EXHIBIT 10.43
SUBSCRIPTION AGREEMENT
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THIS SUBSCRIPTION AGREEMENT (this "AGREEMENT"), is dated as of January __,
2008, by and among Aethlon Medical, Inc., a Nevada corporation (the "COMPANY"),
and the subscribers identified on the signature page hereto (each a "SUBSCRIBER"
and collectively "SUBSCRIBERS").
WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D ("REGULATION
D") as promulgated by the United States Securities and Exchange Commission (the
"COMMISSION") under the Securities Act of 1933, as amended (the "1933 ACT").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase for up to $200,000 (the "PURCHASE PRICE") up to $220,000 (the
"PRINCIPAL AMOUNT") of principal amount of promissory notes of the Company
("NOTE" or "NOTES"), a form of which is annexed hereto as EXHIBIT A; and share
purchase warrants (the "WARRANTS"), in the form annexed hereto as EXHIBIT B, to
purchase shares of the Company's $.001 par value Common Stock (the "COMMON
STOCK" and the "WARRANT SHARES") during the period and at the per share purchase
price set forth in the Warrants (the "EXERCISE PRICE"). The Notes, the Warrants
and the Warrant Shares are collectively referred to herein as the "SECURITIES."
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Closing Date. The "CLOSING DATE" shall be the date that the Purchase
Price is transmitted by wire transfer or otherwise credited to or for the
benefit of the Company. The consummation of the transactions contemplated herein
("CLOSING") shall take place at the offices of Xxxxxxxxxx & Xxxxx LLP, 00000
Xxxxxxxx Xxxx., Xxxxx 000, Xxx Xxxxxxx, Xxxxxxxxxx 00000, upon the satisfaction
or waiver of all conditions to closing set forth in this Agreement.
2. Closing. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the Closing Date, each Subscriber shall
purchase and the Company shall sell the Notes and Warrants to each Subscriber.
The Principal Amount for each Subscriber's Note will be determined by dividing
such Subscriber's portion of the Purchase Price by .9090.
3. Class C Warrants. On the Closing Date, the Company will issue and
deliver Class C Warrants to the Subscribers. 660,000 Class C Warrants will be
issued for $220,000 of Note Principal Amount issued on the Closing Date. The
Exercise Price to acquire a Warrant Share upon exercise of a Class C Warrant
shall be $0.50, subject to reduction as described in the Class C Warrant. The
Class C Warrants shall be exercisable until three years after the issue date of
the Class C Warrants.
4. Subscriber Representations and Warranties. Each Subscriber hereby
represents and warrants to and agrees with the Company only as to such
Subscriber that:
(a) Organization and Standing of the Subscribers. If such
Subscriber is an entity, such Subscriber is a corporation, partnership or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Such Subscriber has the requisite
power and authority to enter into and perform this Agreement and the other
Transaction Documents and to purchase the Notes and Warrants being sold to it
hereunder. The execution, delivery and performance of this Agreement and the
other Transaction Documents by such Subscriber and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Subscriber or its Board of Directors, stockholders,
partners, members, as the case may be, is required. This Agreement and the other
Transaction Documents have been duly authorized, executed and delivered by such
Subscriber and constitutes, or shall constitute when executed and delivered, a
valid and binding obligation of such Subscriber enforceable against such
Subscriber in accordance with the terms thereof.
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(c) No Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents and the consummation by such
Subscriber of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Subscriber's
charter documents or bylaws or other organizational documents or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Subscriber is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Subscriber or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Subscriber). Such Subscriber is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement and the other
Transaction Documents or to purchase the Securities in accordance with the terms
hereof, provided that for purposes of the representation made in this sentence,
such Subscriber is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) Information on Company. Such Subscriber has been furnished
with or has had access at the XXXXX Website of the Commission to the Company's
Form 10-KSB filed on July 13, 2007 for the fiscal year ended March 31, 2007, and
the financial statements included therein, together with all subsequent filings
made with the Commission available at the XXXXX website (hereinafter referred to
collectively as the "REPORTS"). In addition, such Subscriber may have received
in writing from the Company such other information concerning its operations,
financial condition and other matters as such Subscriber has requested in
writing, identified thereon as OTHER WRITTEN INFORMATION (such other information
is collectively, the "OTHER WRITTEN INFORMATION"), and considered all factors
such Subscriber deems material in deciding on the advisability of investing in
the Securities.
(e) Information on Subscriber. Such Subscriber is, and will be at
the time of the exercise of the Warrants, an "ACCREDITED INVESTOR", as such term
is defined in Regulation D promulgated by the Commission under the 1933 Act, is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as to
enable such Subscriber to utilize the information made available by the Company
to evaluate the merits and risks of and to make an informed investment decision
with respect to the proposed purchase, which represents a speculative
investment. Such Subscriber has the authority and is duly and legally qualified
to purchase and own the Securities. Such Subscriber is able to bear the risk of
such investment for an indefinite period and to afford a complete loss thereof.
The information set forth on the signature page hereto regarding such Subscriber
is accurate.
(f) Purchase of Notes and Warrants. On the Closing Date, such
Subscriber will purchase the Notes and Warrants as principal for its own account
for investment only and not with a view toward, or for resale in connection
with, the public sale or any distribution thereof.
(g) Compliance with Securities Laws. Such Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in part
on the accuracy of the representations and warranties of such Subscriber
contained herein), and that such Securities must be held indefinitely unless a
subsequent disposition is registered under the 1933 Act or any applicable state
securities laws or is exempt from such registration. Such Subscriber will comply
with all applicable rules and regulations in connection with the sales of the
Securities.
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(h) Restricted Securities. Such Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the 1933 Act, or unless an exemption from registration is available.
Notwithstanding anything to the contrary contained in this Agreement, such
Subscriber may transfer (without restriction and without the need for an opinion
of counsel) the Securities to its Affiliates (as defined below) provided that
each such Affiliate is an "accredited investor" under Regulation D and such
Affiliate agrees to be bound by the terms and conditions of this Agreement. For
the purposes of this Agreement, an "AFFILIATE" of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such person or entity. Affiliate
includes each Subsidiary of the Company. For purposes of this definition,
"CONTROL" means the power to direct the management and policies of such person
or firm, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
(i) Warrants Legend. The Warrants shall bear the following or
similar legend:
"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR
RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES."
(j) Note Legend. The Note shall bear the following legend:
"THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL
BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES. "
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(k) Communication of Offer. The offer to sell the Securities was
directly communicated to such Subscriber by the Company. At no time was such
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(l) Authority; Enforceability. This Agreement and other agreements
delivered together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by such Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and such Subