the meaning set forth in Section 6(b).

 

“Mandatory Conversion Determination” shall have the meaning set forth in Section 6(b).

 

“New York Courts” shall have the meaning set forth in Section 8(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 6(a).

 

“Optional Conversion Date” shall have the meaning set forth in Section 6(a).

 

“Original Issue Date” means the date of the first issuance of any shares of Series C-1 Preferred Stock regardless of the number of transfers of any particular shares of Series C-1 Preferred Stock and regardless of the number of certificates which may be issued, if any, to evidence such Series C-1 Preferred Stock.

 

 

“Parity Securities” means Common Stock, the Series B Preferred Stock the Series B-1 Preferred Stock, the Series B-2 Preferred Stock, the Series B-3 Preferred Stock, the Series C Preferred Stock (including any sub-series designated Series C-1-1 Preferred Stock, Series C-1-2 Preferred Stock, Series C-2 Preferred Stock, Series C-3 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering) and any other class or series of capital stock of the Company hereinafter created that expressly ranks pari passu with the Series C-1 Preferred Stock.

 

“Person” means an individual, entity, corporation, partnership, association, limited liability company, limited liability partnership, joint-stock company, trust or unincorporated organization.

 

“PIK Shares” shall have the meaning set forth in Section 3.

 

“Preferred Stock” means the Company’s preferred stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed into.

 

“Primary Market Limitation” shall have the meaning set forth in Section 6(f).

 

“Private Offering” means the Company’s private offering of Series C Preferred Stock and Series C-1 Preferred Stock (and any sub-series designated Series C-2 Preferred Stock, Series C-3 Preferred Stock, Series C-1-1 Preferred Stock, Series C-1-2 Preferred Stock and so on) in which Aegis Capital Corp. is acting as exclusive placement agent.

 

“Purchase Rights” shall have the meaning set forth in Section 7(b).

  

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Senior Securities” shall be any class or series of capital stock of the Company hereafter created which expressly ranks senior to the Series C-1 Preferred Stock with respect to the distribution of assets on Liquidation or with respect to any other rights, preferences, or privileges. No Senior Securities exist as of the date hereof.

 

 “Series C-1 Preferred Stock” shall have the meaning set forth in Section 2.

 

“Share Delivery Date” shall have the meaning set forth in Section 6(d).

 

“Stated Value” means $1,000.00 per share of Series C-1 Preferred Stock.

 

“Subsidiary” means any subsidiary of the Company as set forth on Exhibit 21 to the Company’s Annual Report on Form 10-K most recently filed with the Commission, and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the Effective Date.

  

 

“Trading Day” means a day on which the principal Trading Market is open for business.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

“Transfer Agent” means VStock Transfer LLC, the current transfer agent of the Company, with a mailing address of 18 Lafayette Pl, Woodmere, NY 11598, a facsimile number of 646-536-3179 and an email address of info@vstocktransfer.com, and any successor transfer agent of the Company.

 

Section 2. Designation and Authorized Shares. The series of Preferred Stock designated by this Certificate of Designations shall be designated as the Company’s Series C-1 Convertible Preferred Stock (the “Series C-1 Preferred Stock”) and the number of shares so designated shall be Four Thousand (4,000). So long as any of the Series C-1 Preferred Stock are issued and outstanding, the Company shall not issue any Senior Securities without the approval of the Holders of a majority of the issued and outstanding shares of Series C-1 Preferred Stock (inclusive of the Series C Preferred Stock and any sub-series designated Series C-1 Preferred Stock, Series C-2 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering). The Series C-1 Preferred Stock shall not be redeemed for cash and under no circumstances shall the Company be required to net cash settle the Series C-1 Preferred Stock.

 

Section 3. Dividends. Holders of shares of Series C-1 Preferred Stock will be entitled to receive, to the extent accrued, upon any conversion of the Series C-1 Preferred Stock: (a) dividends (the “Dividends”) payable as follows: a number of shares of Common Stock equal to seven and a half percent (7.5%) of the number of shares of Common Stock issuable upon conversion of the Series C-1 Preferred Stock then held by such Holder (collectively, the “PIK Shares”) for each full quarter anniversary of holding such Series C-1 Preferred Stock for a total of four (4) quarters from the closing date and a dividend of fifteen percent (15%) for the fifth full quarter from the closing date (or 45% in the aggregate) and (b) dividends equal, on an as-if-converted to shares of Common Stock basis, to and in the same form as dividends actually paid on shares of the Common Stock when, as, and if such dividends are paid on shares of the Common Stock. The Dividends will be satisfied solely by delivery of shares of Common Stock. The Dividends shall be accelerated and paid (to the extent not previously paid) upon the consummation of a Fundamental Transaction. The Dividends shall also be paid (to the extent accrued and not previously paid) upon the Mandatory Conversion Date. Notwithstanding the foregoing, to the extent that a Holder’s right to participate in any Dividend of PIK Shares or any stock dividend declared on the Common Stock to which such Holder is entitled to (“Dividend Shares”) would result in such Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation, then such Holder shall not be entitled to participate in any such dividend to such extent (or in the beneficial ownership of any Dividend Shares as a result of such dividend to such extent) and the portion of such Dividend Shares that would cause such Holder to exceed the Beneficial Ownership Limitation or the Primary Market Limitation shall be held by the Company in abeyance for the benefit of such Holder (which shall not give the Holder any power to vote or dispose of such Dividend Shares) until such time, if ever, as such Holder’s beneficial ownership thereof would not result in such Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation.

 

 

Section 4. Voting Rights. Except as otherwise provided herein or as otherwise required by law, the Series C-1 Preferred Stock shall have no voting rights. However, as long as any shares of Series C-1 Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series C-1 Preferred Stock voting as a separate class, (a) alter or change adversely the powers, preferences or rights given to the Series C-1 Preferred Stock or alter or amend this Certificate of Designation, (b) authorize, issue, or obligate itself to issue any Senior Securities, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series B Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock or Series B-3 Preferred Stock, (e) increase the number of authorized shares of Series C Preferred Stock or Series C-1 Preferred Stock, excluding for these purposes any sub-series designated Series C-2 Preferred Stock, Series C-3 Preferred Stock, Series C-1-1 Preferred Stock, Series C-1-2 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering); (f) enter into any agreement with respect to any of the foregoing. Notwithstanding anything contained herein to the contrary, no holder of Series C-1 Preferred Stock shall be entitled to vote on any matter presented to the Company’s stockholders relating to approving the conversion of such holder’s Series C-1 Preferred Stock into an amount in excess of the Primary Market Limitation.

 

Section 5. Liquidation.

 

(a) The Series C-1 Preferred Stock shall, with respect to distributions of assets and rights upon the occurrence of any liquidation, dissolution or winding-up of the Company (“Liquidation”), rank: (i) junior to the Senior Securities, (ii) pari passu with the Parity Securities; and (iii) senior to the Junior Securities of the Company. As of the date hereof, there are no outstanding Senior Securities. Upon any Liquidation, after the satisfaction in full of the debts of the Company and payment of the liquidation preference to the Senior Securities, if any, the Holders of shares of Series C-1 Preferred Stock shall be entitled to be paid, on a pari passu basis with the payment of any liquidation preference afforded to holders of any Parity Securities, out of (but only to the extent) the assets of the Company are legally available for distribution to its stockholders, in the manner described in (b) below.

 

(b) After the Holders of all shares of Senior Securities shall have been paid in full the amounts to which they are entitled pursuant to their applicable liquidation preference as forth in any certificate of designation on the Senior Securities, the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of shares of Series C-1 Preferred Stock and any other holders of Parity Securities, pro rata based on the number of shares held by each such holder, treating for this purpose all such Series C-1 Preferred Stock and other Parity Securities as if it had been fully converted into Common Stock (without giving effect to the Beneficial Ownership Limitation) pursuant to the terms of this Certificate of Designations and any certificate of designation on the Junior Securities, each as in effect immediately prior to such Liquidation.

 

 

(c)       After the Holders of all shares of Parity Securities shall have been paid in full the amounts to which they are entitled in pursuant to Section 5(b), the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of shares of Series C-1 Preferred Stock, the holders of other Parity Securities and holders of any Junior Securities, pro rata based on the number of shares held by each such holder, treating for this purpose all such Series C-1 Preferred Stock, other Parity Securities and Junior Securities as if it had been fully converted into Common Stock (without giving effect to the Beneficial Ownership Limitation) pursuant to the terms of this Certificate of Designations and any certificate of designation on the Junior Securities, each as in effect immediately prior to such Liquidation.

 

Section 6 Conversion.

 

(a) Conversions at Option of Holder. Each share of Series C-1 Preferred Stock (or fraction thereof) shall be convertible, at any time and from time to time, from and after the Original Issue Date at the option of the Holder thereof into that number of shares of Common Stock (subject to the Beneficial Ownership Limitation set forth in Section 6(e) and the Primary Market Limitation set forth in Section 6(f)) determined by dividing the Stated Value by the Conversion Price then in effect. Holders shall effect conversions by providing the Company and the Transfer Agent, with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series C-1 Preferred Stock to be converted, the number of shares of Series C-1 Preferred Stock owned prior to such conversion, the number of shares of Series C-1 Preferred Stock owned subsequent to such conversion and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers such Notice of Conversion to the Company pursuant to Section 6 and in accordance with Section 9 (such date, the “Optional Conversion Date”). Such Holder shall be deemed for all corporate purposes to have become the holder of record of the Conversion Shares with respect to which the shares of Series C-1 Preferred Stock have been converted as of the Optional Conversion Date. If no Optional Conversion Date is specified in a Notice of Conversion, the Optional Conversion Date shall be the date that such Notice of Conversion and Cancellation Request are deemed delivered to the Company in accordance with Section 9. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions of shares of Series C-1 Preferred Stock, a Holder shall not be required to surrender any Certificated Series C-1 Preferred Stock to the Company unless all of the shares of Series C-1 Preferred Stock represented by any such certificate are so converted, in which case such Holder shall deliver the Certificated Series C-1 Preferred Stock promptly following the Optional Conversion Date. To the extent that the Beneficial Ownership Limitation contained in Section 6(e) or the Primary Market Limitation contained in Section 6(f) applies to the converting Holder, the determination of whether the Series B Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Series C-1 Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Series C-1 Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and how many shares of the Series C-1 Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation or the Primary Market Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this Section and the Company shall have no obligation to verify or confirm the accuracy of such determination.

 

 

(b) Mandatory Conversion. On the fifteen (15) month anniversary of the Original Issue Date (the “Mandatory Conversion Date” and together with an Optional Conversion Date, the “Conversion Date”), each outstanding share of Series C-1 Preferred Stock will automatically convert (subject to the Beneficial Ownership Limitation set forth in Section 6(e) and the Primary Market Limitation set forth in Section 6(f)) into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Stated Value by the Conversion Price in effect on the Mandatory Conversion Date (a “Mandatory Conversion”). Within two Trading Days of (x) the Mandatory Conversion Date, if the shares of Series C-1 Preferred Stock are held in book entry form, or (y) such Holder’s surrender of Certificated Series C-1 Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and an indemnity or security reasonably acceptable to the Company (which shall not include the posting of any bond) to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate), the Company shall deliver: (I) to each Holder, the Conversion Shares issuable upon conversion of such Holder’s Series C-1 Preferred Stock via the Certificated Preferred Stock, and (II) the PIK Shares issuable upon Mandatory Conversion under Section 3, to Holders as of the Mandatory Conversion Date; provided that, any failure by the Holder to return Certificated Series C-1 Preferred Stock, if any, will have no effect on the Mandatory Conversion pursuant to this Section 6(b), which Mandatory Conversion will be deemed to occur on the Mandatory Conversion Date. To the extent that the Beneficial Ownership Limitation contained in Section 6(e) or the Primary Market Limitation contained in Section 6(f) applies to any Holder, such Holder shall within five Business Days of such Holder’s receipt of the Company Conversion Notice, provide the Company with a written determination (a “Mandatory Conversion Determination”), delivered in accordance with Section 9, of whether such Holder’s Series C-1 Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Series C-1 Preferred Stock are convertible, and the submission of a Mandatory Conversion Determination shall be deemed to be such Holder’s determination of the maximum number of shares of Series C-1 Preferred Stock that may be converted, subject to the Beneficial Ownership Limitation or the Primary Market Limitation and the portion of the shares of Common Stock issuable upon such Mandatory Conversion hereunder that would cause such Holder to exceed the Beneficial Ownership Limitation or the Primary Market Limitation shall be held by the Company in abeyance for the benefit of such Holder (which shall not give the Holder any power to vote or dispose of such shares) until such time, if ever, as such Holder’s beneficial ownership thereof would not result in such Holder exceeding the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Mandatory Conversion Determination that such determination has not violated the restrictions set forth in Section 6(e) or Section 6(f) and the Company shall have no obligation to verify or confirm the accuracy of such determination.

 

 

(c) Conversion Shares. The aggregate number of Conversion Shares which the Company shall issue upon conversion of the Series C-1 Preferred Stock (whether pursuant to Section 6(a) or 6(b)) will be equal to the number of shares of Series C-1 Preferred Stock to be converted, multiplied by the Stated Value, divided by the Conversion Price in effect at the time of the conversion.

 

(d) Mechanics of Conversion.

 

(i) Delivery of Conversion Shares upon Conversion. Promptly after the applicable Conversion Date, but in any case within the earlier of (i) two (2) Trading Days and (ii) the Standard Settlement Period (as defined below) thereof (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the converting Holder the number of Conversion Shares being acquired upon the conversion of the Series C-1 Preferred Stock pursuant to Section 6(a) or 6(b), as applicable, any PIK Shares to which the Holder is entitled pursuant to Section 3 that have not been previously issued, if any, and a wire transfer of immediately available funds in the amount of accrued and unpaid cash dividends, if any. Conversion Shares issuable hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with DTC through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Conversion Shares and PIK Shares, if any, to which the Holder is entitled pursuant to such conversion to the address specified by the Holder in the Notice of Conversion or the Company Conversion Notice, as the case may be. The Company shall (A) deliver (or cause to be delivered) to the converting Holder who has converted less than all of such Holder’s Certificated Series C-1 Preferred Stock (1) a certificate or certificates, of like tenor, for the number of shares of Series C-1 Preferred Stock evidenced by any surrendered certificate or certificates less the number of shares of Series C-1 Preferred Stock converted. The Company agrees to maintain a transfer agent that is a participant in the DTC’s FAST program so long as any shares of Series C-1 Preferred Stock remain outstanding. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

(ii) Failure to Deliver Conversion Shares upon an Optional Conversion. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, in addition to any other rights herein, the Holder shall be entitled to elect by written notice to the Transfer Agent, on behalf of the Company, at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any Certificated Series C-1 Preferred Stock delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion.

 

 

(iii) Obligation Absolute. The Company’s obligation to issue and deliver the Conversion Shares upon conversion of Series C-1 Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action that the Company may have against such Holder.

 

(iv) [Reserved].

 

(v) Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holders of the Series C-1 Preferred Stock, not less than such aggregate number of shares of the Common Stock as shall be issuable (i) upon the conversion of all outstanding shares of Series C-1 Preferred Stock (taking into account the adjustments and restrictions of Section 7) and (ii) in respect of the PIK Shares. The Company covenants that all Conversion Shares and PIK Shares shall, when issued, be duly authorized, validly issued, fully paid and nonassessable.

 

(vi) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of or as dividends on the Series C-1 Preferred Stock. As to any fraction of a share which a Holder would otherwise be entitled to upon such conversion or in respect of any such dividend, the Company shall round up to the next whole share of Common Stock.

 

(vii) Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Series C-1 Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series C-1 Preferred Stock and the Company shall not be required to issue or deliver such Conversion Shares and shall not be responsible for partial liquidated damages under Section 6(d)(iii) or penalties under Section 6(d)(iv) unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

 

 

(e) Beneficial Ownership Limitation. The Company shall not effect any conversion of the Series C-1 Preferred Stock, including, without limitation, a Mandatory Conversion, and a Holder shall not have the right to receive dividends hereunder or convert any portion of the Series C-1 Preferred Stock, to the extent that, after giving effect to the receipt of Dividend Shares hereunder or conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates (which for purposes of this Section 6(e) and Section 7(b), shall include any employee of such Holder and any person having beneficial ownership of shares of Common Stock beneficially owned by the Holder), and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock received as Dividend Shares or issuable upon conversion of the Series C-1 Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Series C-1 Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Series C-1 Preferred Stock) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith (other than as it relates to a Holder relying on the number of shares issued and outstanding as provided by the Company pursuant to this Section). In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. The “Beneficial Ownership Limitation” shall be 4.99% (or, at the written election of any Holder delivered to the Company pursuant to the terms of Section 9 prior to the issuance of any shares of Series C-1 Preferred Stock, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Series C-1 Preferred Stock held by the applicable Holder. A Holder, upon at least sixty-one (61) days advance notice to the Company, may terminate, increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(e); provided, however, that the Holder shall not be entitled to increase or terminate the limitation contained in this Section 6(e) if the Holder has acquired (or if any of the Holder’s Attribution Parties has acquired) the Series C-1 Preferred Stock with the purpose or effect of changing or influencing the control of the Company. The limitations contained in this Section 6(e) shall apply to a successor holder of Series C-1 Preferred Stock. The limitations contained in this Section 6(e) and Section 7(b) shall terminate immediately at any time at which the Common Stock ceases to be an “equity security” as defined in Rule 13d-1(i) promulgated under the Exchange Act (or any successor rule).

 

 

(f) Primary Market Limitation. Unless the Company obtains the approval of its stockholders as required by the applicable rules of the applicable Trading Market for issuances of Common Stock in excess of such amount, the Company shall not effect any conversion of the Series C-1 Preferred Stock, including, without limitation, a Mandatory Conversion, and a Holder shall not have the right to receive dividends hereunder or convert any portion of the Series C-1 Preferred Stock, to the extent that, after giving effect to the receipt of dividends hereunder or conversion set forth on the applicable Notice of Conversion, the Holder, together with the Attribution Parties, would beneficially own in excess of the Primary Market Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock received as dividends or issuable upon conversion of the Series C-1 Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Series C-1 Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Series C-1 Preferred Stock) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith (other than as it relates to a Holder relying on the number of shares issued and outstanding as provided by the Company pursuant to this Section). For purposes of this Section 6(f), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. The “Primary Market Limitation” shall be 19.99% of the number of shares of the Common Stock outstanding immediately before giving effect to the issuance of shares of Common Stock issuable upon conversion of the Series C-1 Preferred Stock and/or the issuance of the Dividend Shares. The limitations contained in this paragraph shall apply to a successor holder of the Series C-1 Preferred Stock.

 

Section 7. Certain Adjustments.

 

(a) Stock Dividends and Stock Splits. If the Company, at any time while the Series C-1 Preferred Stock is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, will not include any shares of Common Stock issued by the Company upon conversion of this Series C-1 Preferred Stock or payment of a dividend on this Series C-1 Preferred Stock); (B) subdivides outstanding shares of Common Stock into a larger number of shares; (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (D) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price will be multiplied by a fraction of which the numerator will be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator will be the number of shares of Common Stock, or in the event that clause (D) of this Section 7(a) will apply shares of reclassified capital stock, outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) will become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and will become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

 

(b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Series C-1 Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance by the Company for the Holder (which shall not give the Holder any power to vote or dispose of such Purchase Rights) until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation).

  

(c) Pro Rata Distributions. During such time as this Series C-1 Preferred Stock is outstanding, if the Company declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Series C-1 Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Series C-1 Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance by the company for the benefit of the Holder (which shall not give the Holder any power to vote or dispose of such shares) until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation).

 

 

(d) Fundamental Transaction. If, at any time while the Series C-1 Preferred Stock is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, or (C) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of the Series C-1 Preferred Stock, the Holders shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall adjust the Conversion Price in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holders shall be given the same choice as to the Alternate Consideration they receive upon any conversion of the Series C-1 Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 7(d) and insuring that the Series C-1 Preferred Stock (or any such replacement security) will be substantially similar in form and substance to this Certificate of Designations and insuring that the Series C-1 Preferred Stock will be convertible for a corresponding number of shares of capital stock of such successor entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Series C-1 Preferred Stock (without regard to any limitations on the conversion of this Series C-1 Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Series C-1 Preferred Stock immediately prior to the consummation of such Fundamental Transaction) and will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

 

(e) [RESERVED].

  

(f) Calculations. All calculations under this Section 7 will be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

 

(g) Notice to the Holders.

 

	(i)	Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
	(ii)	Notice to Allow Conversion by Holder. If (A) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (B) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the Series C-1 Preferred Stock, and shall cause to be delivered to each Holder pursuant to Section 9, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a written notice stating (x) the date on which a record is to be taken for the purpose of seeking such stockholder approval or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert such Holder’s Series C-1 Preferred Stock pursuant to Section 6(a) (subject to the Beneficial Ownership Limitation and the Primary Market Limitation) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

 

Section 8. Miscellaneous.

 

(a) Notices. Any and all notices or other communications or deliveries to be provided to the Holders, the Company or the Transfer Agent hereunder, including, without limitation, any Notice of Conversion or Company Conversion Notice, shall be in writing and delivered personally, by facsimile, by e-mail, or sent by a nationally recognized overnight courier service (i) if to the Holders, at the Holder’s address set forth in the book and records of the Company or to another address of such Holder as may be specified by such Holder to the Company in a written notice delivered in accordance with this Section, or (ii) if to the Company, at 8 HaTokhen Street Caesarea Industrial Park, Israel 3088900, email: zvi@mydario.com or to another address as the Company may specify for such purposes by written notice to the Holders delivered in accordance with this Section. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. To the extent that any notice provided pursuant to this Certificate of Designations constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.

 

(b) Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of Designations shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay liquidated damages and accrued dividends, as applicable, on the shares of Series C-1 Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.

 

(c) Lost or Mutilated Series C-1 Preferred Stock Certificate. If a Holder alleges that such Holder’s Series C-1 Preferred Stock certificate has been lost, stolen or destroyed, the Company will only be obligated to issue a replacement certificate if the Holder delivers to the transfer agent, or the Company, as applicable: (i) a lost certificate affidavit; (ii) an indemnity bond in a form acceptable to the Company’s transfer agent, or if the Company acts as its own transfer agent, an agreement reasonably acceptable to the Company to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate; and (iii) any other documentation that the transfer agent or the Company, if the Company acts as its own transfer agent, may reasonably require.

 

 

(d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designations shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Certificate of Designations (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Certificate of Designations and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Certificate of Designations or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

(e) Waiver. Any waiver by the Company or a Holder of a breach of any provision of this Certificate of Designations shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designations or a waiver by any other Holders. The failure of the Company or a Holder to insist upon strict adherence to any term of this Certificate of Designations on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation. Any waiver by the Company or a Holder must be in writing.

 

(f) Severability. If any provision of this Certificate of Designations is invalid, illegal or unenforceable, the balance of this Certificate of Designations shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any dividend or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

 

(g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

(h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

 

(i) Status of Converted Series C-1 Preferred Stock. If any shares of Series C-1 Preferred Stock shall be converted or reacquired by the Company, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series C-1 Convertible Preferred Stock.

 

[Signature page follows.]

 

 

IN WITNESS WHEREOF, this Certificate of Designations has been executed by a duly authorized officer of the Company as of this 15th day of February 2024.

 

	/s/ Zvi Ben-David
Name:	Zvi Ben-David
Title:	Chief Financial Officer

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES C-1 PREFERRED STOCK)

 

The undersigned hereby elects to convert the number of shares of Series C-1 Convertible Preferred Stock indicated below into shares of common stock, no par value per share (the “Common Stock”), of DarioHealth Corp., a Delaware corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.

 

Conversion calculations:

 

Date to Effect Conversion: _______________________________________________________________

 

Number of shares of Series C-1 Preferred Stock owned prior to Conversion: ____________________________

 

Number of shares of Series C-1 Preferred Stock to be Converted: ____________________________________

 

Stated Value of shares of Series C-1 Preferred Stock to be Converted: _________________________________

 

Number of shares of Common Stock to be Issued: ______________________________________________

 

Applicable Conversion Price: _____________________________________________________________

 

Number of shares of Series C-1 Preferred Stock subsequent to Conversion: ____________________________

 

Address for Delivery: ___________________________________________________________________

 

Or

 

DWAC Instructions:

 

Broker no: ___________________________________

 

Account no: _________________________________

 

	[Holder]
	By:
	Name:
	Title:

 

 

 

 

 

Exhibit 3.3 

 

FORM OF

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES C-2 PREFERRED STOCK

OF

DARIOHEALTH CORP.

 

It is hereby certified that:

 

1. The name of the Company (hereinafter called the “Company”) is DarioHealth Corp., a Delaware corporation.

 

2. The Certificate of Incorporation (the “Certificate of Incorporation”) of the Company authorizes the issuance of Five Million (5,000,000) shares of preferred stock, $0.0001 par value per share, of which thirty thousand (30,000) shares have been designated as Series B Preferred Stock, fifteen thousand (15,000) shares have been designated as Series B-1 Preferred Stock, fifteen thousand (15,000) shares have been designated as Series B-2 Preferred Stock, fifteen thousand (15,000) shares have been designated as Series B-3 Preferred Stock, seventeen thousand and four hundred (17,400) shares have been designated as Series C Preferred Stock, and four thousand (4,000) shares have been designated as Series C-1 Preferred Stock and expressly vests in the Board of Directors of the Company the authority to issue any or all of said shares in one (1) or more series and by resolution or resolutions to establish the designation and number and to fix the relative rights and preferences of each series to be issued.

 

3. The Board of Directors approved and adopted the following resolution (this “Certificate of Designations” or this “Certificate”) for purposes of creating a Series C-2 issue of Preferred Stock.

 

RESOLVED, that One Thousand One Hundred Fifteen (1,115) of the Five Million (5,000,000) authorized shares of Preferred Stock of the Company shall be designated Series C-2 Convertible Preferred Stock, $0.0001 par value per share, and shall possess the rights and preferences set forth below:

 

Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:

 

“Affiliate” means any person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act. A Person shall be regarded as in control of the Company if the Company owns or directly or indirectly controls more than fifty percent (50%) of the voting stock or other ownership interest of the other person, or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such person.

 

“Alternate Consideration” shall have the meaning set forth in Section 7(d).

 

 

“Attribution Parties” shall have the meaning set forth in Section 6(e).

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(e).

 

“Business Day” means any day except Saturday, Sunday, and any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

“Certificate of Designations” means this Certificate of Designation of Preferences, Rights and Limitations of Series C-2 Preferred Stock.

 

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

 

“Common Stock” means the Company’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed into.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries of the Company, whether or not vested or otherwise convertible or exercisable into shares of Common Stock at the time of such issuance, which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock, and excluding shares of Common Stock issuable upon conversion of the Series C-2 Preferred Stock.

 

“Company Conversion Notice” means a notice delivered by the Company to effect a Mandatory Conversion of all the outstanding Series C-2 Preferred Stock (which for these purposes shall include the shares of Series C-2 Preferred Stock, along with any and all sub-series designated Series C-2-1 Preferred Stock, Series C-2-2 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering), provided that the effective date of such Mandatory Conversion shall be no less than ten (10) Business Days following the date that such notice is deemed to have been given.

 

“Conversion Amount” means the Stated Value at issue.

 

“Conversion Date” shall have the meaning set forth in Section 6(b).

 

“Conversion Price” means $2.14, subject to adjustment as set forth in Section 7.

 

“Conversion Shares” means the shares of Common Stock issuable upon conversion of the shares of Series C-2 Preferred Stock in accordance with the terms hereof.

 

“Dividend” shall have the meaning set forth in Section 3.

 

 

“Dividend Shares” shall have the meaning set forth in Section 3.

 

“Effective Date” means the date that this Certificate of Designations is filed with the Secretary of State of Delaware.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options or other equity awards to employees, officers, directors or consultants of the Company pursuant to any equity incentive plan duly adopted for such purpose, by the administrator administering such plan in accordance with its terms, or as an inducement grant pursuant to Nasdaq Listing Rule 5635(c)(4), (b) shares of Common Stock or options to consultants for services rendered to the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith (including shares issuable upon the exercise of any options), (c) securities upon the exercise or exchange of or conversion of any securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement and (d) securities issued pursuant to acquisitions or strategic transactions or issued in connection with any joint venture, commercial or collaborative relationship, or the acquisition or license by the Company of the securities, business, property or other assets of another person, in each case approved by a majority of the disinterested directors of the Company.

 

“Fundamental Transaction” shall have the meaning set forth in Section 7(d).

 

“Holder” shall mean an owner of shares of Series C-2 Preferred Stock.

 

“Junior Securities” shall be any class or series of capital stock of the Company hereafter created which does not expressly rank pari passu with or senior to the Series C-2 Preferred Stock.

 

“Liquidation” shall have the meaning set forth in Section 5(a).

 

“Mandatory Conversion” shall have the meaning set forth in Section 6(b).

 

“Mandatory Conversion Date” shall have the meaning set forth in Section 6(b).

 

“Mandatory Conversion Determination” shall have the meaning set forth in Section 6(b).

 

“New York Courts” shall have the meaning set forth in Section 8(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 6(a).

 

“Optional Conversion Date” shall have the meaning set forth in Section 6(a).

 

 

“Original Issue Date” means the date of the first issuance of any shares of Series C-2 Preferred Stock regardless of the number of transfers of any particular shares of Series C-2 Preferred Stock and regardless of the number of certificates which may be issued, if any, to evidence such Series C-2 Preferred Stock.

 

“Parity Securities” means Common Stock, the Series B Preferred Stock the Series B-1 Preferred Stock, the Series B-2 Preferred Stock, the Series B-3 Preferred Stock, the Series C Preferred Stock (including Series C Preferred Stock, Series C-1 Preferred Stock and any sub-series designated Series C-2-1 Preferred Stock, Series C-2-2 Preferred Stock, Series C-3 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering) and any other class or series of capital stock of the Company hereinafter created that expressly ranks pari passu with the Series C-2 Preferred Stock.

 

“Person” means an individual, entity, corporation, partnership, association, limited liability company, limited liability partnership, joint-stock company, trust or unincorporated organization.

 

“PIK Shares” shall have the meaning set forth in Section 3.

 

“Preferred Stock” means the Company’s preferred stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed into.

 

“Primary Market Limitation” shall have the meaning set forth in Section 6(f).

 

“Private Offering” means the Company’s private offering of Series C Preferred Stock, Series C-1 Preferred Stock and Series C-2 Preferred Stock (and any sub-series designated Series C-3 Preferred Stock, Series C-1-1 Preferred Stock, Series C-1-2 Preferred Stock and so on) in which Aegis Capital Corp. is acting as exclusive placement agent.

 

“Purchase Rights” shall have the meaning set forth in Section 7(b).

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Senior Securities” shall be any class or series of capital stock of the Company hereafter created which expressly ranks senior to the Series C-2 Preferred Stock with respect to the distribution of assets on Liquidation or with respect to any other rights, preferences, or privileges. No Senior Securities exist as of the date hereof.

 

“Series C-2 Preferred Stock” shall have the meaning set forth in Section 2.

 

“Share Delivery Date” shall have the meaning set forth in Section 6(d).

 

“Stated Value” means $1,000.00 per share of Series C-2 Preferred Stock.

 

 

“Subsidiary” means any subsidiary of the Company as set forth on Exhibit 21 to the Company’s Annual Report on Form 10-K most recently filed with the Commission, and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the Effective Date.

 

“Trading Day” means a day on which the principal Trading Market is open for business.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

“Transfer Agent” means VStock Transfer LLC, the current transfer agent of the Company, with a mailing address of 18 Lafayette Pl, Woodmere, NY 11598, a facsimile number of 646-536-3179 and an email address of info@vstocktransfer.com, and any successor transfer agent of the Company.

 

Section 2. Designation and Authorized Shares. The series of Preferred Stock designated by this Certificate of Designations shall be designated as the Company’s Series C-2 Convertible Preferred Stock (the “Series C-2 Preferred Stock”) and the number of shares so designated shall be One Thousand One Hundred Fifteen (1,115). So long as any of the Series C-2 Preferred Stock are issued and outstanding, the Company shall not issue any Senior Securities without the approval of the Holders of a majority of the issued and outstanding shares of Series C-2 Preferred Stock (inclusive of the Series C Preferred Stock and any sub-series designated Series C-1 Preferred Stock, Series C-2 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering). The Series C-2 Preferred Stock shall not be redeemed for cash and under no circumstances shall the Company be required to net cash settle the Series C-2 Preferred Stock.

 

Section 3. Dividends. Holders of shares of Series C-2 Preferred Stock will be entitled to receive, to the extent accrued, upon any conversion of the Series C-2 Preferred Stock: (a) dividends (the “Dividends”) payable as follows: a number of shares of Common Stock equal to seven and a half percent (7.5%) of the number of shares of Common Stock issuable upon conversion of the Series C-2 Preferred Stock then held by such Holder (collectively, the “PIK Shares”) for each full quarter anniversary of holding such Series C-2 Preferred Stock for a total of four (4) quarters from the closing date and a dividend of fifteen percent (15%) for the fifth full quarter from the closing date (or 45% in the aggregate) and (b) dividends equal, on an as-if-converted to shares of Common Stock basis, to and in the same form as dividends actually paid on shares of the Common Stock when, as, and if such dividends are paid on shares of the Common Stock. The Dividends will be satisfied solely by delivery of shares of Common Stock. The Dividends shall be accelerated and paid (to the extent not previously paid) upon the consummation of a Fundamental Transaction. The Dividends shall also be paid (to the extent accrued and not previously paid) upon the Mandatory Conversion Date. Notwithstanding the foregoing, to the extent that a Holder’s right to participate in any Dividend of PIK Shares or any stock dividend declared on the Common Stock to which such Holder is entitled to (“Dividend Shares”) would result in such Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation, then such Holder shall not be entitled to participate in any such dividend to such extent (or in the beneficial ownership of any Dividend Shares as a result of such dividend to such extent) and the portion of such Dividend Shares that would cause such Holder to exceed the Beneficial Ownership Limitation or the Primary Market Limitation shall be held by the Company in abeyance for the benefit of such Holder (which shall not give the Holder any power to vote or dispose of such Dividend Shares) until such time, if ever, as such Holder’s beneficial ownership thereof would not result in such Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation.

 

 

Section 4. Voting Rights. On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), and subject to the limitations set forth in Section 6(f), each Holder of outstanding shares of Series C-2 Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series C-2 Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, Holders of Series C-2 Preferred Stock shall vote together with the holders of Common Stock as a single class. The Holders shall be entitled to the same notice of any regular or special meeting of the stockholders as may or shall be given to holders of Common Stock entitled to vote at such meetings. As long as any shares of Series C-2 Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series C-2 Preferred Stock voting as a separate class, (a) alter or change adversely the powers, preferences or rights given to the Series C-2 Preferred Stock or alter or amend this Certificate of Designation, (b) authorize, issue, or obligate itself to issue any Senior Securities, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series B Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock or Series B-3 Preferred Stock, (e) increase the number of authorized shares of Series C Preferred Stock, Series C-1 Preferred Stock or Series C-2 Preferred Stock, excluding for these purposes any sub-series designated Series C-3 Preferred Stock, Series C-1-1 Preferred Stock, Series C-1-2 Preferred Stock and so on that may be authorized following the date hereof in connection with the Private Offering); (f) enter into any agreement with respect to any of the foregoing. Notwithstanding anything contained herein to the contrary, no holder of Series C-2 Preferred Stock shall be entitled to vote on any matter presented to the Company’s stockholders relating to approving the conversion of such holder’s Series C-2 Preferred Stock into an amount in excess of the Primary Market Limitation.

 

Section 5. Liquidation.

 

(a) The Series C-2 Preferred Stock shall, with respect to distributions of assets and rights upon the occurrence of any liquidation, dissolution or winding-up of the Company (“Liquidation”), rank: (i) junior to the Senior Securities, (ii) pari passu with the Parity Securities; and (iii) senior to the Junior Securities of the Company. As of the date hereof, there are no outstanding Senior Securities. Upon any Liquidation, after the satisfaction in full of the debts of the Company and payment of the liquidation preference to the Senior Securities, if any, the Holders of shares of Series C-2 Preferred Stock shall be entitled to be paid, on a pari passu basis with the payment of any liquidation preference afforded to holders of any Parity Securities, out of (but only to the extent) the assets of the Company are legally available for distribution to its stockholders, in the manner described in (b) below.

 

 

(b) After the Holders of all shares of Senior Securities shall have been paid in full the amounts to which they are entitled pursuant to their applicable liquidation preference as forth in any certificate of designation on the Senior Securities, the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of shares of Series C-2 Preferred Stock and any other holders of Parity Securities, pro rata based on the number of shares held by each such holder, treating for this purpose all such Series C-2 Preferred Stock and other Parity Securities as if it had been fully converted into Common Stock (without giving effect to the Beneficial Ownership Limitation) pursuant to the terms of this Certificate of Designations and any certificate of designation on the Junior Securities, each as in effect immediately prior to such Liquidation.

 

(c) After the Holders of all shares of Parity Securities shall have been paid in full the amounts to which they are entitled in pursuant to Section 5(b), the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of shares of Series C-2 Preferred Stock, the holders of other Parity Securities and holders of any Junior Securities, pro rata based on the number of shares held by each such holder, treating for this purpose all such Series C-2 Preferred Stock, other Parity Securities and Junior Securities as if it had been fully converted into Common Stock (without giving effect to the Beneficial Ownership Limitation) pursuant to the terms of this Certificate of Designations and any certificate of designation on the Junior Securities, each as in effect immediately prior to such Liquidation.

 

Section 6 Conversion.

 

(a) Conversions at Option of Holder. Each share of Series C-2 Preferred Stock (or fraction thereof) shall be convertible, at any time and from time to time, from and after the Original Issue Date at the option of the Holder thereof into that number of shares of Common Stock (subject to the Beneficial Ownership Limitation set forth in Section 6(e) and the Primary Market Limitation set forth in Section 6(f)) determined by dividing the Stated Value by the Conversion Price then in effect. Holders shall effect conversions by providing the Company and the Transfer Agent, with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series C-2 Preferred Stock to be converted, the number of shares of Series C-2 Preferred Stock owned prior to such conversion, the number of shares of Series C-2 Preferred Stock owned subsequent to such conversion and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers such Notice of Conversion to the Company pursuant to Section 6 and in accordance with Section 9 (such date, the “Optional Conversion Date”). Such Holder shall be deemed for all corporate purposes to have become the holder of record of the Conversion Shares with respect to which the shares of Series C-2 Preferred Stock have been converted as of the Optional Conversion Date. If no Optional Conversion Date is specified in a Notice of Conversion, the Optional Conversion Date shall be the date that such Notice of Conversion and Cancellation Request are deemed delivered to the Company in accordance with Section 9. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions of shares of Series C-2 Preferred Stock, a Holder shall not be required to surrender any Certificated Series C-2 Preferred Stock to the Company unless all of the shares of Series C-2 Preferred Stock represented by any such certificate are so converted, in which case such Holder shall deliver the Certificated Series C-2 Preferred Stock promptly following the Optional Conversion Date. To the extent that the Beneficial Ownership Limitation contained in Section 6(e) or the Primary Market Limitation contained in Section 6(f) applies to the converting Holder, the determination of whether the Series B Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Series C-2 Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Series C-2 Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and how many shares of the Series C-2 Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation or the Primary Market Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this Section and the Company shall have no obligation to verify or confirm the accuracy of such determination.

 

 

(b) Mandatory Conversion. On the fifteen (15) month anniversary of the Original Issue Date (the “Mandatory Conversion Date” and together with an Optional Conversion Date, the “Conversion Date”), each outstanding share of Series C-2 Preferred Stock will automatically convert (subject to the Beneficial Ownership Limitation set forth in Section 6(e) and the Primary Market Limitation set forth in Section 6(f)) into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Stated Value by the Conversion Price in effect on the Mandatory Conversion Date (a “Mandatory Conversion”). Within two Trading Days of (x) the Mandatory Conversion Date, if the shares of Series C-2 Preferred Stock are held in book entry form, or (y) such Holder’s surrender of Certificated Series C-2 Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and an indemnity or security reasonably acceptable to the Company (which shall not include the posting of any bond) to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate), the Company shall deliver: (I) to each Holder, the Conversion Shares issuable upon conversion of such Holder’s Series C-2 Preferred Stock via the Certificated Preferred Stock, and (II) the PIK Shares issuable upon Mandatory Conversion under Section 3, to Holders as of the Mandatory Conversion Date; provided that, any failure by the Holder to return Certificated Series C-2 Preferred Stock, if any, will have no effect on the Mandatory Conversion pursuant to this Section 6(b), which Mandatory Conversion will be deemed to occur on the Mandatory Conversion Date. To the extent that the Beneficial Ownership Limitation contained in Section 6(e) or the Primary Market Limitation contained in Section 6(f) applies to any Holder, such Holder shall within five Business Days of such Holder’s receipt of the Company Conversion Notice, provide the Company with a written determination (a “Mandatory Conversion Determination”), delivered in accordance with Section 9, of whether such Holder’s Series C-2 Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Series C-2 Preferred Stock are convertible, and the submission of a Mandatory Conversion Determination shall be deemed to be such Holder’s determination of the maximum number of shares of Series C-2 Preferred Stock that may be converted, subject to the Beneficial Ownership Limitation or the Primary Market Limitation and the portion of the shares of Common Stock issuable upon such Mandatory Conversion hereunder that would cause such Holder to exceed the Beneficial Ownership Limitation or the Primary Market Limitation shall be held by the Company in abeyance for the benefit of such Holder (which shall not give the Holder any power to vote or dispose of such shares) until such time, if ever, as such Holder’s beneficial ownership thereof would not result in such Holder exceeding the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Mandatory Conversion Determination that such determination has not violated the restrictions set forth in Section 6(e) or Section 6(f) and the Company shall have no obligation to verify or confirm the accuracy of such determination.

 

 

(c) Conversion Shares. The aggregate number of Conversion Shares which the Company shall issue upon conversion of the Series C-2 Preferred Stock (whether pursuant to Section 6(a) or 6(b)) will be equal to the number of shares of Series C-2 Preferred Stock to be converted, multiplied by the Stated Value, divided by the Conversion Price in effect at the time of the conversion.

 

(d) Mechanics of Conversion.

 

(i) Delivery of Conversion Shares upon Conversion. Promptly after the applicable Conversion Date, but in any case within the earlier of (i) two (2) Trading Days and (ii) the Standard Settlement Period (as defined below) thereof (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the converting Holder the number of Conversion Shares being acquired upon the conversion of the Series C-2 Preferred Stock pursuant to Section 6(a) or 6(b), as applicable, any PIK Shares to which the Holder is entitled pursuant to Section 3 that have not been previously issued, if any, and a wire transfer of immediately available funds in the amount of accrued and unpaid cash dividends, if any. Conversion Shares issuable hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with DTC through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Conversion Shares and PIK Shares, if any, to which the Holder is entitled pursuant to such conversion to the address specified by the Holder in the Notice of Conversion or the Company Conversion Notice, as the case may be. The Company shall (A) deliver (or cause to be delivered) to the converting Holder who has converted less than all of such Holder’s Certificated Series C-2 Preferred Stock (1) a certificate or certificates, of like tenor, for the number of shares of Series C-2 Preferred Stock evidenced by any surrendered certificate or certificates less the number of shares of Series C-2 Preferred Stock converted. The Company agrees to maintain a transfer agent that is a participant in the DTC’s FAST program so long as any shares of Series C-2 Preferred Stock remain outstanding. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

 

(ii) Failure to Deliver Conversion Shares upon an Optional Conversion. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, in addition to any other rights herein, the Holder shall be entitled to elect by written notice to the Transfer Agent, on behalf of the Company, at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any Certificated Series C-2 Preferred Stock delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion.

 

(iii) Obligation Absolute. The Company’s obligation to issue and deliver the Conversion Shares upon conversion of Series C-2 Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action that the Company may have against such Holder.

 

(iv) [Reserved].

 

(v) Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holders of the Series C-2 Preferred Stock, not less than such aggregate number of shares of the Common Stock as shall be issuable (i) upon the conversion of all outstanding shares of Series C-2 Preferred Stock (taking into account the adjustments and restrictions of Section 7) and (ii) in respect of the PIK Shares. The Company covenants that all Conversion Shares and PIK Shares shall, when issued, be duly authorized, validly issued, fully paid and nonassessable.

 

(vi) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of or as dividends on the Series C-2 Preferred Stock. As to any fraction of a share which a Holder would otherwise be entitled to upon such conversion or in respect of any such dividend, the Company shall round up to the next whole share of Common Stock.

 

(vii) Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Series C-2 Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series C-2 Preferred Stock and the Company shall not be required to issue or deliver such Conversion Shares and shall not be responsible for partial liquidated damages under Section 6(d)(iii) or penalties under Section 6(d)(iv) unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

 

 

(e) Beneficial Ownership Limitation. The Company shall not effect any conversion of the Series C-2 Preferred Stock, including, without limitation, a Mandatory Conversion, and a Holder shall not have the right to receive dividends hereunder or convert any portion of the Series C-2 Preferred Stock, to the extent that, after giving effect to the receipt of Dividend Shares hereunder or conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates (which for purposes of this Section 6(e) and Section 7(b), shall include any employee of such Holder and any person having beneficial ownership of shares of Common Stock beneficially owned by the Holder), and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock received as Dividend Shares or issuable upon conversion of the Series C-2 Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Series C-2 Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Series C-2 Preferred Stock) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith (other than as it relates to a Holder relying on the number of shares issued and outstanding as provided by the Company pursuant to this Section). In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. The “Beneficial Ownership Limitation” shall be 4.99% (or, at the written election of any Holder delivered to the Company pursuant to the terms of Section 9 prior to the issuance of any shares of Series C-2 Preferred Stock, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Series C-2 Preferred Stock held by the applicable Holder. A Holder, upon at least sixty-one (61) days advance notice to the Company, may terminate, increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(e); provided, however, that the Holder shall not be entitled to increase or terminate the limitation contained in this Section 6(e) if the Holder has acquired (or if any of the Holder’s Attribution Parties has acquired) the Series C-2 Preferred Stock with the purpose or effect of changing or influencing the control of the Company. The limitations contained in this Section 6(e) shall apply to a successor holder of Series C-2 Preferred Stock. The limitations contained in this Section 6(e) and Section 7(b) shall terminate immediately at any time at which the Common Stock ceases to be an “equity security” as defined in Rule 13d-1(i) promulgated under the Exchange Act (or any successor rule).

 

 

(f) Primary Market Limitation. Unless the Company obtains the approval of its stockholders as required by the applicable rules of the applicable Trading Market for issuances of Common Stock in excess of such amount, the Company shall not effect any conversion of the Series C-2 Preferred Stock, including, without limitation, a Mandatory Conversion, and a Holder shall not have the right to receive dividends hereunder or convert any portion of the Series C-2 Preferred Stock, to the extent that, after giving effect to the receipt of dividends hereunder or conversion set forth on the applicable Notice of Conversion, the Holder, together with the Attribution Parties, would beneficially own in excess of the Primary Market Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock received as dividends or issuable upon conversion of the Series C-2 Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Series C-2 Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Series C-2 Preferred Stock) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith (other than as it relates to a Holder relying on the number of shares issued and outstanding as provided by the Company pursuant to this Section). For purposes of this Section 6(f), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. The “Primary Market Limitation” shall be 19.99% of the number of shares of the Common Stock outstanding immediately before giving effect to the issuance of shares of Common Stock issuable upon conversion of the Series C-2 Preferred Stock and/or the issuance of the Dividend Shares. The limitations contained in this paragraph shall apply to a successor holder of the Series C-2 Preferred Stock.

 

 

Section 7. Certain Adjustments.

 

(a) Stock Dividends and Stock Splits. If the Company, at any time while the Series C-2 Preferred Stock is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, will not include any shares of Common Stock issued by the Company upon conversion of this Series C-2 Preferred Stock or payment of a dividend on this Series C-2 Preferred Stock); (B) subdivides outstanding shares of Common Stock into a larger number of shares; (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (D) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price will be multiplied by a fraction of which the numerator will be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator will be the number of shares of Common Stock, or in the event that clause (D) of this Section 7(a) will apply shares of reclassified capital stock, outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) will become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and will become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

(b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Series C-2 Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance by the Company for the Holder (which shall not give the Holder any power to vote or dispose of such Purchase Rights) until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation).

 

(c) Pro Rata Distributions. During such time as this Series C-2 Preferred Stock is outstanding, if the Company declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Series C-2 Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Series C-2 Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance by the company for the benefit of the Holder (which shall not give the Holder any power to vote or dispose of such shares) until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation).

 

 

(d) Fundamental Transaction. If, at any time while the Series C-2 Preferred Stock is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, or (C) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of the Series C-2 Preferred Stock, the Holders shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall adjust the Conversion Price in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holders shall be given the same choice as to the Alternate Consideration they receive upon any conversion of the Series C-2 Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 7(d) and insuring that the Series C-2 Preferred Stock (or any such replacement security) will be substantially similar in form and substance to this Certificate of Designations and insuring that the Series C-2 Preferred Stock will be convertible for a corresponding number of shares of capital stock of such successor entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Series C-2 Preferred Stock (without regard to any limitations on the conversion of this Series C-2 Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Series C-2 Preferred Stock immediately prior to the consummation of such Fundamental Transaction) and will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

 

(e) [RESERVED].

 

(f) Calculations. All calculations under this Section 7 will be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

 

(g) Notice to the Holders.

 

	(i)	Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
	(ii)	Notice to Allow Conversion by Holder. If (A) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (B) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the Series C-2 Preferred Stock, and shall cause to be delivered to each Holder pursuant to Section 9, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a written notice stating (x) the date on which a record is to be taken for the purpose of seeking such stockholder approval or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert such Holder’s Series C-2 Preferred Stock pursuant to Section 6(a) (subject to the Beneficial Ownership Limitation and the Primary Market Limitation) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

 

Section 8. Miscellaneous.

 

(a) Notices. Any and all notices or other communications or deliveries to be provided to the Holders, the Company or the Transfer Agent hereunder, including, without limitation, any Notice of Conversion or Company Conversion Notice, shall be in writing and delivered personally, by facsimile, by e-mail, or sent by a nationally recognized overnight courier service (i) if to the Holders, at the Holder’s address set forth in the book and records of the Company or to another address of such Holder as may be specified by such Holder to the Company in a written notice delivered in accordance with this Section, or (ii) if to the Company, at 8 HaTokhen Street Caesarea Industrial Park, Israel 3088900, email: zvi@mydario.com or to another address as the Company may specify for such purposes by written notice to the Holders delivered in accordance with this Section. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. To the extent that any notice provided pursuant to this Certificate of Designations constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.

 

(b) Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of Designations shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay liquidated damages and accrued dividends, as applicable, on the shares of Series C-2 Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.

 

(c) Lost or Mutilated Series C-2 Preferred Stock Certificate. If a Holder alleges that such Holder’s Series C-2 Preferred Stock certificate has been lost, stolen or destroyed, the Company will only be obligated to issue a replacement certificate if the Holder delivers to the transfer agent, or the Company, as applicable: (i) a lost certificate affidavit; (ii) an indemnity bond in a form acceptable to the Company’s transfer agent, or if the Company acts as its own transfer agent, an agreement reasonably acceptable to the Company to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate; and (iii) any other documentation that the transfer agent or the Company, if the Company acts as its own transfer agent, may reasonably require.

 

 

(d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designations shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Certificate of Designations (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Certificate of Designations and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Certificate of Designations or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

(e) Waiver. Any waiver by the Company or a Holder of a breach of any provision of this Certificate of Designations shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designations or a waiver by any other Holders. The failure of the Company or a Holder to insist upon strict adherence to any term of this Certificate of Designations on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation. Any waiver by the Company or a Holder must be in writing.

 

(f) Severability. If any provision of this Certificate of Designations is invalid, illegal or unenforceable, the balance of this Certificate of Designations shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any dividend or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

 

 

(g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

(h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

 

(i) Status of Converted Series C-2 Preferred Stock. If any shares of Series C-2 Preferred Stock shall be converted or reacquired by the Company, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series C-2 Convertible Preferred Stock.

 

[Signature page follows.]

 

 

IN WITNESS WHEREOF, this Certificate of Designations has been executed by a duly authorized officer of the Company as of this 20th day of February 2024.

 

	/s/ Zvi Ben-David
Name:	Zvi Ben-David
Title:	Chief Financial Officer

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES C-2 PREFERRED STOCK)

 

The undersigned hereby elects to convert the number of shares of Series C-2 Convertible Preferred Stock indicated below into shares of common stock, no par value per share (the “Common Stock”), of DarioHealth Corp., a Delaware corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.

 

Conversion calculations:

 

Date to Effect Conversion: __________________________________________________________________________________

 

Number of shares of Series C-2 Preferred Stock owned prior to Conversion: __________________________________________________

 

Number of shares of Series C-2 Preferred Stock to be Converted: ________________________________________________________

 

Stated Value of shares of Series C-2 Preferred Stock to be Converted: ______________________________________________________

 

Number of shares of Common Stock to be Issued: __________________________________________________________________

 

Applicable Conversion Price: ______________________________________________________________________________

 

Number of shares of Series C-2 Preferred Stock subsequent to Conversion: _________________________________________________

 

Address for Delivery: ____________________________________________________________________________________

 

Or

 

DWAC Instructions:

 

Broker no: ___________________________________

 

Account no: _________________________________

 

	[Holder]
	By:
	Name:
	Title:

 

 

Exhibit 4.1

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

PREFUNDED COMMON STOCK PURCHASE WARRANT

 

DARIOHEALTH CORP.

 

Warrant Shares: 2,500,100

Issue Date: February 15, 2024

 

THIS PREFUNDED COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, as of February 15, 2024 (the “Issue Date”), for value received, Titan Trust 2024 I, a Delaware statutory trust or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date that is [270/360/540/720] days after the Issue Date (the “Initial Exercise Date”) and until this Warrant is exercised in full (the “Termination Date”) but not thereafter, to subscribe for and purchase from DarioHealth Corp., a Delaware corporation (the “Company”), up to 2,500,100 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). This Warrant was issued pursuant to that certain Merger Agreement (as defined herein).

 

Section 1.                Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:

 

“Affiliate” means any person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act. A Person shall be regarded as in control of the Company if the Company owns or directly or indirectly controls more than fifty percent (50%) of the voting stock or other ownership interest of the other person, or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such person.

 

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

 

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

 

 

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

 

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

 

“Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such shares of common stock may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Merger Agreement” means that certain Agreement and Plan of Merger, dated as of February 15, 2024, by and between the Company, Twill Merger Sub, Inc., Twill, Inc. and Bilal Khan, in capacity as Holder’s Representative (as may be amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms).

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Subsidiary” means any subsidiary of the Company and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the Issue Date.

 

“Trading Day” means a day on which the Common Stock is traded on a Trading Market.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).

 

“Transfer Agent” means VStock Transfer, LLC, the current transfer agent of the Company, with a mailing address of 8 Lafayette Place, Woodmere, NY 11598 and a facsimile number of (646) 536-3179, and any successor transfer agent of the Company.

 

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

 

 

“Warrants” means this Warrant and other prefunded Common Stock purchase warrants issued by the Company pursuant to the Merger Agreement.

 

Section 2.                Exercise.

 

a)              Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise, required to be paid by the Holder pursuant to Section 2(d)(vi) herein, by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof unless such Warrant is surrendered to the Company and reissued to the Holder pursuant to Section 2(d)(ii).

 

b)              Exercise Price. The aggregate exercise price of this Warrant, except for a nominal exercise price of $0.0001 per Warrant Share, was pre-funded to the Company on or prior to the Issue Date and, consequently, no additional consideration (other than the nominal exercise price of $0.0001 per Warrant Share) shall be required to be paid by the Holder to the Company to effect any exercise of this Warrant. The Holder shall not be entitled to the return or refund of all, or any portion, of such pre-paid aggregate exercise price under any circumstance or for any reason whatsoever, including in the event this Warrant shall not have been exercised prior to the Termination Date. The remaining unpaid exercise price per share of the Common Stock under this Warrant shall be $0.0001, subject to adjustment hereunder (the “Exercise Price”).

 

c)              Cashless Exercise. Notwithstanding the foregoing, or anything else to the contrary contained herein, this Warrant shall only be exercised, in whole or in part, by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) =  as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

  

 

(B) =   the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) =   the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c).

 

d)             Mechanics of Exercise.

 

i.             Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received by the Company within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

ii.            Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

 

iii.            Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv.            No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

v.            Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vi.            Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

e)             Holder’s Exercise Limitations. For so long as the Common Stock is an equity security as defined in Rule 13d-1(i) promulgated pursuant to the Exchange Act, the Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, such Holder (together with such Holder’s Affiliates (which for purposes of this Section 2(e) and Section 2(f), shall include any employee of such Holder and any person having beneficial ownership of shares of Common Stock beneficially owned by the Holder), and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include only the number of shares of Common Stock issuable upon exercise of this Warrant, giving effect to the limitation of the foregoing sentence, but shall exclude the number of shares of Common Stock which are issuable and beneficially owned by the Holder or its Affiliates or any of its Attribution Parties upon (i) exercise of the remaining, nonexercised portion of this Warrant but for the limitation of the foregoing sentence and (ii) exercise or conversion of the unexercised or unconverted portion of any other right to acquire Common Stock or Common Stock Equivalents held by such Holder or any of its Affiliates or Attribution Parties, but for a limitation on conversion or exercise analogous to the limitation contained herein. Any exercise of this Warrant and issuance of Common Stock in violation of the limitation contained in this Section 2(e) shall be null and void. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith (other than as it relates to a Holder relying on the number of shares issued and outstanding as provided by the Company pursuant to this Section). In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. The “Beneficial Ownership Limitation” shall be 4.99% (or, at the written election of any Holder, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. A Holder, upon at least sixty-one (61) days advance notice to the Company, may terminate, increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e). The limitations contained in this Section 2(e) shall apply to a successor holder of this Warrant. The limitations contained in this Section 2(e) and Section 2(f) shall terminate immediately at any time at which the Common Stock ceases to be an “equity security” as defined in Rule 13d-1(i) promulgated under the Exchange Act (or any successor rule).

 

 

f)              Primary Market Limitation. Unless the Company obtains the approval of its stockholders as required by the applicable rules of the applicable Trading Market for issuances of Common Stock in excess of such amount, the Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder, together with the Attribution Parties, would beneficially own in excess of the Primary Market Limitation (as defined below) as determined as of the date of the execution of the Merger Agreement. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) held by such Holder or any of Affiliates or Attribution Parties, but for a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this Section 2(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith (other than as it relates to a Holder relying on the number of shares issued and outstanding as provided by the Company pursuant to this Section). To the extent that the limitation contained in this Section 2(f) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Company. A determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder in the sole discretion of the Holder or Holders. Upon the written or oral request (which may be via email) of a Holder, the Company shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. The “Primary Market Limitation” shall be 19.99% of the number of shares of the Common Stock outstanding immediately before giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

 

Section 3.                Certain Adjustments.

 

a)              Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)             [RESERVED]

 

c)              Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation and the Primary Market Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation or the Primary Market Limitation).

 

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

 

 

e)              Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) or 2(f) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) or 2(f) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.

 

f)               Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

 

g)               Notice to Holder.

 

i.            Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

  

ii.            Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

Section 4.                 Transfer of Warrant.

 

a)               Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

 

b)               New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c)               Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

Section 5.                 Miscellaneous.

 

a)               No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c), in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b)               Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c)               Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d)               Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

  

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e)               Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Warrant (whether brought against a party hereto or their respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit or proceeding to enforce any provisions of this Warrant, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for their reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

f)                Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g)               Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h)               Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Merger Agreement.

 

i)                Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

 

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

 

k)               Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l)                Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand, and the Holder, on the other hand.

 

m)              Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n)               Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

 

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

 

	DARIOHEALTH CORP.
	By:
		Name:
		Title:

 

 

NOTICE OF EXERCISE

 

TO: DARIOHEALTH CORP.

 

(1)   The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2)   Payment shall take the form of (check applicable box):

 

[ ] in lawful money of the United States; or

 

[ ] if permitted, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3)   Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

 

 

It is expressly understood and agreed by the parties hereto that (a) this Exercise Notice is executed and delivered by Wilmington Savings Fund Society, FSB (“WSFS”), not individually or personally but solely in its capacity as Trustee under the trust agreement of Titan Trust 2024 I, a Delaware statutory trust, dated as of February 15, 2024 (the “Trust Agreement”) on behalf of [_________], in the exercise of the powers and authority conferred and vested in it as Trustee under the Trust Agreement, subject to the protections, indemnities and immunities afforded to the Trustee thereunder, (b) each of the representations, undertakings and agreements herein made on the part of the Trust is made and intended not as personal representations, undertakings and agreements by WSFS but is made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability on WSFS, individually or personally, to perform any covenant either expressed or implied contained herein of the Trust, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto, (d) WSFS has made no investigation as to the accuracy or completeness of any representations and warranties made by the Trust in this Notice and (e) under no circumstances shall WSFS be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Notice or any other related documents.

 

Titan Trust 2024 I

 

By: Wilmington Savings Fund Society, FSB, not in its individual capacity, but solely as Trustee

 

By:
Name:
Title:

 

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:
		(Please Print)
Address:
		(Please Print)
Phone Number:
Email Address:
Dated: _______________ __, ______
Holder’s Signature:
Holder’s Address:

 

 

Exhibit 4.2

 

Warrant Certificate No. PAW- __

 

NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.

 

Effective Date: February [   ], 2024

Void After: February [   ], 2029

 

DARIOHEALTH CORP.

 

WARRANT TO PURCHASE COMMON STOCK

 

DarioHealth Corp., a Delaware corporation (the “Company”), for value received on February [ ], 2024 (the “Effective Date”), hereby issues to [ ] (the “Holder” or “Warrant Holder”) this Warrant (the “Warrant”) to purchase, [ ] shares (each such share as from time to time adjusted as hereinafter provided being a “Warrant Share” and all such shares being the “Warrant Shares”) of the Company’s Common Stock (as defined below), at the Exercise Price (as defined below), as adjusted from time to time as provided herein, on or before February [ ], 2029 (the “Expiration Date”), all subject to the following terms and conditions. This Warrant is one of a series of placement agent warrants of like tenor that have been issued in connection with the Company’s private offering of Series C Convertible Preferred Stock, Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock, pursuant to the terms of those certain Placement Agency Agreement dated December 28, 2023, as the same may have been amended from time to time and those certain Disclosure Materials (as defined in the Placement Agency Agreement), as the same may have been amended and supplemented from time to time and the.

 

As used in this Warrant, (i) “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York, New York, are authorized or required by law or executive order to close; (ii) “Change of Control” means (x) any transaction or series of related transactions (including any reorganization, merger or consolidation) that results in the transfer of 51% or more of the voting securities of the Company (excluding, for these purposes, private placements of newly issued shares), or (y) any transfer, disposition or sale of all or substantially all of the assets of the Company to another person; (iii) “Common Stock” means the common stock of the Company, par value $0.0001 per share, including any securities issued or issuable with respect thereto or into which or for which such shares may be exchanged for, or converted into, pursuant to any stock dividend, stock split, stock combination, recapitalization, reclassification, reorganization or other similar event; (iii) “Exercise Price” means $[____] per share of Common Stock, subject to adjustment as provided herein; (iv) “Trading Day” means any day on which the Common Stock is traded (or available for trading) on its principal trading market; and (v) “Affiliate” means any person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, a person, as such terms are used and construed in Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

 

 

1.

DURATION AND EXERCISE OF WARRANTS

 

(a)            Exercise Period. The Holder may exercise this Warrant in whole or in part on any Business Day on or before 5:00 P.M., Eastern Time, on the Expiration Date, at which time this Warrant shall become void and of no value.

 

(b)

Exercise Procedures.

 

(i)             While this Warrant remains outstanding and exercisable in accordance with Section 1(a), in addition to the manner set forth in Section 1(b)(ii) below, the Holder may exercise this Warrant in whole or in part at any time and from time to time by:

 

(A)          delivery to the Company of a duly executed copy of the Notice of Exercise attached as Exhibit A;

 

(B)           surrender of this Warrant to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder; and

 

(C)           payment of the then-applicable Exercise Price per share multiplied by the number of Warrant Shares being purchased upon exercise of the Warrant (such amount, the “Aggregate Exercise Price”) made in the form of cash, or by certified check, bank draft or money order payable in lawful money of the United States of America or in the form of a Cashless Exercise to the extent permitted in Section 1(b)(ii) below.

 

(ii)            At any time commencing six months after the Effective Date, the Holder may, in its sole discretion, exercise all or any part of the Warrant in a “cashless” or “net-issue” exercise (a “Cashless Exercise”) by delivering to the Company (1) the Notice of Exercise and (2) the original Warrant, pursuant to which the Holder shall surrender the right to receive upon exercise of this Warrant, a number of Warrant Shares having a value (as determined below) equal to the Aggregate Exercise Price, in which case, the number of Warrant Shares to be issued to the Holder upon such exercise shall be calculated using the following formula:

 

X              =             Y * (A - B)

A

 

with:

X =

the number of Warrant Shares to be issued to the Holder

 

Y =

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

 

A =

the fair value per share of Common Stock on the date of exercise of this Warrant

 

B =

the then-current Exercise Price of the Warrant

 

 

Solely for the purposes of this paragraph, “fair value” per share of Common Stock shall mean the Closing Price (as defined below) per share of Common Stock on the date prior to the date on which the Notice of Exercise is deemed to have been given to the Company pursuant to Section 11 hereto. “Closing Price” means, for any date, the price determined by the first of the following clauses that applies:  (a) if the Common Stock is then listed or quoted on the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market or any other national securities exchange, the closing price per share of the Common Stock for such date (or the nearest preceding date) on the primary eligible market or exchange on which the Common Stock is then listed or quoted; (b) if prices for the Common Stock are then quoted on the OTC Bulletin Board or any tier of the OTC Markets, the closing bid price per share of the Common Stock for such date (or the nearest preceding date) so quoted; or (c) if prices for the Common Stock are then reported in the “Pink Sheets” published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent closing bid price per share of the Common Stock so reported. If the Common Stock is not publicly traded as set forth above, the “fair value” per share of Common Stock shall be reasonably and in good faith determined by the Board of Directors of the Company as of the date which the Notice of Exercise is deemed to have been sent to the Company.

 

For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for such shares shall be deemed to have commenced, on the Effective Date of this Warrant.

 

(iii)           Upon the exercise of this Warrant in compliance with the provisions of this Section 1(b), and except as limited pursuant to the last paragraph of Section 1(b)(ii), the Company shall promptly issue and cause to be delivered to the Holder a certificate for the Warrant Shares purchased by the Holder. Each exercise of this Warrant shall be effective immediately prior to the close of business on the date (the “Date of Exercise”) that the conditions set forth in Section 1(b) have been satisfied, as the case may be. On the first Business Day following the date on which the Company has received each of the Notice of Exercise and the Aggregate Exercise Price (or notice of a Cashless Exercise in accordance with Section 1(b)(ii)) (the “Exercise Delivery Documents”), the Company shall transmit an acknowledgment of receipt of the Exercise Delivery Documents to the Company’s transfer agent (the “Transfer Agent”). On or before the third Business Day following the date on which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch by overnight courier to the address as specified in the Notice of Exercise, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares.

 

 

(iv)           [RESERVED]

 

(c)            Partial Exercise. This Warrant shall be exercisable, either in its entirety or, from time to time, for part only of the number of Warrant Shares referenced by this Warrant. If this Warrant is submitted in connection with any exercise pursuant to Section 1 and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the actual number of Warrant Shares being acquired upon such an exercise, then the Company shall as soon as practicable and in no event later than five (5) Business Days after any exercise and at its own expense, issue a new Warrant of like tenor representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.

 

(d)            Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 16.

 

(e)            Holder’s Exercise Limitations. Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 1 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other persons acting as a group together with the Holder or any of the Holder’s Affiliates (such persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 1(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 1(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 1(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Securities and Exchange Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 1(e), provided that the Beneficial Ownership Limitation in no event exceeds 19.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 1(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61^st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. For purposes of this Section 1(e), “affiliate” means any person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

 

2.

ISSUANCE OF WARRANT SHARES

 

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

 

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

 

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

 

3.

ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND TYPE OF WARRANT SHARES

 

(a)            The Exercise Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3; provided, that notwithstanding the provisions of this Section 3, the Company shall not be required to make any adjustment if and to the extent that such adjustment would require the Company to issue a number of shares of Common Stock in excess of its authorized but unissued shares of Common Stock, less all amounts of Common Stock that have been reserved for issue upon the conversion of all outstanding securities convertible into shares of Common Stock and the exercise of all outstanding options, warrants and other rights exercisable for shares of Common Stock. If the Company does not have the requisite number of authorized but unissued shares of Common Stock to make any adjustment, the Company shall use its commercially best efforts to obtain the necessary stockholder consent to increase the authorized number of shares of Common Stock to make such an adjustment pursuant to this Section 3.

 

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

 

 

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

 

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

 

(B)           additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement (other than shares of Common Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3(a)(i) above),

 

then and in each such case, the Exercise Price and the number of Warrant Shares to be obtained upon exercise of this Warrant shall be adjusted proportionately, and the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to above) that such Holder would hold on the date of such exercise had such Holder been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property. The Exercise Price and the Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 3(a)(ii).

 

(iii)           Reorganization, Reclassification, Consolidation, Merger or Sale. If any recapitalization, reclassification or reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets or other transaction shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property (an “Organic Change”), then, as a condition of such Organic Change, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented by this Warrant) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable assuming the full exercise of the rights represented by this Warrant. In the event of any Organic Change, appropriate provision shall be made by the Company with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not affect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument reasonably satisfactory in form and substance to the Holder executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. If there is an Organic Change, then the Company shall cause to be mailed to the Holder at its last address as it shall appear on the books and records of the Company, at least 10 calendar days before the effective date of the Organic Change, a notice stating the date on which such Organic Change is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares for securities, cash, or other property delivered upon such Organic Change; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the 10-day period commencing on the date of such notice to the effective date of the event triggering such notice. In any event, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall be deemed to assume such obligation to deliver to such Holder such shares of stock, securities or assets even in the absence of a written instrument assuming such obligation to the extent such assumption occurs by operation of law.

 

 

(b)            Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 3, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall promptly furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such adjustments and readjustments; and (ii) the number of shares and the amount, if any, of other property which at the time would be received upon the exercise of the Warrant.

 

(c)            Certain Events. If any event occurs as to which the other provisions of this Section 3 are not strictly applicable but the lack of any adjustment would not fairly protect the purchase rights of the Holder under this Warrant in accordance with the basic intent and principles of such provisions, or if strictly applicable would not fairly protect the purchase rights of the Holder under this Warrant in accordance with the basic intent and principles of such provisions, then the Company's Board of Directors will, in good faith, make an appropriate adjustment to protect the rights of the Holder; provided, that no such adjustment pursuant to this Section 3(c) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 3.

 

4.

CHANGE OF CONTROL.

 

In case of any Change of Control, then as a condition of such transaction, appropriate lawful provisions will be made whereby the Holder will have the right to acquire and receive upon exercise of this Warrant in lieu of the Warrant Shares immediately theretofore subject to acquisition upon the exercise of this Warrant, such shares of stock, securities or assets (including cash) that a holder of Warrant Shares deliverable upon exercise of this Warrant would have been entitled to receive in such transaction as if this Warrant had been exercised immediately prior to such transaction. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 4 hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. In the event of a Change of Control in which all of the capital stock of the Company is exchanged exclusively for cash, the Company may elect to cancel this Warrant upon payment to the Holder of a cash payment equal to the excess, if any, between the cash price per share paid in the merger and the Exercise Price. If the cash price per share paid in the transaction is less than the Exercise Price, the Warrant shall automatically be cancelled on the effective date of the Change of Control, without the payment of any consideration to the Holder. In any event, the Company shall provide to the Holder at least twenty (20) days advance written notice of any transaction involving a Change of Control.

 

5.

TRANSFERS AND EXCHANGES OF WARRANT AND WARRANT SHARES

 

(a)            Registration of Transfers and Exchanges. Subject to Section 5(c), upon the Holder’s surrender of this Warrant, with a duly executed copy of the Form of Assignment attached as Exhibit B, to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder, the Company shall register the transfer of all or any portion of this Warrant. Upon such registration of transfer, the Company shall issue a new Warrant, in substantially the form of this Warrant, evidencing the acquisition rights transferred to the transferee and a new Warrant, in similar form, evidencing the remaining acquisition rights not transferred, to the Holder requesting the transfer.

 

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

 

(c)            Restrictions on Transfers. This Warrant may not be transferred at any time without (i) registration under the Securities Act or (ii) an exemption from such registration and a written opinion of legal counsel addressed to the Company that the proposed transfer of the Warrant may be effected without registration under the Securities Act, which opinion will be in form and from counsel reasonably satisfactory to the Company.

 

 

(d)            Permitted Transfers and Assignments. Notwithstanding any provision to the contrary in this Section 5, the Holder may transfer, with or without consideration, this Warrant or any of the Warrant Shares (or a portion thereof) to the Holder’s Affiliates (as such term is defined under Rule 144 of the Securities Act) without obtaining the opinion from counsel that may be required by Section 5(c)(ii), provided, that the Holder delivers to the Company and its counsel certification, documentation, and other assurances reasonably required by the Company’s counsel to enable the Company’s counsel to render an opinion to the Company’s Transfer Agent that such transfer does not violate applicable securities laws.

 

6.

MUTILATED OR MISSING WARRANT CERTIFICATE

 

If this Warrant is mutilated, lost, stolen or destroyed, upon request by the Holder, the Company will, at its expense, issue, in exchange for and upon cancellation of the mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant, a new Warrant, in substantially the form of this Warrant, representing the right to acquire the equivalent number of Warrant Shares; provided, that, as a prerequisite to the issuance of a substitute Warrant, the Company may require satisfactory evidence of loss, theft or destruction as well as an indemnity from the Holder of a lost, stolen or destroyed Warrant.

 

7.

PAYMENT OF TAXES

 

The Company will pay all transfer and stock issuance taxes attributable to the preparation, issuance and delivery of this Warrant and the Warrant Shares (and replacement Warrants) including, without limitation, all documentary and stamp taxes; provided, however, that the Company shall not be required to pay any tax in respect of the transfer of this Warrant, or the issuance or delivery of certificates for Warrant Shares or other securities in respect of the Warrant Shares to any person or entity other than to the Holder.

 

8.

FRACTIONAL WARRANT SHARES

 

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

 

9.

NO STOCK RIGHTS AND LEGEND

 

No holder of this Warrant, as such, shall be entitled to vote or be deemed the holder of any other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, the rights of a stockholder of the Company or the right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting stockholders (except as provided herein), or to receive dividends or subscription rights or otherwise (except as provide herein).

 

 

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

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.”

 

10.

INTENTIONALLY OMITTED.

 

11.

NOTICES

 

All notices, consents, waivers, and other communications under this Warrant must be in writing and will be deemed given to a party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile or e-mail with confirmation of transmission by the transmitting equipment; (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, if to the registered Holder hereof; or (d) seven days after the placement of the notice into the mails (first class postage prepaid), to the Holder at the address, facsimile number, or e-mail address furnished by the registered Holder to the Company, or if to the Company, to it at 8 HaTokhen Street, Caesarea Industrial Park, Israel 3088900, Attn: CEO and CFO (or to such other address, facsimile number, or e-mail address as the Holder or the Company as a party may designate by notice the other party).

 

12.

SEVERABILITY

 

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

 

 

13.

BINDING EFFECT

 

This Warrant shall be binding upon and inure to the sole and exclusive benefit of the Company, its successors and assigns, the registered Holder or Holders from time to time of this Warrant and the Warrant Shares.

 

14.

SURVIVAL OF RIGHTS AND DUTIES

 

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

 

15.

GOVERNING LAW

 

This Warrant will be governed by and construed under the laws of the State of New York without regard to conflicts of laws principles that would require the application of any other law.

 

16.

DISPUTE RESOLUTION

 

In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two Business Days of receipt of the Notice of Exercise giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two Business Days, submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

17.

NOTICES OF RECORD DATE

 

Upon (a) any establishment by the Company of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or right or option to acquire securities of the Company, or any other right, or (b) any capital reorganization, reclassification, recapitalization, merger or consolidation of the Company with or into any other corporation, any transfer of all or substantially all the assets of the Company, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, or the sale, in a single transaction, of a majority of the Company’s voting stock (whether newly issued, or from treasury, or previously issued and then outstanding, or any combination thereof), the Company shall mail to the Holder at least ten (10) Business Days, or such longer period as may be required by law, prior to the record date specified therein, a notice specifying (i) the date established as the record date for the purpose of such dividend, distribution, option or right and a description of such dividend, option or right, (ii) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up, or sale is expected to become effective and (iii) the date, if any, fixed as to when the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, transfer, consolation, merger, dissolution, liquidation or winding up.

 

 

18.

RESERVATION OF SHARES

 

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

 

19.

NO THIRD PARTY RIGHTS

 

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

 

20.

AMENDMENTS.

 

Any term of this Warrant may be amended, supplemented or waived upon the written consent of the Company and the holders of a majority in interest of all outstanding Placement Agent Warrants issued pursuant to the PAA, and such amendment, supplement or waiver shall be binding upon the Company and all holders of such Placement Agent Warrants, including the Holder, whether or not the Holder has consented to such amendment, supplement or waiver; provided, however, that any such amendment, supplement or waiver must apply to all outstanding Placement Agent Warrants issued pursuant to the PAA.

 

 

[SIGNATURE PAGE FOLLOWS]

 

 

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

 

 

DARIOHEALTH CORP.
By:
Name: Zvi Ben-David
Title: Chief Financial Officer

 

 

EXHIBIT A

 

NOTICE OF EXERCISE

 

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

 

To DarioHealth Corp.:

 

The undersigned hereby irrevocably elects to exercise this Warrant and to purchase thereunder, ___________________ full shares of DarioHealth Corp. common stock issuable upon exercise of the Warrant and delivery of:

 

(1)            $_________ (in cash as provided for in the foregoing Warrant) and any applicable taxes payable by the undersigned pursuant to such Warrant; and

 

(2)            __________ shares of Common Stock (pursuant to a Cashless Exercise in accordance with Section 1(b)(ii) of the Warrant) (check here if the undersigned desires to deliver an unspecified number of shares equal the number sufficient to effect a Cashless Exercise [___]).

 

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

 

_________________________________________

(Please print name, address and social security or federal employer

identification number (if applicable))

 

_________________________________________

 

_________________________________________

 

The undersigned hereby affirms that the undersigned is an accredited investor as defined under Rule 501 of Regulation D of the Securities Act of 1933.   If the Holder cannot make the foregoing affirmation because it is factually incorrect, it shall be a condition to the exercise of the Warrant that the Company receive such other representations as the Company considers necessary, acting reasonably, to assure the Company that the issuance of securities upon exercise of this Warrant shall not violate any United States or other applicable securities laws.

 

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

 

_________________________________________

(Please print name, address and social security or federal employer

identification number (if applicable))

 

_________________________________________

 

_________________________________________

 

Name of Holder (print):

(Signature):

(By:)

(Title:)

Dated:

 

 

EXHIBIT B

 

FORM OF ASSIGNMENT

 

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

 

 

Name of Assignee	Address	Number of Shares

 

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

 

 

Name of Holder (print):

(Signature):

(By:)

(Title:)

Dated:

 

 

Exhibit 10.1

 

February 15, 2024

 

 

AGREEMENT AND PLAN OF MERGER

 

among

 

DARIOHEALTH CORP.,

 

TWILL MERGER SUB, INC.,

 

TWILL, INC.,

 

and

 

BILAL KHAN,

 

solely in his capacity as HOLDERS’ REPRESENTATIVE

 

February 15, 2024

 

 

 

TABLE OF CONTENTS

 

			Page
ARTICLE I		CERTAIN DEFINITIONS; CONSTRUCTION	2
	1.01	Certain Definitions	2
	1.02	Terms Defined Elsewhere in this Agreement	13
ARTICLE II		THE CONTEMPLATED TRANSACTIONS	15
	2.01	The Merger	15
	2.02	Closing	15
	2.03	Effects of the Merger	15
	2.04	Organization Documents of the Surviving Company	15
	2.05	Management of the Surviving Company	15
	2.06	Effect of the Merger on Capital Stock	15
	2.07	Election Procedure	18
	2.08	Dissenting Shares	19
	2.09	Treatment of Options	19
	2.10	Warrants	20
	2.11	Rights Cease to Exist	20
	2.12	No Fractional Shares	20
	2.13	Paying Agent; Submission of Letters of Transmittal	20
	2.14	Payments and Deliveries at the Closing	21
	2.15	No Liability	23
	2.16	Withholding Taxes	23
	2.17	Retirement of Specified Company Indebtedness	23
ARTICLE III		REPRESENTATIONS AND WARRANTIES OF THE COMPANY	23
	3.01	Organizational Matters	23
	3.02	Authority; Noncontravention; Voting Requirements	24
	3.03	Capitalization	25
	3.04	No Consents or Approvals	26
	3.05	Financial Matters	27
	3.06	Absence of Certain Changes or Events	27
	3.07	Legal Proceedings	30
	3.08	Compliance with Laws; Permits	30
	3.09	Taxes	31
	3.10	Employee Benefits and Labor Matters	34
	3.11	Environmental Matters.	37
	3.12	Contracts	38
	3.13	Assets: Title, Sufficiency, Condition	40
	3.14	Real Property	40
	3.15	Intellectual Property; Technology; Privacy and Security; Information Systems; Disaster Recovery	40
	3.16	Insurance	43
	3.17	Related Party/Affiliate Transactions	44
	3.18	Customers and Suppliers	44
	3.19	Certain Business Practices	44
	3.20	Brokers and Other Advisors	44
	3.21	Allocation Schedule	44

 

 

ARTICLE IV		REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB	45
	4.01	Organization	45
	4.02	Authority; Non-Contravention	45
	4.03	Governmental Approvals	46
	4.04	SEC Documents	46
	4.05	Shares of Common Stock	46
	4.06	Availability of Funds	46
	4.07	Broker and Advisors	46
	4.08	Exclusivity of Company Representations; Non-Reliance	46
ARTICLE V		CERTAIN AGREEMENTS OF THE PARTIES	47
	5.01	Public Announcements	47
	5.02	Confidentiality	47
	5.03	Tax Matters	47
	5.04	Employee Matters and Company Plans	48
	5.05	Nasdaq Capital Markets Listing	49
	5.06	Indemnification of Officers and Directors of the Company	49
	5.07	E&O Tail Policy	50
	5.08	Parent Shareholder Vote	50
	5.09	Cooperation Upon Exercise of Consideration Warrants and Deposition of Consideration Warrant Shares	51
	5.10	Representations and Warranty Insurance	52
ARTICLE VI		SURVIVAL	52
	6.01	Survival of Representations, Warranties and Covenants	52
	6.02	Holders’ Representative	52
ARTICLE VII		GENERAL PROVISIONS	55
	7.01	Interpretation	55
	7.02	Notices	55
	7.03	Assignment and Succession	56
	7.04	Amendment or Supplement	56
	7.05	Waivers	56
	7.06	Entire Agreement	57
	7.07	No Third-Party Beneficiaries	57
	7.08	Remedies Cumulative	57
	7.09	Specific Performance	57
	7.10	Severability	57
	7.11	Costs and Expenses	57
	7.12	Counterparts	57
	7.13	Governing Law	58
	7.14	Exclusive Jurisdiction; Venue; Service of Process	58
	7.15	WAIVER OF JURY TRIAL	58
	7.16	Provisions Regarding Legal Representation	58

 

 

SCHEDULES

 

The Allocation Scheule

Schedule I

Schedule 5.04(a)(iii)

The Company Disclosure

Schedules

 

 

EXHIBITS

 

Exhibit A	Form of Trust Agreement
Exhibit B	Form of Leak-Out Agreement
Exhibit C	Form of Consideration Warrant
Exhibit D	Form of Voting Agreement
Exhibit E	Form of Certificate of Merger
Exhibit F	Form of Letter of Transmittal and Election Form
Exhibit G-1	Form of FIRPTA Notice to the IRS
Exhibit G-2	Form of FIRPTA Notification Letter

 

 

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) is entered into and dated as of February 15, 2024, by and among: (i) DarioHealth Corp., a Delaware corporation (“Parent”); (ii) TWILL Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”); (iii) Twill, Inc., a Delaware corporation (the “Company”); and (iv) Bilal Khan, solely in his capacity as the representative and agent of the Holders (the “Holders’ Representative”), but solely with respect to the provisions expressly applicable to the Holders’ Representative as set forth herein. Each of Parent, Merger Sub, the Company, and the Holders’ Representative may be individually referred to herein as a “Party” and collectively referred to herein as the “Parties.” Capitalized terms used herein have the meanings ascribed thereto in ARTICLE I or elsewhere in this Agreement as identified in ARTICLE I.

 

RECITALS

 

WHEREAS, the Company, Parent and Merger Sub intend to effect a merger of Merger Sub with and into the Company (the “Merger”) in accordance with this Agreement and the General Corporation Law of the State of Delaware (the “DGCL”), whereupon consummation of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving company and a wholly owned subsidiary of Parent (as such, the “Surviving Company”);

 

WHEREAS, the respective board of directors of Parent, the Company, and Merger Sub have each approved, adopted, and declared advisable this Agreement and the transactions contemplated hereby, including the Merger, in accordance with the DGCL and upon the terms and subject to the conditions set forth herein;

 

WHEREAS, the Holders have duly and validly approved this Agreement and the Merger contemplated hereby by the affirmative vote or written consent of the Holders whose votes collectively constitute at least (i) 66.67% of the votes of the outstanding Company Preferred Stock, voting together as a single class on as-if-converted basis, and (ii) ninety percent (90%) of the votes of the outstanding Company Common Stock and Company Preferred Stock, voting together as a single class on as-if-converted basis in accordance with the Company’s Charter Documents, which consent shall be effective upon the execution of this Agreement (the “Company Stockholder Consent”);

 

WHEREAS, the Company owes the Specified Indebtedness (as defined herein) to the Lenders (as defined herein);

 

WHEREAS, in connection with the execution and delivery of this Agreement, and as a material inducement for Parent to enter into this Agreement and to consummate the Transactions, the Parties will cause the formation of Titan Trust, a Delaware statutory trust (the “Trust”), for the purpose of holding the Consideration Warrants (as defined herein) and liquidating or distributing the Consideration Warrant Shares issuable upon the exercise thereof in satisfaction of the Senior Secured Indebtedness, the other Specified Indebtedness, and the Stock Election Consideration (as such terms are defined herein) contemplated hereby;

 

WHEREAS, in connection with the execution and delivery of this Agreement, and as a material inducement for Parent to enter into this Agreement and to consummate the Transactions, Parent, the Company, and Wilmington Savings Fund Society, as trustee (the “Trustee”), together with the Lenders and the Holders’ Representative on behalf of certain holders of Company Stock (the “Remainder Holders”), will enter into that certain trust agreement, dated as of the date hereof, substantially in the form attached hereto as Exhibit A (the “Trust Agreement”), with respect to the Trust;

 

WHEREAS, in connection with the execution and delivery of the Trust Agreement, the Trustee will establish a Collection Account and a Securities Account (as such terms are defined in the Trust Agreement);

 

WHEREAS, in connection with the execution and delivery of this Agreement and the consummation of the Transactions, and in satisfaction (together with payment of the Cash Consideration (as defined herein)) of the Specified Indebtedness and as partial payment of the Merger Consideration (as defined herein), Parent will issue to the Trust the Consideration Warrants for the benefit of the Senior Secured Lender (as defined herein), the other Lenders, and the Remainder Holders, as applicable, pursuant to the terms of the Trust Agreement, and the Trustee will deposit the Consideration Warrants in the Securities Account;

 

 

WHEREAS, in connection with the execution and delivery of this Agreement, and as a material inducement for Parent to enter into this Agreement and to consummate the Transactions, Parent, the Trust, and the Senior Secured Lender will enter into that certain leak-out agreement, dated as of the date hereof, substantially in the form attached hereto as Exhibit B (the “Leak-Out Agreement”);

 

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and covenants set forth below, and intending to be legally bound hereby, the Parties hereby agree as follows:

 

ARTICLE I

CERTAIN DEFINITIONS; CONSTRUCTION

 

1.01         Certain Definitions. The following terms shall have the following meanings in this Agreement:

 

“Accredited Investor” means a Person that is an “accredited investor” as defined in Rule 501 of Regulation D of the Securities Act.

 

“Acquired Companies” means, collectively, the Company and each of its Subsidiaries.

 

“Action” means any claim, controversy, suit, action or cause of action, litigation, arbitration, investigation, opposition, interference, audit, hearing, demand, assessment, complaint, citation, proceeding, order, or other legal proceeding (whether sounding in contract or tort or otherwise, whether civil, criminal, administrative or otherwise and whether brought at law or in equity or under arbitration or administrative regulation).

 

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, controls, or is controlled by, or is under common control with, such Person. For this purpose, “control” (including, with its correlative meanings, “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise. For the avoidance of doubt, from and after the Closing Date, the Company shall be deemed not to be an Affiliate of the Holders.

 

“Adjusted Cash Election Consideration” means for each Holder, the greater of (A) the product of (x) such Holder’s Cashed Out Shares multiplied by (y) the Cash Election Consideration, rounded up to the nearest $0.01, and (B) $1.00.

 

“Allocable Merger Consideration” means the sum of (i) the aggregate amount of Adjusted Cash Election Consideration plus (ii) the Allocable Parent Stock Pool.

 

“Allocable Parent Stock Pool” means the number of Consideration Warrant Shares equal to the result of (i) the aggregate number of Consideration Warrant Shares minus (ii) the number of Indebtedness Warrant Shares.

 

“Anti-Kickback Statute” means the Federal Health Care Program Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), and all regulations promulgated thereunder.

 

“Business” means the business of the Company and its Subsidiaries of developing and providing a platform for screening, providing, and referring digital behavioral and mental health services and interventions.

 

“Business Day” means any day other than a Saturday, Sunday or any other day on which banking institutions in Israel or New York, New York are authorized or required by Law or order to remain closed.

 

“Cash Consideration” means $10,000,000.

 

“Cash Election Consideration” means $0.0000001.

 

 

“Cashed Out Holders” means, collectively, the Holders receiving Cash Election Consideration pursuant to Section 2.06(c)(i).

 

“Change in Control Payments” means (i) any bonus, severance, equity or other payment that is created, accelerated, accrues or becomes vested or payable by any Acquired Company to any present or former director, stockholder, Employee or Consultant, including pursuant to an employment agreement, Company Plan or any other Contract and (ii) without duplication of any other amounts included within the definition of Company Transaction Expenses, any other payment, expense, or fee that accrues or becomes payable by any Acquired Company to any Person under any Contract as a result of the consummation of the Transactions (including the Merger) or in connection with the execution and delivery of the Agreement or any other Transaction Agreement.

 

“Charter Documents” means, with respect to any entity, the certificate of incorporation and bylaws or similar organizational documents of such entity.

 

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Section 4980B of the Code and Section 601 et. seq. of ERISA.

 

“Code” means the United States Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

 

“Collection and Use” (and its variants) means the collection, use interception, storage, receipt, purchase, sale, maintenance, transmission, transfer, disclosure, processing, destruction, and/or use of Personal Data.

 

“Company Common Stock” means shares of the Company’s common stock, par value $0.00002 per share.

 

“Company Debt” means, as at any time with respect to the Company or any of its Subsidiaries, without duplication, all Liabilities with respect to principal, accrued and unpaid interest, penalties, premiums and any other fees, expenses and breakage costs on and other payment obligations arising under any (i) indebtedness for borrowed money (including amounts outstanding under overdraft facilities), (ii) indebtedness issued in exchange for or in substitution for borrowed money, (iii) obligations for the deferred purchase price of property, goods or services other than trade payables arising in the Ordinary Course of Business or since the Loan Agreement Date (but including any deferred purchase price Liabilities, earnouts, contingency payments, seller notes, promissory notes or similar Liabilities, in each case, related to past acquisitions by the Company and for the avoidance of doubt, whether or not contingent), (iv) obligations evidenced by any note, bond, debenture, guarantee or other debt security or similar instrument or Contract, (v) all liabilities under capitalized leases, (vi) all obligations, contingent or otherwise, in respect of amounts drawn under letters of credit and banker’s acceptance or similar credit transactions, (vii) obligations under Contracts relating to interest rate protection or other hedging arrangements, to the extent payable if such Contract is terminated at Closing, and (viii) guarantees of the types of obligations described in sub clauses (i) though (vii) above.

 

“Company Intellectual Property Rights” means all Intellectual Property Rights owned by an Acquired Company or used by any Acquired Company in connection with the Business as currently conducted, including all Intellectual Property Rights in and to Company Technology.

 

“Company Material Adverse Effect” means a Material Adverse Effect with respect to the Company individually or the Acquired Companies, taken as a whole.

 

“Company Option Plan” means the Company’s 2012 Equity Incentive Plan, as amended from time to time.

 

“Company Optionholder” means each Person holding a Company Option immediately prior to the Effective Time.

 

“Company Plans” means (i) “employee benefit plans” (as defined in Section 3(3) of ERISA, as amended), (ii) individual employment, consulting, change in control, severance or other agreements or arrangements, (iii) other benefit plans, policies, agreements or arrangements, including bonus or other incentive compensation, stock purchase, equity or equity-based compensation, deferred compensation, profit sharing, change in control, severance, any plan governed by Section 125 of the Code, pension, retirement, welfare, sick leave, workers’ compensation benefits, vacation, loans, salary continuation, health, dental, disability, flexible spending account, service award, fringe benefit, life insurance and educational assistance plan, policies, agreements or arrangements, whether written or oral, under which any Employee, Consultant or director of any Acquired Company participates or which is maintained, contributed to or participated in by any Acquired Company or its ERISA Affiliates, or with respect to which such Acquired Company or its ERISA Affiliates has or had or may have any obligation or liability, contingent or otherwise. The term “Company Plan” includes any PEO Plan to the extent that any current or former Employee, Consultant or director of an Acquired Company is eligible to participate or entitled to benefits in connection with his or her service to an Acquired Company or an ERISA Affiliate.

 

 

“Company Preferred Stock” means, collectively, the Company’s Series Seed Preferred Stock, Series Seed Prime Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series C Preferred Stock, Series C Prime Preferred Stock, Series C-1 Prime Preferred Stock, Series D Preferred Stock, and Series D-1 Preferred Stock.

 

“Company Stock” means the Company Common Stock and the Company Preferred Stock.

 

“Company Technology” means any and all Technology that is owned by an Acquired Company or used in connection with the Business as currently conducted, including Proprietary Software.

 

“Company Transaction Expenses” means an amount equal to (i) the aggregate fees and expenses payable or reimbursable by the Acquired Companies to third parties in connection with negotiation, entering into and consummation of this Agreement and the Transactions, including the fees and expenses of investment bankers, finders, consultants, attorneys, accountants and other advisors engaged by the Company in connection with the Transactions, plus (ii) all Change in Control Payments, if any, plus (iii) all employer-portion payroll or employment Taxes incurred in connection with the treatment of the Company Options and Company Warrants in connection with the Transactions (including cancellation, exercise or payment), plus (iv) the cost of all premiums for the D&O Tail, plus (v) the cost of all premiums for the E&O Tail plus (vi) the fees and expenses of the Paying Agent, plus the Cash Reserve for Trust Expense (as defined in the Trust Agreement), plus (vii) the Expense Fund.

 

“Consideration Warrant Shares” means the shares of Parent Common Stock issuable upon the exercise of the Consideration Warrants.

 

“Consideration Warrants” means the four (4) warrants to purchase shares of Parent Common Stock, each of which is exercisable for an aggregate of 2,500,100 shares of Parent Common Stock, at an exercise price of $0.0001 per share, with exercise periods beginning 270 days, 360 days, 540 days, and 720 days, respectively, after the Closing Date, each of which is substantially in the form attached hereto as Exhibit C.

 

“Contract” means any contract, loan or credit agreement, debenture, note, guaranty, bond, mortgage, indenture, deed of trust, license, lease or other agreement that is legally binding.

 

“Convertible Notes” means those certain convertibles notes issued by the Company and listed on the Allocation Schedule.

 

“Cowen” means, Cowen and Company, LLC (dba TD Cowen).

 

“Cowen Fees” means the amount set forth in the Cowen Letter payable to Cowen in cash proceeds from the sale of Parent Common Stock upon the exercise of the Consideration Warrants in accordance with the terms of the Trust Agreement and the Cowen Letter.

 

“Cowen Letter” means, that certain letter agreement, dated as of July 26, 2023, between the Company and Cowen, as amended by that certain amendment, dated as of the Closing Date, by and among the Company, Cowen, Parent, and the Senior Secured Lender (the “Cowen Letter Amendment”).

 

 

“Deemed Trust Common Units” means, collectively, (i) the Deemed Common Stock Trust Common Units, (ii) the Deemed Series Seed Trust Common Units, (iii) the Deemed Series Seed Prime Trust Common Units, (iv) the Deemed Series A Trust Common Units, (v) the Deemed Series B Trust Common Units, (vi) the Deemed Series C Trust Common Units, (vii) the Deemed Series C Prime Trust Common Units, and (viii) the Deemed Series D Trust Common Units.

 

“Deposit Account Control Agreement” means the deposit account control agreement to be entered into among the Trust, the Trustee, and the Senior Secured Lender on the Closing Date with respect to the Collection Account.

 

“Disclosure Schedule” means a document delivered by the Company to Parent referring to the representations and warranties in ARTICLE III.

 

“Distribution Priorities” means the order of payments of the Stock Election Consideration, if any, in accordance with the Charter Documents of the Company. For clarity and illustration, the Stock Election Consideration, if any, shall be paid as follows: (i) first, with respect to shares of Series D Preferred Stock and Series D-1 Preferred Stock as to which a Stock Election has been properly made and not revoked, to all Holders of such shares based on each such Holder’s Percentage Interest until such Holders have received aggregate Parent Common Stock Value equal to the First Tranche Holder Distribution Amount; (ii) second, with respect to shares of Series C Prime Preferred Stock and Series C-1 Prime Preferred Stock as to which a Stock Election has been properly made and not revoked, to all Holders of such shares based on each such Holder’s Percentage Interest until such Holders have received aggregate Parent Common Stock Value equal to the Second Tranche Holder Distribution Amount; (iii) third, with respect to shares of Series C Preferred Stock as to which a Stock Election has been properly made and not revoked, to all Holders of such shares based on each such Holder’s Percentage Interest until such Holders have received aggregate Parent Common Stock Value equal to the Third Tranche Holder Distribution Amount; (iv) fourth, with respect to shares of Series B-2 Preferred Stock, Series B-1 Preferred Stock, and Series B Preferred Stock as to which a Stock Election has been properly made and not revoked, to all Holders of such shares based on each such Holder’s Percentage Interest until such Holders have received aggregate Parent Common Stock Value equal to the Fourth Tranche Holder Distribution Amount; (v) fifth, with respect to shares of Series A Preferred Stock as to which a Stock Election has been properly made and not revoked, to all Holders of such shares based on each such Holder’s Percentage Interest until such Holders have received aggregate Parent Common Stock Value equal to the Fifth Tranche Holder Distribution Amount; (vi) sixth, with respect to shares of Series Seed Prime Preferred Stock as to which a Stock Election has been properly made and not revoked (the “Sixth Tranche Holder Interests”), to all Holders of such shares based on each such Holder’s Percentage Interest until such Holders have received aggregate Parent Common Stock Value equal to the Sixth Tranche Holder Distribution Amount; (vii) seventh, with respect to shares of Series Seed Preferred Stock as to which a Stock Election has been properly made and not revoked (the, to all Holders of such shares based on each such Holder’s Percentage Interest until Holders have received aggregate Parent Common Stock Value equal to the Seventh Tranche Holder Distribution Amount; and (viii) eighth, with respect to shares of Company Common Stock as to which a Stock Election has been properly made and not revoked (the “Eighth Tranche Holder Interests”), to all Holders of such shares based on each such Holder’s Percentage Interest.

 

“DOL” means the United States Department of Labor.

 

“DR Plans” means the disaster recovery and business continuity plans of the Acquired Companies.

 

“Election Deadline” means the date that is 20 Business Days following the Closing Date.

 

“Environmental Laws” means all Laws relating in any way to the environment, preservation or reclamation of natural resources, the presence, management or Release of, or exposure to, Hazardous Materials, or to human health and safety, including the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. § 5101 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Safe Drinking Water Act (42 U.S.C. § 300f et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. § 136 et seq.) and the Occupational Safety and Health Act, each of their state and local counterparts or equivalents, each of their foreign and international equivalents and any transfer of ownership notification or approval statute, as each has been amended and the regulations promulgated pursuant thereto.

 

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder, all as from time to time in effect, and any successor Laws thereto.

 

“Expense Fund Amount” means $20,000.00

 

“False Claims Act” means the Federal False Claims Act, 31 U.S.C. § 3729 et seq., and all regulations promulgated thereunder.

 

“Fifth Tranche Distribution Amount” means the amount in US dollars set forth in the Allocation Schedule under the heading titled “Fifth Tranche Holder Distribution Amount.”

 

“First Tranche Distribution Amount” means the amount in US dollars set forth in the Allocation Schedule under the heading titled “First Tranche Holder Distribution Amount.”

 

“Fourth Tranche Distribution Amount” means the amount in US dollars set forth in the Allocation Schedule under the heading titled “Fourth Tranche Holder Distribution Amount.”

 

“GAAP” means the generally accepted accounting principles in the United States as of the relevant date(s) of application thereof as of the relevant date(s) of application thereof.

 

“Governmental Authority” means any (i) federal, state, local, municipal, foreign or other government, (ii) governmental or quasi-governmental entity of any nature (including any governmental agency, branch, department or other entity and any court or other tribunal) or (iii) other body entitled to exercise any administrative, executive, judicial, legislative, police or regulatory authority.

 

“Hazardous Materials” means any material, substance or waste that is regulated, classified, or otherwise characterized under or pursuant to any Environmental Law as “hazardous”, “toxic”, a “pollutant”, a “contaminant”, “radioactive” or words of similar meaning or effect, including petroleum and its by-products, asbestos, polychlorinated biphenyls, radon, mold, urea formaldehyde insulation, chlorofluorocarbons and all other ozone-depleting substances.

 

“Health Care Laws” means any Laws relating to health care regulatory and reimbursement matters, including (i) the Federal Ethics in Patient Referrals Act, 42 U.S.C. § 1395nn, and all regulations promulgated thereunder, (ii) the Anti-Kickback Statute, (iii) the False Claims Act, (iv) the Occupational Safety and Health Act, and all regulations, agency guidance or similar legal requirements promulgated thereunder that apply to any Acquired Company or the Business, (v) the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 321 et seq., and all regulations, agency guidance or similar legal requirements promulgated thereunder that apply to any Acquired Company or the Business, (vi) the Public Health Service Act, 42 U.S.C. § 201 et seq., and all regulations, agency guidance or similar legal requirements promulgated thereunder that apply to any Acquired Company or the Business, (vii) the Clinical Laboratory Improvement Amendments, 42 U.S.C. § 263a, and all regulations, agency guidance or similar legal requirements promulgated thereunder that apply to any Acquired Company or the Business, (viii) applicable Laws of the United States Drug Enforcement Administration, (ix) the Medicare Act, 42 U.S.C. § 1395 et seq., and all regulations, agency guidance, or similar legal requirements promulgated thereunder that apply to any Acquired Company or the Business, (x) state self-referral, anti-kickback, fee-splitting and patient brokering Laws, (xi) Information Privacy and Security Laws, including those related to genetic testing and the privacy of genetic testing results, and (xii) state Laws governing the licensure and operation of clinical laboratories and billing for clinical laboratory services.

 

“HIPAA” means, collectively, the Health Insurance Portability and Accountability Act of 1996 as amended by the Health Information Technology for Economic and Clinical Health Act.

 

“Holders” means, collectively, the holders of Company Stock as of the Closing Date.

 

 

“Indebtedness Warrant Shares” means, collectively, the Consideration Warrant Shares distributed or liquidated in satisfaction of the Senior Secured Indebtedness, the Cowen Fees, and the other Specified Indebtedness in accordance with the terms and provisions of the Trust Agreement, if any.

 

“Information Privacy and Security Laws” means all applicable Laws that relate to the privacy and/or security of Personal Data (including any applicable Laws of jurisdictions where the Personal Data was collected), and all regulations promulgated thereunder, including, where applicable, HIPAA, state data privacy and breach notification Laws, state social security number protection Laws, any applicable Laws concerning requirements for website and mobile application privacy policies and practices, data or web scraping, call or electronic monitoring or recording or any outbound communications (including, outbound calling and text messaging, telemarketing, and e-mail marketing), the European Union Directive 95/46/EC, the European Union General Data Protection Regulation (GDPR), the Federal Trade Commission Act of 1914, the Gramm Leach Bliley Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transaction Act of 2003, the CAN-SPAM Act of 2003, the Telephone Consumer Protection Act of 1991, Children’s Online Privacy Protection Act of 1998, and state consumer protection Laws.

 

“Information System” means software, hardware, computer and telecommunications equipment and other information technology and related services.

 

“Intellectual Property Rights” means the entire right, title and interest in and to all proprietary rights of every kind and nature however denominated, throughout the world, including: (i) patents, industrial designs, copyrights, mask work rights, trade secrets, database rights and all proprietary rights in Technology; (ii) trademarks, trade names, service marks, service names, brands, trade dress, logos and other indicia of origin and the goodwill and activities associated therewith; (iii) domain names, rights of privacy and publicity and moral rights; (iv) any and all registrations, applications, recordings, licenses, renewals, reissues, reexaminations, extensions, divisionals, provisionals, continuations, continuations-in-part, improvements, derivative works, common-law rights and contractual rights relating to any of the foregoing; and (v) all Actions and rights to sue at law or in equity for any past or future infringement or other impairment of any of the foregoing, including the right to receive all proceeds and damages therefrom and all rights to obtain renewals, continuations, divisions, or other extensions of legal protections pertaining thereto.

 

“Intentional Fraud” means, with respect to any Person, (i) such Person intentionally making a false statement of material fact in the representations and warranties pursuant to ARTICLE III or ARTICLE IV, as applicable, or the other agreements, instruments and certificates entered into in connection with this Agreement, as applicable, (ii) with the intent to deceive or mislead another Party to this Agreement and with the intent to induce the other Party to act or refrain from acting in reliance upon it to its detriment, (iii) when such Person intentionally making such statement had actual knowledge that such statement of fact is untrue, and (iv) such other Party, in reliance upon such false statement and with ignorance to the falsity of such statement, acts or refrains from taking action and suffers loss by reason of such reliance.

 

“IRS” means the United States Internal Revenue Service.

 

“Knowledge” means (i) with respect to any individual, the actual knowledge following due inquiry of the specified individual, and (ii) with respect to any entity, the actual knowledge of the executive officers of such entity following due inquiry; provided, however, the terms “Knowledge of the Company” or “to the Company’s Knowledge” each mean the actual knowledge following due inquiry of Bilal Khan, Ofer Leidner, and Tomer Ben-Kiki.

 

“Law” means any United States federal, state or local or any foreign law, statute, standard, ordinance, code, rule or regulation, resolution or promulgation, agency guidance or similar legal requirement or any Order or any Permit granted under any of the foregoing or any similar provision having the force or effect of law and includes Health Care Laws and Information Privacy and Security Laws.

 

“Legal Proceeding” means any judicial, administrative or arbitral action, suit, charge, claim, hearing, audit or proceeding (public or private) by or before a Governmental Authority.

 

 

“Liability” means, with respect to any Person, any liability or obligation of such Person whether known or unknown, whether asserted or not asserted, whether determined, determinable or otherwise, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether due or to become due and whether or not required under GAAP to be accrued on the financial statements of such Person.

 

“Lien” means any charge, encumbrance, claim, community or other marital property interest, equitable ownership interest, collateral assignment, lien (statutory or otherwise), license, option, pledge, security interest, mortgage, deed of trust, attachment, right of way, easement, restriction, encroachment, servitude, right of first offer or first refusal, buy/sell agreement and any other restriction or covenant with respect to, or condition governing the use, construction, voting (in the case of any equity interest), transfer, receipt of income or exercise of any other attribute of ownership of any kind or nature whatsoever affecting or attached to any asset.

 

“Loan Agreement Date” means June 12, 2023.

 

“Material Adverse Effect” means with respect to the Company, individually or taken as a whole together with the Acquired Companies, or Parent, as applicable, any fact, condition, event, occurrence, change, circumstance or effect that, individually or in the aggregate with all other facts, conditions, changes, circumstances and effects with respect to which such defined term is used in this Agreement, has, or would reasonably be expected to (i) have a material adverse effect on the business, assets, operations, results of operations, or financial condition of such Party, or (ii) materially and adversely impair such Party’s ability to, perform its obligations under the Transaction Agreements to which it is a party without material delay, or to consummate the Transactions under such Transaction Agreements. Notwithstanding anything to the contrary, none of the following, either alone or in combination, will constitute a Material Adverse Effect: (a) any changes in (i) the United States or foreign economies or securities or financial markets in general in any country where the applicable Person’s business is conducted; (ii) interest rates or currency exchange rates or (iii) trade agreements, tariffs, anti-dumping actions or other trade actions; (b) the effect of any change that generally affects any industry in which the Acquired Companies or Parent and its Subsidiaries, as applicable, operate; (c) the effect of any action taken by Parent or its Subsidiaries with respect to the Transactions contemplated hereby; (d) the effect of any changes in applicable Laws or accounting rules; (e) the failure of the Company to meet any of its internal projections (it being understood that the cause or causes of any such failure may be deemed to constitute, in and of itself or themselves, or contribute to a Material Adverse Effect); (f) any effect resulting from the public announcement of this Agreement, except, with respect to clauses (a), (b) and (c), for any such change has or would reasonably be expected to have a disproportionate effect on the Company or Parent and their respective Subsidiaries, as applicable, taken as a whole, as compared to other companies operating in the same industries and countries in which such applicable parties operate; (g) the consummation of the Transactions; (h) consequences of any natural disaster, national or international political or social actions or conditions, the engagement of any country or foreign organization in hostilities or war (or the escalation thereof), whether commenced before or after the date of this Agreement, and whether or not pursuant to the declaration of a national emergency or war, act of terrorism, epidemic, pandemic, virus or other disease outbreak (including COVID-19), state of emergency, public health crisis or other public health event, or any action taken or omitted to be taken by any Acquired Companies or any Affiliate thereof necessary or reasonably appropriate to ensure compliance with any related measures, any business continuity plans or other activities undertaken in connection with any of the foregoing, any material worsening or escalation of, and any collateral effects of, any of the foregoing; (i) any actions taken, or failures to take any action, in each case, to which Parent has consented; or (j) compliance by any Acquired Company with the terms of this Agreement or the breach of this Agreement by Parent or Merger Sub.

 

“Merger Consideration” means (i) the Cash Consideration plus (ii) the Consideration Warrants, plus (iii) the aggregate amount of Adjusted Cash Election Consideration.

 

“Nonqualified Deferred Compensation Plan” has the meaning given such term in Section 409A(d)(1) of the Code.

 

“Occupational Safety and Health Act” means the Occupational Safety and Health Act of 1970, 29 U.S.C. § 651 et seq.

 

 

“Order” means any order, injunction (whether temporary, preliminary or permanent), judgment, decree, assessment, award or ruling enacted, promulgated, issued, entered, amended or enforced by any Governmental Authority.

 

“Ordinary Course of Business” means the ordinary course of business of the Acquired Companies consistent with past practice prior to the Loan Agreement Date.

 

“Parent Common Stock” means shares of Parent’s common stock, par value $0.0001 per share, or any other shares of capital stock into which such common stock may be reclassified, converted or exchanged.

 

“Parent Common Stock Value” means, with respect to a share of Parent Common Stock payable as Stock Election Consideration hereunder, the volume weighted average price for shares of Parent Common Stock traded on the Nasdaq exchange (or any other exchange which is then the primary exchange upon which shares of Parent Common Stock are traded) during the 10 trading days immediately preceding the day on which the Trust exercises the Consideration Warrant for such share of Parent Common Stock.

 

“Parent Material Adverse Effect” means a Material Adverse Effect with respect to Parent.

 

“Percentage Interest” means, with respect to any Holder, the percentage, rounded to four (4) decimal places, set forth opposite such Holder’s name on the Allocation Schedule (as may be revised by the Holders’ Representative pursuant to the provisions of Section 2.07 to reflect Holders who have elected the Stock Election), with respect to each Tranche, determined by dividing (i) the aggregate number of Deemed Trust Common Units held by such Holder, in the respective Tranche; by (ii) the aggregate number of Deemed Trust Common Units held by all Holders in the respective Tranche.

 

“PEO Plan” means a plan, program, policy or arrangement sponsored or maintained by a third party “professional employer organization.”

 

“Permit” means any permit, license, franchise, certificate, accreditation approval, registration, notification or authorization from any Governmental Authority, or required by any Governmental Authority to be obtained, maintained or filed.

 

“Permitted Liens” means: (i) statutory liens with respect to the payment of Taxes, in all cases which are not yet due or payable or that are being contested in good faith by appropriate actions and for which appropriate reserves with respect thereto have been established on the books and records of the Company; (ii) statutory liens of landlords, suppliers, mechanics, carriers, materialmen, warehousemen, service providers or workmen and other similar Liens imposed by Law created in the Ordinary Course of Business the existence of which could not constitute a default or breach under any of the Company’s Contracts for amounts that are not yet delinquent and are not, individually or in the aggregate significant; (iii) easements, rights of way, zoning ordinances and other similar encumbrances affecting Real Property which are not, individually or in the aggregate, material to the Business; (iv) other than with respect to owned Real Property, liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the Ordinary Course of Business which are not, individually or in the aggregate, material to the Business; or (v) with respect to Company Intellectual Property Rights, non-exclusive licenses entered into in the Ordinary Course of Business.

 

“Person” means any natural person, corporation, limited liability company, partnership, association, trust or other entity, including a Governmental Authority.

 

“Personal Data” means, as applicable, (i) any and all information about an individual that identifies, relates to, describes, is reasonably capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular individual, and (ii) defined as “personal data,” “personal information,” “personally identifiable information,” “nonpublic personal information,” “individually identifiable health information,” “protected health information,” or “PHI” under any applicable Information Privacy and Security Laws. Personal Data includes (v) personal identifiers such as name, address, Social Security Number, date of birth, driver’s license number or state identification number, taxpayer identification number and passport number, (w) financial information, including credit or debit card numbers, account numbers, access codes, consumer report information and insurance policy number, (x) demographic information, (y) unique biometric data, such as fingerprint, retina or iris image, voice print or other unique physical representation and (z) individual medical or health information. For avoidance of doubt, Personal Data does not include information that has been anonymized so that it is not “personal information” or “personal data” or “personally identifiable information” under applicable Information Privacy and Security Law.

 

 

“Personal Data Obligations” means the Company’s privacy policies as published on any Company websites or mobile applications (as applicable), Contracts that impose obligations on the Company relating to Personal Data, and any applicable Information Privacy and Security Laws, and applicable industry standards, regarding Collection and Use of Personal Data.

 

“Pre-Closing Tax Period” means (i) any taxable period ending on or before the Closing Date and (ii) with respect to a Straddle Period, any portion thereof ending on and including the Closing Date.

 

“Products and Services” means any product or service that any Acquired Company currently offers or sells. “Proprietary Software” means any Software that is owned by any Acquired Company.

 

“Public Software” means any software that is (i) distributed as free software or as open source software (e.g., Linux), (ii) subject to any licensing or distribution model that includes as a term thereof any requirement for distribution of source code to licensees or third parties, patent license requirements on distribution, restrictions on future patent licensing terms, or other abridgement or restriction of the exercise or enforcement of any Company Intellectual Property Rights through any means, (iii) licensed or distributed under any Public Software License or under less restrictive free or open source licensing and distribution models such as those obtained under the BSD, MIT, Boost Software License and the Beer-Ware Public Software Licenses or any similar licenses, (iv) a public domain dedication or (v) derived in any manner (in whole or in part) from, links to, relies on, is distributed with, incorporates or contains any software described in (i) through (iv) above.

 

“Public Software License” means any of the following licenses or distribution models, or licenses or distribution models similar to any of the following: (i) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL); (ii) the Artistic License (e.g., PERL); (iii) the Mozilla Public License; (iv) the Netscape Public License; (v) the Sun Community Source License (SCSL); (vi) the Sun Industry Standards License (SISL); (vii) the Apache License; and (viii) any licenses that are defined as OSI (Open Source Initiative) licenses as listed on the Opensource.org website.

 

“Real Property” means the real property owned, leased or subleased by the Acquired Companies, together with all buildings, structures and facilities located thereon.

 

“Recognized Lien” means that certain lien held by the Agent (as defined in the Senior Secured Loan Agreement) on the contract rights and intellectual property of the Company, which lien shall be subject to the Subordination Agreement.

 

“Reference Date” means January 1, 2020.

 

“Related Party” means (i) any current or former director (or nominee), or officer of any Acquired Company, (ii) any ten percent (10%) or greater Holder on a fully-diluted basis and (iii) any first-degree relative, spouse, officer, director or Affiliate of any of the foregoing Persons.

 

“Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing of or migrating into or through the environment or any natural or man-made structure.

 

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

 

 

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

 

“Second Tranche Distribution Amount” means the amount in US dollars set forth in the Allocation Schedule under the heading titled “Second Tranche Holder Distribution Amount.”

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Securities Account Control Agreement” means that certain securities account control agreement to be entered into among the Trust, the Trustee, and the Senior Secured Lender with respect to the Securities Account.

 

“Senior Secured Indebtedness” means all Obligations (as defined in the Senior Secured Loan Agreement) owing by the Trust to the Senior Secured Lender arising under the Senior Secured Loan Agreement.

 

“Senior Secured Lender” means WhiteHawk Capital Partners LP.

 

“Senior Secured Loan Agreement” means that certain Amended and Restated Loan and Security Agreement, dated as of the date hereof, by and among the Trust, the Company, the lenders from time to time party thereto, WhiteHawk Capital Partners LP, in its capacity as Agent, and, as accommodation parties thereto, the Company and Parent, as amended, restated supplemented or otherwise modified from time to time.

 

“Series A Preferred Stock” means the Company’s Series A preferred stock, par value $0.00002 per share. “Series B Preferred Stock” means the Company’s Series B preferred stock, par value $0.00002 per share. “Series B-1 Preferred Stock” means the Company’s Series B-1 preferred stock, par value $0.00002 per share. “Series B-2 Preferred Stock” means the Company’s Series B-2 preferred stock, par value $0.00002 per share. “Series C Preferred Stock” means the Company’s Series C preferred stock, par value $0.00002 per share.

 

“Series C Prime Preferred Stock” means the Company’s Series C prime preferred stock, par value $0.00002 per share.

 

“Series C-1 Prime Preferred Stock” means the Company’s Series C-1 prime preferred stock, par value $0.00002 per share.

 

“Series D Preferred Stock” means the Company’s Series D preferred stock, par value $0.00002 per share. “Series D-1 Preferred Stock” means the Company’s Series D-1 preferred stock, par value $0.00002 per share.

 

“Series Seed Preferred Stock” means the Company’s series seed preferred stock, par value $0.00002 per share.

 

“Series Seed Prime Preferred Stock” means the Company’s series seed prime preferred stock, par value $0.00002 per share.

 

“Seventh Tranche Distribution Amount” means the amount in US dollars set forth in the Allocation Schedule under the heading titled “Seventh Tranche Holder Distribution Amount.”

 

“Sixth Tranche Distribution Amount” means the amount in US dollars set forth in the Allocation Schedule under the heading titled “Sixth Tranche Holder Distribution Amount.”

 

“Software” means computer software programs and software systems, including all databases, compilations, tool sets, compilers, higher level or “proprietary” languages, related documentation and materials (including all Source Code Materials), whether in source code, object code or human readable form, and all software programs and software systems that are classified as work-in-progress on the Closing Date.

 

 

“Source Code Materials” as it pertains to source code of any Software means: (i) the software, tools and materials utilized for the operation, development and maintenance of the Software; (ii) documentation describing the names, vendors and version numbers of (x) the development tools used to maintain or develop the Software and (y) any third-party software or other applications that form part of the source code version of the Software and are required in order to compile, assemble, translate, bind and load the Software into executable releases; (iii) all programmers’ notes, bug lists and technical information, systems and user manuals and documentation for the Software, including all job control language statements, descriptions of data structures, flow charts, technical specifications, schematics, statements or principles of operations, architecture standards and annotations describing the operation of the Software; and (iv) all test data, test cases and test automation scripts used for the testing and validating the functioning of the Software.

 

“Specified Indebtedness Amount” means the aggregate principal and interest in respect of the Specified Indebtedness, as set forth on Schedule 3.05(f).

 

“Subordination Agreement” means that certain subordination agreement, dated as of the date hereof, by and among Parent, Avenue Venture Opportunities Fund, L.P., in its capacity as administrative and collateral agent thereunder, and the creditors from time to time party thereto, as amended, restated supplemented or otherwise modified from time to time.

 

“Subsidiary” means, with respect to a Party, any corporation, limited liability company, partnership, association, trust or other entity the accounts of which would be consolidated with those of such Party in such entity’s consolidated financial statements if such financial statements were prepared in accordance with GAAP, as well as any other corporation, limited liability company, partnership, association, trust or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power (or, in the case of a partnership, more than 50% of the general partnership interests) are, as of such date, owned by such Party or one or more Subsidiaries of such Party.

 

“Tax” or “Taxes” means (i) any net income, alternative or add-on minimum, gross income, estimated, gross receipts, sales, use, ad valorem, value added, transfer, franchise, fringe benefit, capital stock, profits, license, registration, withholding, payroll, social security (or equivalent), Medicare, employment, unemployment, disability, excise, unclaimed property or escheat, severance, stamp, occupation, premium, property (real, tangible or intangible), environmental or windfall profit tax, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount (whether disputed or not) imposed by any governmental entity, (ii) any Liability for the payment of any amounts of the type described in clause (i) of this sentence as a result of being a member of an affiliated, consolidated, combined, unitary or aggregate group for any Taxable period, (iii) any Liability in connection with the filing of any Reports of Foreign Bank Financial Accounts (FBAR), and (iv) any Liability for the payment of any amounts of the type described in clause (i), (ii) or (iii) of this sentence as a result of being a transferee of or successor to any Person or as a result of any express or implied obligation to assume such Taxes or to indemnify any other Person.

 

“Tax Returns” means, with respect to Taxes, any return, report, election, claim for refund, estimate, information return or statement, declaration of estimated Tax or other similar document filed or required to be filed with any Taxing Authority with respect to Taxes, including any schedule or attachment thereto and including any amendment thereof.

 

“Tax Sharing Agreement” means any agreement relating to the sharing, allocation or indemnification of Taxes or amounts in lieu of Taxes, or any similar Contract or arrangement, other than any Contract or arrangement entered into in the ordinary course of business the purpose of which is not primarily related to Taxes.

 

“Taxing Authority” means any Governmental Authority responsible for the administration, assessment and collection of any Taxes.

 

 

“Technology” means all inventions, works, discoveries, innovations, know-how, information (including ideas, research and development, formulas, algorithms, compositions, processes and techniques, data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, business and marketing plans and proposals, graphics, illustrations, artwork, documentation and manuals), databases, Software, firmware, computer hardware, integrated circuits and integrated circuit masks, electronic, electrical and mechanical equipment and all other forms of technology, including improvements, modifications, works in process, derivatives, or changes, whether tangible or intangible, embodied in any form, and all documents and other materials recording any of the foregoing.

 

“Third Tranche Distribution Amount” means the amount in US dollars set forth in the Allocation Schedule under the heading titled “Third Tranche Holder Distribution Amount.”

 

“Tranche” refers to any of the First Tranche, the Second Tranche, the Third Tranche, the Fourth Tranche, the Fifth Tranche, the Sixth Tranche, the Seventh Tranche, or the Eighth Tranche.

 

“Transfer Agent” means VStock Transfer LLC, in its capacity as share registrar and transfer agent for Parent.

 

“Transaction Agreements” means this Agreement, the Consideration Warrants, the Trust Agreement, the Leak-Out Agreement, the Paying Agent Agreement, the Voting Agreements, the Warrant Termination Agreements, the Termination Agreements, the Senior Secured Loan Agreement, and the Subordination Agreement.

 

“Transactions” means any transaction or arrangement contemplated by this Agreement. “Triple Tree” means TTCP Fund I, L.P. or any of its affiliates.

 

“Voting Agreements” means voting agreements to be entered into with those Persons set forth on Schedule I attached hereto, substantially in the form attached hereto as Exhibit D.

 

1.02         Terms Defined Elsewhere in this Agreement. For purposes of this Agreement, the following terms have meanings set forth at the section of this Agreement indicated opposite such term:

 

Term	Section
“Agreement”	Preamble
“Allocation Schedule”	Section 3.21(a)
“Assets”	Section 3.13
“Balance Sheet Date”	Section 3.05(a)(i)
“Cashed Out Shares”	Section 2.06(c)(i)
“Certificate of Merger”	Section 2.01
“Closing”	Section 2.02
“Closing Date”	Section 2.02
“Collection Account”	Recitals
“Company”	Preamble
“Company Common Stock”	Section 1.01
“Company Option”	Section 2.09
“Company Registrations”	Section 3.15(c)
“Company Stockholder Consent”	Recitals
“Company Warrant”	Section 2.10
“Confidential Information”	Section 5.04
“Conflict”	Section 3.02(d)
“Consultant”	Section 3.01(b)
“Continuing Employee”	Section 5.04(a)(i)
“Current Consultant”	Section 3.01(b)
“Current Employee”	Section 3.01(b)
“Customer Contracts”	Section 3.18(a)

 

 

“D&O Tail”	Section 5.06(c)
“Deemed Common Stock Trust Common Unit”	Section 2.06(c)(ii)(L)
“Deemed Series A Trust Common Unit”	Section 2.06(c)(ii)(I)
“Deemed Series B Trust Common Unit”	Section 2.06(c)(ii)(F)
“Deemed Series C Prime Trust Common Unit”	Section 2.06(c)(ii)(C)
“Deemed Series C Trust Common Unit”	Section 2.06(c)(ii)(E)
“Deemed Series D Trust Common Unit”	Section 2.06(c)(ii)(A)
“Deemed Series Seed Prime Trust Common Unit”	Section 2.06(c)(ii)(J)
“Deemed Series Seed Trust Common Unit”	Section 2.06(c)(ii)(K)
“DGCL”	Recitals
“Dissenting Shares”	Section 2.08
“E&O Tail”	Section 5.07
“Effective Time”	Section 2.01
“Employee”	Section 3.01(b)
“ERISA Affiliate”	Section 3.10(c)
“Expense Fund”	Section 6.02(g)
“Final Allocation Schedule”	Section 2.07(e)
“Financial Statements”	Section 3.05(a)(i)
“Holders’ Representative”	Preamble
“Interim Balance Sheet”	Section 3.05(a)(i)
“Interim Balance Sheet Date”	Section 3.05(a)(i)
“Leak-Out Agreement”	Recitals
“Lenders”	Section 2.17
“Letter of Transmittal and Election Form”	Section 2.07(a)
“Material Contract”	Section 3.12(c)
“Merger”	Recitals
“Merger Sub”	Preamble
“Multiemployer Plan”	Section 3.10(c)
“Nominating Party”	Section 5.10
“Parent”	Preamble
“Parent Plan”	Section 5.04(a)(i)
“Parent’s SEC Documents”	Section 4.04(a)
“Parent Stockholder Approval”	Section 5.08(b)
“Parent Stockholder Meeting”	Section 5.08(b)
“Parties”	Preamble
“Paying Agent”	Section 2.13(a)
“Paying Agent Agreement”	Section 2.13.(a)
“Physical Company Stock Certificate”	Section 2.06(b)
“Proposal”	Section 5.08(b)
“Proxy Statement”	Section 5.08(d)
“Requesting Lender”	Section 5.08(d)
“Schedule 5.04(a)(iii) Recipients”)	Section 5.04(a)(iii)
“Securities Account”	Recitals
“Selling Agent”	Recitals
“Shrink Wrap Licenses”	Section 3.15(a)(i)
“Stock Election”	Section 2.06(c)(ii)
“Straddle Periods”	Section 5.03(a)
“Surviving Company”	Recitals
“Tax Claim”	Section 5.03(b)
“Title IV Plan”	Section 3.10(c)
“Top Supplier”	Section 3.18(b)
“Transfer Taxes”	Section 5.03(e)
“Twill Designee”	Section 5.10
“Warrant Termination Agreement”	Section 2.10

 

 

ARTICLE II

THE CONTEMPLATED TRANSACTIONS

 

2.01         The Merger. Upon the terms and subject to the conditions set forth in this Agreement and in accordance with the DGCL, at the Closing, the Parties shall cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware a certificate of merger in the form attached hereto as Exhibit E (the “Certificate of Merger”), executed in accordance with the relevant provisions of the DGCL, and shall make all other filings or recordings required under the DGCL in order to consummate the Merger. The Merger shall become effective at the time the Certificate of Merger is filed with the Secretary of State of the State of Delaware (the “Effective Time”). At the Effective Time, Merger Sub shall be merged with and into the Company, and the separate corporate existence of Merger Sub shall thereupon cease, and the Company shall continue as the surviving company and a wholly owned Subsidiary of Parent.

 

2.02         Closing. The consummation of the Transactions (the “Closing”) shall take place electronically at 10:00 a.m. Eastern Time on the date hereof, or such other time as is mutually agreed upon by Parent and the Company. The date on which the Closing actually takes place is referred to in this Agreement as the “Closing Date.”

 

2.03         Effects of the Merger. The Merger shall have the effects set forth in this Agreement and the DGCL. Without limiting the generality of the foregoing and subject thereto, as a result of the Merger, (i) all the rights, privileges and powers of the Company and Merger Sub shall vest in the Surviving Company, (ii) all of the property, real and personal, including causes of action and every other asset of the Company and Merger Sub, shall vest in the Surviving Company without further act or deed, and (iii) all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Company.

 

2.04         Organization Documents of the Surviving Company.

 

(a)           Certificate of Incorporation. At the Effective Time, the certificate of incorporation of the Surviving Company shall be amended and restated so as to be identical to the certificate of incorporation of Merger Sub as in effect immediately prior to the Effective Time, except that the name of the Surviving Company in the Merger shall be the name of the Company as of immediately prior to the Effective Time.

 

(b)           Bylaws. At the Effective Time, the bylaws of Merger Sub immediately prior to the Effective Time shall continue unchanged and be the bylaws of the Surviving Company immediately after the Effective Time until thereafter amended in accordance with the provisions thereof or as provided by law.

 

2.05         Management of the Surviving Company.

 

(a)           Board of Directors. Unless otherwise determined by Parent prior to the Effective Time, the Parties shall take all requisite action so that the directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Company immediately following the effectiveness of the Merger, until their respective successors are duly elected and qualified or their earlier death, resignation or removal in accordance with the Charter Documents of the Surviving Company.

 

(b)           Officers. Unless otherwise determined by Parent prior to the Effective Time, the Parties shall take all requisite action so that the officers of Merger Sub immediately prior to the Effective Time shall be the officers of the Surviving Company until their respective successors are duly appointed and qualified or their earlier death, resignation or removal in accordance with the Charter Documents of the Surviving Company.

 

2.06         Effect of the Merger on Capital Stock. At the Effective Time, by virtue of the Merger and without any action to be taken on the part of the holder of any shares of the Company Stock or any shares of capital stock of Merger Sub, or on the part of the Company, Parent, Merger Sub or any other Person, the following shall occur:

 

(a)           Capital Stock of Merger Sub. Each share of capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive and become one validly issued, fully paid and non-assessable share of common stock, par value $0.00001 per share, of the Surviving Company, and such converted shares shall constitute the only outstanding shares of capital stock of the Surviving Company.

 

 

(b)           Cancellation and Surrender of Securities Held by the Company.

 

(i)            Any shares of Company Stock that are owned by the Company immediately prior to the Effective Time shall be automatically canceled and shall cease to exist and no consideration shall be delivered in exchange therefor. Holders of certificates (whether physical or electronic) representing shares of Company Stock that were outstanding immediately prior to the Effective Time (including those shares of company Common Stock issued pursuant to the Warrant Termination Agreements (as defined herein)) shall cease to have any rights as stockholders of the Company, and the stock transfer books of the Company shall be closed with respect to all shares of such capital stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of Company Stock shall be made on such stock transfer books after the Effective Time.

 

(ii)           If, after the Effective Time, a valid physical certificate previously representing any of such shares of Company Stock (a “Physical Company Stock Certificate”) is presented to the Surviving Company or Parent in accordance with this Section 2.06, such Physical Company Stock Certificate shall be canceled and shall be exchanged as provided in this Section 2.06.

 

(c)            Allocable Merger Consideration. Each share of Company Stock (the “Shares” and each a “Share”) issued and outstanding immediately prior to the Effective Time and those shares of Company Common Stock issued pursuant to the Warrant Termination Agreements (as defined herein) (other than (A) Shares owned by Parent or Merger Sub and (B) Dissenting Shares shall be converted into the right to receive the Allocable Merger Consideration as follows:

 

(i)            each

 

(A)            Share with respect to which an election to receive cash (a “Cash Election”) has been properly made and not revoked (each, a “Cash Electing Share”);

 

(B)            Share held by a Holder who is not an Accredited Investor (each, a “Non-Accredited Share”); and

 

(C)            Non-Electing Share (together with the Cash Electing Shares and the Non-Accredited Shares, the “Cashed Out Shares”);

 

shall, subject to the terms and conditions of this Agreement, be converted into the right to receive an amount in cash, without interest, equal to the dollar value of the Adjusted Cash Election Consideration; and

 

(ii)           each Share with respect to which an election to receive a contingent right to a distribution of Consideration Warrant Shares, if any, from the Trust (a “Stock Election”) upon the exercise, or partial exercise, of any exercisable Consideration Warrant that remains unexercised, or partially unexercised, following the distribution or liquidation, as applicable, of all the Indebtedness Warrant Shares, all shares of Company Stock for which a Stock Election has been properly made and not revoked shall be converted to “Stock Election Consideration” as follows:

 

(A)            for each share of Series D Preferred Stock, one (1) deemed unit of beneficial interest in the class of beneficial interests of the Trust held by the Holders of shares of Series D Preferred Stock and Holders of shares of Series D-1 Preferred Stock making a Stock Election (a “Deemed Series D Trust Common Unit”);

 

(B)            for each share of Series D-1 Preferred Stock, 0.8500 Deemed Series D Trust Common Units;

 

 

(C)            for each share of Series C Prime Preferred Stock, one (1) deemed unit of beneficial interest in the class of beneficial interests of the Trust held by the Holders of shares of Series C Prime Preferred Stock and Holders of shares of Series C-1 Prime Preferred Stock making a Stock Election (a “Deemed Series  C Prime Trust Common Unit”);

 

(D)            for each share of Series C-1 Prime Preferred Stock, 0.8500 Deemed Series C Prime Trust Common Units;

 

(E)             for each share of Series C Preferred Stock, one (1) deemed unit of beneficial interest in the class of beneficial interests of the Trust held by the Holders of shares of Series C Preferred Stock making a Stock Election (a “Deemed Series C Trust Common Unit”);

 

(F)              for each share of Series B Preferred Stock, one (1) deemed unit of beneficial interest in the class of beneficial interests of the Trust held by the Holders of shares of Series B Preferred Stock, Holders of shares of Series B-1 Preferred Stock, and Holders of shares of Series B-2 Preferred Stock making a Stock Election (a “Deemed Series B Trust Common Unit”);

 

(G)            for each share of Series B-1 Preferred Stock, 0.7500 shares of Deemed Series B Trust Common Units;

 

(H)            for each share of Series B-2 Preferred Stock, 0.8500 shares of Deemed Series B Trust Common Units;

 

(I)              for each share of Series A Preferred Stock, one (1) deemed unit of beneficial interest in the class of beneficial interests of the Trust held by the Holders of shares of Series A Preferred Stock making a Stock Election (a “Deemed Series A Trust Common Unit”);

 

(J)             for each share of Series Seed Prime Preferred Stock, one (1) deemed unit of beneficial interest in the class of beneficial interests of the Trust held by the Holders of shares Series Seed Prime Preferred Stock making a Stock Election (a “Deemed Series Seed Prime Trust Common Unit”);

 

(K)            for each share of Series Seed Preferred Stock, one (1) deemed unit of beneficial interest in the class of beneficial interests of the Trust held by the Holders of shares of Series Seed Preferred Stock making a Stock Election (a “Deemed Series Seed Trust Common Unit”);

 

(L)             for each share of Company Common Stock, one (1) deemed unit of beneficial interest in the class of beneficial interests of the Trust held by the Holders of shares Company Common Stock making a Stock Election (a “Deemed Common Stock Trust Common Unit”);

 

and, upon a distribution, if any, from the Trust upon the exercise, or partial exercise, of any exercisable Consideration Warrant that remains unexercised, or partially unexercised, following the distribution or liquidation, as applicable, of all of the Indebtedness Warrant Shares, the holders of the Deemed Trust Common Units shall have the contingent right to receive, in accordance with the Distribution Priorities, Parent Common Stock equal to:

 

(A)            first, each holder of a Deemed Series D Trust Common Unit shall be entitled to receive a number of validly issued, fully paid and nonassessable shares of Parent Common Stock from the Allocable Parent Stock Pool equal to the result of (x) the First Tranche Distribution Amount divided by (y) the Parent Common Stock Value multiplied by (z) such holder’s Percentage Interest;

 

(B)            then, if any shares remain available in the Allocable Parent Stock Pool, each holder of a Deemed Series C Prime Trust Common Unit shall be entitled to receive a number of validly issued, fully paid and nonassessable shares of Parent Common Stock from the Allocable Parent Stock Pool equal to the result of (x) the Second Tranche Distribution Amount divided by (y) the Parent Common Stock Value multiplied by (z) such holder’s Percentage Interest;

 

 

(C)            then, if any shares remain available in the Allocable Parent Stock Pool, each holder of a Deemed Series C Trust Common Unit shall be entitled to receive a number of validly issued, fully paid and nonassessable shares of Parent Common Stock from the Allocable Parent Stock Pool equal to the result of (x) the Third Tranche Distribution Amount divided by (y) the Parent Common Stock Value multiplied by (z) such holder’s Percentage Interest;

 

(D)            then, if any shares remain available in the Allocable Parent Stock Pool, each holder of a Deemed Series B Trust Common Unit shall be entitled to receive a number of validly issued, fully paid and nonassessable shares of Parent Common Stock from the Allocable Parent Stock Pool equal to the result of (x) the Fourth Tranche Distribution Amount divided by (y) the Parent Common Stock Value multiplied by (z) such holder’s Percentage Interest;

 

(E)             then, if any shares remain available in the Allocable Parent Stock Pool, each holder of a Deemed Series A Trust Common Unit shall be entitled to receive a number of validly issued, fully paid and nonassessable shares of Parent Common Stock from the Allocable Parent Stock Pool equal to the result of (x) the Fifth Tranche Distribution Amount divided by (y) the Parent Common Stock Value multiplied by (z) such holder’s Percentage Interest;

 

(F)             then, if any shares remain available in the Allocable Parent Stock Pool, each holder of a Deemed Series Seed Prime Trust Common Unit shall be entitled to receive a number of validly issued, fully paid and nonassessable shares of Parent Common Stock from the Allocable Parent Stock Pool equal to the result of (x) the Sixth Tranche Distribution Amount divided by (y) the Parent Common Stock Value multiplied by (z) such holder’s Percentage Interest;

 

(G)             then, if any shares remain available in the Allocable Parent Stock Pool, each holder of a Deemed Series Seed Trust Common Unit shall be entitled to receive a number of validly issued, fully paid and nonassessable shares of Parent Common Stock from the Allocable Parent Stock Pool equal to the result of (x) the Seventh Tranche Distribution Amount divided by (y) the Parent Common Stock Value multiplied by (z) such holder’s Percentage Interest; and

 

(H)            then, if any shares remain available in the Remaining Allocable Parent Stock Pool each holder of a Deemed Common Stock Trust Common Unit shall receive a number of validly issued, fully paid and nonassessable shares of Parent Common Stock from the Remaining Allocable Parent Stock Pool, the number of which equals the product of (1) the total number of shares of Parent Common Stock in the Remaining Allocable Parent Stock Pool multiplied by (2) such holder’s Percentage Interest.

 

2.07         Election Procedure.

 

(a)            Within three (3) Business Days following the Closing, the Paying Agent shall have mailed or electronically transmitted to each Holder a form of letter of transmittal and election form, substantially in the form attached hereto as Exhibit F (the “Letter of Transmittal and Election Form”), to be used by each Holder to make a Cash Election or a Stock Election.

 

(b)            In the event a Holder desires to make a Stock Election, the Holder shall complete the applicable section(s) of the Letter of Transmittal and Election Form, including, without limitation: (i) customary representations and warranties relating to an investment in shares of Parent Common Stock (including, as applicable, with the assistance of a “purchaser representative” for such purpose) to ensure that the contingent issuance of Parent Common Stock as contemplated by this Agreement qualifies for the exemption from registration under the Securities Act pursuant to Rule 506 of Regulation D thereunder with the assumption that all Holders receiving any consideration in the form of Parent Common Stock hereunder qualify as Accredited Investors; and (ii) a release of the Company against certain claims as set forth therein, and return a properly executed Letter of Transmittal and Election Form to the Paying Agent on or prior to the Election Deadline.

 

(c)            In the event a Holder desires to make a Cash Election, the Holder shall complete the applicable section(s) of the Letter of Transmittal and Election Form, including, without limitation: (i) wire information for the Paying Agent to deliver such Holder’s Adjusted Cash Election Consideration; and (ii) a release of the Company against certain claims as set forth therein, and shall return a properly executed Letter of Transmittal and Election Form to the Paying Agent on or prior to the Election Deadline.

 

 

(d)            In the event that a Holder fails to make a Cash Election or a Stock Election with respect to any Shares held or beneficially owned by such Holder prior to the Election Deadline and in accordance with the instructions contained in the Letter of Transmittal and Election Form, or revokes a Cash Election or Stock Election and fails to make a subsequent Cash Election or Stock Election, then such Holder shall be deemed to have made a Cash Election with respect to those Shares (each such Share, a “Non-Electing Share”).

 

(e)            During the five (5) Business Days following the Election Deadline (the “Review Period”), the Paying Agent and the Holders’ Representative shall review the Letter of Transmittal and Election Forms submitted by the Holders and amend the Allocation Schedule (as amended, the “Final Allocation Schedule”) to set forth: (i) the name and address (or email address) of each Holder; (ii) the number and class of shares of Company Stock held by each Holder as of immediately prior to the Effective Time; (iii) the election (Cash Election or Stock Election) made by each Holder; (iv) the Adjusted Cash Election Consideration to be paid to each Holder making a Cash Election; (v) the priority of Stock Election Consideration proceeds to be distributed post-Closing amongst the Holders making a Stock Election, in each case, designated by Tranche and calculated in accordance with the Distribution Priorities and the terms of the Company’s Charter Documents; and (vi) the Percentage Interest for each Holder with respect to such Holder’s Shares of Company Stock.

 

(f)            No later than the final Business Day of the Review Period, the Holders’ Representative shall deliver to the Trustee and Parent the Final Allocation Schedule.

 

(g)            No later than three (3) Business Days following Parent’s receipt of the Final Allocation Schedule, Parent shall make, or cause to be made, a payment to the Paying Agent for further payment to the Cashed Out Holders in accordance with the Final Allocation Schedule in an amount equal to the total amount of Adjusted Cash Election Consideration to be received by the Cashed Out Holders pursuant to Section 2.06(c)(i); provided, however, that with respect to any Shares for which a properly completed Letter of Transmittal and Election Form has not been received by the Paying Agent, the Paying Agent shall withhold the applicable cash payment due with respect to such Shares and make such payment only promptly following such receipt by the Paying Agent.

 

2.08         Dissenting Shares. Notwithstanding any provision of this Agreement to the contrary, including Section 2.06, any shares of Company Stock issued and outstanding, or deemed to be issued and outstanding, immediately prior to the Closing (other than shares of Company Stock cancelled and retired in accordance with Section 2.06(b)) and held by a holder who has not voted in favor or approved this Agreement or consented thereto in writing and who has properly exercised dissenters’ rights of such shares of Company Stock in accordance with the DGCL (such shares of Company Stock being referred to collectively as the “Dissenting Shares” until such time as such holder fails to perfect or otherwise loses such holder’s dissenters’ rights under the DGCL with respect to such shares of Company Stock) shall not be converted into a right to receive a portion of the Merger Consideration, but instead shall be entitled to only such rights as are granted by the DGCL; provided, however, that if, after the Effective Time, such holder fails to perfect, withdraws, or loses such holder’s right to dissent pursuant to the DGCL or if a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by the DGCL, such shares of Company Stock shall be treated as if they had been converted as of the Effective Time into the right to receive the portion of the Merger Consideration, if any, to which such holder is entitled pursuant to Section 2.06(c), without interest thereon. The Company shall provide Parent prompt written notice of any demands for payment of “fair value” (as such term is defined in the DGCL) received by the Company, any withdrawal of any such demand for payment and any other demand, notice, or instrument delivered to the Company prior to the Effective Time pursuant to the DGCL with respect to the shares of Company Stock, and Parent shall have the opportunity and right to direct all negotiations and proceedings with respect to such demands for payment. Except with the prior written consent of Parent, the Company shall not make any payment with respect to, or settle or offer to settle, any such demands for payment in respect of shares of Company Stock.

 

2.09         Treatment of Options. Prior to the Effective Time, the board of directors of the Company (or, if appropriate, any committee thereof) shall adopt appropriate resolutions and take all other actions necessary and appropriate to provide that, immediately prior to the Effective Time, each outstanding option to purchase Shares, and any warrants issued by the Company pursuant to the Company Option Plan and set forth on Schedule 2.09 (collectively, the “Company Options”) shall be cancelled without any cash payment or any other consideration being made in respect thereof. From and after the Effective Time, any such cancelled Company Option shall no longer be exercisable by the former holder thereof.

 

 

2.10         Warrants. Notwithstanding warrants issued pursuant to the Company Option Plan which shall be cancelled pursuant to Section 2.09, the Company shall take all actions necessary to provide that at the Effective Time, each outstanding warrant to purchase or otherwise acquire shares of Company Common Stock (the “Company Warrants”) that is outstanding, unexercised and unexpired immediately prior to the Effective Time, whether vested or unvested, and as to which the holder thereof executes a Warrant Termination Agreement (the “Warrant Termination Agreement”) shall be cancelled in exchange for the issuance of Company Common Stock pursuant to the terms therein, and, for the avoidance of doubt, holders of such Company Common Stock shall be entitled to receive the Allocable Merger Consideration as set forth in Section 2.06.

 

2.11         Rights Cease to Exist. As of the Effective Time, all shares of Company Stock, and all options, and other securities convertible, exercisable or exchangeable for, or otherwise granting the right to acquire, Company Stock, shall no longer be outstanding, shall automatically be canceled and shall cease to exist and each holder of any shares of Company Stock shall cease to have any rights with respect thereto, except the rights set forth in this ARTICLE II.

 

2.12         No Fractional Shares and Transfer of Shares. Notwithstanding any provision herein to the contrary (i) no fractional shares of Parent Common Stock shall be issued pursuant to this ARTICLE II (with the intended effect that any shares of Parent Common Stock issuable to a single Holder on a particular date shall be aggregated and then rounded to the nearest whole number); and (ii) no Holder may assign or transfer any right to receive shares of Parent Common Stock or cash pursuant to this Agreement without the prior written consent of Parent (which may be withheld in Parent’s sole discretion).

 

2.13         Paying Agent; Submission of Letters of Transmittal.

 

(a)            Acquiom Financial LLC, or an Affiliate thereof, will act as paying agent hereunder (in such capacity, the “Paying Agent”) for the delivery of the Adjusted Cash Election Consideration for distribution to the Cashed Out Holders following the Closing pursuant to Section 2.06(c)(i) and in accordance with the Final Allocation Schedule. No later than three (3) Business Days following Parent’s receipt of the Final Allocation Schedule, Parent will deposit (or cause to be deposited) with the Paying Agent, for the benefit of the Cashed Out Holders, the aggregate amount of the Adjusted Cash Election Consideration for distribution to the Cashed Out Holders pursuant to Section 2.06(c)(i) and Section 2.07. The Paying Agent will hold and distribute the cash payable to the Cashed Out Holders pursuant to the provisions of an paying agent agreement between Parent and the Paying Agent (the “Paying Agent Agreement”).

 

(b)            Upon delivery by each Holder to the Paying Agent of a Letter of Transmittal and Election Form, duly completed and validly executed in accordance with the instructions (and such other customary documents as may reasonably be required by the Paying Agent), (i) each Holder who elected a Cash Election shall be entitled to receive in exchange therefor the consideration, if any, provided for in Section 2.06(c)(i) and (ii) each Holder who elected a Stock Election shall be entitled to receive in exchange therefor the consideration, if any, provided for in Section 2.06(c)(ii). If payment of any portion of the consideration provided for herein is to be made to any Person other than the Person in whose name the surrendered shares of Company Stock are registered, it shall be a condition of payment that the Person requesting such payment shall have paid any transfer and other Taxes required by reason of the payment of the applicable portion of the consideration provided for herein to a Person other than the registered holder of such Company Stock surrendered or shall have established to the reasonable satisfaction of Parent that such Tax either has been paid or is not applicable. After the Effective Time, each share of Company Stock shall represent only the right to receive the applicable portion of the consideration provided for herein as contemplated by this ARTICLE II.

 

(c)            Transfer Books; No Further Ownership Rights in Company Stock. The right to receive the applicable portion of the consideration provided for herein in accordance with the terms of this ARTICLE II shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Stock at the close of business on the day on which the Effective Time occurs, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers on the stock transfer books of the Surviving Company of the shares of Company Stock that were outstanding immediately prior to the Effective Time.

 

 

2.14         Payments and Deliveries at the Closing.

 

(a)            At the Closing, Parent shall make, or cause to be made, the following payments, deposits, deliveries, or transmittals:

 

(i)            to the Senior Secured Lender, for partial satisfaction of the Senior Secured Indebtedness, the Cash Consideration by wire transfer of immediately available funds to an account specified by the Senior Secured Lender at least three (3) Business Days prior to the Closing; and

 

(ii)           to the Trust, for satisfaction of (A) the Senior Secured Indebtedness, (B) the other Specified Indebtedness, and (C) payment of the Stock Election Consideration, if any, the Consideration Warrants, duly executed by Parent.

 

(b)            Parent and or Merger Sub shall deliver, or cause to be delivered, as applicable, to the Company each of the following:

 

(i)            the Paying Agent Agreement, duly executed by the Parent;

 

(ii)           the Trust Agreement, duly executed by Parent;

 

(iii)          the Leak-Out Agreement, duly executed by Parent;

 

(iv)          the Voting Agreements;

 

(v)          documentation reasonably requested by the Company in connection with the Senior Secured Loan Agreement;

 

(vi)          the Senior Secured Loan Agreement, as an accommodation party thereto; and

 

(vii)         the Subordination Agreement, duly executed by Parent.

 

(c)            Parent shall deliver, or cause to be delivered, as applicable, to the Senior Secured Lender each of the following:

 

(i)            the Trust Agreement, duly executed by the Trustee;

 

(ii)           the Leak-Out Agreement, duly executed by the Trustee;

 

(iii)          the Voting Agreements, duly executed by Parent and the holders of Parent Common Stock party thereto;

 

(iv)          the Senior Secured Loan Agreement, the Deposit Account Control Agreement, and the Securities Account Control Agreement, in each case duly executed by the Trustee;

 

(v)           the Senior Secured Loan Agreement, duly executed by Parent, as an accommodation party thereto; and

 

(vi)          the Subordination Agreement, duly executed by Parent, the Senior Secured Lender, and Avenue Venture Opportunities Fund, L.P.; and

  

 

(vii)         the Cowen Letter Amendment, duly executed by Cowen, Parent, the Senior Secured Lender, and the Company.

 

(d)            At the Closing, the Company shall make, or cause to be made, to the payees thereof, the Company Transaction Expenses (other than the Cowen Fees) pursuant to the final invoices delivered by the Company’s service providers prior to Closing.

 

(e)            At the Closing, the Company shall deliver, or cause to be delivered to the Parent, each of the following as applicable:

 

(i)            the Certificate of Merger, duly executed by an officer of the Surviving Company;

 

(ii)           certificates of good standing with respect to each Acquired Company issued by the applicable Acquired Company’s jurisdiction of organization and the jurisdiction of the applicable Acquired Company’s principal place of business, dated not more than five (5) Business Days prior to the Closing Date;

 

(iii)          documentation reasonably requested by Parent in connection with the Senior Secured Loan Agreement;

 

(iv)          executed termination letters (the “Termination Letters”) in respect of all Company Debt (other than any indebtedness in connection with the Senior Secured Loan Agreement);

 

(v)          sufficient documentation providing for a release of all Liens arising with respect all Company Debt (other than the Recognized Lien);

 

(vi)          the written resignations of the directors and officers of each Acquired Company designated by Parent prior to the Closing Date, effective as of the Closing, in form and substance reasonably acceptable to the Parent;

 

(vii)         a certificate, validly executed by an officer of the Company, certifying as to the accuracy of the Distribution Priorities and the Allocation Schedule;

 

(viii)        FIRPTA documentation, consisting of (A) a notice to the IRS, in accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2), in substantially the form attached hereto as Exhibit G-1, dated as of the Closing Date and executed by the Company, (B) a FIRPTA notification letter, in substantially the form attached hereto as Exhibit G-2, dated as of the Closing Date and executed by the Company and (C) if required, an additional cover letter to indicate the reason for “late” filing under Revenue Procedure 2008-27;

 

(ix)           from each Holder, the Senior Secured Lender and the payees of the Specified Indebtedness Amount (but, if such person is a disregarded entity for U.S. federal income tax purposes, such Holder’s regarded tax owner), a duly completed and properly executed copy of the applicable Form W-9 or W-8;

 

(x)            the Paying Agent Agreement shall have been executed and delivered by the Paying Agent to Parent;

 

(xi)           written consents in form acceptable to Parent and duly executed by Holders representing not less than 90% of the Shares, pursuant to which, among other things, each Holder has approved this Agreement, the Merger and the other transactions and arrangements contemplated hereby;

 

(xii)          the Transaction Agreements (other than this Agreement) shall have been executed and delivered by the parties thereto and true and complete copies thereof shall have been delivered to Parent;

 

(xiii)         the Company shall have provided Parent with evidence reasonably satisfactory to Parent as to the termination of (i) immediately prior to the Closing, all outstanding Company Options, and (ii) immediately following the Closing, the Company Option Plan;

 

 

(xiv)         the Warrant Termination Agreements duly executed by the Company and the respective holder of each Company Warrant; and

 

(xv)         the Company shall have provided Parent with evidence reasonably satisfactory to Parent as to the termination of, or the cessation of participation in, each Company Plan intended to qualify under Section 401 of the Code.

 

2.15          No Liability. Notwithstanding anything in this Agreement to the contrary, none of the Parties or the Paying Agent shall be liable to any Person for any portion of the payments contemplated by this ARTICLE II delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law, so long as such delivery has been in accordance with such Law(s).

 

2.16          Withholding Taxes. Notwithstanding anything in this Agreement to the contrary, Parent, the Company, the Surviving Company, Merger Sub and the Paying Agent, or any of their respective representatives, shall be entitled to deduct and withhold from that portion of any payments contemplated by this ARTICLE II or any other amount payable to any person pursuant to this Agreement such amounts that are required to be deducted and withheld with respect to the making of such payments under any applicable Tax Law, provided that prior to deducting or withholding any amount pursuant to this Section 2.16, Parent shall take commercially reasonable efforts to provide notice to the affected payee of its determination that such withholding is required by applicable Law and shall use commercially reasonable efforts to cooperate with the applicable payee to reduce or eliminate such withholding to the maximum extent permissible, in each case, unless such withholding relates to the failure of the Company to deliver the notice and certificate contemplated in and pursuant to Section 2.14(e)(viii). To the extent amounts are so deducted and withheld, such amounts shall be treated for purposes of this Agreement as having been paid to the Holder in respect of which such deduction and withholding were made.

 

2.17          Retirement of Specified Company Indebtedness. At the Effective Time, Parent shall pay to the Senior Secured Lender the Cash Consideration and issue to the Trust the Consideration Warrants to enable the Trust to satisfy that certain Company Debt as set forth in Section 3.05(f) of the Disclosure Schedule (the “Specified Indebtedness”) in accordance with the Termination Letters and the terms and provisions of the Trust Agreement; provided that the creditors holding such Specified Indebtedness, all of whom are identified in Section 3.05(f) of the Disclosure Schedule (collectively, the “Lenders”), shall have agreed, pursuant to the Termination Letters (or, in respect of the Senior Secured Loan Agreement, such other documentation acceptable to Parent and the Senior Secured Lender), to release the Company and Parent and its Affiliates from any further liability regarding such Company Debt upon the Senior Secured Lender’s receipt of the Cash Consideration and the Trust’s receipt of the Consideration Warrants.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

As a material inducement to Parent and Merger Sub to enter into this Agreement and effect the Merger, with the understanding that Parent and Merger Sub are relying thereon in entering into this Agreement and consummating the Transactions (including the Merger), the Company hereby represents and warrants to Parent and Merger Sub, subject to such exceptions as are set forth in the Disclosure Schedule (provided that the Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections and subsections of this Agreement, and the disclosures in any section or subsection of the Disclosure Schedule shall qualify other sections and subsections of this Agreement only to the extent it is reasonably apparent that such disclosure is applicable to such other sections and subsections), as of the Closing Date as follows:

 

3.01         Organizational Matters.

 

(a)            Valid Existence; Good Standing. The Company is a corporation, duly incorporated, validly existing and in good standing under the Laws of the State of Delaware and has all requisite power and authority to own or lease all of its properties and assets and to carry on its business as now conducted. The Company is duly licensed or qualified to do business and is in good standing under the laws of each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased, or licensed by it makes such licensing or qualification necessary, except where the failure to have such license or qualification would not reasonably be expected to result in a Company Material Adverse Effect.

 

 

(b)            Operations. Section 3.01(b) of the Disclosure Schedule lists each state and country in which any Acquired Company has any employee or officer (each a “Current Employee”) or has assets or leases Real Property. Current Employees, together with any former employees or officers of any Acquired Company, are referred to herein individually as an “Employee” and collectively as “Employees.” Section 3.01(b) of the Disclosure Schedule also lists each state and country in which each Acquired Company has any individual consultant or independent contractor that is currently engaged and is actively providing services to such Acquired Company (each a “Current Consultant”) as of the Closing Date and any current director (who is not an Employee). Current Consultants, together with any director (who is not an Employee) of any Acquired Company, are referred to herein individually as a “Consultant” and collectively as “Consultants.”

 

(c)            Subsidiaries. Section 3.01(c) of the Disclosure Schedule sets forth the name of each Subsidiary of the Company, the capitalization of each Subsidiary, and, with respect to each such Subsidiary, the jurisdiction in which it is incorporated or organized. Other than as set forth on Section 3.01(c) of the Disclosure Schedule, neither the Company nor any of its Subsidiaries owns any capital stock or other equity interests in any Person that is not a Subsidiary of the Company. Except as set forth on Section 3.01(c) of the Disclosure Schedules, each Subsidiary is wholly-owned by the Company. Each of the Company’s Subsidiaries is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization, except where the failure to be so organized, existing and in good standing would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Each of the Company’s Subsidiaries has all requisite corporate or entity power and authority to own or lease all of its properties and assets and carry on its business as it is now being conducted, except for such matters that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Each of the Company’s Subsidiaries is duly licensed or qualified to do business and is in good standing under the Laws of each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification required by Law, except where the failure to be so licensed, qualified or in good standing would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. No Subsidiary of the Company is in violation of its organizational documents in any material respect.

 

(d)            Corporate Documents. The Company has delivered or made available to Parent true and complete copies of the Charter Documents of the Company and each of its Subsidiaries, in each case as the same may have been amended from time to time. All such Charter Documents are unmodified and in full force and effect and neither the Company nor any of its Subsidiaries is in violation of any provision of the applicable Charter Documents. The Company’s board of directors has not proposed or approved any amendment of any of the Charter Documents. The Company has delivered or made available to Parent and its representatives true and complete copies of the stock ledger of the Company and of the minutes of all meetings of, or resolutions adopted by, the Holders, the board of directors and each committee of the board of directors of the Company held since the Reference Date.

 

(e)            Officers and Directors. Section 3.01(e) of the Disclosure Schedule lists all of the directors and officers of each Acquired Company.

 

3.02         Authority; Noncontravention; Voting Requirements.

 

(a)            Power and Authority. Subject to the effectiveness of the Company Stockholder Consent, the Company has all necessary corporate power and authority to execute and deliver this Agreement and the Transaction Agreements to which it is a party and to perform all of its obligations hereunder and thereunder and to consummate the Transactions (including the Merger).

 

(b)            Due Authorization of Agreement. The Company’s board of directors, at a meeting duly called and held pursuant to the DGCL or pursuant to an action by unanimous written consent adopted pursuant to the DGCL, has unanimously (i) approved and declared advisable and in the best interests of the Company and the Holders the Transaction Agreements and the Transactions (including the Merger) and (ii) recommended that the Holders adopt this Agreement and approve the Transactions (including the Merger). The execution, delivery and performance by the Company of this Agreement and the Transaction Agreements to which it is a party and the consummation by it of the Transactions (including the Merger) have been duly authorized by the Company’s board of directors and, this Agreement has been adopted by the affirmative vote or written consent of the Holders representing the requisite number of shares of Company Stock required under the DGCL and the Company’s Charter Documents. No other action on the part of the Company’s board of directors or the Holders necessary to authorize the execution, delivery and performance by the Company of this Agreement and the Transaction Agreements to which it is a party and the consummation by it of the Transactions (including the Merger).

 

 

(c)            Valid and Binding Agreements. This Agreement and each of the other Transaction Agreements to which the Company is a party have been executed and delivered by the Company. Assuming due authorization, execution and delivery of this Agreement and the other Transaction Agreements by the other Parties hereto and thereto, this Agreement constitutes and the other Transaction Agreements shall, when executed and delivered, constitute, the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except to the extent that their enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.

 

(d)            No Conflict. Except as set forth in Section 3.02(d) of the Disclosure Schedule, neither the execution and delivery by the Company of this Agreement nor the consummation of the Transactions shall (i) conflict with or result in any violation of or default under (with or without notice or lapse of time, or both) or (ii) or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit or result in the creation of any Lien upon any of the properties or assets of any Acquired Company (any such event, a “Conflict”) under (x) any provision of any Charter Documents or any resolutions adopted by the board of directors or the stockholders of any Acquired Company, (y) any Material Contract, or (z) any Permit issued to any Acquired Company or any Order or Law applicable to any Acquired Company or any of its properties or assets (whether tangible or intangible). Following the Closing Date, each Acquired Company shall continue to be permitted to exercise all of its rights under all Material Contracts without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which such Acquired Company would otherwise be required to pay pursuant to the terms of such Material Contracts had the Transactions contemplated by this Agreement not occurred.

 

3.03         Capitalization.

 

(a)            Authorized and Issued Securities. The authorized capital stock of the Company consists of 73,628,403 shares of Company Common Stock and 43,928,226 shares of Company Preferred Stock. The capitalization of the Company is as follows: (i) 5,766,253 shares of Company Common Stock are issued and outstanding, (ii) (A) 2,368,076 shares of Series Seed Preferred Stock of the Company are issued and outstanding, (B) 2,923,864 shares of Series Seed Prime Preferred Stock of the Company are issued and outstanding, (C) 2,908,198 shares of Series A Preferred Stock of the Company are issued and outstanding, (D) 4,405,778 shares of Series B Preferred Stock of the Company are issued and outstanding, (E) 7,406,308 shares of Series B-1 Preferred Stock of the Company are issued and outstanding, (F) 1,001,810 shares of Series B-2 Preferred Stock of the Company are issued and outstanding, and (G) 1,298,504 shares of Series Seed C-1 Preferred Stock of the Company are issued and outstanding, (H) 4,110,975 shares of Series C Preferred Stock of the Company are issued and outstanding, (I) 3,853,394 shares of Series C Prime Preferred Stock of the Company are issued and outstanding, (J) 594,453 shares of Series D-1 Preferred Stock of the Company are issued and outstanding, (K) 3,683,415 shares of Series D Preferred Stock of the Company are issued and outstanding, (iii) no shares of Company Stock are held by the Company in its treasury, (iv) 13,695,300 shares of Company Stock are subject to outstanding options under the Company Option Plan, (v)            (A) 4,884,533 shares of the Company Stock are subject to outstanding warrants exercisable for Company Stock, ( ) no outstanding options have been issued outside the Company Option Plan, and (vii) a sufficient number of Company Stock is available for issuance upon exercise or conversion of all outstanding Company Options and Company Warrants. Except as set forth in Section 3.03(a) of the Disclosure Schedule, there are no shares of Company Stock, voting securities or equity interests of the Company issued and outstanding or any subscriptions, options, warrants, calls, convertible or exchangeable securities, rights, commitments or agreements of any character providing for the issuance of any shares of capital stock, voting securities or equity interests of the Company, including any representing the right to purchase or otherwise receive any Company Stock.

 

(b)            Ownership of Stock and Company Options. Section 3.03(b) of the Disclosure Schedule sets forth a complete and accurate list of each of (i) the record holders of each class or series of the Company Stock and the number of shares of each such class or series of Company Stock held by each Holder as of the Closing Date and the number of shares or other securities into which such Company Stock is convertible, listed by class and series, (ii) all Company Options and the Company Optionholders thereof as well as the exercise prices, dates of grant, type of option (nonqualified or intended to qualify as an “incentive stock option” under the Code), and numbers of shares of Company Stock for which such Company Options are exercisable by each such Company Optionholder as of the Closing Date, (iii) all Company Warrants and the holders thereof, as well as the exercise prices, dates of grant, vesting period, and numbers of shares of Company Stock for which such Company Warrants are exercisable by each such holder as of the Closing Date, and (iv) all Convertible Notes and the holders thereof as well as the shares of Company Stock issuable in full satisfaction thereof. All issued and outstanding shares of Company Stock are owned of record and beneficially as set forth in Section 3.03(b) of the Disclosure Schedule.

 

 

(c)            Valid Issuance; No Preemptive or Other Rights.

 

(i)            All issued and outstanding shares of Company Stock (x) are, and all shares of Company Stock that may be issued pursuant to the exercise of Company Options and Company Warrants and the exercise or conversion of outstanding Convertible Notes shall be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and nonassessable, (y) are not subject to, nor were issued in violation of, any preemptive rights, rights of first offer or refusal, co-sale rights or similar rights arising under applicable Law or pursuant to the Company’s Charter Documents, or any Contract to which the Company is a party or by which it is bound, and (z) have been offered, issued, sold and delivered by the Company in compliance with all registration or qualification requirements (or applicable exemptions therefrom) of applicable federal, state and foreign securities Laws. Except as set forth on Section 3.03(c) of the Disclosure Schedule, each Company Option granted under the Company Option Plan was duly authorized by all requisite corporate action on a date no later than the grant date and has an exercise price per share at least equal to the fair market value of a share of Company Common Stock on the grant date, as determined by the Company’s board of directors in accordance with Section 409A of the Code. Except as set forth on Section 3.03(c) of the Disclosure Schedule, the Company is not under any obligation to register any of its presently outstanding securities, or securities issuable upon exercise or conversion of such securities, under the Securities Act or any other Law.

 

(ii)           The rights, preferences and privileges of the Company Stock are as set forth in the Company’s Charter Documents. There is no liability for dividends accrued and/or declared but unpaid with respect to the outstanding Company Stock. The Company is not subject to any obligation to repurchase, redeem or otherwise acquire any shares of Company Stock or any other voting securities or equity interests (or any options, warrants or other rights to acquire any shares of Company Stock, voting securities or equity interests) of the Company. Upon the Closing, there are no voting trusts or other agreements or understandings with respect to the voting of the Company Stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to the Company.

 

(iii)          True and complete copies of all form agreements and instruments (and any amendments thereto, if applicable) relating to or issued under the Company Option Plan have been delivered or made available to Parent; there are no agreements to amend, modify or supplement such agreements or instruments from the forms thereof provided or made available to Parent; and all equity grants under the Company Option Plan have been made pursuant to agreements and instruments and do not deviate from such form agreements and instruments in any material respect.

 

3.04         No Consents or Approvals. Except for the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant to the DGCL, no consents or approvals of, filings with, or notices to any Governmental Authority are required to be made or obtained by the Company for the valid execution, delivery and performance of this Agreement or the other Transaction Agreements to which it is a party, and the consummation of the Transactions (including the Merger).

 

 

3.05          Financial Matters.

 

(a)            Financial Statements.

 

(i)             Prior to the Closing Date, the Company has delivered or made available to Parent true and complete copies of the following consolidated financial statements of the Company and its Subsidiaries (collectively, the “Financial Statements”): (x) the unaudited balance sheet and related unaudited statements of income, cash flows and stockholders’ equity as of and for the fiscal year ended December 31, 2022 (December 31, 2022, the “Balance Sheet Date”); and (y) the unaudited balance sheet and related unaudited statements of income, cash flows and stockholders’ equity as of and for the eleven-month period ended November 30, 2023 (the “Interim Balance Sheet” and such date the “Interim Balance Sheet Date”).

 

(ii)            The books and records of the Company and its Subsidiaries have been and are being maintained in accordance with generally accepted accounting principles as in effect in the United States of America from time to time, are complete, properly maintained and do not contain or reflect any material inaccuracies or discrepancies.

 

(b)            Fair Presentation. The Financial Statements were prepared on a consistent basis throughout the periods covered thereby. The Financial Statements fairly present the financial condition of the Company as of such dates and the results of operations of the Company and its Subsidiaries for such periods, and were derived from and are consistent with the books and records of the Company and its Subsidiaries; provided, however, that the Financial Statements as of and for the period ended on the Interim Balance Sheet Date are subject to normal year-end adjustments (which are not expected to be material individually or in the aggregate).

 

(c)            No Undisclosed Liabilities. No Acquired Company has any Liabilities, other than Liabilities (a) set forth or reflected on the Financial Statements provided in accordance with Section 3.05(a)(i), (b) incurred in the Ordinary Course of Business since the Interim Balance Sheet Date or (c) as set forth on the Twill Cash Management Forecast as annexed to Section 3.05(c) of the Disclosure Schedule. Any Liabilities incurred in the Ordinary Course of Business since the Interim Balance Sheet Date or set forth on the Twill Cash Management Forecast as annexed to Section 3.05(c) of the Disclosure Schedule, individually and in the aggregate, are not material to the Company.

 

(d)            Off-Balance-Sheet Arrangements. There are no “off-balance-sheet arrangements” (within the meaning of Item 303 of Regulation S-K promulgated by the SEC) with respect to any Acquired Company.

 

(e)            Bank Accounts. Section 3.05(e) of the Disclosure Schedule sets forth an accurate list (account type, name and address) of each bank and other financial institution in which any Acquired Company maintains an account (whether checking, savings or otherwise), lock box or safe deposit box and the names of the persons having signing authority or other access thereto. Except as set forth on Section 3.05(e) of the Disclosure Schedule, all cash in such accounts is held in demand deposits and is not subject to any restriction as to withdrawal.

 

(f)             Company Debt. Except as set forth in Section 3.05(f) of the Disclosure Schedule, there is no Company Debt. With respect to each item of Company Debt, Section 3.05(f) of the Disclosure Schedule accurately sets forth the name of the creditor, the Contract under which such debt was issued, the principal amount of the debt and a description of the collateral if secured. Except with respect to the Specified Indebtedness, no Acquired Company is in default with respect to any outstanding Company Debt or any instrument relating thereto, nor is there any event which, with the passage of time or giving of notice, or both, would result in a default, and no such Company Debt or any instrument or agreement thereto purports to limit the operation of such Acquired Company’s business. Complete and correct copies of all instruments (including all amendments, supplements, waivers and consents) relating to any Company Debt have been provided or made available to Parent. All Company Debt shall be discharged effective immediately prior to the Closing in accordance with the Termination Letters, except as set forth in the Senior Secured Loan Agreement.

 

3.06          Absence of Certain Changes or Events. Except as set forth on Section 3.06 of the Disclosure Schedule and since the Interim Balance Sheet Date, (i) there has not been a Company Material Adverse Effect and (ii) there has not occurred any damage, destruction or loss (whether or not covered by insurance) of any material asset of any Acquired Company that adversely affects the use thereof. Except as set forth on Section 3.06 of the Disclosure Schedule and since the Interim Balance Sheet Date, no Acquired Company has taken any of the following actions:

 

 

(a)            issued, sold, granted, disposed of, amended any term of, granted registration rights with respect to, pledged or otherwise encumbered any shares of its capital stock or other equity interests, or any securities or rights convertible into, exchangeable or exercisable for, or evidencing the right to subscribe for any shares of its capital stock or other equity interests, or any rights, warrants, options, calls, commitments or any other agreements of any character to purchase or acquire any shares of its capital stock or other equity interests or any securities or rights convertible into, exchangeable or exercisable for, or evidencing the right to subscribe for, any shares of its capital stock or other equity interests;

 

(b)            other than as contemplated by the terms of this Agreement, amended (including by reducing an exercise price or extending a term) or waived any of its rights under, or accelerated the vesting under, any provision of the Company Option Plan or any agreement evidencing any outstanding stock option, warrant or other right to acquire capital stock of the Company or any restricted stock purchase agreement or any similar or related contract;

 

(c)            other than as contemplated by the terms of this Agreement, redeemed, purchased or otherwise acquired or cancelled any of its outstanding shares of capital stock or equity interests, or any rights, warrants, options, calls, commitments or any other agreements of any character to acquire any shares of its capital stock or equity interests;

 

(d)            declared, set aside funds for the payment of or paid any dividend on, or made any other distribution (whether in cash, stock or property) in respect of, any shares of its capital stock or other equity interests or make any payments to the Holders in their capacity as stockholders of the Company;

 

(e)            split, combined, subdivided, reclassified or taken any similar action with respect to any shares of the Company’s capital stock;

 

(f)             formed any Subsidiary;

 

(g)            incurred, guaranteed, issued, sold, repurchased, prepaid or assumed any (i) Company Debt, or issued or sold any options, warrants, calls or other rights to acquire any debt securities of any Acquired Company; (ii) obligations of any Acquired Company issued or assumed as the deferred purchase price of property; (iii) conditional sale obligations of any Acquired Company; (iv) obligations of any Acquired Company under any title retention agreement (but excluding trade accounts payable and other accrued current liabilities arising in the Ordinary Course of Business); (v) obligations of any Acquired Company for the reimbursement of any obligor on any letter of credit; or (vi) obligations of the type referred to in clauses (i) through (v) of other Persons for the payment of which an Acquired Company is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise, including guarantees of such obligations;

 

(h)            sold, transferred, leased, licensed, mortgaged, encumbered, or otherwise disposed of subject to any Lien other than a Permitted Lien (including pursuant to a sale-leaseback transaction or an asset securitization transaction), any of its properties or assets;

 

(i)             made any capital expenditures in excess of $50,000;

 

(j)             acquired or agreed to acquire in any manner (whether by merger or consolidation, the purchase of an equity interest in or a material portion of the assets of or otherwise) any business or any corporation, partnership, association or other business organization or division thereof other than the acquisition of inventory and equipment in the Ordinary Course of Business;

 

 

(k)            made any investment (by contribution to capital, property transfers, purchase of securities or otherwise) in, or loan or advance funds to any Person (other than travel and similar advances to its Employees in the Ordinary Course of Business in an aggregate amount at any one time of not more than $10,000);

 

(l)             with respect to Contracts, (i) entered into, adopted, terminated, modified, renewed or amended (including by accelerating material rights or benefits under) any Material Contract (or any Contract that would constitute a Material Contract if in effect on the Closing Date) other than in the Ordinary Course of Business, (ii) entered into or extend the term or scope of any Contract that purports to restrict the Company, or any current or future Subsidiary of the Company, from engaging in any line of business or in any geographic area, (iii) entered into any Contract that could be breached by, or require the consent of any third party in order to continue in full force following, consummation of the Transactions, or (iv) released any Person from, or modify or waive any material provision of, any confidentiality or non-disclosure agreement;

 

(m)           (i) hired or terminated any employees, except for the termination of any employee for legitimate business purposes, (ii) materially increased the annual level of compensation payable or to become payable by the Company to any of its directors or Current Employees, (iii) granted any bonus, benefit or other direct or indirect compensation to any director, Current Employee or Current Consultant, except as required by the terms of this Agreement, (iv) increased the coverage or benefits available under or otherwise modify or amend or terminate any (or create any new) Company Plan, except as required by the terms of this Agreement, applicable Law or by the terms of any Company Plan, (v) entered into any employment, deferred compensation, severance, consulting, non-competition or similar agreement to which the Company is a party (or amend any such agreement in any material respect) or enter into any agreement involving a Current Employee or Current Consultant, except, in each case, as required by the terms of this Agreement, applicable Law from time to time in effect or by the terms of any Company Plan or (vi) entered into any transactions pursuant to which any Related Party purchases any services, products or technology from, or sells or furnishes any services, products or technology to, the Company;

 

(n)            made, changed, or revoked any material election concerning Taxes or Tax Returns, filed any amended Tax Return or any Tax Return inconsistent with past practice, entered into any closing agreement or Contract with any Taxing Authority with respect to Taxes, settled any Tax Claim or assessment (other than by paying Taxes in the Ordinary Course of Business), surrendered any right to claim a refund of Taxes, requested any Tax ruling or agreed to an extension or waiver of the statute of limitations with respect to the assessment or determination of Taxes;

 

(o)            made any changes in financial or tax accounting methods, principles or practices (or change an annual accounting period), except as required by applicable Law;

 

(p)            amended the Charter Documents of any Acquired Company;

 

(q)            adopted a plan or agreement for or carried out any complete or partial liquidation, dissolution, restructuring, recapitalization, merger, consolidation or other reorganization other than as required by the provisions of the Transaction Agreements;

 

(r)             paid, repurchased, prepaid, discharged, settled or satisfied any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise) in excess of $50,000 in any one instance or $100,000 in the aggregate, other than the payment, discharge, settlement or satisfaction in accordance with the terms of the Liabilities reflected in the Interim Balance Sheet;

 

(s)            initiated, settled, agreed to settle, waived or compromised any Action that results in payment by the Company in excess of $50,000;

 

(t)             accelerated, beyond the normal collection cycle, collection of accounts receivable or delay beyond normal payment terms payment of any accounts payable;

 

(u)            accelerated or deferred the construction of any premises;

 

 

(v)            accelerated or deferred the purchase of fixtures, equipment, leasehold improvements or other capital expenditures;

 

(w)           granted or agreed to grant any license to any of the Company’s Intellectual Property Rights other than non-exclusive licenses granted in the Ordinary Course of Business;

 

(x)            hired, appointed or, except as required by the terms of this Agreement, terminate any director or officer of the Company (other than a termination for cause);

 

(y)           entered into any lease (either as lessor or lessee) or other form of use or occupancy agreement for the use or occupancy of any real property; or

 

(z)            obligated the Company to take any of the foregoing actions.

 

3.07          Legal Proceedings. Except as set forth on Section 3.07 of the Disclosure Schedule, since the

 

Reference Date, there have not been and there are no pending Actions, and, and to the Knowledge of the Company, there are no Actions threatened in writing, in either case, by or against the any Acquired Company, its properties or assets or any of such Acquired Company’s officers or directors in their capacities as such.

 

3.08          Compliance with Laws; Permits.

 

(a)            Each Acquired Company is and has at all times been in compliance in all material respects with all Health Care Laws and Information Privacy and Security Laws and has been in material compliance with all other Laws, in each case applicable to such Acquired Company or any of its assets, business or operations; provided, however, for the avoidance of doubt, Laws applicable to any Acquired Company or any of its assets, business or operations means those Laws that apply to such Acquired Company based on its operations as of a particular date with respect to which compliance would be required. Each Acquired Company holds all Permits necessary to conduct its business and operate its assets in all material respects, and all such Permits are in full force and effect. Each Acquired Company is and has always been in material compliance with the terms of all Permits necessary to conduct its business and to lease and operate its properties and facilities. Section 3.08(a) of the Disclosure Schedule sets forth a list of all Permits that are held by the Acquired Companies. No Acquired Company has received notice from any Governmental Authority claiming or alleging that such Acquired Company was not in compliance with all Laws applicable to such Acquired Company or its business or operations; no Acquired Company has received in writing a notice of assessment of any penalty with respect to any alleged failure by such Acquired Company to have or comply with any Permit.

 

(b)            No Acquired Company, or, to the Company’s Knowledge, any of its officers, directors, Employees, Consultants or agents, has, in the operating of such Acquired Company’s business, engaged in any activities which are prohibited or are cause for criminal or civil penalties or mandatory or permissive exclusion from Medicare, Medicaid or any other state or federal health care program under 42 U.S.C. §§ 1320a-7, 1320a-7a, 1320a-7b or 1395nn, 5 U.S.C. § 8901 et seq. (the Federal Employees Health Benefits program statute), or the regulations, agency guidance, or similar legal requirement promulgated pursuant to such statutes or any analogous state or local Laws.

 

(c)            No Acquired Company, or, to the Company’s Knowledge, any of its directors, officers, Employees, Consultants, or agents, in their capacity as officers, directors, Employees, Consultants or agents of such Acquired Company, has, directly or indirectly given any illegal gift, contribution, payment or similar benefit to any supplier, customer, governmental official or employee or other Person.

 

(d)            No Acquired Company or any of its Employees, or, to the Company’s Knowledge, any of its Consultants, agents or vendors has been excluded, suspended, debarred or otherwise sanctioned by any Governmental Authority, including the U.S. Department of Health and Human Services Office of Inspector General or the General Services Administration.

 

(e)            Each Acquired Company has the necessary agreements with all of such Acquired Company’s “business associates” as such term is defined by and as such agreements are required by HIPAA. Each Acquired Company has at all times complied in all material respects with all rules, policies, and procedures established by such Acquired Company from time to time and as applicable with respect to privacy, security, data protection, or the collection and use of PHI created, used, disclosed, or stored in the course of the operations of such Acquired Company. No Actions have been asserted or, to the Knowledge of the Company, threatened in writing against any Acquired Company by any person alleging that the creation, use, disclosure, or storage of such person’s PHI by such Acquired Company violates any applicable Information Privacy and Security Laws.

 

 

(f)             Each Acquired Company maintains and has implemented security policies and procedures as required by applicable Information Privacy and Security Laws designed to protect PHI Collected and Used by the Acquired Company against loss and unauthorized access, use, modification, disclosure and other misuse. There has been no “Breach of Unsecured PHI,” as defined under HIPAA, and no successful “Security Incident” as defined under HIPAA, resulting in the unauthorized use or disclosure of PHI.

 

(g)            None of the representations and warranties contained in this Section 3.08 shall be deemed to relate to environmental matters (which are governed by Section 3.11), employee or employee benefits matters (which are governed by Section 3.10), or tax matters (which are governed by Section 3.09).

 

3.09          Taxes.

 

(a)            Each Acquired Company has timely paid all income and other material Taxes required to be paid by such Acquired Company, whether or not shown on any Tax Return other than Taxes that are not yet due and payable. The accrued but unpaid Taxes of the Company, as of the Interim Balance Sheet Date, do not exceed the Tax Liability accrued on the Interim Balance Sheet. Since the Interim Balance Sheet Date, no Acquired Company has incurred any material Liability for Taxes arising outside of the Ordinary Course of Business. There are no Liens for Taxes (other than liens described in clause (i) of “Permitted Liens”) upon any of the assets or equity of any Acquired Company. No Acquired Company is subject to any currently effective waiver of any statute of limitations in respect of Taxes and has not agreed to any currently effective extension of time with respect to a Tax assessment or deficiency and no request has been made by any governmental entity for any such extension or waiver.

 

(b)            Each Acquired Company has timely filed, taking into account any extensions granted to such Acquired Company, all income and other material Tax Returns that are required to have been filed by or with respect to such Acquired Company. All Tax Returns filed by the Acquired Companies were, when filed, true, correct and complete and where prepared in all material respects in compliance with all applicable Tax Laws. No Acquired Company is the beneficiary of any currently effective extension of time within which to file any Tax Return not yet filed as of the Closing Date. Within the past five (5) years, no claim has been made by any Taxing Authority with respect to an Acquired Company in a jurisdiction where such Acquired Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction, which claim has not been finally resolved. Each Acquired Company uses the accrual method of accounting for Tax purposes.

 

(c)            Each Acquired Company has withheld and paid all income and other material Taxes required to have been withheld and paid by it in connection with amounts paid or owing by such Acquired Company to any Employee, Consultant, creditor, stockholder or other third party. The Company has complied with all information reporting and backup withholding provisions of applicable Laws in all material respects.

 

(d)            No deficiencies for any Taxes have been proposed or assessed against or with respect to any Taxes due by, or Tax Returns of, any Acquired Company, which deficiencies have not been finally resolved, and no Acquired Company has received written notice of any audit, assessment, dispute or claim concerning any Tax Liability of such Acquired Company, which audit, assessment, dispute or claim has not been finally resolved.

 

(e)            No Acquired Company (i) is or has ever been a member of an affiliated group (other than a group the common parent of which is the Company) filing a consolidated, joint, unitary, combined or similar income Tax Return nor (ii) has Liability for Taxes of any Person arising from the application of Treasury Regulation Section 1.1502-6 or any analogous provision of state, local or non-U.S. Tax Law, or as a transferee or successor, by application of law, pursuant to a Tax Sharing Agreement or otherwise. None of the Acquired Companies is, nor has such Acquired Company been, a party to, or bound by, or has any obligation or Liability under, any Contract with any third party relating to indemnification for Taxes or allocating or sharing the payment of, or Liability for, Taxes.

 

 

(f)             No Acquired Company has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

 

(g)            No Acquired Company has made any payments, is obligated to make any payments and is a party to any agreement, including this Agreement, that under certain circumstances could reasonably be expected to obligate it to make any payments to any “disqualified individual” within the meaning of Section 280G of the Code that shall not be fully deductible under Section 280G of the Code. Neither the Company nor any Subsidiary has or has ever had any obligation to report, withhold or gross up any excise Taxes under Section 280G or Section 4999 of the Code.

 

(h)            No Acquired Company shall be required to include any material item of income or gain in, or exclude any material item of deduction or loss from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting requested by such Acquired Company prior to the Closing, including but not limited to any adjustments pursuant to Section 481(a) of the Code ; (ii) closing agreement described in Code Section 7121 (or any comparable provision of applicable state, local or non-U.S. Law) entered into by such Acquired Company with any Taxing Authority prior to the Closing; (iii) installment sale or open transaction disposition made by such Acquired Company prior to the Closing; (iv) prepaid amounts received or paid by such Acquired Company outside of the Ordinary Course of Business prior to the Closing or any election, if applicable, under Section 108(i) of the Code, which is made prior to Closing;(v) election pursuant to Section 965(h) of the Code; or (vi) Sections 951, 951A or 965 of the Code or any comparable provision of any state, local or non-U.S. Tax Legal Requirement with respect to income received or realized in a Pre-Closing Tax Period. As of the Closing Date, no Acquired Company will hold assets which constitute U.S. property within the meaning of Section 956 of the Code. Since the Reference Date, no Acquired Company has distributed stock of another Person, nor, to the Company’s Knowledge, has its stock been distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 or Section 361 of the Code.

 

(i)             The Company has delivered or made available to Parent correct and complete copies of all federal and state income Tax Returns filed since the Reference Date and all examination reports and statements of deficiencies filed, or assessed against and agreed to, by each Acquired Company with respect to income and other material Taxes for all taxable periods ending on or after the Reference Date. No Acquired Company has requested or received any ruling or similar guidance with respect to Taxes from any governmental entity.

 

(j)             Section 3.09(j) of the Disclosure Schedule lists each Acquired Company that is treated as a “controlled foreign corporation” as defined in Section 957 of the Code. None of the Acquired Companies is (i) a “passive foreign investment company” as defined in Section 1297 of the Code, (ii) treated as a United States person under Section 897(i) of the Code, or (iii) a “surrogate foreign corporation” or a “domestic corporation” within the meaning of Section 7874 of the Code.

 

(k)            None of the Acquired Companies is a party to any joint venture, partnership, other arrangement or Contract that would reasonably be expected to be treated as a partnership for federal income Tax purposes.

 

(l)             No Acquired Company has been a party to any “listed transaction,” as defined in Section 6707A(c)(2) of the Code and Treasury Regulation Section 1.6011-4(b)(2).

 

(m)           Within the last five (5) years, no Acquired Company has (i) made an election under Section 1362 of the Code to be treated as an S corporation for federal income tax purposes or (ii) made a similar election under any comparable provision of any state, local or foreign Tax Law.

 

(n)            None of the Acquired Companies has been engaged in a trade or business, had a permanent establishment, been resident for Tax purposes or otherwise been subject to taxation in any country other than the country of its formation.

 

 

(o)            Each Acquired Company has complied in all material respects with the transfer pricing provisions of all applicable Laws, including the documentation, retention and filing requirements thereof. All intercompany agreements have been adequately documented, and such documents have been duly executed in a timely manner. The prices for any property or services (or for the use of any property), including interest and other prices for financial services, provided by each Acquired Company are arm’s-length prices for purposes of the relevant transfer pricing laws, including Treasury Regulations promulgated under Section 482 of the Code or Section 85A of the Income Tax Ordinance.

 

(p)            None of the Acquired Companies has claimed any Tax credit or other Tax benefit or has deferred any Tax pursuant to any program undertaken by any Governmental Authority in response to the COVID-19.

 

(q)            Each Acquired Company has at all times since its formation been properly classified as a corporation for U.S. federal (and applicable U.S. state and local) Tax purposes, and none of the Acquired Companies has ever filed an Internal Revenue Service Form 8832 (Entity Classification Election) with the U.S. Internal Revenue Service.

 

(r)             The Company has delivered to Parent true, correct and complete copies of all election statements under Section 83(b) of the Code, together with evidence of timely filing of such election statements with the appropriate Internal Revenue Service Center, with respect to any unvested securities or other property issued by any Acquired Company to any of its respective service providers.

 

(s)            Each Acquired Company has properly classified its independent contractors and/or employees for Tax purposes and complied with the necessary employment withholding tax liabilities.

 

(t)             [Reserved].

 

(u)            With respect to all sales and use Taxes collected by any Acquired Company: (i) in jurisdictions where any Acquired Company is registered for sales or use Tax purposes, each Acquired Company has properly remitted all sales and use Taxes collected in such jurisdictions to the applicable state Taxing Authority; and (ii) in jurisdictions where no Acquired Company is registered for sales or use Tax purposes, each Acquired Company has returned all sales or use Taxes collected from each Person located in such jurisdictions to such Person (or, if such Person cannot be located or is no longer in business, has remitted such sales or use Taxes to the unclaimed property office of such jurisdictions). No Acquired Company holds any amounts collected as sales or use Taxes from any Person. The Company and its Israeli tax resident Subsidiaries (if any): (A) have been duly registered for the purpose of value added Tax, as defined in the law concerning value added taxes in Israel, and are taxable persons; (B) have complied, in all material respects, with all statutory requirements, Orders, provisions, directives or conditions concerning value added taxes or sales tax or indirect taxation; (C) have not been required by the relevant authorities of customs and excise to give security; (D) have collected and timely remitted to the relevant Taxing Authority all output value added tax which they were required to collect and remit under any applicable legal requirements; (E) have not made any exempt transactions (as defined in the Israeli Value Added Tax Law of 1975) and there are no circumstances by reason of which there might not be an entitlement to full credit of all value added tax chargeable or paid on inputs, and other transactions and imports made by it; and (F) have not received a refund for input value added tax for which they are not entitled under any applicable legal requirement. None of the Company’s Subsidiaries has ever been, and currently is not, required to effect Israeli VAT registration.

 

(v)            No Acquired Company is a party to any gain recognition agreement under Section 367 of the Code.

 

(w)           No Acquired Company has made a “domestic use election” pursuant to Treasury Regulation Section 1.1503(d)-6 or will have recapture under the dual consolidated loss provisions of U.S. federal, state, local or non-U.S. Legal Requirements after Closing by reason of any such losses incurred prior to Closing.

 

 

3.10          Employee Benefits and Labor Matters.

 

(a)            Plans and Arrangements. Section 3.10(a) of the Disclosure Schedule sets forth a true and complete list of all Company Plans.

 

(b)            Plan Documents. With respect to each material Company Plan, the Company has delivered or made available to Parent with respect to each Company Plan that is not a PEO Plan and to the extent the following documents with respect to a Company Plan that is a PEO Plan have been provided to the Company, to the extent applicable (i) a current, accurate and complete copy thereof (including amendments) or a copy of the representative form agreement thereof; (ii) any Contracts or agreements (including service contracts or documents governing the investment and management of the plan or the assets thereof), trust documents, insurance Contracts or other funding arrangements, in each case as currently in effect, and all amendments thereto; (iii) the results of the non-discrimination testing since the Reference Date; (iv) Forms 5500 and all schedules thereto since the Reference Date; (v) the most recent actuarial report, if any; (vi) the most recent IRS determination or opinion letter; (vii) since the Reference Date, all material correspondence issued by the DOL, IRS or any other Governmental Authority and all material correspondence from the Company to the DOL, IRS or other Governmental Authority, other than routine reports, returns or other filings; (viii) the most recent summary plan descriptions and any summaries of material modifications with respect thereto; (ix) written descriptions of all non-written material Company Plans; and (x) written communications to employees to the extent and substance of the Company Plans described therein differ materially from the other documentation furnished under this clause.

 

(c)            ERISA. No Company Plan is subject to Title IV of ERISA or is otherwise a Defined Benefit Plan as defined in Section 3(35) of ERISA (a “Title IV Plan”) and neither the Company nor any other Acquired Company or other trade or business (whether or not incorporated) that, together with the Company, would be treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414(m) or (o) of the Code or 4001(a)(14) or 4001(b)(1) of ERISA, in each case whether or not such Person is engaged in a trade or business (each an “ERISA Affiliate”) has incurred any liability pursuant to Title IV of ERISA that remains unsatisfied. Neither the Company nor any ERISA Affiliate has sponsored, contributed or had an obligation to contribute, to any Title IV Plan, or any money purchase pension plan subject to Section 412 of the Code. No Company Plan is or has been a multiemployer plan within the meaning of Section 3(37) of ERISA (a “Multiemployer Plan”) or a multiple employer welfare arrangement within the meaning of Section 3(40) of ERISA (other than a multiple employer welfare arrangement sponsored or maintained by a PEO). Neither the Company nor any of its ERISA Affiliates has completely or partially withdrawn from any Multiemployer Plan and no termination liability to the United States Pension Benefit Guaranty Corporation or withdrawal liability to any Multiemployer Plan has been or is reasonably expected to be incurred with respect to any Multiemployer Plan by the Company nor any of its ERISA Affiliates. Neither the Company nor any ERISA Affiliate nor to the Company’s Knowledge, any other “disqualified person” or “party in interest,” as defined in Section 4975 of the Code and Section 3(14) of ERISA, respectively, has, engaged in any “prohibited transaction,” as defined in Section 4975 of the Code or Section 406 of ERISA (which is not otherwise exempt), with respect to any Company Plan, nor, to the Company’s Knowledge, have there been any fiduciary violations under ERISA that could subject the Company or any ERISA Affiliate (or any Employee) to any material penalty or tax under Section 502(i) of ERISA or Section 4975 of the Code.

 

(d)           Status of Plans. Company Plans other than PEO Plans, and to the Company’s Knowledge, Company Plans that are PEO Plans, intended to qualify under Section 401 of the Code or other tax-favored treatment under Subchapter B of Chapter 1 of Subtitle A of the Code are subject to a currently effective determination letter, or opinion letter on which the Company or applicable Subsidiary that is the plan sponsor is entitled to rely. With respect to each the Company Plan other than a PEO Plan and, to the Company’s Knowledge, each Company Plan that is a PEO Plan, (i) nothing has occurred with respect to the operation of any Company Plans that could reasonably be expected to cause the loss of its qualification or exemption; and no event has occurred and no condition exists with respect to any Company Plan that would subject the Company to any material Tax, fine, Lien, penalty or other liability imposed by ERISA, the Code or other applicable Laws. For each Company Plan that is not a PEO Plan and, to the Company’s Knowledge, with respect to each PEO Plan, in each case with respect to which a Form 5500 has been filed, to the Company’s Knowledge, no adverse change has occurred with respect to the matters covered by the most recent Form 5500 since the date thereof. None of the Company Plans provides for post-employment life or health coverage for any participant or any beneficiary of a participant, except as may be required under Part 6 of Subtitle B of Title I of ERISA, Section 4980B of the Code or any similar state law and at the expense of the participant or the participant’s beneficiary. Each Company Plan (excluding a PEO Plan and/or any “cafeteria plan” within the meaning of Section 125 of the Code) providing medical, dental, vision, and prescription benefits, life insurance, accidental death and dismemberment, and long-term disability coverage is fully-insured and not self-insured. The Company and its ERISA Affiliates have offered their full-time employees minimum essential coverage that is affordable and provides minimum value to the extent required to avoid a penalty under Code Section 6055 and 6056, to the extent applicable.

 

 

(e)            Contributions to Plans. All contributions required to have been made under any of the Company Plans other than PEO Plans, and to the Company’s Knowledge, the Company Plans that are PEO Plans, or by Law have been timely made. There are no material unfunded liabilities or benefits under any Company Plans other than PEO Plans and, to the Company’s Knowledge, PEO Plans, that are not reflected in the Financial Statements.

 

(f)             Conformity with Laws. All Company Plans other than PEO Plans, and to the Company’s Knowledge, Company Plans that are PEO Plans have been established, operated and maintained in all material respects in accordance with their terms and with all applicable provisions of ERISA, the Code and other applicable Laws. All amendments and actions required to bring the Company Plans into conformity in all material respects with all of the applicable provisions of the Code, ERISA and other applicable Laws have been made or taken, except to the extent that such amendments or actions are not required by Law to be made or taken until a date after the Closing. There are no pending Actions or, to the Knowledge of the Company, threatened, arising from or relating to the Company Plans (other than routine benefit claims) and no Company Plan has within the three (3) years prior to the Closing Date been the subject of an examination or audit by a Governmental Authority. With respect to each Company Plan that is not a PEO Plan, and to the Company’s Knowledge with respect to each Company Plan that is a PEO Plan, no event has occurred that will or could reasonably be expected to give rise to disqualification of any such Company Plan or a tax under Section 511 of the Code. There are no applications pending with respect to the Company Plans other than PEO Plans, and to the Company’s Knowledge, Company Plans that are PEO Plans, with the IRS, the DOL or any other Governmental Authority. The Company and its ERISA Affiliates have satisfied in all material respects obligations applicable under Section 4980B of the Code, Part 6 of Subtitle B of Title I of ERISA and each applicable state law relating to continuation of health or other coverage to any Employee (or any dependent or former dependent of such Employee) with respect to any qualifying event that has occurred on or before the Closing Date. Section 3.10(f) of the Disclosure Schedule lists, to the Knowledge of the Company, each individual who, as of the Closing Date, (i) is currently receiving continuation coverage under COBRA under a Company Plan, or (ii) is within his or her COBRA election period. Other than pursuant to the provisions of COBRA, or any equivalent state statute, neither the Company nor any ERISA Affiliate maintains any Company Plan that provides benefits described in Section 3(1) of ERISA to any former employees or retirees of the Company or any of its ERISA Affiliates.

 

(g)            Leased Employees. No Acquired Company has any Employees who are “leased employees” (as that term is defined in Section 414(n) of the Code) or has any liability, contingent or otherwise, for any federal, state or local workers’ compensation contribution, with respect to any Employees who are leased employees.

 

(h)            Employment Matters.

 

( )            Section 3.10(h)(i) of the Disclosure Schedule sets forth a true and complete listing of the Current Employees and the Current Consultants, as of the Closing Date, including each such person’s name, job title or function and job location, as well as a true, correct and complete listing of his or her current salary or wage payable by an Acquired Company, and for each such Current Employee or such Current Consultant, the amount of all incentive compensation paid or payable to such person for the current calendar year, and each such Current Employee’s or such Current Consultant’s current status (as to full time or part time, exempt or nonexempt and temporary or leave status and as to classification as an employee, consultant or independent contractor). Other than as fully reflected or specifically reserved against in the Financial Statements (or as otherwise expressly permitted or required pursuant to this Agreement or set forth in Section 3.10(h)(i) of the Disclosure Schedule), no Acquired Company has paid or contractually promised to pay any bonuses, commissions or incentives to any Employee or Consultant. The Company has delivered or made available to Parent a true and complete copy of the employee handbook for each Acquired Company, if any, and all other employment policies, if any, currently applicable to any Current Employee or Current Consultant.

 

 

(ii)            To the Company’s Knowledge, no officer, Current Consultant or Current Employee at the level of officer or executive has disclosed any plans to terminate his, her or their employment or other relationship with any Acquired Company.

 

(iii)           Each Acquired Company has a USCIS Form I-9 that, to the Company’s Knowledge, is validly and properly completed in accordance with applicable Law for each Employee with respect to whom such form is required by applicable Law. Each Acquired Company has complied in all material respects with all Department of Homeland Security, DOL and State Department regulations governing the employment of foreign national workers. If applicable, each Acquired Company has complied in all material respects with all Laws related to H-1B workers, including the payment of wages and the maintenance of public access files related to the filing of ETA-9035 Labor Condition Applications.

 

(iv)           Except as set forth in Section 3.10(h)(iv) of the Disclosure Schedule:

 

(A)           since the Reference Date: (x) each Acquired Company has paid or made provision for payment of all salaries and wages, which became payable by such Acquired Company to any Employees prior to the Closing Date and is in compliance in all material respects with all applicable Laws respecting employment and employment practices, terms and conditions of employment, collective bargaining, immigration, wages, hours and benefits, non-discrimination in employment, workers’ compensation, including Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Equal Employment Opportunity Act of 1972, ERISA, the Equal Pay Act of 1963, the National Labor Relations Act of 1935, the Fair Labor Standards Act of 1938, the Americans with Disabilities Act of 1990, the Vietnam Era Veterans’ Reemployment Act, the Family and Medical Leave Act of 1993, the Occupational Safety and Health Act and any and all similar applicable state and local Laws; and (y) such Acquired Company has not been engaged in any unfair employment practice, as defined in the National Labor Relations Act of 1935 or other applicable Law;

 

(B)            since the Reference Date, no Acquired Company has received a notice, citation, complaint or charge asserting any violation or liability under the Occupational Safety and Health Act or any similar applicable Law regulating employee health and safety;

 

(C)            (u) none of the Current Employees is represented by any labor union or other labor representative with respect to his or her employment with the applicable Acquired Company; (v) there are no labor, collective bargaining agreements or similar arrangements binding on any Acquired Company with respect to any Current Employees; (w) to the Company’s Knowledge, since the Reference Date, no petition has been filed nor has any proceeding been instituted by any Employee or group of Employees with the National Labor Relations Board or similar Governmental Authority seeking recognition of a collective bargaining agreement; (x) to the Company’s Knowledge, there are no Persons attempting to represent or organize or purporting to represent for bargaining purposes any of the Current Employees; (y) since the Reference Date, there has not occurred or, to the Company’s Knowledge, there has not been threatened any strikes, slowdowns, picketing, work stoppages or concerted refusals to work or other similar labor activities with respect to Employees; and (z) no grievance or arbitration or other proceeding arising out of or under any collective bargaining agreement relating to the Company is pending or, to the Company’s Knowledge, threatened;

 

(D)            since the Reference Date, no Acquired Company has received notice of any charge or complaint pending before the Equal Employment Opportunity Commission or similar Governmental Authority alleging unlawful discrimination in employment practices, or before the National Labor Relations Board or similar Governmental Authority alleging any unfair labor practice, by such Acquired Company, nor, to the Knowledge of the Company, has any such charge been threatened;

 

(E)             except as set forth on Section 3.10(h)(iv)(E), of the Disclosure Schedule (x) all Current Employees are employed on an at-will basis and their employment can be terminated at any time for any reason without any amounts being owed to such individual other than with respect to wages, compensation and benefits accrued before such termination; and (y) each Acquired Company’s relationships with all individuals who act as Consultants to such Acquired Company can be terminated at any time for any reason without notice or any amounts being owed to such individual other than with respect to compensation or payments accrued before such termination;

 

 

(F)           since the Reference Date, no Acquired Company has effectuated: (x) a “plant closing” (as defined in the WARN Act, or any similar Law) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of any Acquired Company; or (y) a “mass layoff” (as defined in the WARN Act, or any similar Law) affecting any site of employment or facility of any Acquired Company; and

 

(G)           any individual performing services for an Acquired Company who has been classified as an independent contractor, or as an employee of some other entity whose services are leased to such Acquired Company, has been correctly classified and is not a common law employee of such Acquired Company.

 

(v)           except as set forth on Section 3.10(h)(v) of the Disclosure Schedule, no Employee

 

has asserted any legal claims either orally or in writing to any Acquired Company concerning violations of any of the following Laws or regulations: labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence and unemployment insurance.

 

(i)             Effect of Transaction. Except for the payment of the consideration under ARTICLE II or otherwise provided in this Agreement or under applicable Law, neither the execution and delivery of the Transaction Agreements nor the consummation of the Transactions shall result in (i) any payment becoming due to any Employee, (ii) the provision of any benefits or other rights to any Employee, including severance or other similar payments, (iii) the increase, acceleration or provision of any payments, benefits or other rights to any Employee, whether or not any such payment, right or benefit would constitute a “parachute payment” within the meaning of Section 280G of the Code, (iv) require any contributions or payments to fund any obligations under any Company Plan, or (v) the forgiveness in whole or in part of any outstanding loans made by any Acquired Company to any Employee or Consultant. No payment, right or benefit that becomes due or accelerated as a result of the execution and delivery of the Transaction Agreements or the consummation of the Transactions is an “excess parachute payment” within the meaning of Section 280G of the Code.

 

(j)             Compliance with Section 409A of the Code. No Company Plan is a Nonqualified Deferred Compensation Plan subject to Section 409A of the Code. To the Company’s Knowledge, all Company Options that have been granted to Employees that purport to be “incentive stock options” under the Code comply with all applicable requirements necessary to qualify for such tax status, and no option is subject to the provisions of Section 409A of the Code.

 

(k)            Plans Outside the United States. No Company Plan is subject to the laws of any jurisdiction other than the United States of America.

 

(l)             Plan Termination. Each Company Plan other than a PEO Plan, and to the Company’s Knowledge, each Company Plan that is a PEO Plan can be amended, terminated or otherwise prospectively discontinued in accordance with its terms, without Liability to the Company, Parent or any of their Affiliates (other than administrative expenses in connection therewith and benefits incurred under the terms of such Company Plan up to the effective date of any such amendment, termination or discontinuance). Except as required by Law, neither the Company nor any of its ERISA Affiliates has announced its intention to modify or amend any Company Plan or adopt any arrangement or program which, once established, would come within the meaning of a Company Plan, and each asset held under any Company Plan may be liquidated or terminated without the imposition of any material redemption fee, surrender charge or comparable Liability, other than ordinary administrative expenses.

 

3.11          Environmental Matters. Each Acquired Company is, and at all times has been, in compliance, in all material respects, with all applicable Environmental Laws. To the extent applicable, the Acquired Companies have obtained and maintained in force all material environmental permits necessary for the operation of their business and are in compliance in all material respects therewith. None of the Acquired Companies has received written notification from any Governmental Authority of any liability pursuant to Environmental Laws or of any asserted present or past failure to comply with any Environmental Laws, which failure has not been appropriately addressed. There are no events, conditions or circumstances that would reasonably be expected to result in material liability of the Acquired Companies pursuant to Environmental Laws.

 

 

3.12          Contracts.

 

(a)            Specified Material Contracts. Except as set forth in Section 3.12(a) of the Disclosure Schedule, no Acquired Company is a party to or has any obligations, rights or benefits under, and no assets or properties of any Acquired Company are bound by any:

 

(i)             Contracts that purport to limit, curtail or restrict the ability of any Acquired Company to conduct business in any geographic area or line of business or restrict the Persons with whom any Acquired Company or any of its future Subsidiaries or Affiliates may do business;

 

(ii)            Contracts: (x) with any Employee and any offer letters for employment or consulting with any Acquired Company, that (A) provide for anticipated annual compensation or other payments in excess of $50,000 for any individual (other than employment offers terminable at will with no severance or acceleration liability), including any Contracts with individuals providing for any commission-based compensation in excess of such amount, (B) provide for the payment of non-qualified deferred compensation subject to Section 409A of the Code, or (C) provide for potential severance payments or other severance benefits; and (y) with any Consultant and any offer letters to enter into consulting agreements with the Company, that provide for anticipated annual payments in excess of $50,000 for any individual, including any Contracts with individuals providing for any commission-based payments in excess of such amount;

 

(iii)           Contracts with any labor union or other labor representative of Employees (including any collective bargaining agreement);

 

(iv)           Contracts with any present or former officer, director or stockholder of any Acquired Company, or any Affiliate of such officer, director or stockholder (other than Company Plans, but specifically including any employment agreements that are not terminable at will without severance or acceleration liability), including, but not limited to, any agreement providing for furnishing of services by, rental of assets from or to, or otherwise requiring payments to, any such officer, director, stockholder or Affiliate, in each case, other than advances or reimbursements for travel and entertainment expenses consistent with such Acquired Company’s policy and practice;

 

(v)            Contracts under which any Acquired Company has advanced or loaned any money to any of the Employees or Affiliates of any Acquired Company where there is still an outstanding amount due to an Acquired Company under such Contract, other than advances or reimbursements for expenses consistent with Company policy and past practice (including, but not limited to, travel and entertainment);

 

(vi)           Contracts granting any power of attorney with respect to the affairs of any Acquired Company or otherwise conferring agency or other power or authority to bind such Acquired Company other than to officers and attorneys in the Ordinary Course of Business;

 

(vii)          Partnership or joint venture agreements;

 

(viii)         Contracts for the acquisition, sale or lease of material properties or material assets (including any ownership interest in any entity) other than in the Ordinary Course of Business;

 

(ix)            Contracts with a Governmental Authority;

 

(x)             Loan or credit agreements, indentures, notes or other Contracts evidencing indebtedness for borrowed money (contingent or otherwise) by any Acquired Company, or any Contracts pursuant to which indebtedness for borrowed money (contingent or otherwise) is guaranteed by any Acquired Company, or any guarantees of the foregoing by third parties for the benefit of any Acquired Company;

 

 

(xi)           Mortgages, pledges, security agreements, deeds of trust or other Contracts granting a Lien other than Permitted Lien on any material property or assets of any Acquired Company;

 

(xii)          Voting agreements or registration rights agreements relating to Company Stock to which the Company is a party;

 

(xiii)         Lease or rental Contracts relating to real or material personal property;

 

(xiv)         Contracts providing for indemnification by any Acquired Company other than (x) customary indemnities in such Contracts that were entered into in the Ordinary Course of Business and (y) customary indemnities against infringement of Intellectual Property Rights contained in non-exclusive licenses entered into in the Ordinary Course of Business;

 

(xv)          Any Contract with any supplier or provider of goods or services that are incorporated into, or related to the development of, any Product and Service involving consideration in excess of $50,000 in the current or either of the two (2) previous fiscal years (other than purchase orders for goods entered into in the Ordinary Course of Business);

 

(xvi)         Any Contracts to (x) provide services to any Person involving consideration in excess of $50,000 in the current or either of the two (2) previous fiscal years, or (y) perform any service or sell or lease any product which grants the other party or any third party “most favored nation” status, “most favored customer” pricing, preferred pricing, exclusive sales, distribution, marketing or other exclusive rights, or rights of first refusal or rights of first negotiation;

 

(xvii)        Contracts relating to capital expenditures and involving obligations after the Closing Date in excess of $50,000 and not cancelable without penalty;

 

(xviii)       Contracts relating to the disposition or acquisition of material assets or any ownership interest in any entity;

 

(xix)          Contracts with any financial advisor, broker, finder or investment banker providing advisory services to the Company in connection with the Transactions; and

 

(xx)           Contracts to enter into or negotiate the entering into of any of the foregoing.

 

(b)            Documentation. The Company has delivered or made available to Parent (i) true and complete copies of each written Material Contract and (ii) a summary of each oral Material Contract, together with any and all amendments, supplements and “side letters” thereto.

 

(c)            Status of Material Contracts. Each of the Contracts required to be listed in Section 3.12(a)  of the Disclosure Schedule, each of the IP Contracts, and each of the Customer Contracts (collectively, the “Material Contracts”) is valid and binding on the applicable Acquired Company and in full force and effect and is enforceable in accordance with its terms by the applicable Acquired Company, except to the extent that its enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles. No Acquired Company is in breach or default under any Material Contract, nor does any condition exist that, with notice or lapse of time or both, would constitute a breach or default in any respect thereunder by any Acquired Company or that would result in liability to any Acquired Company. To the Knowledge of the Company, (i) no other party to any Material Contract is in default thereunder and (ii) no condition exists that with notice or lapse of time or both would constitute a default in any respect by any such other party thereunder. No Acquired Company has received notice of any termination or cancellation of any Material Contract. No Acquired Company has and, to the Knowledge of the Company, no other party to any Material Contract has repudiated in writing any provision of any Material Contract. No Acquired Company is disputing and, to the Knowledge of the Company, no other party to such Material Contract is disputing in writing, any provision of any Material Contract. None of the parties to any Material Contract is renegotiating any amounts paid or payable to or by any Acquired Company under such Material Contract or any other term or provision thereof.

 

 

3.13          Assets: Title, Sufficiency, Condition. Except for the Liens set forth in Section 3.13 of the Disclosure Schedule, each Acquired Company has good, valid and sufficient title to or sole and exclusive leasehold interest in or adequate right to use all of its tangible assets, including those that are used in the conduct of its business or reflected in the Interim Balance Sheet as being owned by the Acquired Companies or acquired after the date thereof (the “Assets”), free and clear of all Liens except Permitted Liens. The Assets constitute all of the assets, properties and rights of every type and description that are used in and necessary for the conduct of the business of the Acquired Companies as currently conducted. All of the tangible personal property other than the inventory (i) are in all material respects adequate and suitable for their present uses, (ii) in reasonably good working order, operating condition and state of repair (ordinary wear and tear excepted) and (iii) have been maintained in all respects in accordance with normal industry practice.

 

3.14          Real Property.

 

(a)            No Acquired Company owns any Real Property.

 

(b)            The Acquired Companies have good and valid title to, or a valid leasehold interest in, all Real Property and personal property and other assets reflected in the Financial Statements or acquired after the Interim Balance Sheet Date, other than properties and assets sold or otherwise disposed of in the Ordinary Course of Business since the Interim Balance Sheet Date. All such properties and assets (including leasehold interests) are free and clear of Liens except for Permitted Liens.

 

(c)            Section 3.14(c) of the Disclosure Schedules lists (i) the street address of each parcel of Real Property; (ii) if such property is leased or subleased by an Acquired Company, the landlord under the lease, the rental amount currently being paid, and the expiration of the term of such lease or sublease for each leased or subleased property; and (iii) the current use of such property. With respect to leased Real Property, the Company has delivered or made available to Parent true, complete and correct copies of any leases affecting the Real Property. The Company is not a sublessor or grantor under any sublease or other instrument granting to any other Person any right to the possession, lease, occupancy or enjoyment of any leased Real Property. The use and operation of the Real Property in the conduct of the Business do not violate in any material respect any Law, covenant, condition, restriction, easement, license, permit or agreement. No material improvements constituting a part of the Real Property encroach on real property owned or leased by a Person other than the Company. There are no Actions pending nor, to the Company’s Knowledge, threatened against or affecting the Real Property or any portion thereof or interest therein in the nature or in lieu of condemnation or eminent domain proceedings.

 

3.15          Intellectual Property; Technology; Privacy and Security; Information Systems; Disaster Recovery.

 

(a)            Company Intellectual Property Rights and Company Technology.

 

(i)             The Company owns or has the right to use all Company Technology and all Company Intellectual Property Rights therein for all purposes necessary for or useful to the Business as presently conducted or as proposed to be conducted following the Closing. Except for the (x) Technology and Intellectual Property Rights licensed to the Company under the Inbound IP Contracts, (y) off the shelf, “click wrap” or “shrink wrap” license agreements for software that is generally commercially available to the public on reasonable terms with annual, aggregate payments (including license, maintenance and support fees) not in excess of $20,000 (“Shrink Wrap Licenses”), and (z) Public Software disclosed on Section 3.15(f) of the Disclosure Schedule, none of the Company Technology or Company Intellectual Property Rights is owned by any third party. Except as noted in the preceding sentence, the Company exclusively owns all right, title, and interest in and to all Company Technology and all Company Intellectual Property Rights free and clear of all Liens other than with respect to the Permitted Liens. All Company Technology and Company Intellectual Property Rights owned by an Acquired Company or used in connection with the Business are fully transferable, alienable, or licensable (subject to non-exclusive licenses entered into in the Ordinary Course of Business) by the Acquired Companies without restriction and without payment of any kind to any Person.

 

( )             Except as disclosed by Section 3.15(a)(ii) of the Disclosure Schedule: (A) the Acquired Companies have maintained and protected all Proprietary Software (including all source code, system specifications, and Source Code Materials) with appropriate proprietary notices, confidentiality and non-disclosure agreements and such other measures as are reasonably necessary to protect the Intellectual Property Rights contained therein or relating thereto, and none of the source code or Source Code Materials of any Proprietary Software has been published, disclosed or delivered to any Person by the Acquired Companies (other than to any employee, consultant, contractor or agent of the Company); (B) no licenses or rights (including contingent rights) have been granted by any Acquired Company to any Person to access, use or distribute any source code or Source Code Materials of any Proprietary Software; (C) the Acquired Companies have complete and exclusive right, title and interest in and to all Proprietary Software except as to Public Software disclosed on Section 3.15(g) of the Disclosure Schedule that is included or made part of the Proprietary Software; (D) the Acquired Companies have developed the Proprietary Software through their own efforts and for their own account without the aid or use of any consultants, agents, independent contractors or Persons (other than Persons that are Employees), in each case, who may claim ownership interests in the Proprietary Software or any portion thereof, and no such third party has claimed an ownership interest in the Proprietary Software or any portion thereof; (E) the Proprietary Software includes, without limitation, the current source code, Source Code Materials, system documentation, statements of principles of operation and schematics, as well as any pertinent commentary, explanation, program (including compilers), workbenches, tools and higher level (or “proprietary”) language, in each case, that was actually created, owned or used by the Acquired Companies for the development, maintenance and implementation thereof; and (F) there are no Contracts in effect with respect to the marketing or distribution of the Proprietary Software by any other Person.

 

 

(b)            Infringement. Neither (i) the operation of the Business, including as presently conducted, nor (ii) any of the Products and Services or Company Technology, or the design, development, manufacture, use, import, export, sale, licensing, or other exploitation of any Products and Services or Company Technology, has infringed upon, diluted, misappropriated or violated any Intellectual Property Rights of any Person. No Acquired Company has received any written charge, complaint, claim, demand, or notice alleging infringement, dilution, misappropriation or violation of the Intellectual Property Rights of any Person (including any demand to refrain from using or to license any Intellectual Property Rights of any Person in connection with the conduct of the Business). To the Company’s Knowledge, no Person has infringed upon, diluted, misappropriated or violated any Company Intellectual Property Rights at any time. There are no claims pending or, to the Company’s Knowledge, threatened against any Acquired Company challenging the ownership or right to use by any Acquired Company of the Company Intellectual Property Rights or alleging that any of the Company Intellectual Property Rights are invalid or unenforceable, and, to the Company’s Knowledge, no valid basis exists for such a claim.

 

(c)            Scheduled IP. Section 3.15(c) of the Disclosure Schedule identifies all patents, patent applications, registered trademarks and registered copyrights, applications for trademark and copyright registrations, domain names, registered design rights and other forms of registered Intellectual Property Rights and applications therefor owned by or exclusively licensed to the Acquired Companies (collectively, the “Company Registrations”). All current Company Registrations have been duly maintained (including the payment of fees) and have not expired, cancelled or abandoned. Section 3.15(c) of the Disclosure Schedule also identifies all Proprietary Software and each trade name, unregistered trademark, service mark, and trade dress owned or exclusively licensed by the Acquired Companies that, in each case, is material to the Business of the Acquired Companies.

 

(d)            IP Contracts. Section 3.15(d) of the Disclosure Schedule identifies each Contract under which any Acquired Company uses or licenses from third parties Company Technology or Company Intellectual Property Rights that are material to the operation of the Business of the Acquired Companies as presently conducted (other than Shrink Wrap Licenses and Public Software, collectively “Inbound IP Contracts”) or under which any Acquired Company has granted any Person any right or interest in Company Intellectual Property Rights including any right to use or access any item of the Company Technology (the “Outbound IP Contracts”, and together with the Inbound IP Contracts, the “IP Contracts”). Except as provided in the Inbound IP Contracts and Shrink Wrap Licenses, no Acquired Company owes any royalties or other payments or otherwise has any liability to any Person for the use of any Intellectual Property Rights or Technology. The Acquired Companies have paid all fees, royalties and other payments applicable to the past and current use or exploitation of Intellectual Property Rights or Technology provided for by the Inbound IP Contracts and Shrink Wrap Licenses, and no fees, royalties or other payments provided by the Inbound IP Contracts and Shrink Wrap Licenses are due or otherwise required to be paid by any Acquired Company within thirty (30) days following the Closing Date or otherwise become due as a result of, or attributable to, the Transactions contemplated herein.

 

 

(e)            Confidentiality and Invention Assignments. Each Acquired Company has maintained commercially reasonable practices designed to ensure the protection of the confidentiality of its Confidential Information and trade secrets and has required any Employee, Consultant or third party with access, or to whom it has disclosed its Confidential Information or trade secrets, to execute contracts requiring them to maintain the confidentiality of such information and use such information only in accordance with such contracts. All Employees and Consultants of any Acquired Company who (i) in the normal course of their duties are involved in the creation of any Company Technology that is incorporated in any Product and Service of any Acquired Company or (ii) have in fact created Company Technology that is incorporated in any Product and Service of any Acquired Company, have executed contracts that irrevocably assign to the applicable Acquired Company on a worldwide royalty-free basis all of such Persons’ respective rights, including all right, title and interest in and to all Intellectual Property Rights relating to such Product and Service. To the Knowledge of the Company, no Employee, Consultant or third party with access, or to whom Company has disclosed its Confidential Information or trade secrets, is in violation of any term of any such agreement, including any patent disclosure agreement or other employment contract or any other contract or agreement relating to the relationship of any such Employee or Consultant with any Acquired Company. All authors of any works of authorship incorporated in any product or service of any Acquired Company have waived their moral rights and have agreed to a covenant not to assert their moral rights with respect to such works of authorship.

 

(f)             Public Software. All use and distribution of Company Technology, Proprietary Software, or any Product and Service of the Acquired Companies, or any Public Software, by or through the Acquired Companies is in compliance in all material respects with all Public Software Licenses applicable thereto, including all applicable copyright notice and attribution requirements. None of the Company Technology, Proprietary Software, or any Product and Service of the Acquired Companies (including any software, middleware, firmware, products in development or testing thereof) constitutes, contains, or is dependent upon any Public Software, except as disclosed on Section 3.15(f) of the Disclosure Schedule, which: (i) identifies the Public Software License applicable thereto; (ii) identifies, where available, a URL at which the applicable Public Software is available and at which the applicable Public Software License is identified; (iii) describes the manner in which such Public Software was used; and (iv) states whether (and, if so, how) the Public Software was modified by or for the Acquired Companies. Except as disclosed on Section 3.15(f) of the Disclosure Schedule, the Proprietary Software has never been provided, delivered or distributed to any Person other than those Employees and Consultants of the Acquired Companies working on the development of the Acquired Companies’ software, firmware or middleware for the benefit of the Acquired Companies and has never been delivered or distributed in any form (object code, executable code or source code form) to any Person, including delivery via electronic transmission, by physical delivery on tangible media (either as standalone software or as a part of any other software), loan, delivery or transmission as part of the transfer of hardware or components, or any other form of delivery or distribution, temporary or permanent. Except as disclosed on Section 3.15(f) of the Disclosure Schedule, none of the Company Technology, Proprietary Software, nor any Product and Service of the Acquired Companies is subject to any IP Contract or other contractual obligation that would (i) require any Acquired Company to publicly divulge any source code or trade secret that is part of the Company Technology, or (ii) allow others to copy, modify, or redistribute any Company Technology, Proprietary Software, or any Product and Service of the Acquired Companies.

 

(g)            Privacy and Data Security.

 

(i)             The Collection and Use by the Acquired Companies of any Personal Data is, and has been at all times since the Reference Date, in compliance with all applicable Information Privacy and Security Laws and all of the Company’s Personal Data Obligations. Each Acquired Company has consistently posted a privacy policy in a clear and conspicuous location on all websites and any mobile applications owned or operated by such Acquired Company.

 

(ii)            Each Acquired Company maintains, and has maintained at all times since the Reference Date, commercially reasonable policies and procedures and administrative, technical and physical safeguards that are commercially reasonable and designed to protect the Personal Data that is Collected and Used by the Acquired Company and the operation, integrity, and security of its Information Systems involved in the Collection and Use of Personal Data, and, in any event, in compliance with all applicable Information and Privacy and Security Laws and all Contracts to which such Acquired Company is bound that impose obligations on such Acquired Company relating to Personal Data. Each Acquired Company has complied at all times in all material respects with the terms of all Contracts to which such Acquired Company is a party relating to data privacy, security or breach notification (including provisions that impose conditions or restrictions on the Collection and Use of Personal Data).

 

 

(iii)           At any time since the Reference Date, (i) there has not been any actual, alleged or suspected breach of security of any Personal Data in the possession or control of any Acquired Company that (x) resulted in or that would reasonably be expected to result in any material disruption to the conduct of the Acquired Company’s Business, (y) resulted in or presented a material risk of unauthorized access to or disclosure, use, corruption, destruction or loss of any such Personal Data, or (z) would have required notice to any third Person (including any governmental entity or parties to any Contract) under any applicable Information Privacy and Security Laws, and (ii) no written notice has been provided to any Acquired Company by a third party vendor or any other Person (including any Governmental Authority) relating to any actual, alleged or suspected security breach relating to Personal Data Collected and Used by or on behalf of any Acquired Company. No Person (including any Governmental Authority) has commenced or, to the Company’s Knowledge, threatened, any Action alleging that the Collection and Use of Personal Data by or on behalf of any Acquired Company violated any applicable Information Privacy and Data Security Laws, and there are no facts or circumstances that would reasonably be expected to give rise to any of the foregoing.

 

(iv)           Each Acquired Company has taken all commercially reasonable steps to limit access to Personal Data that is Collected and Used by such Acquired Company to: (x) those personnel and third-party vendors providing services to or on behalf of such Acquired Company who have a need to know such Personal Data in the execution of their duties to such Acquired Company; and (y) such other Persons permitted to access such Personal Data in accordance with the Acquired Companies’ Personal Data Obligations.

 

(h)            Effect of Transactions on Company Technology Rights or Data Privacy. The Transactions (including the Merger) shall not adversely affect the ownership by any Acquired Company of any Company Technology or the legal right and ability of any Acquired Company to continue using the Company Technology in the operation of such Acquired Company’s business in any material respect on or after the Closing to the same extent as the Company Technology is used in the operation of the business prior to the Closing. The execution of the Transaction Agreements and the consummation of the transactions contemplated thereby: (i) comply with all applicable Information Privacy and Security Laws; (ii) do not and will not conflict with or result in a violation or breach of any Acquired Company’s Personal Data Obligations; and (iii) do not and will not require the consent of or notice to any Person concerning such Person’s Personal Data.

 

(i)             Information Systems. The Acquired Companies own, lease or license all Information Systems that are used in, or necessary for, the Business. Since the Reference Date, to the Company’s Knowledge, there have been no failures, breakdowns, outages or unavailability of such Information Systems (in each case, that have been material to the Business) and the DR Plans were not activated other than for testing purposes. On and after the Closing, the Information Systems shall be in the possession, custody or control of the Acquired Companies (subject to any applicable lease or license restrictions applicable to the Acquired Companies), along with all tools, documentation and other materials relating thereto, as existing immediately prior to the Closing.

 

(j)             Disaster Recovery. The Company has delivered or made available to Parent a true and complete copy of the DR Plans. To the Knowledge of the Company, the DR Plans are consistent with or exceed industry standards and applicable Laws. The DR Plans are designed to ensure, at a minimum, the ability of the Acquired Companies to resume operations and performance of services promptly and ensure redundancy of all data and information material to the operation of each Acquired Company that each Acquired Company is required to maintain pursuant to any Contract, internal policy or applicable Law.

 

3.16          Insurance. Section 3.16 of the Disclosure Schedule sets forth a list of all policies of property, general liability, directors and officers, fiduciary, employment, title, workers’ compensation, environmental, product liability, cyber liability and other forms of insurance maintained by the Acquired Companies and all pending outstanding claims against such insurance policies. The Company has delivered or made available to Parent complete and correct copies of all such policies, together with all endorsements, riders and amendments thereto. There are no disputes with the insurers of any such policies or any claims pending under such policies as to which coverage has been reserved, questioned, denied or disputed by the insurers of such policies. Each such policy is in full force and effect, all premiums that are due and payable under all such policies have been paid, and the Acquired Companies are otherwise in compliance in all respects with the terms of such policies. No Acquired Company has failed to give proper notice of any claim under any such policy in a valid and timely fashion. No Acquired Company has received any notice of non-renewal, cancellation or termination of any insurance policy in effect on the Closing Date or at any time since the Reference Date.

 

 

3.17          Related Party/Affiliate Transactions. Except as disclosed in Section 3.17 of the Disclosure Schedule, there are no Liabilities of any Acquired Company to any Related Party other than ordinary course, Employee- and director-related compensation and reimbursement Liabilities. Except as disclosed in Section 3.17 of the Disclosure Schedule, no Related Party (i) has any interest in any property (real, personal or mixed, tangible or intangible) used by any Acquired Company in the conduct of its business, or (ii) has been party to any Contract with any Acquired Company. All transactions pursuant to which any Related Party has purchased any services, products or Technology from, or sold or furnished any services, products or Technology to, any Acquired Company have been on an arm’s-length basis on terms no less favorable to such Acquired Company than would be available from an unaffiliated party.

 

3.18          Customers and Suppliers.

 

(a)            Section 3.18(a) of the Disclosure Schedule sets forth a true and complete list of each Contract with a customer of any Acquired Company (the “Customer Contracts”).

 

(b)            Section 3.18(b) of the Disclosure Schedule sets forth true and complete lists of the top ten suppliers of each Acquired Company (measured in terms of total expenses) attributable to each such Person (i) during the year ended December 31, 2022, and (ii) during the nine (9)-month period ended September 30, 2023 (each Person identified on at least one of such lists, a “Top Supplier”), showing the total purchases by the Acquired Companies from each such Top Supplier during such period. Since the Interim Balance Sheet Date, no Top Supplier has threatened in writing to cease or materially reduce such sales or provision of services, other than in the Ordinary Course of Business. No Top Supplier has pending or threatened in writing any Action against any Acquired Company.

 

3.19          Certain Business Practices. No Acquired Company or, to the Company’s Knowledge, any Employee or agent acting on behalf of any Acquired Company, has (i) used any Acquired Company funds for unlawful contributions, gifts, entertainment or other unlawful payments relating to political activity, (ii) made any unlawful payment to any foreign or domestic government official or employee or to any foreign or domestic political party or campaign or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, (iii) consummated any transaction, made any payment, entered into any Contract or arrangement or taken any other action in violation of Section 1128B(b) of the Social Security Act, as amended, or (iv) knowingly made any other unlawful payment of a type similar to those described above in this Section 3.19.

 

3.20          Brokers and Other Advisors. Except as set forth on Section 3.20 of the Disclosure Schedule, no broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission, or the reimbursement of expenses, in connection with the Transactions or any prior merger, acquisition or divestiture transaction based upon arrangements made by or on behalf of any Acquired Company.

 

3.21          Allocation Schedule.

 

(a)            The Company has prepared and delivered to Parent an “Allocation Schedule,” prepared by the Company (prior to the Closing) in accordance with the Charter Documents of the Company, which is accurate and complete in all respects setting forth: (i) the name and address (or email address) of each Holder; (ii) the number and class of shares of Company Stock held by such Holder as of immediately prior to the Effective Time; (iii) the priority of Stock Election Consideration proceeds to be distributed post-Closing amongst the Holders (assuming each Holder makes a Stock Election), in each case, designated by Tranche and calculated in accordance with the Distribution Priorities and the terms of the Company’s Charter Documents; and (iv) and each Holder’s Percentage Interest with respect to such Holder’s Shares of Company Preferred Stock, if any.

 

 

(b)            The Company shall have provided a determination of whether Taxes are required to be withheld from any payments to each Holder under this Agreement (assuming submission of a Form W-9 or Form W-8, as applicable).

 

(c)            The Allocation Schedule may be revised by the Holders’ Representative pursuant to the provisions of Section 2.07 to reflect Holders who have elected the Stock Election.

 

(d)            Parent, Merger Sub, and the Surviving Company will have the right to rely on the Final Allocation Schedule as setting forth a true, complete and accurate listing of all amounts due to be paid by Parent, Merger Sub, and the Company to the Holders as Merger Consideration, including the aggregate amount of the Adjusted Cash Election Consideration and the Percentage Interest for each Holder with respect to each Tranche. Parent, Merger Sub, and the Surviving Company will not have any liability with respect to the allocation of any cash paid to any Holder or any shares of Parent Common Stock distributed to (or liquidated on behalf of) any Holder in accordance with the Final Allocation Schedule.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 

Parent represents and warrants to the Company as of the Closing Date follows:

 

4.01          Organization. Each of Parent and Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Since the date of its incorporation, Merger Sub has not engaged in any activities other than in connection with or as contemplated by this Agreement.

 

4.02          Authority; Non-Contravention.

 

(a)            Each of Parent and Merger Sub has all requisite corporate power and corporate authority to execute and deliver the Transaction Agreements to which it is a party and to perform its obligations thereunder and to consummate the Transactions (including the Merger). The execution, delivery and performance by each of Parent and Merger Sub of the Transaction Agreements to which it is a party and the consummation by Parent and Merger Sub of the Transactions (including the Merger) have been duly authorized and approved by Parent’s and Merger Sub’s respective board of directors and no other corporate action on the part of Parent and Merger Sub, including, without limitation, by Parent’s stockholders, is necessary to authorize the execution, delivery and performance by each of Parent and Merger Sub of the Transaction Agreements to which it is a party and the consummation by it of the Transactions (including the Merger). This Agreement has been and, when delivered at the Closing, the other Transaction Agreements to which each of Parent and Merger Sub is a party shall be, duly executed and delivered by Parent and Merger Sub. Assuming due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, this Agreement constitutes and the other Transaction Agreements to which each of Parent and Merger Sub is a party shall, when delivered at the Closing, constitute, the legal, valid and binding obligations of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with their respective terms, except to the extent that their enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.

 

(b)            Neither the execution and delivery of the Transaction Agreements to which each of Parent and Merger Sub is a party, nor the consummation by Parent, and Merger Sub of the Transactions (including the Merger), nor compliance by Parent and Merger Sub with any of the terms or provisions thereof, shall (i) violate any provision of the Charter Documents of Parent and Merger Sub or (ii) assuming that the consents and approvals referred to in Section 4.03 are obtained and the filings referred to in Section 4.03 are made, (x) violate any Law applicable to Parent and Merger Sub or any of their respective properties or assets, or (y) constitute a default under (with or without notice or lapse of time, or both), result in the termination of or cancellation under, or result in the creation of any Lien upon any of the respective properties or assets of Parent and Merger Sub under, any of the terms, conditions or provisions of any material Contract to which Parent and Merger Sub is a party, except for such violations, losses, defaults, terminations, cancellations, accelerations or Liens as, individually or in the aggregate, would not reasonably be expected to have a Parent Material Adverse Effect.

 

 

4.03          Governmental Approvals. No consent, approval or authorization of, or registration, qualification or filing with, any Governmental Authority is required for the valid execution, delivery and performance of this Agreement or the other Transaction Agreements by Parent and Merger Sub or the consummation by Parent and Merger Sub of the transactions contemplated hereby, except for (i) a notice of issuance filing with the Nasdaq Stock Market in respect of the shares of Parent Common Stock issuable pursuant to this Agreement, (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant to the DGCL, and (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal or state securities laws.

 

4.04          SEC Documents.

 

(a)            Parent has filed or furnished all reports, schedules, forms, proxy statements, prospectuses, registration statements and other documents required to be filed or furnished by it with the SEC since January 1, 2020, which are available through the SEC’s EDGAR database (collectively, “Parent’s SEC Documents”). As of their respective dates (or, if amended or supplemented, as of the date of the most recent amendment or supplement), each of Parent’s SEC Documents complied in all material respects with the applicable requirements of the Securities Exchange Act of 1934, as amended, the Securities Act and the Sarbanes-Oxley Act of 2002, and any rules and regulations promulgated thereunder, and none of Parent’s SEC Documents, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

 

(b)            Each of the consolidated financial statements (including, in each case, any notes thereto) contained in Parent’s SEC Documents was prepared in accordance with GAAP throughout the periods indicated (except as may be indicated in the notes thereto and except that financial statements included with interim reports do not contain all notes to such financial statements) and each fairly presented in all material respects the consolidated financial position, results of operations and changes in stockholders’ equity and cash flows of Parent and its consolidated subsidiaries as at the respective dates thereof and for the respective periods indicated therein (subject, in the case of unaudited statements, to normal year-end adjustments which are not expected, individually or in the aggregate, to be material).

 

(c)            Parent is not now, and has never been, a shell issuer, as described in Rule 144(i)(1) under the Securities Act.

 

4.05          Shares of Common Stock. The shares of Parent Common Stock to be issued upon the exercise of the Consideration Warrants and delivered in accordance with the Trust Agreement will be (i) duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive, subscription or similar rights, and (ii) based in part upon statements of such Holders in the applicable Letter of Transmittal and Election Form, issued pursuant to available and valid exemptions from the registration and qualification provisions of applicable federal and state securities laws. Parent has, and shall continue to have through the expiration date of the last to expire of the Consideration Warrants, sufficient authorized but unissued or treasury shares of Parent Common Stock to meet its obligations to deliver the Parent Common Stock upon the exercise of the Consideration Warrants.

 

4.06          Availability of Funds. On the Closing Date, Parent will have sufficient cash or other sources of immediately available funds to enable Parent to consummate on a timely basis the Transactions (including the Merger) including the payment of all of its cash obligations due under this Agreement. Parent understands and acknowledges that under the terms of this Agreement, Parent’s obligation to consummate the Transactions is not in any way contingent upon or otherwise subject to Parent’s consummation of any financing arrangements, Parent’s obtaining of any financing or the availability, grant, provision or extension of any financing to Parent.

 

4.07          Broker and Advisors. No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission, or the reimbursement of expenses, in connection with the Transactions by or on behalf of Parent.

 

4.08          Shell Company. Parent is not, and never has been, a shell company as such term is defined in Rule 405 of the Securities Act and the rules and regulations of the SEC thereunder.

 

 

4.09          Exclusivity of Company Representations; Non-Reliance. The representations and warranties of the Company set forth in ARTICLE III constitute the sole and exclusive representations and warranties of the Company in connection with the Transactions, and each of Parent and Merger Sub understands, acknowledges and agrees that all other representations and warranties of any kind or nature whether express, implied or statutory are specifically disclaimed by the Company, and neither Parent nor Merger Sub is relying or has relied on any representations or warranties whatsoever regarding the subject matter of this Agreement or in connection with the Transactions, express or implied, except for the representations and warranties expressly set forth in ARTICLE III.

 

ARTICLE V

CERTAIN AGREEMENTS OF THE PARTIES

 

5.01          Public Announcements. The Parties shall mutually agree upon a press release announcing the execution of this Agreement (the “Closing Press Release”). Following the Closing Press Release, Parent shall determine in its sole discretion whether any public announcement, press release or response to media inquiries regarding this Agreement, the other Transaction Agreements, or the Transactions may be made and shall be entitled to issue any such public announcement or press release or respond to media inquiries which may include terms of the Transactions.

 

5.02          Confidentiality. Holders’ Representative, on behalf of the Holders, acknowledges that the success of the Company after the Closing Date depends upon the preservation of the confidentiality of the Confidential Information (as hereinafter defined), that the preservation of the confidentiality of the Confidential Information is an essential premise of the bargain between the Parties and Parent would be unwilling to enter into this Agreement in the absence of this Section 5.02. Accordingly, Holders’ Representative, on behalf of the Holders, shall, and shall use its commercially reasonable efforts to cause its Affiliates and its Representatives to, keep confidential all confidential documents and information involving or relating to the Company or the Business (the “Confidential Information”), unless (i) compelled to disclose such Confidential Information by Law so long as, to the extent permitted by Law, reasonable prior notice of such disclosure is given to Parent and the Company and a reasonable opportunity is afforded Parent and the Company to contest the same or (ii) disclosed in an Action brought by a Party in pursuit of its rights or in the exercise of its remedies hereunder; provided, that, in each case, any Party shall be permitted to disclose the terms of this Agreement to its Affiliates and its and their respective managers, partners, stockholders, equityholders, attorneys, accountants, tax advisors, financial advisors, consultants, agents, employees, potential financing sources or investors or other representatives, and, in the case of the Holders’ Representative, to the Holders (so long as such Person is obligated and directed to maintain the confidentiality of such information). “Confidential Information” does not include any document or information which is as of the Closing Date or becomes following the Closing Date generally available to the public other than as a result of a disclosure in violation of this Section 5.02 by the receiving party or its Representatives. The provisions of this Section 5.02 shall survive three (3) years after the completion of the Holders’ Representative’s responsibilities hereunder.

 

5.03          Tax Matters.

 

(a)            Parent Prepared Tax Returns. Parent shall prepare or cause to be prepared and file or cause to be filed all Tax Returns of the Acquired Companies (x) for taxable periods that end after the Closing Date, including all Tax Returns for all complete taxable periods including but not ending on the Closing Date (collectively, the “Straddle Periods”), and (y) for taxable periods ending on or before the Closing Date and which are due after the Closing Date.

 

(b)            Tax Contests. After the Closing, the Holders’ Representative shall promptly notify the other Party in writing upon receipt from a Taxing Authority of any written notice of any pending or threatened audit, examination, claim, dispute or controversy relating to Taxes with respect to an Acquired Company for a Pre-Closing Tax Period (a “Tax Claim”).

 

(c)            Certification. Parent and Holders’ Representative agree to use their commercially reasonable efforts to cause each Holder to further agree to provide any certificate or other tax form as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the contemplated Transactions).

 

 

(d)            Cooperation. Following the Closing Date, Parent and Holders’ Representative shall, as reasonably requested by any Party: (i) assist any other Party in preparing and filing any Tax Returns relating to the Company that such other Party is responsible for preparing and filing; (ii) cooperate in preparing for any Tax audit of, or dispute with any Taxing Authority regarding and any judicial or administrative proceeding relating to, liability for Taxes, in the preparation or conduct of litigation or investigation of claims, in connection with any voluntary disclosure procedure relating to Taxes or Tax Returns of an Acquired Company and in connection with the preparation of financial statements or other documents to be filed with any Taxing Authority, in each case with respect to an Acquired Company; and (iii) make available to the other Parties and to any Taxing Authority as reasonably requested all information, records and documents in its possession relating to Taxes relating to the Acquired Companies (at the cost and expense of the requesting Party). For the avoidance of doubt, the cooperation noted in this Section 5.03(d) shall include signing any Tax Returns, amended Tax Returns, claims or other documents with respect to any audit, litigation or other proceedings with respect to Taxes, the retention and (upon the other Party’s reasonable request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.

 

(e)            Transfer Taxes. Parent shall assume liability for and pay all real property transfer or gains tax, stamp tax, stock transfer tax, or other similar Tax imposed as a result of or in connection with the Transactions (collectively, the “Transfer Taxes”), and any penalties or interest with respect to the Transfer Taxes. Parent shall file all Tax Returns and other documentation required to be filed with respect to all such Transfer Taxes, and, if required by applicable Law, each other Party shall cooperate in filing all necessary Tax Returns and other documentation with respect to the Transfer Taxes. Each Party shall use reasonable efforts to avail itself of any available exemptions from Transfer Taxes, and to cooperate with the other Parties in providing any information and documentation that may be reasonably necessary to obtain such exemptions.

 

(f)             The Parties acknowledge that (i) the transactions contemplated by this Agreement are intended to be a fully taxable sale of the Shares by Holders to Parent in consideration for the Allocable Merger Consideration payable to the Holders for U.S. federal and applicable state and local Tax purposes, and (ii) Parent may choose, at its sole discretion, to make (or to cause to be made) an election(s) under Sections 338 or 336 of the Code (or any corresponding or similar election under applicable state, local or non-U.S. Laws) on a timely basis to treat the purchase of Shares as a purchase of the Company’s assets (and possibly the deemed purchase of the Company’s shares of a Subsidiary as a purchase of such Subsidiary’s assets) for the applicable income Tax purposes. Each of the Parties shall reasonably cooperate with Parent to provide Parent with such information as is reasonably necessary for Parent to satisfy its notification requirements in connection with such election.

 

5.04          Employee Matters and Company Plans.

 

(a)            Continuing Employees.

 

(i)             Following the Closing, Parent will give each employee who shall have been an employee of the Company or its Subsidiaries immediately prior to the Closing and who becomes an employee of Parent or its Affiliates (the “Continuing Employees”) full credit for service with the Company to the extent required by applicable Law. Effective as of the Closing and thereafter, Parent shall, and shall cause the Company and Affiliates of Parent to (x) use commercially reasonable efforts to cause any pre-existing condition limitations, eligibility waiting periods or evidence of insurability requirements under any health plan of the Company, Parent or an Affiliate of Parent extended to the Current Employees after the Closing to be waived with respect to the Current Employees and their eligible dependents to the extent such limitations or requirements had been satisfied or do not apply under an analogous compensation and benefit plan in which such Current Employees participated immediately prior to the Closing, (y) recognize, for purposes of annual deductible and out-of-pocket limits under its medical, dental and vision and drug plans, deductible and out-of-pocket expenses paid or incurred by Current Employees in the calendar year in which the Closing occurs and (z) fully credit Current Employees for purposes of eligibility and vesting, and for purposes of severance, vacation and/or paid-time-off accrual, for years of service with the Company prior to the Closing to the extent that such service was recognized under the corresponding Company Plan prior to the Closing for the Current Employee’s participation in any welfare benefit plan or pension plan (intended to qualify under Section 401(a) of the Code) of Parent (each a “Parent Plan”). For the avoidance of doubt, no incentive compensation, bonus or similar plan shall constitute a Parent Plan for the purpose of subclause (z) of this Section 5.04(a)(i).

 

 

(ii)            Following the date of this Agreement, the Parties agree to reasonably cooperate in all matters reasonably necessary to effect the actions contemplated by this Section 5.04, including furnishing each other with information concerning the Current Employees, applicable compensation and benefit plans, and workers compensation, in obtaining any governmental approvals required hereunder and in addressing inquiries from the Current Employees.

 

(iii)           On or within thirty (30) days following the Effective Time, Parent and Parent’s board of directors shall, in exchange for the Company Options held by the Continuing Employees and other service providers identified on Schedule 5.04(a)(iii) (the “Schedule 5.04(a)(iii) Recipients”) that are cancelled in accordance with Section 2.09, grant inducement awards to such Schedule 5.04(a)(iii) Recipients in the form of options to acquire Parent Common Stock or restricted stock units to be settled in Parent Common Stock in the respective amounts shown on such Schedule 5.04(a)(iii). Parent shall take such actions and measures to ensure that such stock grants qualify as inducement grants and shall not be contingent on either there being available shares under a shareholder-approved equity plan of Parent or approval of Parent’s stockholders. All options to acquire Parent Common Stock shall have an exercise price equal to the closing price of Parent’s Common Stock on the date of grant in accordance with Section 409A. Vesting and other principal terms of such inducement awards are set forth on Schedule 5.04(a)(iii).

 

(b)            Company Plans. With respect to each Company Plan that is a “group health plan” as defined in Section 5000(b)(1) of the Code and that is maintained by a “professional employer organization,” the professional employer organization, and not Parent or an ERISA Affiliate of Parent, shall, subject to the terms of services agreement between the professional employer organization and the Company, have sole responsibility on and after the Closing for any liability under Section 4980B of the Code with respect to each Person who is an “M & A qualified beneficiary,” as defined in Treas. Reg. § 54.4980B-9 in connection with the transactions contemplated by this Agreement.

 

(c)            No Limitation. This Section 5.04 is not intended to amend any benefit plans or arrangements of Parent or any of its Subsidiaries, to limit the ability of Parent or any of its Subsidiaries to amend, modify or terminate any of such benefit plans or arrangements or to confer third-party beneficiary rights on any Person (including any Current Employee or any beneficiary or dependent thereof). Provided that it complies in all material respects with applicable law and the terms of any employment agreements, Parent may, in its sole discretion, substitute employee compensation, benefit and severance programs for those of the Acquired Companies as are comparable with the programs provided from time to time to Parent’s employees and the employees of the Parent’s Affiliates. Subject to the preceding sentence, the Parent shall have no obligation to continue the existence of any Company Plans maintained by the Company or any Affiliate.

 

5.05          Nasdaq Capital Markets Listing. Prior to the Closing, Parent shall prepare and file with the Nasdaq Stock Market a supplemental listing application with respect to the Consideration Warrant Shares and the Stock Election Consideration and shall use its commercially reasonable efforts to obtain, as promptly as practicable following the Closing, approval of the listing of the Consideration Warrant Shares and the Stock Election Consideration, subject only to official notice to Nasdaq of issuance.

 

5.06          Indemnification of Officers and Directors of the Company.

 

(a)          For a period of six (6) years after the Closing, Parent shall, and shall cause the Acquired Companies (including, after the Closing, the Surviving Company) to, to the fullest extent permitted by applicable Laws, indemnify, defend and hold harmless, and provide advancement of expenses to, each Person who is now, or has been at any time prior to the Closing Date, an officer, manager, director or employee of the Acquired Companies (each, a “D&O Indemnified Party”), against all losses, claims, damages, costs, expenses, Liabilities or judgments or amounts that are paid in settlement of or in connection with any claim, Legal Proceeding, suit, action or investigation based in whole or in part on or arising in whole or in part out of the fact that such Person is or was an officer, director or employee of any of the Acquired Companies, and pertaining to any matter existing or occurring, or any acts or omissions occurring, at or prior to the Closing, whether asserted or claimed prior to, or at or after, the Closing (including matters, acts or omissions occurring in connection with the approval of this Agreement and the consummation of the transactions contemplated hereby) to the same extent that such Persons are indemnified or have the right to advancement of expenses as of the date of this Agreement by the Acquired Companies pursuant to their respective Charter Documents and indemnification agreements of the Company, if any, in existence on the date of this Agreement with any D&O Indemnified Party. The foregoing covenants under this Section 5.06(a) shall not apply to any claim or matter that relates to a willful or intentional breach of a representation, warranty, or covenant made by the Company in connection with this Agreement or the Transactions.

 

 

(b)            For a period of six (6) years after the Closing (or for such longer period until the resolution of any then-pending claims or Legal Proceedings) and at all times subject to applicable Laws, Parent shall not, and shall not cause or permit the Acquired Companies (including, after the Closing, the Surviving Company) to, amend or modify in any way adverse to the D&O Indemnified Parties, or to the beneficiaries thereof, the exculpation and indemnification provisions set forth in the Charter Documents of the Acquired Companies.

 

(c)            As of the Closing, the Company shall, at its sole expense, obtain a six (6) year “tail” prepaid directors’ and officers’ liability insurance policy, effective as of the Closing (“D&O Tail”), with a reporting period of six (6) years after the Closing covering events, acts and omissions occurring before the Closing Date, and with coverage and amounts, and terms and conditions that are acceptable to Parent. The premium for the D&O Tail shall be paid by the Company on or prior to the Closing, and Parent shall maintain such D&O Tail in effect for the full term thereof.

 

(d)            If Parent or any of the Acquired Companies (including, after the Closing, the Surviving Company) or any of their respective successors or assigns proposes to (i) consolidate with or merge into any other Person and Parent or the applicable Acquired Company shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfer all or substantially all of its properties and assets to any Person, then, and in each case, proper provision shall be made, including by the inclusion of appropriate covenants in the applicable definitive agreements, prior to or concurrently with the consummation of such transaction so that the successors and assigns of Parent or such Acquired Company, as the case may be, shall, from and after the consummation of such transaction, honor the indemnification and other obligations set forth in this Section 5.06.

 

(e)            With respect to any indemnification obligations of Parent and/or the Acquired Company (including, after the Closing, the Surviving Company) pursuant to this Section 5.06, Parent hereby acknowledges and agrees (i) that it and the Acquired Companies shall be the indemnitors of first resort with respect to all indemnification obligations of Parent and/or the Acquired Companies pursuant to this Section 5.06 (i.e., their obligations to an applicable D&O Indemnified Party are primary and any obligation of any other Person to advance expenses or to provide indemnification and/or insurance for the same expenses or Liabilities incurred by such D&O Indemnified Party are secondary) and (ii) that it irrevocably waives, relinquishes and releases any such other Person from any and all claims for contribution, subrogation or any other recovery of any kind in respect thereof.

 

(f)             The provisions of this Section 5.06 (i) are intended to be for the benefit of, and shall be enforceable by, each D&O Indemnified Party and his, her or their successors, heirs and representatives (each of whom shall be an express intended third party beneficiary hereof) and shall be binding on all successors and assigns of Parent and the Acquired Companies (including, after the Closing, the Surviving Company) and (ii) are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such Person may have by Contract or otherwise.

 

5.07          E&O Tail Policy. As of the Closing, the Company shall, at its sole expense, obtain a three (3) year errors and omissions tail policy with respect to Company’s current errors and omissions liability insurance coverage maintained by the Company with respect to claims arising from facts or events that occurred at or before the Closing (collectively, the “E&O Tail”), and with coverage and amounts, and terms and conditions that are acceptable to Parent. The premium for the E&O Tail shall be paid by the Company on or prior to the Closing.

 

5.08          Parent Shareholder Vote.

 

(a)            Within 135 days following the Closing, Parent shall hold a meeting of its stockholders (“Parent Stockholders Meeting”) in order to, among other things, approve the issuance of the shares of Parent Common Stock upon the exercise of the Consideration Warrants in excess of 19.99% of the total issued and outstanding shares of Parent Common Stock on the date hereof (“Proposal”) pursuant to the rules of the Nasdaq Stock Market (“Parent Stockholder Approval”). The record date for the Parent Stockholders Meeting shall be set so that it is a date prior to the expiration of the Lock-Up Period (as defined in the Voting Agreement). In the event the Parent Stockholder Approval is not obtained at the Parent Stockholders Meeting, Parent shall continue to call and hold special meetings of its stockholders at least once every fiscal quarter thereafter, beginning with the quarter ending September 30, 2024, to seek the Parent Stockholder Approval until the Parent Stockholder Approval is obtained.

 

 

(b)            Prior to the record date in respect of the Parent Stockholders Meeting, Parent shall amend its Bylaws to provide that the one-third of the shares of capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum of any meeting of stockholders for the transaction of business, except when stockholders are required to vote by class, in which event one-third of the issued and outstanding shares of the appropriate class shall be present in person or by proxy (provided the proxy has authority to vote on at least one matter at such meeting) in order to constitute a quorum as to such class vote, and except as otherwise provided by the DGCL or by the Certificate of Incorporation of Parent.

 

(c)            Promptly after the Parent Stockholder Approval is obtained, and in any event within one (1) Business Day thereafter, Parent shall promptly deliver notice of the Parent Stockholder Approval to the Trustee and the Holders’ Representative and file with the SEC a Form 8-K disclosing the same.

 

(d)            In connection with the Parent Stockholders Meeting, Parent will (A) prepare and file with the SEC a proxy statement (any such proxy statement, as it may be amended or supplemented from time to time, the “Proxy Statement”) related to the consideration of the Proposal at the Parent Stockholders Meeting, (B) respond as promptly as reasonably practicable to any comments received from the SEC with respect to such filings, (C) as promptly as reasonably practicable prepare and file any amendments or supplements necessary to be filed in response to any SEC comments or as otherwise required by law, (D) mail to its stockholders as promptly as reasonably practicable the Proxy Statement and all other customary proxy or other materials for meetings such as the Parent Stockholders Meeting, (E) to the extent required by applicable Law, as promptly as reasonably practicable prepare, file and distribute to the Parent stockholders any supplement or amendment to the Proxy Statement if any event shall occur which requires such action at any time prior to the Parent Stockholders Meeting, and (F) otherwise use reasonable best efforts to comply with all requirements of law applicable to any Parent Stockholders Meeting. The Proxy Statement shall include the recommendation of the Board of Directors of Parent that stockholders vote in favor of the adoption of the Proposal at the Parent Stockholders Meeting, and Parent shall retain and utilize the efforts of a nationally recognized proxy solicitation firm. Without limiting the foregoing, Parent shall enforce the obligations of each of the stockholders of Parent party to a Voting Agreement, including through the exercise of proxies provided thereunder, to the extent necessary or appropriate to cause each such stockholder to (i) appear at the Parent Stockholders Meeting or otherwise cause the shares of Parent Common Stock outstanding and beneficially owned by such stockholder to be counted as present thereat for purposes of calculating a quorum, and (ii) vote, or cause to be voted, all of the shares of Common Stock outstanding and beneficially owned by such stockholder in favor of the Stockholder Approval at the Parent Stockholders Meeting; provided, however, Parent shall not be required to enforce such obligations in the event that Parent otherwise obtains proxies for a number of votes sufficient to obtain Parent Stockholder Approval.

 

(e)            The provisions of this Section 5.08 (i) are intended to be for the benefit of, and shall be enforceable by, the Senior Secured Lender and any successor, heir or representatives (each of whom shall be an express intended third party beneficiary hereof) and shall be binding on all successors and assigns of Parent and the Acquired Companies (including, after the Closing, the Surviving Company) and (ii) are in addition to, and not in substitution for, any other rights that any such Person may have by contract or otherwise.

 

5.09          Cooperation Upon Exercise of Consideration Warrants and Disposition of Consideration Warrant Shares. Parent shall reasonably cooperate with the Trustee in facilitating the exercise of the Consideration Warrants and the sale through the Nasdaq Stock Market from time to time of any Consideration Warrant Shares issuable upon exercise of the Consideration Warrants promptly upon receipt of written notice from or on behalf of the Trustee of a notice of exercise or an intended sale of such Consideration Warrant Shares (as the case may be), including but not limited to causing Parent’s outside counsel to deliver, in accordance with applicable securities laws, one or more “blanket” delegending opinions to the Transfer Agent and instructing the Transfer Agent to remove any restrictive legends from such Consideration Warrant Shares so as to permit the delivery thereof by DWAC or DRS to a registered broker(s) effecting such sale on the Trust’s behalf.

 

 

5.10          Board Designee.

 

(a)            Within ninety (90) calendar days after the Closing Date, Parent agrees that it will appoint to its board of directors one individual nominated in writing by Triple Tree (the “Nominating Party”) and acceptable to Parent (such individual and as such individual may be replaced as provided herein, the “Twill Designee”). During the period (the “Twill Designee Period”) from the Closing Date until the earlier of (i) the date that is 540 days after the Closing Date and (ii) the date the Trust exercises the third Consideration Warrant to be exercised, Parent shall nominate for election and continue to recommend to its stockholders the Twill Designee be elected to serve as a director on Parent’s board of directors. During the Twill Designee Period, Parent further agrees that it will not take action to remove, or recommend the removal of, the Twill Designee without cause therefore; provided, however, that the Nominating Party’s right to nominate the Twill Designee, and Parent’s obligation to appoint the Twill Designee to the Parent’s board of directors, shall terminate upon the expiration of the Twill Designee Period.

 

(b)            As a condition to the Twill Designee’s appointment to Parent’s board of directors, the Twill Designee shall tender an irrevocable resignation that will be effective upon (1) the expiration of the Twill Designee Period and (2) the acceptance of such resignation by Parent’s board of directors. Parent’s board of directors will decide within 90 days of the expiration of the Twill Designee Period, through a process managed by the nominating and governance committee of Parent’s board of directors whether to accept the resignation.

 

(c)            During the Twill Designee Period, upon any removal or resignation of the Twill Designee, Parent shall, within five (5) days of the receipt of written notice from the Nominating Party of the identification of a replacement nominee, appoint to fill the vacancy so created with such replacement nominee subject to the paragraph below. During the Twill Designee Period, the Twill Designee, once a director of Parent, shall be entitled to all of the rights enjoyed by other non-employee directors of Parent, including receipt of information, reimbursement of expenses and coverage under applicable director and officer insurance policies. Further, the Nominating Party agrees that it will not propose any individual as the Twill Designee to be a member of Parent’s board of directors whose background does not comply with or would disqualify Parent from complying with (i) applicable securities laws, (ii) contractual obligations to and rules of any market or exchange on which the Parent Common Stock is listed or quoted for trading on the date in question (including, without limitation, the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, or the OTC Bulletin Board or OTCQB Marketplace operated by OTC Markets Group, Inc. (or any successors to any of the foregoing)), and (iii) the criteria for directors set forth in the then current charter of the Parent’s nominating committee, and will not disqualify Parent from being able to conduct any public offering or private placement pursuant to either Rule 506 (b) or (c) and any “bad boy“ provisions of any state securities laws. To the extent that any Twill Designee who becomes a director and does not satisfy the conditions of the preceding sentence, that person will immediately resign, and the Nominating Party will have the right to propose a replacement person to fill such vacancy otherwise in accordance with the terms of this Section 5.10.

 

ARTICLE VI
SURVIVAL

 

6.01          Survival of Representations, Warranties and Covenants. None of the representations and warranties made in this Agreement shall survive the Closing Date (except in respect of Intentional Fraud herein). All covenants and agreements of the Parties contained in this Agreement shall survive the Closing Date in accordance with their respective terms, but not to exceed the applicable statute of limitations in the event of a breach of such covenant.

 

6.02          Holders’ Representative.

 

(a)            Appointment. Upon and by virtue of the approval of the requisite Holders, including the approval of the requisite holders of Company Preferred Stock, of this Agreement pursuant to the Company Stockholder Consent and the Transaction Agreements, and collectively and irrevocably, hereby appoint, authorize and empower the Holders’ Representative to act as the exclusive representative, agent and attorney-in-fact to act on behalf of all of the Holders, in connection with and to facilitate the consummation of the Transactions, which shall include the power and authority:

 

 

(i)             to take any and all actions (including executing and delivering any documents, making any disbursements or distributions, incurring any costs and expenses for the account of the Holders, exercising such rights, power and authority, and making any and all decisions and determinations) that the Holders’ Representative determines may be required by or necessary, convenient, advisable or appropriate to facilitate the consummation of the Transactions or otherwise to perform the duties of or exercise the rights granted to the Holders’ hereunder, including: (A) execution of the documents and certificates pursuant to this Agreement; (B) receipt of payments under or pursuant to this Agreement and disbursement thereof to the Holders and others, as contemplated by this Agreement; (C) receipt and, if applicable, forwarding of notices and communications pursuant to this Agreement; (D) administration of the provisions of this Agreement; (E) giving or agreeing to, on behalf of all or any of the Holders, any and all consents, waivers, amendments or modifications deemed by the Holders’ Representative, in its sole and absolute discretion, to be necessary or appropriate under this Agreement or any other agreement contemplated hereby and the execution or delivery of any documents that may be necessary or appropriate in connection therewith; (F) amending this Agreement, any other Transaction Agreement or any of the instruments to be delivered to Parent hereunder or thereunder; and (G) (1) disputing or refraining from disputing, on behalf of each Holder relative to any amounts to be received by such Holder under this Agreement or any other Transaction Agreement, any claim made by Parent or Merger Sub under this Agreement or any other Transaction Agreement, (2) negotiating and compromising, on behalf of each such Holder, any dispute that may arise under, and exercising or refraining from exercising any remedies available under, this Agreement or any other any other Transaction Agreement, and (3) executing, on behalf of each such Holder, any settlement agreement, release or other document with respect to such dispute or remedy, and (4) engaging such counsel, accountants, experts, and other advisors, agents and consultants, on behalf of itself and/or the Holders, as it shall deem necessary, convenient, advisable or appropriate in connection with exercising its powers and performing its function hereunder, and paying any fees and expenses related thereto from the Expense Fund or otherwise (and the Holders’ Representative shall be entitled to conclusively rely on the opinions and advice of such Persons), in each case, with such action being deemed as taken by each Holder (as applicable) and which shall be absolutely and irrevocably binding on each Holder as if such Holder personally or in its corporate capacity had taken such action, exercised such rights, power or authority or made such decision or determination in such Holder’s individual or corporate capacity, as applicable;

 

(ii)            as the representative, to enforce and protect the rights and interests of the Holders and to enforce and protect the rights and interests of the Holders’ Representative arising out of the Holders under or in any manner relating to this Agreement and the other Transaction Agreement, and each other agreement, document, instrument or certificate referred to herein or therein or the Transactions, and to take any and all actions which the Holders’ Representative believes are necessary or appropriate under this Agreement and/or the other Transaction Agreements for and on behalf of the Holders, including asserting or pursuing any claim, action, Legal Proceeding or investigation against Parent or its Affiliates; and

 

(iii)           to refrain from enforcing any right of the Holders and/or the Holders’ Representative arising out of or under or in any manner relating to this Agreement or any other Transaction Agreement in connection with the foregoing; provided, however, that no such failure to act on the part of the Holders’ Representative, except as otherwise provided in this Agreement or in the other Transaction Agreements, shall be deemed a waiver of any such right or interest by the Holders’ Representative or the Holders unless such waiver is in writing signed by the waiving party or by the Holders’ Representative.

 

(b)            Authorization. The appointment of the Holders’ Representative is coupled with an interest and shall be irrevocable by any Holder in any manner or for any reason. This authority granted to the Holders’ Representative shall not be affected by the death, illness, dissolution, disability, incapacity or other inability to act of any principal pursuant to any applicable Laws. Bilal Khan hereby accepts its appointment as the initial Holders’ Representative.

 

(c)            Reliance. After Closing, Parent, and each Holder shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of any Holder by Holders’ Representative and on any other action taken or purported to be taken on behalf of any Holder by the Holders’ Representative as fully binding upon such Holder. A decision, act, consent or instruction of Holders’ Representative after Closing, including an amendment, extension or waiver of this Agreement (or any provision hereof) pursuant to Section 7.04 or Section 7.05 shall constitute a decision of the Holders and shall be final, binding and conclusive upon the Holders. The Trustee, Paying Agent, Parent, Merger Sub, and the Surviving Company may rely upon any such decision, act, consent or instruction of Holders’ Representative after Closing as being the decision, act, consent or instruction of the Holders. The Trustee, Paying Agent, Parent, Merger Sub, and the Surviving Company are hereby relieved from any liability to any Person for any acts done by them in accordance with such decision, act, consent or instruction of Holders’ Representative.

 

 

(d)            Actions by the Holders’ Representative; Resignation; Vacancies. The Holders’ Representative may resign from its position as the Holders’ Representative at any time by written notice delivered to Parent and to the Holders. If there is a vacancy at any time, in the position of the Holders’ Representative for any reason, such vacancy shall be filled by a majority of the of the votes of the outstanding Deemed Common Stock Trust Common Units, shall appoint a replacement Holders’ Representative and notify Parent of such replacement in accordance with the terms of this Agreement.

 

(e)            No Liability. All acts of the Holders’ Representative hereunder in its capacity as such shall be deemed to be acts on behalf of the Holders and not of the Holders’ Representative individually. The Holders’ Representative shall not have any liability for any amount owed to Parent pursuant to this Agreement. The Holders’ Representative shall not be liable to the Acquired Companies, Parent, Merger Sub, or any other Person in its capacity as the Holders’ Representative, for any liability of a Holder or otherwise, or for anything which it may do or refrain from doing in connection with this Agreement. The Holders’ Representative shall not be liable to the Holders, in his or its capacity as the Holders’ Representative, for any liability of a Holder or otherwise, or for any error of judgment, or any act done or step taken or omitted by it in good faith, or for any mistake in fact or Law, or for anything which it may do or refrain from doing in connection with this Agreement or the Trust Agreement, except in the case of the Holders’ Representative’s gross negligence or willful misconduct as determined in a final and non-appealable judgment of a court of competent jurisdiction. The Holders’ Representative may seek the advice of legal counsel in the event of any dispute or question as to the construction of any of the provisions of this Agreement or its duties or rights hereunder, and it shall incur no liability in its capacity as the Holders’ Representative to Parent, Merger Sub, the Acquired Companies, or the Holders and shall be fully protected with respect to any action taken, omitted or suffered by it in good faith in accordance with the advice of such counsel. The Holders’ Representative shall not by reason of this Agreement have a fiduciary relationship in respect of any Holder.

 

(f)             Indemnification; Expenses. The Holders’ Representative may use the Expense Fund to pay any fees, costs, expenses or other obligations incurred by the Holders’ Representative acting in its capacity as such. Without limiting the foregoing, the Holders shall indemnify and defend the Holders’ Representative and hold the Holders’ Representative harmless against any loss, damage, cost, liability or expense actually incurred without fraud, gross negligence or willful misconduct by the Holders’ Representative (as determined in a final and non-appealable judgment of a court of competent jurisdiction) and arising out of or in connection with the acceptance, performance or administration of the Holders’ Representative’s duties under this Agreement. Any expenses or taxable income incurred by the Holders’ Representative in connection with the performance of its duties under this Agreement shall not be the personal obligation of the Holders’ Representative but shall be payable by and attributable to the Holders pro rata, on an as-converted basis, pursuant to the most recently issued Allocation Schedule. Notwithstanding anything to the contrary in this Agreement, the Holders’ Representative shall be entitled and is hereby granted the right to set off and deduct any unpaid or non-reimbursed expenses and unsatisfied liabilities incurred by the Holders’ Representative in connection with the performance of its duties hereunder from amounts actually delivered to the Holders’ Representative pursuant to this Agreement.

 

(g)            Expense Fund. Upon the Closing, the Company shall wire the Expense Fund Amount to the Holders’ Representative. The Expense Fund Amount shall be held by the Holders’ Representative in a segregated account and shall be used for the purposes of paying directly or reimbursing the Holders’ Representative for any expenses incurred by the Holders’ Representative pursuant to this Agreement (the “Expense Fund”). Such expenses may include reasonable compensation to the Holders’ Representative, as approved by a majority of the then outstanding holders of Deemed Common Stock Trust Common Units in the event Mr. Bilal Khan is no longer employed by Parent. The Holders’ Representative is not providing any investment supervision, recommendations or advice and shall have no responsibility or liability for any loss of principal of the Expense Fund other than as a result of its gross negligence or willful misconduct. The Holders’ Representative is not acting as a withholding agent or in any similar capacity in connection with the Expense Fund and has no tax reporting or income distribution obligations. The Holders will not receive any interest on the Expense Fund and assign to the Holders’ Representative any such interest. As soon as reasonably determined by the Holders’ Representative that the Expense Fund is no longer required to be withheld, the Holders’ Representative shall distribute the remaining Expense Fund (if any) to Parent.

 

 

ARTICLE VII

GENERAL PROVISIONS

 

7.01          Interpretation. The following rules shall apply to the interpretation and construction of the terms and provisions of this Agreement and the other Transaction Agreements:

 

(a)            Provisions.

 

(i)             When a reference is made in this Agreement or another Transaction Agreement to an “Article,” “Section,” “Exhibit” or “Schedule,” such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.

 

(ii)            The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

(iii)           Whenever the words “include,” “includes,” or “including” are used in this Agreement or any other Transaction Agreement, such words shall be deemed to be followed by the words “without limitation.”

 

(iv)           The words “hereof,” “herein,” and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement unless otherwise expressly indicated in the accompanying text.

 

(v)            The use of “or” is not intended to be exclusive unless otherwise expressly indicated in the accompanying text.

 

(vi)           The defined terms contained in this Agreement or any of the other Transaction Agreements are applicable to the singular as well as the plural forms of such terms. Reference to the masculine gender shall be deemed to also refer to the feminine gender and vice versa.

 

(vii)          A reference to documents, instruments or agreements also refers to all addenda, exhibits or schedules thereto.

 

(viii)         Any reference to a provision or part of a Law shall include a reference to that provision or part as it may be renumbered or amended from time to time and any successor provision or part or any renumbering or amendment thereof unless otherwise indicated herein.

 

(ix)            References to “deliver,” “furnish,” “provided” or “made available” means that such documents or information referenced are contained, as of a date which is at least two (2) Business Days prior to the Closing Date, in the Company’s “Clear documents” electronic data room hosted by Box Inc.

 

(x)             When calculating the period of time before which, within which or following which, any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.

 

(b)            No Presumption. The Parties have participated jointly in the negotiation and drafting of this Agreement and, in the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the Parties and no presumption or burden of proof shall be used to favor or disfavor any Party by virtue of the authorship of any provision of this Agreement.

 

7.02          Notices. All notices, waivers, consents and other communications to any Party hereunder shall be in writing and shall be deemed given (i) when personally delivered, (ii) when receipt is electronically confirmed, if sent by email of a .pdf document, (iii) one (1) Business Day after deposit with a nationally recognized overnight courier, specifying next day delivery, with proof of receipt or (iv) three (3) Business Days after being sent by registered or certified mail, return receipt requested and postage prepaid, in each case to the Parties at the address, or if applicable, email address following such Party’s name below or such other address or email address as such Party may subsequently designate to the other Parties by notice in accordance with this Section 7.02:

 

 

If to Parent or Merger Sub, to:

 

DarioHealth Corp.

142 W. 57th St., 8th Floor

New York, New York 10019

 

with copies (which shall not constitute notice) to:

 

Sullivan & Worcester, LLP

One Post Office Square

Boston, Massachusetts 02109

Attention: Ben Armour

email: barmour@sullivanlaw.com

 

If to the Company (prior to the Closing), to:

 

Twill, Inc.

114 5th Avenue, 10th Floor

New York, New York 10011

 

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

 

Lowenstein Sandler LLP

1251 Avenue of the Americas, 17th Floor

New York, New York 10020

Attn: Michael J. Lerner and Annie Nazarian Davydov

e-mail: mlerner@lowenstein.com and anazarian@lowenstein.com

 

If to Holders’ Representative or the Holders (following the Closing), to:

 

The address set forth on the Holders’ Representative’s signature page(s) hereto.

 

7.03          Assignment and Succession. Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned or delegated by any of the Parties without the written consent of the other Parties, except that Parent or Merger Sub may, without the prior consent of any other Party, collaterally assign this Agreement to any lender; provided that no such assignment shall relieve the assigning Party of any of its obligations hereunder. Any assignment of this Agreement or any of the rights, interests or obligations hereunder not permitted under this Section 7.03 shall be null and void ab initio. Subject to the foregoing terms of this Section 7.03, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns.

 

7.04          Amendment or Supplement. Subject to the requirements of applicable Law, this Agreement may be amended at any time by execution of an instrument in writing identifying itself as an amendment signed, when amended prior to the Closing, by Parent, Merger Sub, and the Company and, when amended on or after the Closing, by Parent and Holders’ Representative. For purposes of this Section 7.04, the Holders have agreed pursuant to the Company Stockholder Consent that any amendment of this Agreement consented to by Holders’ Representative shall be binding on and enforceable against them, whether or not they have signed this Agreement or such amendment.

 

7.05          Waivers. No waiver of any provision of this Agreement shall be valid and binding unless it is in writing and signed by the Party against whom the waiver is to be effective. No failure on the part of any Party in exercising any right, privilege or remedy hereunder and no delay on the part of any Party in executing any right, privilege or remedy under this Agreement, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right hereunder. No notice to or demand on a Party made hereunder shall operate as a waiver of any right of the Party giving such notice or making such demand to take further action without notice or demand as permitted hereunder.

 

 

7.06          Entire Agreement. This Agreement, including the Schedules and Exhibits hereto and the other documents referred to herein which form a part hereof, and the Transaction Agreements contain the entire understanding of the Parties with respect to the subject matter contained herein and therein. This Agreement supersedes all prior and contemporaneous, agreements, arrangements, contracts, discussions, negotiations, undertakings and understandings (whether written or oral) between the Parties with respect to such subject matter (other than the Transaction Agreements).

 

7.07          No Third-Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person (other than the Parties) any right, benefit or remedy of any nature whatsoever under this Agreement, except for Persons identified in Section 5.06 and Section 5.08.

 

7.08          Remedies Cumulative. Except as otherwise provided in this Agreement, all rights and remedies of each of the Parties shall be cumulative and the exercise of any one or more rights or remedies shall not preclude the exercise of any other right or remedy available hereunder or under applicable Law.

 

7.09          Specific Performance. The Parties agree that each of the Parties would be irreparably harmed if any of the provisions of this Agreement are not performed in accordance with their specific terms and that any breach of this Agreement by the other Parties could not be compensated adequately by monetary damages alone. Accordingly, the Parties agree that, in addition to any other remedy to which such Party may be entitled to at Law or in equity, each Party shall be entitled to temporary, preliminary and/or permanent injunctive relief or injunctions to prevent breaches or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement (including the right to compel the other Parties to cause the Transactions to be consummated on the terms and subject to conditions set forth in this Agreement) without having to prove irreparable harm or that monetary damages would be inadequate. The Parties expressly waive any requirement under any Law that the other Parties obtain any bond or give any other undertaking in connection with any action seeking injunctive relief or specific performance of any of the provisions of this Agreement. Each of the Parties further agrees that in the event of any action for specific performance relating to this Agreement or the Transactions, such Party shall not assert and hereby waives the defense that a remedy at Law would be adequate or that specific performance is not an appropriate remedy for any reason in Law or equity.

 

7.10          Severability. If a court of competent jurisdiction finds that any term or provision of the Agreement is invalid, illegal or unenforceable under any Law or public policy, the remaining provisions of the Agreement shall remain in full force and effect if the economic and legal substance of this Agreement and the Transactions shall not be affected in any manner materially adverse to any Party. Any such term or provision found to be illegal, invalid or unenforceable only in part or in degree shall remain in full force and effect to the extent not invalid, illegal or unenforceable. Upon the determination that any term or provision is invalid, illegal or unenforceable, the Parties intend that such provision shall be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent possible under applicable Law and compatible with the consummation of the Transactions as originally intended.

 

7.11          Costs and Expenses. Except as otherwise specified herein, whether or not the Transactions are consummated, each Party shall pay all costs and expenses it has incurred in connection with this Agreement and the Transactions.

 

7.12          Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original copy of this Agreement and all of which, when taken together, shall constitute one instrument. The exchange of copies of this Agreement and manually executed signature pages by transmission by email of a .pdf of a handwritten original signature or signatures to the other Parties shall constitute effective execution and delivery of this Agreement and may be used in lieu of the original Agreement for all purposes. The signature of a Party transmitted by electronic means shall be deemed to be an original signature for any purpose.

 

 

7.13          Governing Law. This Agreement and all claims or causes of action (whether sounding in contract or tort) arising under or related to this Agreement, shall be governed by and construed in accordance with, the Laws of the State of Delaware, without regard to any rule or principle that might refer the governance or construction of this Agreement to the Laws of another jurisdiction.

 

7.14          Exclusive Jurisdiction; Venue; Service of Process. In any action or proceeding between any of the Parties arising under or related to this Agreement, the other Transaction Agreements or the Transactions, each of the Parties (i) knowingly, voluntarily, irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state or federal courts located in the City and County of New York City, New York, and each of the Parties hereby irrevocably submits to the exclusive jurisdiction of the aforesaid courts, (ii) agrees that all claims in respect of any such action or proceeding shall be heard and determined exclusively in accordance with clause (i) of this Section 7.14, (iii) waives any objection to the laying of venue of any such action or proceeding in such courts, including any objection that any such action or proceeding has been brought in an inconvenient forum or that the court does not have jurisdiction over any Party and (iv) agrees that service of process upon such Party in any such action or proceeding shall be effective if such process is given as a notice in accordance with Section 7.02. The Parties agree that any Party may commence a proceeding in a court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named courts.

 

7.15          WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, TRANSACTION AGREEMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

7.16          Provisions Regarding Legal Representation. Recognizing that Lowenstein Sandler LLP has each acted as legal counsel to the Acquired Companies, the Holders’ Representative, certain Holders and certain of their respective Affiliates prior to the date of this Agreement, and that Lowenstein Sandler LLP intends to act as legal counsel to the Holders’ Representative, certain Holders and certain of their respective Affiliates (which will no longer include the Acquired Companies after the Closing), each of Parent and the Surviving Company (including on behalf of the Acquired Companies) hereby waives, on its own behalf and agrees to cause its, now or hereafter existing, Affiliates to waive, any conflicts that may arise in connection with Lowenstein Sandler LLP representing the Holders’ Representative, certain Holders and certain of their respective Affiliates after the Closing as such representation may relate to Parent or any of the Acquired Companies (including, after the Effective Time, the Surviving Company), the Transaction Agreements, the Transactions (including any dispute, claim, arbitration or other Legal Proceeding in connection therewith), as well as any other matter unrelated to the foregoing. In addition, all communications involving attorney-client confidences between the Acquired Companies, the Holders’ Representative, any Holder or any of their respective Affiliates, on the one hand, and Lowenstein Sandler LLP, on the other hand, in the course of the engagement with respect to the negotiation, documentation and consummation of the Transactions shall be deemed to be attorney-client confidences that belong solely to the Holders’ Representative, the Holders and/or their respective Affiliates, as applicable (and not the Acquired Companies). Accordingly, the Acquired Companies shall not have access to any such communications, or to the files of Lowenstein Sandler LLP relating to such engagement, from or after the Closing Date, and Parent and its Affiliates shall not have access to any such communications, or to the files of Lowenstein Sandler LLP relating to such engagement, whether or not the Closing shall have occurred. Without limiting the generality of the foregoing, from and after the Closing, (i) the Holders’ Representative, the Holders and their respective Affiliates, as applicable (and not the Acquired Companies) shall be the sole holders of the attorney-client privilege with respect to such engagement, and none of Parent or the Acquired Companies (including, after the Effective Time, the Surviving Company) shall be a holder thereof, (ii) to the extent that files of Lowenstein Sandler LLP in respect of such engagement constitute property of the client, only the Holders’ Representative, the Holders and their respective Affiliates, as applicable (and not Parent or any of the Acquired Companies) shall hold such property rights and (iii) Lowenstein Sandler LLP shall have no duty whatsoever to reveal or disclose any such attorney-client communications or files to Parent or any of the Acquired Companies by reason of any attorney-client relationship between Lowenstein Sandler LLP and the Acquired Companies, the Holders’ Representative, certain Holders and certain of their respective Affiliates or otherwise. Notwithstanding the foregoing, in the event that a dispute arises between Parent or any of the Acquired Companies and a third party (other than a party to this Agreement or any of their respective Affiliates) after the Closing, the Surviving Company (including on behalf of the Acquired Companies) may assert the attorney-client privilege to prevent disclosure of confidential communications by Lowenstein Sandler LLP to such third party; provided, that neither the Surviving Company nor any of the other Acquired Companies may waive such privilege without the prior written consent of the Holders’ Representative, on behalf of the Holders. This Section 7.16 shall be irrevocable, and no term of this Section 7.16 may be amended, waived or modified, without the prior written consent of Lowenstein Sandler LLP.

 

* * *

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement and Plan of Merger to be duly executed and delivered as of the date first above written.

 

	TWILL, INC.
	By:	/s/ Ofer Leidner
		Name: Ofer Leidner
		Title: President

 

 

[Signature Page to Agreement and Plan of Merger]

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement and Plan of Merger to be duly executed and delivered as of the date first above written.

 

	DARIOHEALTH CORP.
	By:	/s/ Richard Anderson
		Name: Richard Anderson
		Title: President

 

 

[Signature Page to Agreement and Plan of Merger]

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement and Plan of Merger to be duly executed and delivered as of the date first above written.

 

	TWILL MERGER SUB, INC.
	By:	/s/ Richard Anderson
		Name: Richard Anderson
		Title: President

 

 

[Signature Page to Agreement and Plan of Merger]

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement and Plan of Merger to be duly executed and delivered as of the date first above written.

 

	HOLDERS’ REPRESENTATIVE
	/s/ BILAL KHAN
	BILAL KHAN
	Contact Information:
	Ermail: Bilal@twill.health
	Address: 114 5th Avenue, 10th Floor New York, New York 10011

 

 

[Signature Page to Agreement and Plan of Merger]

 

 

Exhibit 10.2

 

EXECUTION VERSION

 

LOCK-UP/LEAK-OUT AGREEMENT

 

THIS LOCK-UP/LEAK-OUT AGREEMENT (the “Agreement”) is made and entered into as of the 15^th day of February, 2024, between DarioHealth Corp., a Delaware corporation (the “Company”), Titan Trust 2024 I, a Delaware statutory trust (the “Trust”), and WhiteHawk Capital Partners LP, a Delaware limited partnership (“WhiteHawk”). Each of the Company, the Trust and WhiteHawk may be individually referred to herein as a “Party” and collectively referred to herein as the “Parties.”

 

WHEREAS, the Company is entering into an Agreement and Plan of Merger, dated as of February 15, 2024, with Twill Merger Sub, Inc., Twill, Inc. (“Twill”), and Bilal Khan, as holders’ representative (the “Merger Agreement”; capitalized terms used but not defined herein shall have the respective meanings given to them in the Merger Agreement), pursuant to which the execution and delivery of this Agreement is a condition precedent to the closing of the Merger Agreement; and

 

WHEREAS, in connection with the execution and delivery of the Merger Agreement, and as a material inducement for the Company to enter into the Merger Agreement and to consummate the transactions contemplated thereby, the parties to the Merger Agreement have caused the formation of the Trust, for the purpose of holding the Consideration Warrants and liquidating or distributing the Consideration Warrant Shares issuable upon the exercise thereof in satisfaction of the Senior Secured Indebtedness, the other Specified Indebtedness, and the Stock Election Consideration contemplated by the Merger Agreement;

 

WHEREAS, in connection with the execution and delivery of the Merger Agreement, and as a material inducement for the Company to enter into the Merger Agreement and to consummate the transactions contemplated thereby, the Company, Twill, and Wilmington Savings Fund Society, FSB (“WSFS”), as trustee for the Trust (the “Trustee”), together with the Lenders and the Holders’ Representative on behalf of certain holders of Company Stock (the “Remainder Holders”), contemporaneously herewith are entering into that certain trust agreement, dated as of the date hereof, with respect to the Trust (the “Trust Agreement”);

 

WHEREAS, in connection with the execution and delivery of the Trust Agreement, the Trustee, as account bank, will establish a Collection Account and a Securities Account (as such terms are defined in the Trust Agreement), each in the name of the Trust;

 

WHEREAS, in connection with the execution and delivery of the Merger Agreement and the consummation of the transactions contemplated thereby, and in satisfaction (together with payment of the Cash Consideration) of the Specified Indebtedness and as partial payment of the Merger Consideration, the Company will issue to the Trust four Consideration Warrants, each exercisable for 2,500,100 shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”), for the benefit of the Senior Secured Lender, the other Lenders, and the Remainder Holders, as applicable, pursuant to the terms of the Trust Agreement, and the Consideration Warrants will be deposited in the Securities Account;

 

WHEREAS, it is contemplated by the parties to the Merger Agreement and the parties to the Trust Agreement that the Trust will exercise the Consideration Warrants as and when they become exercisable, in accordance with their respective terms, and direct one or more broker-dealers with which it may open a brokerage account (each, a “Selling Broker”) to sell the Consideration Warrant Shares issuable upon the exercise of the Consideration Warrants and remit the net proceeds of such sales to the Trust for deposit in the Collection Account for distribution in accordance with the terms of the Trust Agreement;

 

 

WHEREAS, in order to facilitate the consummation of the transactions contemplated by the Merger Agreement and to provide for an orderly market for the Common Stock subsequent to the closing of the Merger Agreement and the issuance of the Consideration Warrant Shares, the Trust and WhiteHawk have agreed to enter into this Agreement and to restrict the sale, assignment, transfer, conveyance, hypothecation or alienation of the Consideration Warrant Shares issuable upon exercise of the Consideration Warrants, all on the terms set forth below, and deliver trading instructions to the Trust’s Selling Brokers conforming herewith.

 

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

 

1.              Except as otherwise expressly provided herein, and except as the Trust may be otherwise restricted from selling Consideration Warrant Shares under applicable federal or state securities laws, rules and regulations and Securities and Exchange Commission (“SEC”) interpretations thereof, as to each Consideration Warrant, the Trust may only sell the Consideration Warrant Shares issuable upon exercise thereof subject to the following conditions commencing after the date of the issuance of such Consideration Warrant Shares to the Trust (the “Issuance Date”). As to each Consideration Warrant, during the period commencing on the Issuance Date of the Consideration Warrant Shares issuable upon exercise thereof and ending on the date WhiteHawk receives $10,600,000 in aggregate net proceeds from the sale of Consideration Warrant Shares (the “Leak-Out Period”), the Trust may sell such Consideration Warrant Shares as follows:

 

(a)            The Trust shall be allowed to sell such Consideration Warrant Shares at a rate of up to 10% of the average daily trading volume of the Common Stock in a manner which will not negatively affect the share price.

 

(b)            Except as otherwise provided herein, all such Consideration Warrant Shares shall be sold by the Trust, on behalf of WhiteHawk, pursuant to Rule 144 of the SEC during the Leak-Out Period.

 

(c)            WhiteHawk agrees that it will not cause the Trust to engage in any short selling of such Consideration Warrant Shares during the Leak-Out Period applicable to such Consideration Warrant Shares.

 

2.              Notwithstanding anything to the contrary set forth herein, the Company may, in its

sole discretion, at any time and from time to time, waive any of the conditions or restrictions contained herein to increase the liquidity of the Common Stock or if such waiver would otherwise be in the best interests of the development of the trading market for the Common Stock.

 

 

3.              The Trust shall have the right to sell or transfer Consideration Warrant Shares in a private transaction, subject to receipt of an opinion of legal counsel for the Company, and subject to any transferee’s execution and delivery of a copy of this Agreement.

 

4.              Except as otherwise provided in this Agreement or any other agreements between the parties, the Trust shall be entitled to its beneficial rights of ownership of any Consideration Warrant Shares issued upon exercise of the Consideration Warrants, including but not limited to the right to vote the Consideration Warrant Shares for any and all purposes as directed by WhiteHawk in its sole discretion.

 

5.              The number of Consideration Warrant Shares included in any allotment that can be sold by the Trust hereunder shall be appropriately adjusted if the Company makes a dividend or distribution, executes a forward split or a reverse split or otherwise reclassifies its shares of Common Stock.

 

6.              This Agreement may be executed in any number of counterparts with the same force and effect as if all parties had executed the same document.

 

7.              All notices, instructions or other communications required or permitted to be given pursuant to this Agreement shall be given in writing and delivered by certified mail, return receipt requested, overnight delivery or hand-delivered to all parties to this Agreement, to the Company, at 142 W. 57th St., 8th Floor, New York, New York 10019, to WhiteHawk, at 11601 Wilshire Blvd., Suite 1250, Los Angeles, CA 90025, attn: Robert Louzan, and to the Trust, at the address in the Counterpart Signature Page. All notices shall be deemed to be given on the same day if delivered by hand or on the following business day if sent by overnight delivery or the second business day following the date of mailing.

 

8.              The resale restrictions on the Consideration Warrant Shares set forth in this Agreement shall be in addition to all other restrictions on transfer imposed by applicable United States and state securities laws, rules and regulations.

 

9.              If the Company or the Trust fails to fully adhere to the terms and conditions of this Agreement, it shall be liable to every other party for any damages suffered by any party by reason of any such breach of the terms and conditions hereof. The Trust agrees that in the event of a breach of any of the terms and conditions of this Agreement by the Trust, in addition to all other remedies that may be available in law or in equity to the non-defaulting parties, a preliminary and permanent injunction, without bond or surety, and an order of a court requiring the Trust to cease and desist from violating the terms and conditions of this Agreement and specifically requiring the Trust to perform its obligations hereunder is fair and reasonable by reason of the inability of the parties to this Agreement to presently determine the type, extent or amount of damages that the Company or the Trust may suffer as a result of any breach or continuation thereof.

 

10.            This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof, and may not be amended except by a written instrument executed by the parties hereto.

 

11.            This Agreement and all claims or causes of action (whether sounding in contract or tort) arising under or related to this Agreement, shall be governed by and construed in accordance with, the Laws of the State of Delaware, without regard to any rule or principle that might refer the governance or construction of this Agreement to the Laws of another jurisdiction. In any action or proceeding between any of the Parties arising under or related to this Agreement, each of the Parties (i) knowingly, voluntarily, irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state or federal courts located in the City and County of New York City, New York, and each of the Parties hereby irrevocably submits to the exclusive jurisdiction of the aforesaid courts, (ii) agrees that all claims in respect of any such action or proceeding shall be heard and determined exclusively in accordance with clause (i) of this Section 11, (iii) waives any objection to the laying of venue of any such action or proceeding in such courts, including any objection that any such action or proceeding has been brought in an inconvenient forum or that the court does not have jurisdiction over any Party and (iv) agrees that service of process upon such Party in any such action or proceeding shall be effective if such process is given as a notice in accordance with this Section 11. The Parties agree that any Party may commence a proceeding in a court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named courts.

 

 

0.            In the event of default hereunder, the non-defaulting parties shall be entitled to recover reasonable attorney’s fees incurred in the enforcement of this Agreement.

 

1.            This Agreement shall be binding upon any successors or assigns of the Consideration Warrants and Consideration Warrant Shares (excluding bona fide sales to third parties as permitted hereby), without qualification, and in the event of any exchange of the Consideration Warrant Shares under a merger or reorganization or other transaction of the Company by which the Consideration Warrant Shares are subject to exchange for other securities in any manner, this Agreement shall remain if full force and effect and shall apply to any securities received or receivable in exchange for such Consideration Warrants and Consideration Warrant Shares, without qualification.

 

2.            It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by WSFS, not individually or personally but solely in its capacity as Trustee under the Trust Agreement on behalf of the Trust, in the exercise of the powers and authority conferred and vested in it as Trustee under the Trust Agreement, subject to the protections, indemnities and immunities afforded to the Trustee thereunder, (b) each of the representations, undertakings and agreements herein made on the part of the Trust is made and intended not as personal representations, undertakings and agreements by WSFS but is made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability on WSFS, individually or personally, to perform any covenant either expressed or implied contained herein of the Trust, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto, (d) WSFS has made no investigation as to the accuracy or completeness of any representations and warranties made by the Trust in this Agreement and (e) under no circumstances shall WSFS be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Agreement or any other related documents.

 

 

[signature page follows]

 

 

IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as of the day and year first above written.

 

	COMPANY:
	DARIOHEALTH CORP., a Delaware corporation
	By:	/s/ Richard Anderson
	Name: Richard Anderson
	Title: President

 

 

[Counterpart Signature Page to Lock-Up/Leak-Out Agreement]

 

 

	TRUST:
	By: Wilmington Savings Fund Society, FSB, not in its individual capacity, but solely as Trustee.
	By:	/s/ Anthony Jeffery
	Name: Anthony Jeffery
	Title: Authorized Person

 

c/o Wilmington Savings Fund Society, FSB 500 Delaware Avenue, 11th Floor Wilmington, Delaware 19801 Attention: Corporate Trust

 

 

[Counterpart Signature Page to Lock-Up/Leak-Out Agreement]

 

 

	WHITEHAWK:
	WhiteHawk Capital Partners LP
	By:	/s/ Robert Louzan
	Name: Robert Louzan
	Title: Managing Partner

 

 

[Counterpart Signature Page to Lock-Up/Leak-Out Agreement]

 

 

Exhibit 10.3

 

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is dated as of February , 2024, by and among DarioHealth Corp., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) of Regulation D promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, Securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser, severally and not jointly, agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1          Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement: (a) capitalized terms that are not otherwise defined herein shall have the meanings given to such terms in the Certificate of Designation (as defined herein), and (b) the following capitalized terms have the meanings set forth in this Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

“BHCA” shall have the meaning ascribed to such term in Section 3.1(hh).

 

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

 

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

 

“Certificate of Designation” means the Series C Certificate of Designation.

 

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived.

 

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

 

“Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

 

“Conversion Price” shall have the meaning ascribed to such term in the Series C Certificate of Designation.

 

“Conversion Shares” shall mean the shares of Common Stock issuable upon conversion of the Series C Preferred Stock.

 

“Disqualification Event” shall have the meaning ascribed to such term in Section 3.1(mm).

 

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered concurrently herewith.

 

“Dividend Shares” shall mean the shares of Common Stock issuable as dividends on the Series C Preferred Stock pursuant to the terms of the Certificate of Designations.

 

“Environmental Laws” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Escrow Account” means the non-interest-bearing escrow account maintained with Continental Stock Transfer and Trust Company where subscription amounts from Purchasers will be held pending the earlier of (i) a Closing, (ii) the rejection of a proposed investment by the Company or the Placement Agent, (iii) the termination of the transactions contemplated hereby or (iv) the Outside Closing Date.

 

“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(s).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“Federal Reserve” shall have the meaning ascribed to such term in Section 3.1(hh).

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Hazardous Material” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(p).

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

 

“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(n).

 

“Maximum Amount” means the sale of $30,000,000 of Series C Preferred Stock.

 

“Minimum Amount” means the sale of $20,000,000 of Series C Preferred Stock.

 

“Over-Allotment” means up to an additional $10,000,000 of Series C Preferred Stock.

  

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Placement Agent” means Aegis Capital Corp.

 

“Placement Agency Agreement” means that certain placement agency agreement dated as of December 28, 2023 between the Company and the Placement Agent.

 

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

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

 

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such rule.

 

“Securities” means the Series C Preferred Stock, Conversion Shares and Dividend Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Series C Certificate of Designation” means the Certificate of Designation to be filed prior to each Closing by the Company with the Secretary of State of Delaware, in the form of Exhibit A attached hereto, or the Series C-1 Certificate of Designation or other certificates of designation that may be filed as a sub-series of Series C Preferred Stock).

 

“Series C Preferred Stock” means the shares of the Company’s Series C Convertible Preferred Stock issued hereunder (including any sub-series of Series C Preferred Stock to the extent there is more than one Closing hereunder) having the rights, preferences and privileges set forth in the Series C Certificate of Designation.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing shares of Common Stock). 

 

“Standard Settlement Period” shall have the meaning ascribed to such term in Section 4.1(c).

 

“Stated Value” means $1,000.00 per share of Series C Preferred Stock.

 

“Subscription Amount” shall mean, as to each Purchaser, the aggregate amount to be paid for the Securities purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

“Subsidiary” and “Subsidiaries” shall have the meanings ascribed to such terms in Section 3.1(a).

 

“Sullivan” means Sullivan & Worcester LLP, with offices located at 1633 Broadway, New York, New York 10019.

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means the Nasdaq Capital Market.

 

 

“Transaction Documents” means this Agreement, the Certificate of Designations, the Placement Agency Agreement and all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means VStock Transfer, LLC, the current transfer agent of the Company, with an address at 18 Lafayette Place, Woodmere, NY 11598, and any successor transfer agent of the Company.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1          Closing. The purchase, sale and issuance of the Series C Preferred Stock shall take place at one or more closings (each of which is referred to in this Agreement as a “Closing”). The initial Closing (the “Initial Closing”) shall take place remotely via the exchange of documents and signatures, on or before January 31, 2024, which period has been extended until February 28, 2024 by the Company and the Placement Agent (such date or such other date as the Company and Placement Agent agree, the “Outside Closing Date”). The Initial Closing shall not take place unless proceeds equal to or more than the Minimum Amount are in the Escrow Account. If less than the Maximum Amount, together with the Over-Allotment is sold at the Initial Closing, then, subject to the terms and conditions of this Agreement, the Company may sell and issue at one or more subsequent closings (each, a “Subsequent Closing”), on or before the Outside Closing Date (the “Subsequent Closing Period”), up to the balance of the unissued Series C Preferred Stock.

 

The purchase and sale of the Series C Preferred Stock to the Purchasers shall take place upon each Closing, on the terms and conditions contained herein. Each Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser shall be made available for “Delivery Versus Payment” settlement with the Company or its designees. The Company shall deliver to each Purchaser its Series C Preferred Stock as determined pursuant to Section 2.2, and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, a Closing shall occur.

 

  2.2      Deliveries.

 

(a)          On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i)

this Agreement duly executed by the Company;

 

(ii)

a certificate (or entry in the Company’s book entry stock ledger) evidencing a number of shares of Series C Preferred Stock equal to 100% of such Purchaser’s Subscription Amount divided by the Stated Value, registered in the name of such Purchaser and evidence of the filing and acceptance of the Series C Certificate of Designation from the Secretary of State of Delaware;

 

(iii)

an Officer’s Certificate, in form and substance satisfactory to the Purchasers and the Placement Agent; and

 

(iv)

Secretary’s Certificate, in form and substance satisfactory to the Purchasers and the Placement Agent.

 

(b)          In addition to delivering the Subscription Amount as contemplated by Section 2.1, on or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

 

(i)

this Agreement duly executed by such Purchaser;

 

(ii)

a duly executed accredited investor questionnaire in the form annexed hereto as Exhibit B; and

 

 

(iii)

such Purchaser’s Subscription Amount wired to Escrow Account pursuant to wire instructions set forth on Exhibit C.

 

2.3     Closing Conditions.

 

(a)     The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)

the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality, in all respects) on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be true and correct as of such date);

 

(i)

all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

 

(ii)

the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

 

(b)     The respective obligations of each of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)

the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein, which shall be true and correct as of such specified date);

 

(ii)

all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 

(iii)

the Company shall have received all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities as contemplated hereby and the Company’s execution, delivery and performance of its obligations hereunder;

 

(iv)

there shall have been no Material Adverse Effect with respect to the Company since the date hereof;

 

(v)

from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing; and

 

(vi)

the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement.

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1          Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, if any, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation made herein to the extent of the disclosures contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser. Any reference in this Agreement to “the Company’s knowledge”, “the knowledge of the Company” and other similar terms means the actual knowledge, after reasonable inquiry and review of such person’s own files and inquiry of those other officers and employees of the Company who would reasonably be expected to have knowledge of the specific matter at issue, of each Erez Raphael, CEO and Zvi Ben David, CFO.

 

(a)    Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth in the SEC Reports (each, a “Subsidiary”, and collectively, the “Subsidiaries”). The Subsidiaries are the only direct or indirect subsidiaries of the Company. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

 

(b)    Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c)    Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder and to issue the Securities in accordance with the term hereof and thereof. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith, other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

  

(d)    No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, violate, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any bond, debenture, note or other evidence of indebtedness, or under any lease, license, franchise, permit, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or any Subsidiary is bound or affected; except in the case of clause (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

 

(e)    Filings, Consents and Approvals. The Company is not required to obtain any consent, approval, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority, self-regulatory organization, stock exchange or other trading market, or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the Current Report on Form 8-K to be filed by the Company with the Commission pursuant to Section 4.6 of this Agreement, (ii) the notice and/or application(s) required to be made by the Company to the Nasdaq Capital Market for the issuance and sale of the Securities and the listing of the Conversion Shares and Dividend Shares for trading thereon in the time and manner required thereby and (iii) the filing by the Company of Form D with the Commission in connection with the offering and issuance of the Securities hereunder and such filings as are required to be made under applicable state securities laws, (collectively, the “Required Approvals”). The Company is unaware of any facts or circumstances that might prevent the Company from obtaining the approval of the Nasdaq Capital Market for the listing of the Conversion Shares and Dividend Shares for trading thereon effective immediately upon the Closing.  

 

(f)     Issuance of the Securities; Registration. The Securities are duly authorized and, when issued and paid for in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer pursuant to applicable securities laws. The issuance and delivery of the Series C Preferred Stock will not be subject to preemptive, co-sale, right of first refusal or any other similar rights of any stockholder of the Company or any other person, or any Liens or result in the triggering of any anti-dilution or other similar rights under any outstanding securities of the Company.

 

(g)    Capitalization. As of December 26, 2023 the authorized capital stock of the Company consists of (i) 160,000,000 shares of Common Stock, of which, 27,200,928 shares are issued and outstanding, and 8,912,583 shares are reserved for issuance pursuant to securities exercisable or exchangeable for, or convertible into, shares of Common Stock (except for any shares of convertible preferred stock) and (ii) 5,000,000 shares of preferred stock, of which (x) 75,000 shares have been designated as Series A, A-1, A-2, A-3 or A-4, of which 3,557 are issued and outstanding and are convertible into 1,273,498 shares of Common Stock and (y) 75,000 shares have been designated as Series B Preferred Stock (which for these purposes includes Series B Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock and Series B-3 Preferred Stock), of which 15,402 are issued and outstanding and are convertible into 4,614,620 shares of Common Stock, excluding any dividends payable to such shares of preferred stock. No shares of Common Stock are held in treasury. All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and nonassessable. Except as set forth in the SEC Reports or as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital stock of any Subsidiary. Except as set forth in the SEC Reports, the issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Purchasers or the Placement Agent) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. There are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

 

(h)    SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. To the knowledge of the Company, there are no material outstanding or unresolved comments from the staff of the Commission with respect to any of the SEC Reports.

 

(i)     Material Changes; Undisclosed Events, Liabilities or Developments. Since September 30, 2023, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) neither the Company nor any Subsidiary has incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) neither the Company nor any Subsidiary has declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, (v) neither the Company nor any Subsidiary has sold any assets or made any capital expenditures, in each case outside of the ordinary course of business and (vi) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option or incentive plans. Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or have any actual knowledge of any fact that would reasonably lead any such creditor to do so.

 

 

(j)   Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

(k)  Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l)   Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.   

 

(m)   Environmental Laws.    The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“Environmental Laws”); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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

 

 

(o)    Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance in all material respects.

 

(p)    Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither the Company nor any Subsidiary has received a written notice that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement except as would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person and neither is aware of any facts which would form a reasonable basis for any such claim, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. None of the Intellectual Property Rights used by the Company or any of its Subsidiaries in their respective businesses has been obtained or is being used by the Company or such Subsidiary in violation of any contractual obligation binding on the Company or any of its subsidiaries in violation of the rights of any person. The Company and its subsidiaries have taken all reasonable steps in accordance with normal industry practice to protect and maintain the Intellectual Property Rights including, without limitation, the execution of appropriate nondisclosure and invention assignment agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of, or payment of, and additional material amounts with respect to, nor require the consent of, any other person regarding the Company’s or any of its subsidiaries’ right to own or use any of the Intellectual Property Rights as owned or used in the conduct of such party’s business as currently conducted. To the knowledge of the Company and its Subsidiaries, no employee of any of the Company or its subsidiaries is the subject of any pending claim or proceeding involving a violation of any term of any employment contract, invention disclosure agreement, patent disclosure agreement, noncompetition agreement, non-solicitation agreement, nondisclosure agreement or restrictive covenant to or with a former employer, where the basis of such violation relates to such employee’s employment with the Company or its subsidiaries or actions undertaken by the employee while employed with the Company or its Subsidiaries.

 

(q)    Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged.

 

(r)     Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

   

 

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

 

(t)    Certain Fees. Other than the fees due to the Placement Agent pursuant to the Placement Agency Agreement, no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(u)   Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 

(v)   Registration Rights. Except as disclosed in the SEC Reports, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.

 

(w)   Listing and Maintenance Requirements. The Common Stock is registered as a class pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Common Stock is included for listing on the Nasdaq Capital Market and has not been suspended from such listing by the Nasdaq Capital Market or the Commission. The Company has received no communication, written or oral, from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Common Stock is currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.

 

 

(x)   Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents or in the Company Disclosure Materials (as defined herein), the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information which is not otherwise disclosed in the SEC Reports. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve (12) months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 

(y)  No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act which would require the registration of any such offering under the Securities Act.

 

(z)   Tax Status. Except for matters that would not, individually, or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) 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 and (iii) has set aside on its books provision reasonably adequate for the payment of all material 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 or of any Subsidiary know of no basis for any such claim.

 

(aa)  No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other (i) “accredited investors” within the meaning of Rule 501 under the Securities Act, and (an “Accredited Investor”) and (ii) “non-US persons” as defined in Regulation S as promulgated under the Securities Act.

 

(bb)  Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any director, officer, employee, agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA or any similar law of the State of Israel.

 

 

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

 

(dd)   Acknowledgement Regarding Purchaser’s Trading Activity. Anything in this Agreement or any other Transaction Document to the contrary notwithstanding (except for Sections 3.2(f) and 4.5 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities; (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently may have a “short” position in the Common Stock, and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding or subject to issuance hereunder and (z) such hedging and/or trading activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging and/or trading activities are being conducted.  The Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of any of the Transaction Documents.

 

(ee)   Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has: (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s Placement Agent or finders in connection with the placement of the Securities.

  

(ff)   Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”) or any similar Israeli sanctions administered by an analogous governmental body in Israel.

 

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

  

 

(hh)    Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

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

 

(jj)    Application of Takeover Protections; Rights Agreement. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, interested stockholder, business combination, poison pill (including, without limitation, any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation, Bylaws or other organizational documents or the laws of the jurisdiction of its formation which is or could become applicable to any Purchaser as a result of the transactions contemplated by this Agreement, including, without limitation, the Company's issuance of the Securities and any Purchaser's ownership of the Securities. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of shares of Common Stock or a change in control of the Company or any of its Subsidiaries.

 

(kk)   Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its Exchange Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.

 

(ll)     Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby.

 

(mm)   No Disqualification Events. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder.

 

(nn)   [RESERVED]

 

(oo)    Notice of Disqualification Events. The Company will notify the Purchasers in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, reasonably be expected to become a Disqualification Event relating to any Issuer Covered Person, in each case of which it is aware.

 

 

(pp)  No Other Agreements. Other than this Agreement, the Company has not entered into any agreement or understanding with any Purchaser in connection with such Purchaser’s direct or indirect investment in the Company.

 

3.2     Representations and Warranties of the Purchasers. Each Purchaser severally, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):

 

(a)     Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and (where such concept is applicable) in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b)     Understandings or Arrangements. Such Purchaser is acquiring the Securities as principal for its own account and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a registration statement or otherwise in compliance with applicable federal and state securities laws).

  

(c)    Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act. The accredited investor questionnaire completed by the Purchase in the form annexed hereto as Exhibit B is accurate and correct in all respects.

 

(d)    Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. Such Purchaser acknowledges that as of the date hereof, the Company has very limited financial resources, and thus an investment in the Securities is subject to significant risk.

 

(e)    Access to Information. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the SEC Reports and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Such Purchaser acknowledges and agrees that neither the Placement Agent nor any Affiliate of the Placement Agent has provided such Purchaser with any information or advice with respect to the Securities nor is such information or advice necessary or desired. Neither the Placement Agent nor any Affiliate has made or makes any representation as to the Company or the quality of the Securities and the Placement Agent and any Affiliate may have acquired non-public information with respect to the Company which such Purchaser agrees need not be provided to it. In connection with the issuance of the Securities to such Purchaser, neither the Placement Agent nor any of its Affiliates has acted as a financial advisor or fiduciary to such Purchaser.

 

 

(f)    Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement or to such Purchaser’s representatives, including, without limitation, its officers, directors, partners, legal counsel and other advisors, employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order to effect Short Sales or similar transactions in the future.

 

(g)   General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or, to the knowledge of such Purchaser, any other general solicitation or general advertisement. The Purchaser maintains a pre-existing, substantive relationship with the Company or the Placement Agent (or its subagents).

 

(h)    Fees to Placement Agent. Notwithstanding anything contained herein, Purchaser acknowledges that it is aware that Placement Agent has been retained by the Company as its exclusive placement agent and in such capacity will receive from the Company, in consideration of its services in respect of the transactions contemplated hereby, the compensation described in Section 5.19 hereto.

 

(h)   Disclosure of Information. Each Purchaser acknowledges that it has received and has had the chance to review, all the information that it has requested relating to the Company and the purchase of the Series C Preferred Stock including, but not limited to, the Investor Presentation and Risk Factors, copies of which are attached hereto as Exhibit D (the “Company Disclosure Materials”). In addition to the foregoing, such Purchaser acknowledges that it has been afforded: (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of such Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser’s right to rely on the Company Disclosure Materials or the Company’s representations and warranties contained in the Transaction Documents.

  

 

The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document, or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order to effect Short Sales or similar transactions in the future.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1   Removal of Legends.

 

(a)    The Securities may only be disposed of in compliance with U.S. state and U.S. federal securities laws. In connection with any transfer of Securities other than (i) pursuant to an effective registration statement or Rule 144, (ii) to the Company, (iii) to an Affiliate of a Purchaser or (iv) in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration under the Securities Act.

 

(b)    The Purchasers agree to the imprinting, so long as required by this Section 4.1, of a legend on the Securities substantially in the following form (in addition to any legend required by applicable state securities or “blue sky” laws):

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE] [HAS NOT] [HAVE] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

  

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

  

(c)   Certificates or book entry notations evidencing the Securities shall not contain any legend (including the legend set forth in Section 4.1(b) hereof), and the Company shall take such actions as may be necessary to remove any such legend: (i) while a registration statement covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Securities pursuant to Rule 144 or (iii) if such Securities are eligible for sale under Rule 144 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent or the Purchaser promptly if required by the Transfer Agent to effect the removal of the legend hereunder, or if requested by a Purchaser, respectively. If there is an effective registration statement to cover the resale of the Securities, or if such Securities may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then the certificates or book entry notations evidencing such Securities shall be free of all legends. The Company agrees that following such time as such legend is no longer required under this Section 4.1(c), the Company will, no later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Securities, as applicable, issued with a restrictive legend (such second (2nd) Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Securities subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of a certificate representing Securities issued with a restrictive legend.

  

 

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

 

4.2    Furnishing of Information. Until the time that no Purchaser is an “affiliate” (as defined under Rule 144) of the Company, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act.

 

4.3    Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

 

4.4    Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for working capital and general corporate purposes and to fund one or more acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company.

  

4.5    Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced.  Each Purchaser, severally and not jointly with the other Purchasers, and the Company covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company, it will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents.

 

 

4.6     Securities Laws Disclosure; Publicity. On or before 8:30 a.m., New York City time, on the first Business Day following the date of this Agreement, the Company shall issue a press release and on or before 8:30 a.m., New York City time, on the fourth Business Day following the date of this Agreement file a Current Report on Form 8-K describing the terms of the transactions contemplated by this Agreement and disclosing any other material, nonpublic information that the Company may have provided to any Purchaser at any time prior thereto and attaching the material Transaction Documents (including, without limitation, this Agreement) as exhibits to such filing (including all attachments, the “Form 8-K”). From and after the filing of the Form 8-K, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the filing of the Form 8-K, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the other hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal securities law in connection with the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

 

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

 

4.8     Listing of Common Stock. The Company hereby agrees to use reasonable best efforts to maintain the listing or quotation of the Common Stock on Nasdaq Capital Market (which is the Trading Market on which the Common Stock is listed as of the date hereof) and to secure the listing of all of the Securities on the Nasdaq Capital Market with immediate effect upon the issuance of the Securities. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will then include in such application all of the Securities, and will take such other action as is necessary to cause all of the Securities to be listed or quoted on such other Trading Market as promptly as possible. The Company will then take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market. he Company agrees to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.

 

4.9     Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant to Section 4.6, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented in writing to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material, non-public information to a Purchaser without such Purchaser’s consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that the Purchaser shall remain subject to applicable law. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non- public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

  

 

4.10   Indemnification by Company. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance) or (c) in connection with any registration statement of the Company providing for the resale by the Purchasers of the Securities, the Company will indemnify each Purchaser Party, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses, as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in such registration statement, any prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder in connection therewith. If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (x) the employment thereof has been specifically authorized by the Company in writing, (y) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (z) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (1) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (2) to the extent, but only to the extent that a loss, claim, damage or liability is finally adjudicated to be attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

 

 

4.11    Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Common Stock with respect to dividends attendant to the Series C Preferred Stock and in connection with the conversion of Series C Preferred Stock pursuant to this Agreement and as set forth in the Series C Certificate of Designations.

  

4.12    Form D; Blue Sky Filings. The Company agrees to timely file a Form D, if required by applicable law, with respect to the Series C Preferred Stock as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Series C Preferred Stock for sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States and shall provide evidence of such actions promptly upon request of any Purchaser.

 

4.13    Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.14    Conversion Procedures. The form of Notice of Conversion included in the Series C Certificate of Designation sets forth the totality of the procedures required of the Purchasers in order to convert the Series C Preferred Stock. Without limiting the preceding sentences, no ink-original Notice of Exercise or Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise or Notice of Conversion form be required in order to convert the Series C Preferred Stock. No additional legal opinion, other information or instructions shall be required of the Purchasers to convert their Series C Preferred Stock. The Company shall honor conversions of the Series C Preferred Stock and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

4.15    Registration Statement. As soon as practicable (and in any event within 60 calendar days of the final Closing of the Offering), the Company shall file a registration statement on Form S-3 (or any other available form) providing for the resale by the Purchasers of the Conversion Shares and Dividend Shares. The Company shall cause such registration to become effective within 90 days of the filing of such registration statement (120 days in the event the Commission elects to review such registration statement). Purchaser agrees that the information set forth on its signature page is accurate and sufficient for purposes of the Company’s preparation of the selling stockholder table and related footnotes registration statement.

 

ARTICLE V.

MISCELLANEOUS

 

5.1     Termination.  This Agreement may be terminated prior to Closing by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the Company and the Placement Agent on or before the fifth (5th) Trading Day following the date hereof and provided that Closing has not yet occurred; provided, however, that no such termination will affect the right of any party to sue for any breach by any other party (or parties).

 

5.2     Fees and Expenses. Except as expressly set forth in the Transaction Documents, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any conversion or exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

 

 

5.3    Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.4    Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment as set forth on the signature pages attached hereto (or, with respect to an assignee or transferee of Securities as contemplated by Section 5.7, at the contact information of such Person provided to the Company in connection with such assignment or transfer) at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2^nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.

 

5.5    Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers representing at least 51% of the total Series C Preferred Stock to be purchased hereunder or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought, provided that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations of any Purchaser relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent of such adversely affected Purchaser, Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company.

 

5.6     Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7     Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing, as a pre-condition to such assignment or transfer, to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

5.8     No Third-Party Beneficiaries. The Placement Agent shall be a third-party beneficiary of the representations and warranties of the Company in Section 3.1 and the representations and warranties of the Purchasers in Section 3.2. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10 and this Section 5.8.

 

5.9     Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, the prevailing party in such action or proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

 

5.10     Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.11     Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.12     Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that, in the case of a rescission of a conversion of the Series C Preferred Stock, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion.

 

5.13     Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.14     Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been, or has had the opportunity to be, represented by its own separate legal counsel in its review and negotiation of the Transaction Documents.

 

 

5.15     Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.16     Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

  

5.17     WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

5.18     Survival. All of the agreements, representations and warranties made by each party hereto in this Agreement shall survive the Closing.

 

5.19     Placement Agent Fees. Each Purchaser acknowledges that it is aware that Aegis Capital Corp., as Placement Agent, has been retained by the Company as placement agent and in such capacity will receive from the Company, in consideration of its services in respect of the transactions contemplated hereby: (a) a cash placement fee (the “Agent’s Fee”) equal to ten percent (10%) of the aggregate gross proceeds from the sale of the shares of Series C Preferred Stock to Purchasers; provided that the Agent’s Fee shall equal five percent (5%) of the aggregate gross proceeds from the sale of shares to Company sourced investors (b) warrants (the “Placement Agent Warrants”) to purchase 13% of the shares of Common Stock initially issuable upon conversion of the shares of Series C Preferred Stock sold at each Closing; provided that the Placement Agent Warrant coverage shall equal ten percent (10%) with respect to any Shares sold to Company-sourced investors and (c) a non-accountable expense allowance equal to three percent (3%) of the gross proceeds from investors, provided that such allowance shall be one and a half percent (1.5%) with respect to the sale of Shares to any Company-sourced investors. For clarity, the Placement Agent shall not receive compensation on purchases of Series C Preferred hereunder by any investors introduced by Twill Inc. or by investments hereunder by Nantahala Capital Management, LLC or its related entities.

 

(Signature Pages Follow)

 

 

 

 

 

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

 

DARIOHEALTH CORP.
By:
	Name:	Erez Raphael
	Title:	Chief Executive Officer

 

Address for Notice:

5 Tarshish

Caesarea Industrial Park

3088900, Israel

Fax Number: +(972)-(4) 770 4060

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

Sullivan & Worcester LLP

1633 Broadway

New York, NY 10019

Fax Number: (212) 660-3001

Attention: Oded Har-Even, Esq., Ron Ben-Bassat, Esq.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

 

 

 

PURCHASER SIGNATURE PAGES

 

By execution and delivery of this signature page, the undersigned is agreeing to become (i) a Purchaser, as defined in that certain Securities Purchase Agreement (the “Purchase Agreement”) by and among the Company (as defined in the Purchase Agreement) and the Purchasers (as defined in the Purchase Agreement), dated as of January __, 2024 and (ii) bound by the terms and conditions of the Agreement. Furthermore, by signing below, the undersigned is acknowledging having read the representations in the Purchase Agreement contained in Section 3.2 entitled “Representations and Warranties of the Purchasers,” and hereby represents that the statements contained therein are complete and accurate with respect to the undersigned as a Purchaser as of the date indicated below and agrees to promptly notify the Company and the Placement Agent in writing to the extent that such representations and warranties are no long complete and accurate at any time prior to the closing of his/her/its investment.

 

 

 

PURCHASER:

 

For Individuals	For Entities
Name of Purchaser       Signature of Purchaser	Name of Purchaser       Signature of Authorized Person       Print Name of Authorized Person       Print Title of Authorized Person

 

AGGREGATE SUBSCRIPTION AMOUNT FOR SHARES OF SERIES C PREFERRED STOCK SOUGHT TO BE PURCHASED: $__________________

 

AGGREGATE SUBSCRIPTION AMOUNT ACCEPTED AT TIME OF CLOSING: $________________

 

 

 

For Individuals and Entities   Street Address _______________________________________________________   City, State, Zip _______________________________________________________   E-Mail Address: __________________________________   Cell/Mobile Number: _________________________________

 

 

Exhibit 10.4

 

PLACEMENT AGENCY AGREEMENT

 

December 28, 2023

 

Aegis Capital Corp.

1345 Avenue of the Americas, 27^th Floor

New York, NY 10105

 

Re:       DarioHealth Corp.

 

Ladies and Gentlemen:

 

This Placement Agency Agreement (“Agreement”) sets forth the terms upon which Aegis Capital Corp., a New York corporation (“Aegis” or “Placement Agent”), a registered broker-dealer and member of the Financial Industry Regulatory Authority (“FINRA”), shall be engaged by DarioHealth Corp., a Delaware corporation (the “Company”) to act as exclusive Placement Agent in connection with the private placement (the “Offering”) of shares (“Shares”) of Series C Convertible Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock”). The Offering will consist of a minimum of 20,000 Shares ($20,000,000) (“Minimum Offering Amount”) and up to a maximum of 30,000 Shares ($30,000,000) (“Maximum Offering Amount”) which shall be offered on a “reasonable efforts, all or none” basis as to the Minimum Offering Amount and a “reasonable efforts” basis for all amounts in excess of the Minimum Offering Amount. In the event the Offering is oversubscribed, the Company and Placement Agent may, in their mutual discretion, have Company sell up to 10,000 additional Shares for an additional aggregate purchase price of $10,000,000 (the “Overallotment”). For purposes hereof, this Agreement shall also cover and the term “Shares” shall include to the potential issuance and sale of another series of convertible preferred stock of the Company, with identical rights and preferences as the Series C Preferred Stock being sold in the Offering (except for voting provisions) and which may be sold to certain persons due to concerns relating to beneficial ownership limitations, as well as additional sub-series of Series C Preferred Stock which may be sold at closings subsequent to the First Closing (as hereinafter defined).

 

The purchase price for the Shares will be $1,000 per Share (the “Offering Price”), with a minimum investment of $100,000; provided, however, that subscriptions for lesser amounts may be accepted in the Company’s and Placement Agent’s joint discretion. The Placement Agent shall accept subscriptions only from persons or entities who qualify as “accredited investors,” as such term is defined in Rule 501 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The Shares will be offered until the earlier of (i) the termination of the Offering as provided herein, (ii) the time that all Shares offered in the Offering are sold or (iii) January 31, 2024, subject to extension at the mutual agreement of the Company and the Placement Agent to a date no later than February 28, 2024 (the “Offering Period”). The date on which the Offering expires or is terminated shall be referred to as the “Termination Date.”

 

With respect to the Offering, the Company shall provide the Placement Agent, on terms set forth herein, the right to offer and sell all of the Shares being offered. Purchases of Shares may be made by the Placement Agent and its officers, directors, employees and affiliates. All such purchases, together with purchases by officers, directors, employees and affiliates of the Company, shall be included in calculations as to whether the Minimum Offering Amount, Maximum Offering Amount or Overallotment has been sold in the Offering. The Company, in its sole discretion, may accept or reject, in whole or in part, any prospective investment in the Shares. Notwithstanding anything to the contrary set forth herein, it is understood that no sale shall be regarded as effective unless and until accepted by the Company. The Company and the Placement Agent shall mutually agree with respect to allotting any prospective subscriber less than the number of Shares that such subscriber desires to purchase.

 

 

The Offering will be made by the Company solely pursuant to the Disclosure Materials (as defined below), which at all times will be in form and substance reasonably acceptable to the Company, the Placement Agent and their respective counsel and contain such legends and other information as Company, the Placement Agent and their respective counsel, may, from time to time, deem necessary or desirable to be set forth therein. “Disclosure Materials” as used in this Agreement means that certain Securities Purchase Agreement, inclusive of all exhibits and all amendments, supplements, and appendices thereto (the “Purchase Agreement”). Unless otherwise defined, each term used in this Agreement will have the same meaning as set forth in the Purchase Agreement.

 

1.    Appointment of Placement Agent. On the basis of the representations and warranties provided herein, and subject to the terms and conditions set forth herein, the Placement Agent is appointed as exclusive placement agent for the Company during the Offering Period to assist the Company in finding qualified subscribers for the Offering. The Placement Agent may sell Shares through other broker-dealers who are FINRA members, as well as through foreign finders pursuant to applicable FINRA rules, and may reallow all or a portion of the Agent Compensation (as defined in Section 3(b) below) it receives to such other broker-dealers or foreign finders. On the basis of such representations and warranties and subject to such terms and conditions, the Placement Agent hereby accepts such appointment and agrees to perform its services hereunder diligently and in good faith and in a professional and businesslike manner and to use its reasonable efforts to assist the Company in (A) finding subscribers of Shares who qualify as “accredited investors,” as such term is defined in Rule 501 of Regulation D, and (B) completing the Offering. The Placement Agent has no obligation to purchase any of the Shares. Unless sooner terminated in accordance with this Agreement, the engagement of the Placement Agent hereunder shall continue until the later of the Termination Date or the Final Closing (as defined below).

 

2.    Representations, Warranties and Covenants of the Company. Except as set forth in the Disclosure Materials or the SEC Reports (as defined herein), the representations and warranties of the Company contained in this Section 2 are true and correct as of the date of this Agreement.

 

 

(a)   The Disclosure Materials have been diligently prepared by the Company, in conformity with all applicable laws and the requirements of all other rules and regulations of the Securities and Exchange Commission (the “SEC”) relating to offerings of the type contemplated by the Offering, and the applicable securities laws and the rules and regulations of those jurisdictions wherein the Shares are to be offered and sold. The Shares will be offered and sold pursuant to the registration exemptions provided by Regulation D and Section 4(a)(2) of the Act as a transaction not involving a public offering and the requirements of any other applicable state securities laws and the respective rules and regulations thereunder in those United States jurisdictions in which the Placement Agent notifies the Company that the Shares are being offered for sale. To the extent that the Shares are offered in jurisdictions outside of the United States, the Company shall ensure that such Shares will be offered and sold in compliance with all applicable laws that govern private securities offerings in the applicable country and in all local jurisdictions in which such Shares are offered. None of the Company, its affiliates, or any person acting on its or their behalf (other than the Placement Agent, its affiliates or any person acting on its behalf, in respect of which no representation is made) has taken nor will it take any action that conflicts with the conditions and requirements of, or that would make unavailable with respect to the Offering, the exemption(s) from registration available pursuant to Rule 506(b) of Regulation D or Section 4(a)(2) of the Act, or knows of any reason why any such exemption would be otherwise unavailable to it. None of the Company, its predecessors or affiliates has been subject to any order, judgment or decree of any court of competent jurisdiction temporarily, preliminarily or permanently enjoining such person for failing to comply with Section 503 of Regulation D. The Company has not, for a period of six months prior to the commencement of the offering of Shares, sold, offered for sale or solicited any offer to buy any of its securities in a manner that would be integrated with the offer and sale of the Shares pursuant to this Agreement and would cause the exemption from registration set forth in Rule 506(b) of Regulation D to become unavailable with respect to the offer and sale of the Shares pursuant to this Agreement in the United States. For purposes of this Agreement, "to the Company’s knowledge" or similar phrases means the actual knowledge of either of Erez Raphael or Zvi Ben-David of a fact or matter after making reasonable inquiry.

 

 

(b)    The Disclosure Materials do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. To the best knowledge of the Company, none of the statements, documents, certificates or other items prepared or supplied by the Company with respect to the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made. There is no fact which the Company has not disclosed to the Placement Agent in writing and of which the Company is aware which materially adversely affects or could materially adversely affect the business prospects, financial condition, operations, property or affairs of the Company.

 

(c)    Except for the compensation set forth in this Agreement and described in Section 5.19 of the Purchase Agreement, the Company is not obligated to pay, and has not obligated the Placement Agent to pay, a finder’s or origination fee in connection with the Offering, and hereby agrees to indemnify the Placement Agent from any such claim made by any other person as more fully set forth in Section 8 hereof.

 

(d)    The Company has all requisite corporate power and authority to (i) enter into and perform its obligations under this Agreement and (ii) issue, sell and deliver the Shares, the Agent Warrants and the shares of common stock, par value $0.0001 of the Company (“Common Stock”) issuable upon conversion of the Shares and exercise of the Agent Warrants (as defined in Section 3(b)) (collectively, the “Conversion Shares”). This Agreement has been duly authorized, executed and delivered and constitutes valid and binding obligations of the Company, enforceable against the Company in accordance with its terms (i) except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect related to laws affecting creditors’ rights generally, including the effect of statutory and other laws regarding fraudulent conveyances and preferential transfers, and except that no representation is made herein regarding the enforceability of the Company’s obligations to provide indemnification and contribution remedies under the securities laws and (ii) subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity).

 

 

(e)      The Company, as well as all Company Related Persons (as defined below) are not subject to any of the disqualifications set forth in Rule 506(d) of Regulation D (each a “Disqualification Event”). The Company has exercised reasonable care to determine whether any Company Related Person is subject to a Disqualification Event. The Disclosure Materials contain a true and complete description of the matters required to be disclosed with respect to the Company and the Company Related Persons pursuant to the disclosure requirements of Rule 506(e) of Regulation D, to the extent applicable. As used herein, “Company Related Persons” means any predecessor of the Company, any affiliated Company, any director, executive officer, other officer of the Company participating in the Offering, any general partner or managing member of the Company, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, and any “promoter” (as defined in Rule 405 under the Act) connected with the Company in any capacity. The Company agrees to promptly notify the Placement Agent in writing of (i) any Disqualification Event relating to any Company Related Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Company Related Person.

 

(f)       To the best knowledge of the Company, neither the sale of the Shares by the Company nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. Without limiting the foregoing, the Company is not (a) a person whose property or interests in property are blocked pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) or (b) a person who engages in any dealings or transactions, or be otherwise associated, with any such person. To the best knowledge of the Company, the Company is in compliance, in all material respects, with the USA Patriot Act of 2001 (signed into law October 26, 2001).

 

(g)      For the benefit of the Placement Agent, the Company hereby incorporates by reference all of the representations and warranties as set forth in Section 3.1 of the Purchase Agreement with the same force and effect as if specifically set forth herein.

 

2A. Representations, Warranties and Covenants of Placement Agent. The Placement Agent represents and warrants to Company that the following representations and warranties are true and correct as of the date of this Agreement:

 

(a)    Aegis is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has all requisite corporate power and authority to enter into this Agreement and to carry out and perform its obligations under the terms of this Agreement.

 

 

(b)   This Agreement has been duly authorized, executed and delivered by the Placement Agent, and upon due execution and delivery by the Company, this Agreement will be a valid and binding agreement of the Placement Agent enforceable against it in accordance with its terms, except as may be limited by principles of public policy and, as to enforceability, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting creditor’s rights from time to time in effect and subject to general equity principles.

 

(c)   The Placement Agent is a member in good standing of FINRA and is registered as a broker-dealer under the Exchange Act, and under the securities acts of each state into which it is making offers or sales of the Shares. The Placement Agent is in compliance with all applicable rules and regulations of the SEC and FINRA, except to the extent that such noncompliance would not have a material adverse effect on the transactions contemplated hereby. None of the Placement Agent or its affiliates, or any person acting on behalf of the foregoing (other than Company or its affiliates or any person acting on its or their behalf, in respect of which no representation is made) has taken nor will it take any action that conflicts with the conditions and requirements of, or that would make unavailable with respect to the Offering, the exemption(s) from registration available pursuant to Rule 506 of Regulation D or Section 4(a)(2) of the Act, or knows of any reason why any such exemption would be otherwise unavailable to it.

 

(d)   None of the execution and delivery of or performance by the Placement Agent under this Agreement or any other agreement or document entered into by the Placement Agent in connection herewith or the consummation of the transactions herein or therein contemplated conflicts with or violates, any agreement or other instrument to which the Placement Agent is a party or by which its assets may be bound, or any term of its certificate of incorporation or by-laws, or any license, permit, judgment, decree, order, statute, rule or regulation applicable to Placement Agent or any of its assets, except in each case as would not have a material adverse effect on the transactions contemplated hereby.

 

(e)   Neither Placement Agent nor any Placement Agent Related Persons (as defined below) are subject to any Disqualification Event. Placement Agent has exercised reasonable care to determine whether any Placement Agent Related Person is subject to a Disqualification Event. The Disclosure Materials contains a true and complete description of the matters required to be disclosed with respect to Placement Agent and Placement Agent Related Persons pursuant to the disclosure requirements of Rule 506(e) of Regulation D, to the extent applicable. As used herein, “Placement Agent Related Persons” means any director, general partner, managing member, executive officer, or other officer of Placement Agent participating in the Offering. Placement Agent agrees to promptly notify the Company in writing of (i) any Disqualification Event relating to any Placement Agent Related Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Placement Agent Related Person.

 

 

3.    Placement Agent Compensation.

 

(a)   In connection with the Offering, the Company will pay to the Placement Agent at each Closing (as defined in Section 4(e) below) a cash fee (the “Agent Cash Fee”) equal to 10% of the gross proceeds from the sale of the Shares consummated at such Closing, provided, however, that the Agent Cash Fee shall be 5% with respect to sales of Shares that are sold to Company-sourced investors.

 

(b)   As additional compensation, at or within ten (10) business days following the Final Closing, the Company will issue to the Placement Agent (or its designee(s)) for nominal consideration, a five-year warrants (the “Agent Warrants”) to purchase such number of shares of the Company’s Common Stock as is equal to 13.0% of the shares of Common Stock initially issuable upon conversion of the Shares sold at each closing in this Offering (the “Agent Warrant Shares”) at an exercise price equal to the consolidated closing bid price of the shares of Common Stock as quoted on the Nasdaq Capital Market on the date of the applicable closing of the Offering (in compliance with Nasdaq rules) (the Agent Cash Fee and Agent Warrants are sometimes referred to herein collectively as “Agent Compensation”). Notwithstanding the foregoing the Agent Warrant coverage shall equal ten percent (10%) with respect to any Shares sold to Company-sourced investors. The Agent Warrants will be exercisable on a “cashless” basis and for the five-year period following issuance. The Agent Warrants will be in such authorized denominations and will be registered in such names as the Placement Agent shall request in an instruction letter (the “Agent Warrant Instruction Letter”) to be delivered to the Company promptly following the Final Closing and the Company shall deliver such Agent Warrants to the Placement Agent within ten (10) business days following the delivery of the Agent Warrant Instruction Letter.

 

(c)   At each Closing, the Company will pay Aegis a non-accountable expense allowance equal to 3% of the aggregate purchase price of the Shares sold at such Closing, provided that such expense allowance shall be one and a half percent (1.5%) with respect to the sale of Shares sold to any Company-sourced investors (the “Agent Expense Allowance”). The Agent Expense Allowance payable at the First Closing shall be reduced by the $25,000 advance paid to Aegis previously. The Placement Agent will not bear any of the Company’s legal, accounting, printing or other expenses in connection with any transaction contemplated hereby. Aegis will pay for its own expenses, including all its legal fees and expenses, from the Agent Expense Allowance.

 

(d)   Notwithstanding anything contained herein to the contrary, the Agent Compensation or the Agent Expense Allowance on purchases of Series C Preferred by (i) any investors introduced by Twill Inc. or (ii) Nantahala Capital Management, LLC or its related entities.

 

(e)   The Company shall also pay and issue to the Placement Agent the Agent Compensation calculated according to the percentages set forth in Sections 3(a) and (b) of this Agreement, if any person or entity introduced by the Placement Agent (for clarification, excluding Company-sourced investors) and with whom the Placement Agent has discussions regarding a potential investment in the Offering invests in the Company (other than through open market purchases or securities purchased in any underwritten public offering) irrespective of whether such potential investor purchased Shares in the Private Placement (the “Tail Investors”) at any time prior to the earlier of the date that is 12 months after the Termination Date or the Final Closing (“Tail Period”), whichever is applicable. The names of Tail Investors shall be provided in writing by the Placement Agent to the Company upon written request within fifteen (15) business days following the Termination Date or the Final Closing, as the case may be (the “Tail Investor List”). The Company acknowledges and agrees that the Tail Investor List, except for any Company-sourced investors on such Tail Investor List, is proprietary to the Placement Agent, shall be maintained in strict confidence by the Company and those persons/entities on such list shall not be contacted by the Company without the Placement Agent’s prior written consent; provided, however, that such restrictions shall not apply to ordinary course shareholder communications by the Company to its shareholders, including those Tail Investors that are shareholders of the Company.

 

 

4.     Subscription and Closing Procedures.

 

(a)    The Company shall cause to be delivered to the Placement Agent copies of the Disclosure Materials, consents to the use of such copies for the purposes permitted by the Act and applicable securities laws and in accordance with the terms and conditions of this Agreement, and hereby authorizes Placement Agent and its agents and employees to use the Disclosure Materials in connection with the offering of the Shares until the earlier of (i) the Termination Date or (ii) the Final Closing. No person or entity is or will be authorized to give any information or make any representations other than those contained in the Disclosure Materials or to use any offering materials other than those contained in the Disclosure Materials in connection with the sale of the Shares.

 

(b)    During the Offering Period, the Company shall make available to the Placement Agent and its representatives such information as may be reasonably requested in making a reasonable investigation of the Company Group and their respective affairs and shall provide access to such employees during normal business hours as shall be reasonably requested by the Placement Agent.

 

(c)    Each prospective purchaser will be required to complete and execute an original signature pages to the Subscription Agreement (the “Subscription Documents”), which will be forwarded or delivered to the Placement Agent at the Placement Agent’s offices at the address set forth in Section 12 hereof, together with the subscriber’s wire transfer in the full amount of the purchase price for the number of Shares desired to be purchased, subject to the Escrow Agent’s (as defined below) right to accept a check in lieu of a wire transfer.

 

(d)    All funds for subscriptions received by the Placement Agent from the Offering (not otherwise wired directly to the Escrow Agent) will be promptly forwarded by the Placement Agent and deposited into a non-interest bearing escrow account (the “Escrow Account”) established for such purpose with Continental Stock Transfer & Trust Company, New York, New York (the “Escrow Agent”). All such funds for subscriptions will be held in the Escrow Account pursuant to the terms of an escrow agreement among the Company, the Placement Agent and the Escrow Agent (the “Escrow Agreement”). The Company will pay all fees related to the establishment and maintenance of the Escrow Account and comply with procedures required by the Escrow Agent. The Company will either accept or reject, for any or no reason, the Subscription Documents in a timely fashion and at each Closing, the Company will countersign the Subscription Documents and provide duplicate copies of such documents to the Placement Agent for distribution to the subscribers. The Placement Agent, on the Company’s behalf, will promptly return to subscribers incomplete, improperly completed, improperly executed and rejected subscriptions.

  

 

(e)   If subscriptions for at least the Minimum Offering Amount have been accepted prior to the Termination Date, the funds therefor have been collected by the Escrow Agent and all of the conditions set forth elsewhere in this Agreement are fulfilled, the First Closing shall be held promptly with respect to Shares sold. Thereafter remaining Shares will continue to be offered and sold until the Termination Date and additional closings (each a “Closing”) may from time to time be conducted at times mutually agreed to by the Placement Agent and the Company with respect to additional Shares sold, with the final closing (“Final Closing”) to occur within ten (10) days after the earlier of the Termination Date and the date on which the all Shares has been fully subscribed for. Delivery of payment for the accepted subscriptions for Shares from funds held in the Escrow Account will be made at each Closing against delivery of the Shares by the Company. The Shares will be issued to the investors in the Offering in book entry format at each Closing.

 

(f)     If Subscription Documents for at least the Minimum Offering Amount have not been received and accepted by the Company on or before the Termination Date for any reason, the Offering will be terminated, no Shares will be sold, and pursuant to the terms of the Escrow Agreement, the Escrow Agent will, at the Company’s and the Placement Agent’s written direction, cause all monies received from subscribers for the Shares to be promptly returned to such subscribers without interest, penalty, expense or deduction and the Placement Agent and Company will promptly cooperate to accomplish the foregoing, including providing Escrow Agent with any requested written instructions in such regard.

 

5.    Further Covenants. The Company hereby covenants and agrees that:

 

(a)   Except upon prior written notice to the Placement Agent, the Company shall not, at any time prior to the Final Closing, knowingly take any action which would cause any of the representations and warranties made by it in this Agreement not to be complete and correct in all material respects on and as of each Closing Date with the same force and effect as if such representations and warranties had been made on and as of each such date (except to the extent any representation or warranty relates to an earlier date).

 

(b)    If, at any time prior to the Final Closing, any event shall occur that causes a Company Material Adverse Effect or otherwise which as a result it becomes necessary to amend or supplement the Disclosure Materials so that the representations and warranties herein remain true and correct in all material respects, or in case it shall be necessary to amend or supplement the Disclosure Materials to comply with Regulation D or any other applicable securities laws or regulations, the Company will promptly notify the Placement Agent and shall, at its sole cost, prepare and furnish to the Placement Agent copies of appropriate amendments and/or supplements in such quantities as the Placement Agent may reasonably request for delivery by the Placement Agent to potential subscribers. The Company will not at any time before the Final Closing prepare or use any amendment or supplement to the Disclosure Materials of which the Placement Agent will not previously have been advised and furnished with a copy, or which is not in compliance in all material respects with the Act and other applicable securities laws. As soon as the Company is advised thereof, the Company will advise the Placement Agent and its counsel, and confirm the advice in writing, of any order preventing or suspending the use of the Disclosure Materials, or the suspension of any exemption for such qualification or registration thereof for offering in any jurisdiction, or of the institution or threatened institution of any proceedings for any of such purposes, and the Company will use its reasonable best efforts to prevent the issuance of any such order and, if issued, to obtain as soon as reasonably possible the lifting thereof.

 

 

(c)   The Company shall comply with the Act, the Exchange Act and the rules and regulations thereunder, all applicable state securities laws and the rules and regulations thereunder in the states in which the Company’s blue sky counsel has advised the Placement Agent that the Shares are qualified or registered for sale or exempt from such qualification or registration, so as to permit the continuance of the sales of the Shares, and will file or cause to be filed with the SEC, and shall promptly thereafter forward or cause to be forwarded to the Placement Agent, any and all reports on Form D as are required.

 

(d)   The Company shall use its best efforts to qualify the Shares for sale under the securities laws of such jurisdictions in the United States as may be mutually agreed to by the Company and the Placement Agent, and Company will make or cause to be made such applications and furnish information as may be required for such purposes, provided that Company will not be required to qualify as a foreign corporation in any jurisdiction or execute a general consent to service of process. The Company will, from time to time, prepare and file such statements and reports as are or may be required to continue such qualifications in effect for so long a period as the Placement Agent may reasonably request with respect to the Offering.

 

(e)   The Company shall place a legend on the certificates representing the Shares and the Agent Warrants that the securities evidenced thereby have not been registered under the Act or applicable state securities laws, setting forth or referring to the applicable restrictions on transferability and sale of such securities under the Act and applicable state laws.

 

(f)     The Company shall apply the net proceeds from the sale of the Shares for the purposes substantially as described in the Disclosure Materials. Except as set forth in the Disclosure Materials, the Company shall not use any of the net proceeds of the Offering to repay indebtedness to officers (other than accrued salaries incurred in the ordinary course of business), directors or shareholders of the Company without the prior written consent of the Placement Agent.

 

(g)    During the Offering Period, the Company shall afford each prospective purchaser of Shares the opportunity to ask questions of and receive answers from an officer of the Company concerning the terms and conditions of the Offering and the opportunity to obtain such other additional information necessary to verify the accuracy of the Disclosure Materials to the extent the Company possesses such information or can acquire it without unreasonable expense. In addition, to the extent that any purchaser of Shares has inquiries concerning any of the business or operations of any member of the Company Group, the Company shall use reasonable best efforts to ensure that officers of such members are made available to respond to such inquiries.

 

 

(h)     Except upon obtaining the prior written consent of Aegis, which consent shall not be unreasonably withheld, the Company shall not, at any time prior to the earlier of the Final Closing or the Termination Date, except as contemplated by the Disclosure Materials (i) engage in or commit to engage in any transaction outside the ordinary course of business, (ii) issue, agree to issue or set aside for issuance any securities (debt or equity) or any rights to acquire any such securities; provided, that the Company shall be permitted to issue stock options and/or restricted stock to officers, advisors, directors and employees of the Company pursuant to its existing equity incentive plan as described in the SEC Reports, (ii) incur, outside of the ordinary course of business, any material indebtedness, (iii) dispose of any material assets, (iv) make any acquisition (except to the extent specifically referenced in the Disclosure Materials) or (v) change its business or operations.

 

(i)      The Company shall pay all reasonable expenses incurred in connection with the preparation and printing of all necessary offering documents and instruments related to the Offering and the issuance of the Shares and the Agent Warrants and will also pay its own expenses for accounting fees, legal fees and other costs involved with the Offering. All blue sky filings related to this Offering shall be prepared by the Company’s counsel, at the Company’s expense, with copies of all filings to be promptly forwarded to the Placement Agent. Further, as promptly as practicable after the Final Closing, the Company shall prepare, at its own expense, velobound “closing binders” relating to the Offering and will distribute one such binder to each of the Placement Agent and its counsel.

 

(j)      Until the earlier of the Termination Date or the Final Closing, the Company will not, nor will any person or entity acting on Company’s behalf, negotiate with any other placement agent or underwriter with respect to a private or public offering of such entity’s debt or equity securities. Neither the Company nor anyone acting on the Company’s behalf will, until the earlier of the Termination Date or the Final Closing, without the prior written consent of the Placement Agent, offer for sale to, or solicit offers to subscribe for any securities of the Company from, or otherwise approach or negotiate in respect thereof with, any other person.

 

5A.   Placement Agent Further Covenants. The Placement Agent shall not, at any time during the Offering Period, knowingly take any action which would cause any of the representations and warranties made by it in this Agreement not to be complete and correct in all material respects on and as of each Closing Date with the same force and effect as if such representations and warranties had been made on and as of each such date (except to the extent any representation or warranty relates to an earlier date). Offers and sales of the Shares by the Placement Agent will be made in accordance with this Agreement and in compliance with the provisions of Regulation D, Regulation S, if applicable, and the Securities Act. 

 

6.   Conditions of Placement Agent’s Obligations. The obligations of the Placement Agent hereunder to effect a Closing are subject to the fulfillment, at or before each Closing, of the following additional conditions:

  

(a)    Each of the representations and warranties made in this Agreement by the Company qualified as to materiality shall be true and correct at all times prior to and on each Closing Date, except to the extent any such representation or warranty expressly relates to an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date, and the representations and warranties made by the Company not qualified as to materiality shall be true and correct in all material respects at all times prior to and on each Closing Date, except to the extent any such representation or warranty expressly relates to an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date.

 

 

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

 

(c)     The Disclosure Materials shall not, and as of the date of any amendment or supplement thereto will not, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

(d)     The Company shall have obtained all consents, waivers and approvals required to be obtained by such parties in connection with the consummation of the transactions contemplated hereby.

 

(e)     No order suspending the use of the Disclosure Materials or enjoining the Offering or sale of the Shares shall have been issued, and no proceedings for that purpose or a similar purpose shall have been initiated or pending, or, to Company’s knowledge, threatened.

 

(f)      The Placement Agent shall have received a certificate of an officer of the Company, dated as of the date of such Closing, certifying, as to the fulfillment of the conditions set forth in subparagraphs (a), (b), (c), (d) and (e) above.

 

(g)     Prior to the First Closing, the Company shall have delivered to the Placement Agent: (i) a certified charter document and good standing certificate for the Company and each Subsidiary, each dated as of a date within ten (10) days prior to the First Closing from the secretary of state of its jurisdiction of incorporation or formation, as applicable, and (ii) resolutions of the Company’s board of directors approving this Agreement and the transactions and agreements contemplated by this Agreement, certified by the Chief Executive Officer of the Company.

 

(h)     At each Closing, the Company shall pay and/or issue to the Placement Agent the Agent Cash Fee and Agent Expense Allowance earned in such Closing.

 

(i)      At each Closing, the Company shall deliver to the Placement Agent a signed opinion of Sullivan & Worcester, counsel to the Company, dated as of each such Closing Date, in a form reasonably acceptable to the Placement Agent and consistent with prior financings that Dario has consummated with the Placement Agent.

 

 

(j)      Prior to the First Closing, the Company shall provide evidence of the filing of the Certificate of Designation on the Series C Preferred Stock with the State of Delaware.

 

(k)     All proceedings taken at or prior to any Closing in connection with the authorization, issuance and sale of the Shares will be reasonably satisfactory in form and substance to the Placement Agent and its counsel, and such counsel shall have been furnished with all such documents and certificates as it may reasonably request upon reasonable prior notice in connection with the transactions contemplated hereby.

 

(l)      At each Closing, the Company shall provide irrevocable instructions to its transfer agent to issue into treasury shares, and reserve for future and automatic issuance upon the requested conversion of the Shares by any holder, such number of shares of Common Stock issuable upon the conversion of the Shares sold in such Closing.

 

7.     Conditions of Company’s Obligations. The obligations of the Company hereunder to effect a Closing are subject to the fulfillment, at or before such Closing, of the following additional conditions or subject to the waiver of such condition or conditions by the Company:

  

(a)     Each of the representations and warranties made in this Agreement by the Placement Agent qualified as to materiality shall be true and correct at all times prior to and on each Closing Date, except to the extent any such representation or warranty expressly relates to an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date, and the representations and warranties made by the Placement Agent not qualified as to materiality shall be true and correct in all material respects at all times prior to and on each Closing Date, except to the extent any such representation or warranty expressly relates to an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date.

 

(b)     The Placement Agent shall have performed and complied in all material respects with all agreements, covenants and conditions required to be performed and complied with by it at or before the Closing.

 

(c)     The Company shall have received a certificate of an officer of the Placement Agent, dated as of the Closing Date, certifying, as to the fulfillment of the conditions set forth in subparagraphs (a) and (b) above.

 

(d)     No order suspending the use of the Disclosure Materials or enjoining the Offering or sale of the Shares shall have been issued, and no proceedings for that purpose or a similar purpose shall have been initiated or pending, or, to the Company’s knowledge, be contemplated or threatened.

 

 

8.    Indemnification.

  

(a)    The Company will: (i) indemnify and hold harmless the Placement Agent, its officers, directors, partners, employees, agents (including subagents and selected dealers) and each person, if any, who controls the Placement Agent within the meaning of the Section 15 of the Act or Section 20(a) of the Exchange Act (each an “Indemnitee”) against, and pay or reimburse each Indemnitee for, any and all losses, claims, damages, liabilities or expenses whatsoever (or actions or proceedings or investigations in respect thereof), joint or several (which will, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys’ fees, including appeals), to which any Indemnitee may become subject under the Act or otherwise, in connection with the offer and sale of the Shares, insofar as such losses, claims, damages, liabilities or expenses arise out of or relate to a breach of any representation, warranty or covenant made by the Company herein, regardless of whether such losses, claims, damages, liabilities or expenses shall result from any claim by any Indemnitee or by any third party; and (ii) reimburse each Indemnitee for any legal or other expenses reasonably incurred in connection with investigating or defending against any such loss, claim, action, proceeding or investigation; provided, however, that the Company will not be liable in any such case to the extent that any such claim, damage or liability is finally judicially determined to have resulted primarily and directly from (A) an untrue statement or alleged untrue statement of a material fact made in the Disclosure Materials, or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, made solely in reliance upon and in conformity with written information furnished to the Company by the Placement Agent specifically for use in the Disclosure Materials, (B) any violations by the Placement Agent of the Act, state securities laws or any rules or regulations of FINRA, which does not result from a violation thereof by the Company or any of its affiliates, or (C) the Placement Agent’s willful misconduct or gross negligence. In addition to the foregoing agreement to indemnify and reimburse, the Company will indemnify and hold harmless each Indemnitee against any and all losses, claims, damages, liabilities or expenses whatsoever (or actions or proceedings or investigations in respect thereof), joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys’ fees, including appeals) to which any Indemnitee may become subject insofar as such costs, expenses, losses, claims, damages or liabilities arise out of or are based upon the claim of any person or entity that he or it is entitled to broker’s or finder’s fees from any Indemnitee in connection with the Offering, other than fees due to the Placement Agent. The foregoing indemnity agreements will be in addition to any liability the Company may otherwise have.

 

(b)    Aegis will indemnify and hold harmless the Company and its officers, directors, and each person, if any, who controls such entity within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against, and pay or reimburse any such person for, any and all losses, claims, damages, liabilities or expenses whatsoever (or actions, proceedings or investigations in respect thereof) to which the Company or any such person may become subject under the Act or otherwise, whether such losses, claims, damages, liabilities or expenses shall result from any claim of the Company or by any third party, but only to the extent that such losses, claims, damages or liabilities are finally judicially determined to have resulted primarily from or as a result of (i) any untrue statement or alleged untrue statement of any material fact contained in the Disclosure Materials made in reliance upon and in conformity with information contained in the Disclosure Materials relating to the Placement Agent, or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in either case, if made or omitted in reliance upon and in conformity with written information furnished to the Company by the Placement Agent, specifically for use in the Disclosure Materials or (ii) any violations by the Placement Agent of the Act or state securities laws which does not result from a violation thereof by the Issuer, the Operating Company or any of their respective affiliates, the Placement Agent’s willful misconduct or gross negligence. The Placement Agent will reimburse the Company, the Company and any such person for any legal or other expenses reasonably incurred in connection with investigating or defending against any such loss, claim, damage, liability or action, proceeding or investigation to which such indemnity obligation applies. The foregoing indemnity agreements are in addition to any liability which the Placement Agent may otherwise have. Notwithstanding the foregoing, in no event shall the Placement Agent’s indemnification obligation hereunder exceed the aggregate amount of the Agent Cash Fees actually received by the Placement Agent hereunder.

 

 

(c)    Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, claim, proceeding or investigation (the “Action”), such indemnified party, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, will notify the indemnifying party of the commencement thereof, but the omission to so notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party under this Section 8 unless the indemnifying party has been substantially prejudiced by such omission. The indemnifying party will be entitled to participate in and, to the extent that it may wish, jointly with any other indemnifying party, to assume the defense thereof subject to the provisions herein stated, with counsel reasonably satisfactory to such indemnified party. The indemnified party will have the right to employ separate counsel in any such Action and to participate in the defense thereof, but the fees and expenses of such counsel will not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the Action with counsel reasonably satisfactory to the indemnified party, provided, however, that if the indemnified party shall be requested by the indemnifying party to participate in the defense thereof or shall have concluded in good faith and specifically notified the indemnifying party either that there may be specific defenses available to it that are different from or additional to those available to the indemnifying party or that such Action involves or could have a material adverse effect upon it with respect to matters beyond the scope of the indemnity agreements contained in this Agreement, then the counsel representing it, to the extent made necessary by such defenses, shall have the right to direct such defenses of such Action on its behalf and in such case the reasonable fees and expenses of such counsel in connection with any such participation or defenses shall be paid by the indemnifying party. No settlement of any Action against an indemnified party will be made without the consent of the indemnifying party and the indemnified party, which consent shall not be unreasonably withheld, delayed or conditioned in light of all factors of importance to such party, and no indemnifying party shall be liable to indemnify any person for any settlement of any such claim effected without such indemnifying party’s consent.

 

9.      Contribution. To provide for just and equitable contribution, if: (i) an indemnified party makes a claim for indemnification pursuant to Section 8 hereof and it is finally determined, by a judgment, order or decree not subject to further appeal that such claims for indemnification may not be enforced, even though this Agreement expressly provides for indemnification in such case; or (ii) any indemnified or indemnifying party seeks contribution under the Act, the Exchange Act, or otherwise, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Placement Agent on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Placement Agent on the other shall be deemed to be in the same proportion as the total net proceeds from the Offering (before deducting expenses) received by the Company bear to the total Agent Cash Fees received by the Placement Agent. The relative fault, in the case of an untrue statement, alleged untrue statement, omission or alleged omission will be determined by, among other things, whether such statement, alleged statement, omission or alleged omission relates to information supplied by the Company or by the Placement Agent, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement, alleged statement, omission or alleged omission. The Company and the Placement Agent agree that it would be unjust and inequitable if the respective obligations of the Company and the Placement Agent for contribution were determined by pro rata allocation of the aggregate losses, liabilities, claims, damages and expenses or by any other method or allocation that does not reflect the equitable considerations referred to in this Section 9. No person guilty of a fraudulent misrepresentation (within the meaning of Section 10(f) of the Act) will be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this Section 9, each person, if any, who controls the Placement Agent within the meaning of the Act will have the same rights to contribution as the Placement Agent, and each person, if any, who controls the Company within the meaning of the Act will have the same rights to contribution as the Company, subject in each case to the provisions of this Section 9. Anything in this Section 9 to the contrary notwithstanding, no party will be liable for contribution with respect to the settlement of any claim or action effected without its written consent. This Section 9 is intended to supersede, to the extent permitted by law, any right to contribution under the Act, the Exchange Act or otherwise available.

 

 

 

10.    Termination.

  

(a)    The Offering may be terminated by the Placement Agent at any time prior to the expiration of the Offering Period in the event that: (i) any of the representations, warranties or covenants of the Company contained herein or in the Disclosure Materials shall prove to have been false or misleading in any material respect when actually made; (ii) the Company shall have failed to perform any of its material obligations hereunder or under any other Transaction Documents; (iii) there shall occur any event that could reasonably be expected to result in a Company Material Adverse Effect or (iv) the Placement Agent determines that it is reasonably likely that any of the conditions to Closing set forth herein will not, or cannot, be satisfied. In the event of any such termination by the Placement Agent pursuant to the above, the Placement Agent shall be entitled to retain any Agent Compensation already earned (if any, at such point in time) and receive from the Company, within five (5) business days of the Termination Date, in addition to other rights and remedies it may have hereunder, at law or otherwise, an amount equal the sum of $75,000 if such termination occurs prior to the First Closing (the “Termination Amount”) upon presentation of a written accounting in reasonable detail, reimbursement of Placement Agent’s reasonable and actual out-of-pocket expenses related to the Offering in excess of the $25,000 previously paid, including but not limited to fees and expenses of its legal counsel (not to exceed $75,000) and due diligence related expenditures (the “PA Expense Reimbursement”) and the provisions of Section 3(d) shall survive in full force and effect.

 

(b)    This Offering may be terminated by the Company at any time prior to the expiration of the Offering Period on account of the Placement Agent’s fraud, willful misconduct or gross negligence. In the event of any such termination pursuant to this Section 10(b), the Placement Agent shall not be entitled to any further compensation pursuant to these termination provisions. 

 

(c)     [Reserved]

 

(d)    This Offering may be terminated upon mutual agreement of the Company and the Placement Agent, at any time prior to the expiration of the Offering Period. In addition, upon the expiration of the Offering Period, the Offering shall terminate without any further action of the parties hereto. If the Offering is terminated pursuant to this Section 10(d), then in cases in which no Closing had been theretofore consummated, the Company’s sole obligation to the Placement Agent shall be the PA Expense Reimbursement which shall be paid within five (5) business days of such termination.

 

(e)   Before any termination by the Placement Agent under Section 10(a) or by the Company under Section 10(b) shall become effective, the terminating party shall give written notice to the other party of its intention to terminate the Offering, which shall set forth the specific grounds for the proposed termination (the “Termination Notice”). If the specified grounds for termination, or their resulting adverse effect on the transactions contemplated hereby, are curable, then the other party shall have ten (10) days from the Termination Notice within which to remove such grounds or to eliminate all of their material adverse effects on the transactions contemplated hereby; otherwise, the Offering shall terminate.

 

(f)   Upon any termination pursuant to this Section 10, the parties to this Agreement will promptly instruct Escrow Agent to cause all monies received with respect to the subscriptions for Shares not closed upon to be promptly returned to such subscribers without interest, penalty or deduction.

 

11.   Survival.

  

(a)   The obligations of the parties to pay any costs and expenses hereunder and to provide indemnification and contribution as provided herein shall survive any termination hereunder. In addition, the provisions of 8 through 16 shall survive the sale of the Shares or any termination of the Offering hereunder and the provisions of Sections 3(d) shall survive the sale of the Shares or any termination of the Offering (other than a termination under Section 10(b).

 

(b)   The respective indemnities, covenants, representations, warranties and other statements of Company and the Placement Agent set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of, and regardless of any access to information by, the Company, the Company or the Placement Agent, or any of their officers or directors or any controlling person thereof, and will survive the sale of the Shares or any termination of the Offering hereunder for a period of two (2) years from the earlier to occur of the Final Closing or the termination of the Offering.

 

12.  Notices. All notices and other communications hereunder, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), personally delivered or sent by email and shall be deemed given when so delivered or e-mailed, or if mailed, ten days after such mailing as follows: Aegis Capital Corp., 1345 Avenue of the Americas, 27th Floor, New York, New York 10105, Attention: Adam Stern email: Adam@sternaegis.com, with a copy to: Littman Krooks LLP, 1325 Avenue of the Americas, 15th Floor,, New York, New York 10019, Attention: Steven D. Uslaner, Esq., email: suslaner@littmankrooks.com, and if sent to the Company, to: DarioHealth Corp., 18 W. 18^th Street, New York, NY 10011, Attention: Erez Raphael, CEO, email: Erez@Mydario.com, with a copy to: Sullivan & Worcester LLP, 1633 Broadway, 32nd Floor, New York, Attn: Ron Ben-Bassat, Esq., email: rbenbassat@sullivanlaw.com.

 

13.   Governing Law, Jurisdiction. This Agreement shall be deemed to have been made and delivered in New York City and shall be governed as to validity, interpretation, construction, affect and in all other respects by the internal laws of the State of New York. THE PARTIES AGREE THAT ANY DISPUTE, CLAIM OR CONTROVERSY DIRECTLY OR INDIRECTLY RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE TERMINATION OR VALIDITY HEREOF, ANY ALLEGED BREACH OF THIS AGREEMENT OR THE ENGAGEMENT CONTEMPLATED HEREBY (ANY OF THE FOREGOING, A “CLAIM”) SHALL BE SUBMITTED TO THE JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (“JAMS”), OR ITS SUCCESSOR, IN NEW YORK, FOR FINAL AND BINDING ARBITRATION IN FRONT OF A PANEL OF THREE ARBITRATORS WITH JAMS IN NEW YORK, NEW YORK UNDER THE JAMS COMPREHENSIVE ARBITRATION RULES AND PROCEDURES (WITH EACH OF THE PLACEMENT AGENT AND THE COMPANY CHOOSING ONE ARBITRATOR, AND THE CHOSEN ARBITRATORS CHOOSING THE THIRD ARBITRATOR).  THE ARBITRATORS SHALL, IN THEIR AWARD, ALLOCATE ALL OF THE COSTS OF THE ARBITRATION, INCLUDING THE FEES OF THE ARBITRATORS AND THE REASONABLE ATTORNEYS’ FEES OF THE PREVAILING PARTY, AGAINST THE PARTY WHO DID NOT PREVAIL.  THE AWARD IN THE ARBITRATION SHALL BE FINAL AND BINDING.  THE ARBITRATION SHALL BE GOVERNED BY THE FEDERAL ARBITRATION ACT, 9 U.S.C. SEC. 1-16, AND THE JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATORS MAY BE ENTERED BY ANY COURT HAVING JURISDICTION THEREOF.  THE COMPANY AND THE PLACEMENT AGENT AGREE AND CONSENT TO PERSONAL JURISDICTION, SERVICE OF PROCESS AND VENUE IN ANY FEDERAL OR STATE COURT WITHIN THE STATE AND COUNTY OF NEW YORK IN CONNECTION WITH ANY ACTION BROUGHT TO ENFORCE AN AWARD IN ARBITRATION.

  

14.            Miscellaneous. No provision of this Agreement may be changed or terminated except by a writing signed by the party or parties to be charged therewith. Unless expressly so provided, no party to this Agreement will be liable for the performance of any other party’s obligations hereunder. Either party hereto may waive compliance by the other with any of the terms, provisions and conditions set forth herein; provided, however, that any such waiver shall be in writing specifically setting forth those provisions waived thereby. No such waiver shall be deemed to constitute or imply waiver of any other term, provision or condition of this Agreement. Neither party may assign its rights or obligations under this Agreement to any other person or entity without the prior written consent of the other party.

 

 

 

15.            Entire Agreement; Severability. This Agreement together with any other agreement referred to herein supersedes all prior understandings and written or oral agreements between the parties with respect to the Offering and the subject matter hereof. If any portion of this Agreement shall be held invalid or unenforceable, then so far as is reasonable and possible (i) the remainder of this Agreement shall be considered valid and enforceable and (ii) effect shall be given to the intent manifested by the portion held invalid or unenforceable. 

 

16.            Counterparts. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for all purposes.

 

[Signatures on following page.]

 

 

If the foregoing is in accordance with your understanding of the agreement between the Company and the Placement Agent, kindly sign and return this Agreement, whereupon it will become a binding agreement between the Company and the Placement Agent in accordance with its terms.

 

DARIOHEALTH CORP.

 

 

By:

/s/ Erez Raphael

	Erez Raphael
	Chief Executive Officer

 

Accepted and agreed to this

28th day of December 2023:

 

 

AEGIS CAPITAL CORP.

 

By:	/s/ Adam K. Stern
	Adam K. Stern
	Head of Private Equity Banking

 

 

 

 

 

 

 

 

 

 

Exhibit 10.5

 

AMENDMENT NO. 1 TO

 

PLACEMENT AGENCY AGREEMENT

 

THIS AMENDMENT NO. 1 TO PLACEMENT AGENCY AGREEMENT, dated as of January 31, 2024 (this “Amendment”), is by and between DarioHealth Corp., a Delaware corporation (the “Company”) and Aegis Capital Corp., a New York corporation (the “Placement Agent”), a registered broker-dealer and member of the Financial Industry Regulatory Authority.

 

W I T N E S S E T H

 

WHEREAS, the parties hereto have heretofore entered into a Placement Agency Agreement, dated December 28, 2023 (the “Agreement”); and

 

WHEREAS, the Company and the Placement Agent wish to amend the Agreement on the terms set forth herein.

 

NOW, THEREFORE, the parties hereto, in consideration of the mutual promises herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, hereby agree to amend the Agreement as follows:

 

1.       Definitions; References; Continuation of Agreement. Unless otherwise specified herein, each term used herein that is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to “hereof,” “hereto,” “hereunder,” “herein” and “hereby” and each other similar reference, and each reference to “this Agreement” and each other similar reference, contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. Except as amended hereby, all terms and provisions of the Agreement shall continue unmodified and remain in full force and effect.

 

2.       Amendment. Section 3(b) of the Agreement is hereby amended and restated in its entirety as follows:

 

“(b)       As additional compensation, at or within ten (10) business days following the Final Closing, the Company will issue to the Placement Agent (or its designee(s)) for nominal consideration, a five-year warrants (the “Agent Warrants”) to purchase such number of shares of the Company’s Common Stock as is equal to 14.5% of the shares of Common Stock initially issuable upon conversion of the Shares sold at each closing in this Offering (the “Agent Warrant Shares”) at an exercise price equal to the consolidated closing bid price of the shares of Common Stock as quoted on the Nasdaq Capital Market on the date of the applicable closing of the Offering (in compliance with Nasdaq rules) (the Agent Cash Fee and Agent Warrants are sometimes referred to herein collectively as “Agent Compensation”). Notwithstanding the foregoing, the Agent Warrant coverage shall equal ten percent (10%) with respect to any Shares sold to Company-sourced investors and no Placement Agent Warrants shall be issuable with respect to shares of Series C Preferred sold to any investors introduced by Twill Inc. or by investments by Nantahala Capital Management, LLC or its related entities. The Agent Warrants will be exercisable on a “cashless” basis and for the five-year period following issuance. The Agent Warrants will be in such authorized denominations and will be registered in such names as the Placement Agent shall request in an instruction letter (the “Agent Warrant Instruction Letter”) to be delivered to the Company promptly following the Final Closing and the Company shall deliver such Agent Warrants to the Placement Agent within ten (10) business days following the delivery of the Agent Warrant Instruction Letter”.

 

 

3.       Extension of Offering Period. The Company and the Placement Agent have mutually agreed to extend the Offering Period from January 31, 2024, to February 28, 2024.

 

4.       Counterparts. This Amendment may be executed in two or more counterparts, all of which when taken together 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, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

4.       Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

 

[SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on the date first above written.

 

 

DARIOHEALTH CORP.
By: /s/ Erez Raphael
Erez Raphael
Chief Executive Officer
AEGIS CAPITAL CORP.
By: /s/ Adam Stern
Name: Adam Stern
Title: Head of Private Equity Banking

 

 

Exhibit 10.6

 

FIRST AMENDMENT TO

LOAN AND SECURITY AGREEMENT AND SUPPLEMENT

 

THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT AND SUPPLEMENT (this “Amendment”) is dated as of February 15, 2024, and is entered into by and among DARIOHEALTH CORP., a Delaware corporation (“Parent”), PSYINNOVATIONS, INC., a Delaware corporation (together with Parent, each individually, a “Borrower,” and collectively, “Borrower”), LabStyle Innovation Ltd., an Israeli private company (“Guarantor”), AVENUE VENTURE OPPORTUNITIES FUND II, L.P., a Delaware limited partnership (“Avenue 2”) and AVENUE VENTURE OPPORTUNITIES FUND, L.P., a Delaware limited partnership (in the capacity as administrative agent and collateral agent, “Agent,” and, together with Avenue 2, each individually, a “Lender,” and collectively, “Lenders”). Capitalized terms used herein without definition shall have the same meanings given them in the Loan Agreement (defined herein).

 

RECITALS

 

A.             Borrower, Guarantor, Lenders and Agent have entered into that certain Loan and Security Agreement (the “LSA”) dated as of May 1, 2023, as supplemented by that certain Supplement to the Loan and Security Agreement (the “Supplement”) dated as of May 1, 2023 among Borrower, Guarantor, Lenders and Agent, together with related documents and agreements (together, as may be further amended, restated, or otherwise modified from time to time, hereinafter collectively referred to as the “Loan Agreement”).

 

B.             Parent has closed or anticipates closing a round of equity in the amount of at least $20,000,000 (the “New Round”) on or around February 15, 2024 (the “Equity Closing Date”).

 

C.             Concurrent with or immediately following the Equity Closing Date, Parent anticipates entering into that certain Agreement and Plan of Merger (the “Merger Agreement”) with TWILL Merger Sub, Inc. (“Merger Sub”), Twill, Inc. (“Target”) and certain other parties to effect a merger (the “Merger”) of Merger Sub with and into Target, whereupon consummation of the Merger, the separate corporate existence of Merger Sub shall cease and Target shall continue as the surviving company and a wholly owned subsidiary of Parent.

 

D.             In connection with consummation of the Merger, certain indebtedness of Target owing to WhiteHawk Capital Partners LP (“WhiteHawk”) will remain in place or be refinanced, and shall be assigned to Wilmington Savings Fund Society, FSB, as trustee (the “Trustee”) for WhiteHawk and certain other parties. Upon the consummation of the Merger, such indebtedness of Target shall not exceed $10,000,000 and shall continue to be secured by a second Lien in the assets of Target existing immediately prior to the Merger (the “Target Assets”).

 

To facilitate Parent’s completion of the New Round and Merger as described above, Borrower, Guarantor, Lenders and Agent have agreed to amend the Loan Agreement upon the terms and conditions more fully set forth in this Amendment. As used herein, the term “Merger Closing Date” shall mean the “Closing Date” as such term is defined in the Merger Agreement. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed in the Loan Agreement.

 

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be presently legally bound effective as of the Equity Closing Date, the parties hereto agree as follows:

 

1.              DEFINITIONS. Unless otherwise defined herein, all capitalized terms shall have the meaning provided in the Loan Agreement. The recitals set forth above are hereby incorporated by reference.

 

2.             CONSENT AND WAIVER. So long as no Event of Default exists immediately prior to or would exist immediately after the consummation of the Merger, and subject to the conditions set forth in Section 3 below, Lenders and Agent hereby consent to the Merger on the terms set forth in the Merger Agreement. Solely to the extent that the Merger is prohibited by any other provisions of the Loan Agreement, Lenders and Agent hereby waive any Event of Default caused by Parent’s consummation of the Merger. Lenders’ and Agent’s consent to the Merger Agreement and the Merger shall be effective only in this specific instance and for the specific purpose for which it is given, and shall not entitle Parent or Borrower to any other or further consent or release in any similar or other circumstances. Any amendments to the Merger Agreement or other modifications of the terms or waivers of the conditions set forth therein, in each case to the extent adverse to the Agent or Lenders, shall require Agent’s and Lenders’ further consents which they may grant or withhold in their sole discretion. Agent’s and Lenders’ consents shall be further conditioned on the provisions set forth in Section 3.3 below.

 

3.             CONDITIONS.

 

3.1             Delivery of Joinder Agreement, Intellectual Property Security Agreement, Collateral Documents and Guarantee. Within thirty (30) days following the consummation of the Merger: (a) Target and Target’s Israeli subsidiary Twill ISR Ltd. (“Israeli Sub”) shall be joined to the Loan Agreement pursuant to a Joinder Agreement in the form in form and substance reasonably satisfactory to Lenders and Agent; (b) Target and Israeli Sub and shall deliver to Agent Intellectual Property Security Agreements, account control agreements, stock certificates with stock powers signed in blank, and related collateral documents, as applicable, in form and substance reasonably satisfactory to Lenders and Agent; (c) Israeli Sub shall deliver to Agent a guarantee in form and substance reasonably satisfactory to Lenders and Agent.

 

3.2             Delivery of Israeli Security Documents. Within forty-five (45) days following the consummation of the Merger, Israeli Sub shall deliver such Israeli security documents, pledge registration notices and, as applicable, all other documents reasonably required to release any security interests of Liens registered in Israel, and to perfect such Liens being given to Agent in connection with the Israeli security documents, as Agent and Lenders shall require in their discretion.

 

3.3             Delivery of Subordination Agreement. On or before the Merger Closing Date, Trustee shall deliver to Agent a subordination agreement (the “Subordination Agreement”) subordinating Agent’s indebtedness and liens in the Target Assets in substantially the form attached as Exhibit A hereto.

 

3.4             Stockholder Approval to Reprice Warrants. Within 120 days following the Merger Closing Date, Parent shall hold a special meeting of its stockholders to obtain approval from its stockholders to revise the Stock Purchase Price set forth (and as defined) in the Warrants to the Nasdaq “minimum price” as of the Merger Closing Date, and thereafter, promptly following receipt of such approval, shall deliver amendments to the Warrants to incorporate the revised term, in form and substance reasonably satisfactory to Lenders.

 

 

4.             AMENDMENTS.

 

4.1             Section 6.6(n) of the LSA is hereby amended and restated in its entirety, as set forth below:

 

6.6(n) Investments by Borrower or a Loan Party (i) in the Excluded Indian Subsidiary (A) to cover ordinary, necessary, current operating expenses in the ordinary course of business including intercompany markup required by the Indian tax authorities not exceeding $3,000,000 in any Fiscal Year or (B) for other purposes so long as such other Investments do not exceed $1,000,000 in the aggregate outstanding at any time; (ii) in Twill Montenegro d.o.o. Budva not to exceed $750,000 annually, provided that the value of assets held by Twill Montenegro does not exceed $750,000 in the aggregate at any time;

 

4.2             The definition of “Interest-only Milestone B” in Part 1 of the Supplement is hereby amended and restated in its entirety, as set forth below:

 

“Interest-only Milestone B” means Borrower has achieved, in addition to the achievement of Interest-only Milestone A, at least Forty-Five Million Dollars ($45,000,000.00) in net revenue for Borrower’s fiscal year ending December 31, 2024,subject to written evidence of the same, in form and content reasonably acceptable to Lenders.

 

4.3             Section 3(d) of Part 2 of the Supplement is hereby amended and restated in its entirety, as set forth below:

 

3(d) Conversion Right. The Lenders shall have the right, in their discretion, but not the obligation, at any time and from time to time, while the Loan is outstanding, to convert an amount of up to Two Million Dollars ($2,000,000.00) of the principal amount of the outstanding Growth Capital Loans (the “Conversion Option”) into Borrower’s unrestricted, freely tradable Common Stock (either through the filing of a re-sale registration statement, prospectus supplement or pursuant to Rule 144 as promulgated under the Securities Act of 1933, as amended) at a price per share equal to $4.001 (the “Conversion Price;” the exercise of such Conversion Option, a “Conversion”). Notwithstanding the foregoing, such Conversion shall be subject to the rules of the Nasdaq Stock Market in all respects. The Conversion Option will be exercised by such Lenders delivering a written, signed conversion notice to the Borrower in accordance with this Section 3(d), which will include (i) the date of which the conversion notice is given, (ii) a statement to the effect that the applicable Lender is exercising the Conversion Option, (iii) the amount in respect of which the Conversion Option is being exercised and the number of shares issued and (iv) a date on which the allotment and issuance of the shares is to take place.

 

5.             BORROWER’S REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that:

 

a.

Immediately upon giving effect to this Amendment (i) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct in all material respects as of such date), and (ii) no Event of Default has occurred and is continuing.

 

b.

Borrower has the organizational power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment.

 

 

c.

The certificate of incorporation, bylaws and other organizational documents of Borrower delivered to Lenders on the Closing Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect.

 

d.

The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized by all necessary company action on the part of Borrower.

 

e.

This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights; and

 

f.

As of the date hereof, to its best knowledge, it has no defenses against the obligations to pay any amounts arising under the Loan and Security Agreement. Borrower acknowledges that, to its best knowledge, Lenders and Agent have acted in good faith and have conducted in a commercially reasonable manner its relationships with Borrower in connection with this Amendment and in connection with the Loan Documents.

 

Borrower understands and acknowledges that Lenders and Agent are entering into this Amendment in reliance upon, and in partial consideration for, the above representations and warranties, and agrees that such reliance is reasonable and appropriate.

 

6.             LIMITATION. The amendments set forth in this Amendment shall be limited precisely as written and shall not be deemed (a) to be a waiver or modification of any other term or condition of the Loan Agreement or of any other instrument or agreement referred to therein or to prejudice any right or remedy which Lenders or Agent may now have or may have in the future under or in connection with the Loan Agreement (as amended hereby) or any instrument or agreement referred to therein; or (b) to be a consent to any future amendment or modification or waiver to any instrument or agreement the execution and delivery of which is consented to hereby, or to any waiver of any of the provisions thereof. Except as expressly amended hereby, the Loan Agreement shall continue in full force and effect.

 

7.             EFFECTIVENESS. This Amendment shall become effective upon Lenders’ and Agent’s receipt of the following:

 

7.1             this Amendment, duly executed by Borrower;

 

7.2             the Subordination Agreement, duly executed by Trustee; and

 

7.3             reimbursement of Lenders’ and Agent’s fees and expenses, including all reasonable documented attorneys’ fees, expenses and disbursements, incurred through the date of this Amendment.

 

8.             COUNTERPARTS. This Amendment may be signed in any number of counterparts, and by different parties hereto in separate counterparts, with the same effect as if the signatures to each such counterpart were upon a single instrument. All counterparts shall be deemed an original of this Amendment. This Amendment may be executed by facsimile, portable document format (.pdf) or similar technology signature, and such signature shall constitute an original for all purposes.

 

 

9.              INCORPORATION BY REFERENCE. The provisions of Sections 9.11 and 9.12 of the Loan Agreement shall be deemed incorporated herein by reference, mutatis mutandis.

 

10.           ELECTRONIC SIGNATURES. This Amendment may be executed by electronic signatures. Borrower, Lenders and Agent expressly agree to conduct the transactions contemplated by this Amendment and the other Loan Documents by electronic means (including, without limitation, with respect to the execution, delivery, storage and transfer of this Amendment and each of the other Loan Documents by electronic means and to the enforceability of electronic Loan Documents). Delivery of an executed signature page to this Amendment and each of the other Loan Documents by facsimile or other electronic mail transmission (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) shall be effective as delivery of a manually executed counterpart hereof and thereof, as applicable. The words “execution,” “signed,” “signature” and words of like import herein shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

 

[Signature Pages Follow on Next Page.]

 

 

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

 

BORROWER:
DARIOHEALTH CORP.	PSYINNOVATIONS, INC.

 

 

By:	/s/ Zvi Ben-David		By:	/s/ Zvi Ben-David
Name: Zvi Ben-David			Name: Zvi Ben-David
Title: Chief Financial Officer			Title: Treasurer

 

 

GUARANTOR:

 

LABSTYLE INNOVATION LTD.

 

 

By:	/s/ Zvi Ben-David
Name: Zvi Ben-David
Title: Director

 

 

LENDER:

 

AVENUE VENTURE OPPORTUNITIES FUND, L.P.

AVENUE VENTURE OPPORTUNITIES FUND II, L.P.

 

By:	Avenue Venture Opportunities Partners, LLC		By:	Avenue Venture Opportunities Partners, LLC
Its:	General Partner		Its:	General Partner
By:	/s/ Sonia Gardner		By:	/s/ Sonia Gardner
Name: Sonia Gardner			Name: Sonia Gardner
Title: Member			Title: Member
AGENT:
AVENUE VENTURE OPPORTUNITIES FUND, L.P.
By:	Avenue Venture Opportunities Partners, LLC
Its:	General Partner
By:	/s/ Sonia Gardner
Name: Sonia Gardner
Title: Member

 

 

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

 

BORROWER:
DARIOHEALTH CORP.	PSYINNOVATIONS, INC.

 

 

By:	/s/ Zvi Ben-David		By:	/s/ Zvi Ben-David
Name: Zvi Ben-David			Name: Zvi Ben-David
Title: Chief Financial Officer			Title: Treasurer

 

 

GUARANTOR:

 

LABSTYLE INNOVATION LTD.

 

 

By:	/s/ Zvi Ben-David
Name: Zvi Ben-David
Title: Director

 

 

LENDER:

 

AVENUE VENTURE OPPORTUNITIES FUND, L.P.

AVENUE VENTURE OPPORTUNITIES FUND II, L.P.

 

By:	Avenue Venture Opportunities Partners, LLC		By:	Avenue Venture Opportunities Partners, LLC
Its:	General Partner		Its:	General Partner
By:	/s/ Sonia Gardner		By:	/s/ Sonia Gardner
Name: Sonia Gardner			Name: Sonia Gardner
Title: Member			Title: Member
AGENT:
AVENUE VENTURE OPPORTUNITIES FUND, L.P.
By:	Avenue Venture Opportunities Partners, LLC
Its:	General Partner
By:	/s/ Sonia Gardner
Name: Sonia Gardner
Title: Member

 

 

Exhibit A

 

(Subordination Agreement)

 

 

SUBORDINATION AGREEMENT

 

This Subordination Agreement is made as of February 15, 2024 by and among each of the undersigned creditors (individually, a “Creditor” and, collectively, the “Creditors”), DARIOHEALTH CORP. (“Borrower”), and AVENUE VENTURE OPORTUNITIES FUND , L.P. (“Agent”), in its capacity as administrative and collateral agent for itself and the Lenders (as defined in the Loan Agreement (as defined below)).

 

Recitals

 

A.            Borrower and certain of its affiliates (the “Affiliates”) have requested and/or obtained certain loans or other credit accommodations from Lenders which are or may be from time to time secured by assets and property of Borrower and the Affiliates pursuant to the terms of that certain Loan and Security Agreement dated May 1, 2023 by and between Borrower, the Affiliates, Agent and Lenders (the “Loan Agreement”).

 

B.             Each Creditor has extended loans or other credit accommodations to Borrower, and/or may extend loans or other credit accommodations to Borrower from time to time, subject to the terms of the Loan Agreement.

 

C.             Each Creditor is willing to subordinate: (i) all of Borrower’s indebtedness, as applicable, and obligations to such Creditor, whether presently existing or arising in the future (the “Subordinated Debt”) to all of Borrower’s indebtedness and obligations to Agent and Lenders; and (ii) all of such Creditor’s security interests, if any, in Borrower’s property, to all of the Agent’s security interests in the Borrower’s property.

 

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

 

1.             Each Creditor subordinates to Agent any security interest or lien that such Creditor may have in any property of Borrower. Notwithstanding the respective dates of attachment or perfection of the security interest of a Creditor and the security interest of Agent, the security interest of Agent in the Collateral, as defined in the Loan Agreement, shall at all times be prior to the security interest of such Creditor. Capitalized terms not otherwise defined herein shall have the same meaning as in the Loan Agreement.

 

2.             All Subordinated Debt is subordinated in right of payment to all obligations of Borrower to Agent and Lenders now existing or hereafter arising, together with all costs of collecting such obligations (including attorneys’ fees), including, without limitation, all interest accruing after the commencement by or against Borrower of any Bankruptcy, reorganization or similar proceeding, and all obligations under the Loan Agreement (the “Senior Debt”).

 

3.             Each Creditor will not demand or receive from Borrower (and Borrower will not pay to such Creditor) all or any part of the Subordinated Debt, by way of payment, prepayment, setoff, lawsuit or otherwise, nor will such Creditor exercise any remedy with respect to the Collateral, nor will such Creditor commence, or cause to commence, prosecute or participate in any administrative, legal or equitable action against Borrower, for so long as any portion of the Senior Debt remains outstanding, provided a Creditor may convert any part of Subordinated Debt into equity securities of Borrower in accordance with the terms of any notes evidencing such Subordinated Debt. The foregoing notwithstanding, each Creditor shall be entitled to receive each regularly scheduled payment of interest or principal that constitutes Subordinated Debt, provided that a default under the Senior Debt has not occurred and is not continuing and would not exist immediately after such payment.

 

 

4.             Each Creditor shall promptly deliver to Agent in the form received (except for endorsement or assignment by such Creditor where required by Agent) for application to the Senior Debt any payment, distribution, security or proceeds received by such Creditor with respect to the Subordinated Debt other than in accordance with this Agreement; provided, however, that Agent and Lenders shall not be entitled to any distribution delivered to WhiteHawk Capital Partners LP (“WhiteHawk”) pursuant to that certain Trust Agreement by and among WhiteHawk and Wilmington Savings Fund Society, FSB on account of the Subordinated Debt.

 

5.             In the event of Borrower’s insolvency, reorganization or any case or proceeding under any Bankruptcy or insolvency law or laws relating to the relief of debtors, these provisions shall remain in full force and effect, and Agent’s and Lenders’ claims against Borrower shall be paid in full before any payment is made to any Creditor.

 

6.             For so long as any of the Senior Debt remains unpaid, each Creditor irrevocably appointsAgent as such Creditor’s attorney-in-fact, and grants to Agent a power of attorney with full power of substitution, in the name of such Creditor or in the name of Agent, for the use and benefit of Agent, without notice to such Creditor, to perform at Agent’s option the following acts in any Bankruptcy, insolvency or similar proceeding involving Borrower:

 

(i)            To file the appropriate claim or claims in respect of the Subordinated Debt on behalf of Creditor if Creditor does not do so prior to 30 days before the expiration of the time to file claims in such proceeding and if Agent elects, in its sole discretion, to file such claim or claims; and

 

(ii)           To accept or reject any plan of reorganization or arrangement on behalf of Creditor and to otherwise vote Creditor’s claims in respect of any Subordinated Debt in any manner that Agent deems appropriate for the enforcement of its rights hereunder.

 

7.             In the event of Borrower’s insolvency, reorganization or any case or proceeding, arrangement or transaction under any federal or state bankruptcy or insolvency law or similar laws or proceedings involving the Borrower, for so long as any of the Senior Debt remains unpaid, if the Agent, the Lenders or any of them shall seek to provide the Borrower or any other Loan Party with any financing under Section 364 of the Bankruptcy Code, or Agent or Lenders support or consent to such financing provided by a third party, or consent to any order for the use of cash collateral under Section 363 of the Bankruptcy Code (each, a “DIP Financing or Cash Collateral Use”), with such DIP Financing or Cash Collateral Use to be secured by all or any portion of the Collateral (including assets that, but for the application of Section 552 of the Bankruptcy Code (or any similar provision of any foreign laws relating to the relief of debtors) would be Collateral), then each Creditor agrees that it will raise no objection and will not support, directly or indirectly, any objection to such DIP Financing or Cash Collateral Use nor object to the liens or claims granted in connection therewith on any grounds, including a failure to provide “adequate protection” for the liens, if any, securing any Subordinated Debt (and will not request any adequate protection as a result of such DIP Financing or Cash Collateral Use, and will not support any debtor-in-possession financing or use of cash collateral which would compete with such DIP Financing or Cash Collateral Use which is provided to or consented to by Agent or Lenders). In addition, each Creditor agrees that it will not provide nor seek to provide or support any debtor-in-possession financing without the prior written consent of the Agent.

 

8.             Each Creditor shall immediately affix a legend to the instruments evidencing the Subordinated Debt stating that the instruments are subject to the terms of this Agreement. No amendment of the documents evidencing or relating to the Subordinated Debt shall directly or indirectly modify the provisions of this Agreement in any manner which might terminate or impair the subordination of the Subordinated Debt or the subordination of the security interest or lien that such Creditor may have in any property of Borrower. In addition, such instruments shall not be amended to (i) increase the rate of interest with respect to the Subordinated Debt, or (ii) accelerate the payment of the principal or interest or any other portion of the Subordinated Debt.

 

 

9.             This Agreement shall remain effective for so long as Agent or Lenders have any obligation to make credit extensions to Borrower or Borrower owes any amounts to Agent or Lenders under the Loan Agreement. If, at any time after payment in full of the Senior Debt any payments of the Senior Debt must be disgorged by Agent or Lenders for any reason (including, without limitation, the Bankruptcy of Borrower), this Agreement and the relative rights and priorities set forth herein shall be reinstated as to all such disgorged payments as though such payments had not been made and each Creditor shall immediately pay over to Agent all payments received with respect to the Subordinated Debt to the extent that such payments would have been prohibited hereunder. At any time and from time to time, without notice to Creditors, Agent or Lenders may take such actions with respect to the Senior Debt as Agent and Lenders, respectively, in its sole discretion, may deem appropriate, including, without limitation, terminating advances to Borrower, increasing the principal amount (which may include any DIP Financing or Cash Collateral Use), extending the time of payment, increasing applicable interest rates, renewing, compromising or otherwise amending the terms of any documents affecting the Senior Debt and any collateral securing the Senior Debt, and enforcing or failing to enforce any rights against Borrower or any other person. No such action or inaction shall impair or otherwise affect Agent’s or Lenders’ rights hereunder.

 

10.           This Agreement shall bind any successors or assignees of a Creditor and shall benefit any successors or assigns of Agent. This Agreement is solely for the benefit of each Creditor, Agent and Lender and not for the benefit of Borrower or any other party. Each Creditor further agrees that if Borrower is in the process of refinancing a portion of the Senior Debt with a new lender, and if Agent makes a request of such Creditor, Creditor shall agree to enter into a new subordination agreement with the new lender on substantially the terms and conditions of this Agreement.

 

11.           This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

 

12.           This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES. If the jury waiver set forth in this Section is not enforceable, then any dispute, controversy or claim arising out of or relating to this Agreement or any of the transactions contemplated herein shall be resolved by judicial reference pursuant to Code of Civil Procedure Section 638 et seq. before a mutually acceptable referee or, if none is selected, then a referee chosen by the Presiding Judge of the California Superior Court for Santa Clara County, provided this provision shall not restrict any party from seeking to enforce any prejudgment remedies.

 

13.           This Agreement represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements and commitments. No Creditor is relying on any representations by Agent, Lenders or Borrower in entering into this Agreement, and each Creditor has kept and will continue to keep itself fully apprised of the financial and other condition of Borrower. This Agreement may be amended only by written instrument signed by each Creditor and Agent.

 

14.           In the event of any legal action to enforce the rights of a party under this Agreement, the party prevailing in such action shall be entitled, in addition to such other relief as may be granted, all reasonable costs and expenses, including reasonable attorneys’ fees, incurred in such action.

 

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

	“Agent”
	AVENUE VENTURE OPPORTUNITIES FUND, L.P.
	By:
	Name:
	Title:
	“Borrower”
	DARIOHEALTH CORP.
	By:
	Name:
	Title:

 

 

[CREDITOR SIGNATURE PAGES FOLLOW]

 

 

	“Creditor”
	WHITEHAWK CAPITAL PARTNERS LP
	By:
	Name: Robert Louzan
	Title: Managing Partner

 

 

Exhibit 99.2 

 

Dario acquires Twill creating one of the most comprehensive digital health platform across the most prevalent chronic conditions

 

Expecting nearly doubling Dario’s pro forma revenues in 2023

 

Acquisition is immediately accretive to revenue and gross margins and expected to accelerate path to profitability

 

Concurrent with the acquisition Dario prices $22.4 million equity financing

 

Company to host conference call today at 8:30am ET. Dial-in and replay information below

 

NEW YORK, February 21, 2024 -- DarioHealth Corp. (Nasdaq: DRIO) (“Dario” or the “Company”) announced today that it has acquired Twill, Inc. (“Twill”), a leader in digital-led care. The combination enables Dario to create one of the most comprehensive digital offerings in the market for chronic conditions, spanning a wide spectrum of health and well-being needs from emotional health to the costliest chronic conditions. The transaction creates immediate scale, with three of the top eight national health plans, multiple Fortune 100 employers and several major pharmaceutical companies as customers.

 

The acquisition of Twill is expected to nearly double pro forma 2023 revenue, and gross margins are expected to reach approximately 80-85% by 2025. The acquisition is expected to accelerate market penetration and drive greater sales opportunities as a direct result of the breadth of combined solutions, with an opportunity to increase revenue per customer through cross-selling into both companies' existing customer bases, which has almost no overlap. Dario expects to be able to realize cost synergies immediately, and expects to reach nearly 30% in annualized cost synergies within two years following the close of the transaction. The combination of revenue scale, expected improved gross margins, and significant cost synergies are expected to accelerate the path to profitability within the second-year post acquisition.

 

“The Twill acquisition is an incredible opportunity to bring together our complementary solutions and create an unrivaled platform for the next generation of consumer-centric digital health. The addition of Twill instantly boosts revenue and margins, leveraging a robust SaaS-like model to fuel expected rapid growth and accelerating profitability. We are confident in our ability to integrate Twill and its employees and operations, as we have a track record of integrating previously acquired businesses,” said Erez Raphael, CEO of Dario.

 

“It's rare to find not just alignment, but shared passion igniting a collaboration. That's exactly what we've discovered in Twill. Their dedication to consumer empowerment through technology mirrors our own, making this union not just a strategic move, but a powerful convergence of values and goals. This unwavering belief resonated with both companies' shareholders, leading to shareholders from both companies participating in the financing. It's an injection of not just capital, but confidence in the future we're building together. With this strengthened foundation, we're poised to aggressively pursue our growth plan, fueled by a shared vision and the passion of investors and executives alike,” concluded Erez Raphael.

 

Twill’s deep consumer experience began with Happify Health, one of the original digital mental health solutions sold directly to consumers for more than ten years. During that time, Twill helped more than 4 million users improve their emotional health before expanding to deliver broader capabilities for commercial customers which today include some of the most marquee fortune 100 employers and top payors in the country. The launch of the Twill Care digital community further bolstered the company's strength in engagement by offering an innovative approach to engaging members wherever they are in their care journey. Leveraging Twill’s innovation in well-being and navigation enhances Dario’s end-to-end member journey for optimization across solutions.

 

 

The combined solution will be unique in its ability to enroll and engage members across their care journeys, enabling Dario to deliver outcomes across broad populations. Improved navigation capabilities will help connect members with the right solutions at the right time and expand potential for additional solution integrations.

 

“The market is demanding more conditions from less vendors to reduce point solution fatigue and the high cost of managing multiple vendors. The combination of our solutions provides the single solution the market wants and expands Dario’s artificial intelligence and solution navigation capabilities, including immediate enhancements to Dario’s current GLP-1 solution,” said Rick Anderson, President of Dario.

 

“It's not just a goal, it's a pathway,” said Tomer Ben-Kiki, Twill’s Co-Founder and CEO. “This shared vision fuels our powerful union, transforming data into a vibrant tapestry of individual health stories. Imagine three million threads of the combined company’s data, interwoven with rich insights and diverse perspectives, brought to life by our AI expertise. This tapestry reveals unprecedented depth, predicting needs and optimizing treatment for every person. The spark was undeniable from the start - Dario's warmth and collaborative spirit resonated with our own. Together, we're beyond excited to create something truly groundbreaking.” Tomer Ben-Kiki, will join Dario’s leadership team as Chief Operating Officer and Twill co-founder Ofer Leidner, will join as an advisor to the commercial team to support company growth.

 

The expected doubling of pro forma revenues in 2023 is based on extrapolated, pro forma revenues through the nine months ended September 30, 2023, of $30.5 million, comprised of $16.7 million in Dario revenues and $13.8 million in Twill revenues.

 

Financial Terms

 

Under the terms of the Twill acquisition, Dario paid $10 million of cash and agreed to issue approximately 10 million shares of common stock in the form of pre-funded warrants for the benefit of Twill’s debt holders and equity holders the warrants will vest in four equal amounts at 270 days, 360 days, 540 days and 720 days, post deal closing.

 

Private Placement

 

Concurrent with the acquisition, Dario priced a $22.4 million private placement of convertible preferred stock, priced at the market under Nasdaq rules, with participation from investors from both companies. Pursuant to the terms of private placement, Dario agreed to issue shares of newly designated convertible preferred stock (the “Preferred Stock”). Each share of Preferred Stock will be sold at $1,000 per share, with conversion prices of $2.02 and $2.14, raising gross proceeds of $22.4 million. The Preferred Stock provides for holders of Preferred Stock, upon conversion, to receive a 7.5% dividend payable in common stock each quarter for the first four quarters, followed by a 15% stock dividend in the fifth quarter, for an aggregate stock dividend of up to 45%. Each share of Preferred Stock shall automatically convert into shares of the Company's common stock at the applicable Conversion Price upon the 15-month anniversary of the final closing of the offering. Dario intends to use the net proceeds from the offering for general corporate purposes.

 

Inducement Grants

 

The Company announced the issuance of inducement grants of stock options to purchase up to 2,963,459 shares of the Company’s common stock to employees of Twill as an inducement to their becoming employees of the Company, in accordance with Nasdaq Listing Rule 5635(c)(4). The options have an exercise price of $2.55, which is equal to Dario’s stock price of common stock on February 15, 2024, and will vest in eight quarterly instalments over two years following closing of the Twill acquisition.

 

 

As part of these inducement grants, the Company agreed to issue options to purchase up to 1,017,947 shares of the Company’s common stock to Tomer Ben-Kiki, in connection with Mr. Ben-Kiki’s appointment as Chief Operating Officer of the Company. Options to purchase up to 717,947 shares of the Company’s common stock are subject to time vesting and 300,000 vest subject to performance. These options were granted as an inducement material to Mr. Ben-Kiki becoming an employee of the Company, in accordance with Nasdaq Listing Rule 5635(c)(4).

 

The options have an exercise price per share equal to $2.55, which was the closing price of the Company's common stock on the Nasdaq Stock Market on February 15, 2024. The time-based options vest as follows: options to purchase up to 291,742 shares of common stock shall vest immediately and the remaining 426,205 shares will vest over two years in eight equal quarterly amounts, subject to Mr. Ben-Kiki’s continued employment by the Company on the applicable vesting date. The performance-based option to purchase up to 300,000 shares of common stock vest immediately upon achieving certain milestones relating to the achievement of revenues (on a U.S. generally accepted accounting principles basis) relating to Twill products for the year ending December 31, 2024, the achievement of certain operating expense targets for the years ending December 31, 2024 and December 31, 2025, the ability to generate software value from funds invested and meet product roadmap and the retention of key employees post transaction, subject in each case to Mr. Ben-Kiki's continued employment by the Company on the applicable vesting date.

 

Dario will also issue up to an equivalent of 1,766,508 shares, 733,562 in the form of restricted stock units and 1,032,946 in the form of warrants, each of which shall be subject to the approval of Dario’s stockholder, issuable to Twill’s board members other employees and consultants of Twill. Warrants to purchase 315,000 shares of common stock are performance based and will vest upon achieving certain milestones relating to the achievement of revenues (on a U.S. generally accepted accounting principles basis) relating to Twill products for the year ending December 31, 2024, the achievement of new signed contracts during 2024 that will contribute additional revenue targets in the fourth quarter of the year ending December 31, 2024 subject to providing continued services to the Company.

 

Advisors

 

Stifel acted as financial advisor to Dario on the acquisition, and Sullivan & Worcester LLP acted as legal counsel to Dario in connection with the acquisition and the financing. TD Cowen acted as financial advisor, and Lowenstein Sandler LLP acted as legal counsel, to Twill in connection with the transaction. 

 

The securities described herein have not been registered under the Securities Act of 1933, as amended, and may not be sold in the United States absent registration or an applicable exemption from the registration requirements.

 

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or other jurisdiction in which such an offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state or other jurisdiction.

 

Conference Call and Replay Information

 

Please use the link below to register for the call today, February 21, 2024 at 8:30am ET.

 

 

A replay of the call will also be available via the same link.

 

https://lifescievents.com/event/dariohealth/

 

About Dario Health

 

DarioHealth Corp. (Nasdaq: DRIO) is a leading digital health company revolutionizing how people with chronic conditions manage their health through a user-centric, multi-chronic condition digital therapeutics platform. Dario’s platform and suite of solutions deliver personalized and dynamic interventions driven by data analytics and one-on-one coaching for diabetes, hypertension, weight management, musculoskeletal pain and behavioral health.

 

Dario’s user-centric platform offers people continuous and customized care for their health, disrupting the traditional episodic approach to healthcare. This approach empowers people to holistically adapt their lifestyles for sustainable behavior change, driving exceptional user satisfaction, retention and results and making the right thing to do the easy thing to do.

 

Dario provides its highly user-rated solutions globally to health plans and other payers, self-insured employers, providers of care and consumers. To learn more about Dario and its digital health solutions, or for more information, visit http://dariohealth.com.

 

About Twill

 

Twill is creating patient-led and technology enabled experiences to deliver care in the modern healthcare era. Twill is developing and marketing a uniquely connected patient workflows designed to simplify care delivery. For those who need self-guided care Twill offers a digital solution optimized for mental health and resiliency with tailored and culturally adapted tracks and activities.

 

To learn more about Twill and its digital health solutions, or for more information, visit https://www.twill.health

 

Cautionary Note Regarding Forward-Looking Statements

 

This news release and the statements of representatives and partners of DarioHealth Corp. related thereto contain or may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not statements of historical fact may be deemed to be forward-looking statements. For example, the Company is using forward-looking statements in this press release when it discusses its expected cash balance after the closing of the financing transaction, the expected benefits and advancement relating to the acquisition of Twill, the expected pro forma unaudited revenues and gross margins for 2023 and that gross margins are expected to approach approximately 80-85% by 2025, that the combined company expects to be able to realize nearly 30% of cost synergies within two years following the close of the transaction, that the combination of revenue scale, expected improved gross margins, and significant cost synergies are expected to accelerate the path to profitability within the second-year post acquisition, that the acquisition is expected to accelerate market penetration through driving more sales opportunities as a direct result of the breadth of combined solutions, with an immediate opportunity to increase revenue per customer through cross-selling into both companies' existing customer base, which has almost no overlap, the benefits to be realized as a result of the acquisition and the expected use of proceeds from the private placement. Without limiting the generality of the foregoing, words such as "plan," "project," "potential," "seek," "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate" or "continue" are intended to identify forward-looking statements. Readers are cautioned that certain important factors may affect the Company's actual results and could cause such results to differ materially from any forward-looking statements that may be made in this news release. Factors that may affect the Company's results include, but are not limited to, regulatory approvals, product demand, market acceptance, impact of competitive products and prices, product development, commercialization or technological difficulties, the success or failure of negotiations and trade, legal, social and economic risks, and the risks associated with the adequacy of existing cash resources. Additional factors that could cause or contribute to differences between the Company's actual results and forward-looking statements include, but are not limited to, those risks discussed in the Company's filings with the U.S. Securities and Exchange Commission. Readers are cautioned that actual results (including, without limitation, the timing for and results of the Company's commercial and regulatory plans for Dario™ as described herein) may differ significantly from those set forth in the forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

 

Contact Information

DarioHealth Corporate Contact

Mary Mooney

VP Marketing

+1-312-593-4280

 

DarioHealth Investor Relations Contact

Kat Parrella

Investor Relations Manager

+315-378-6922

 

Media Contact

Scott Stachowiak

Scott.Stachowiak@russopartnersllc.com

+1-646-942-5630

 

 

v3.24.0.1

Cover	Feb. 15, 2024
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Feb. 15, 2024
Entity File Number	001-37704
Entity Registrant Name	DARIOHEALTH CORP.
Entity Central Index Key	0001533998
Entity Tax Identification Number	45-2973162
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	122 W 57th St
Entity Address, Address Line Two	#33B
Entity Address, City or Town	New York
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10019
City Area Code	972
Local Phone Number	4-770-4055
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, par value $0.0001 per share
Trading Symbol	DRIO
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false

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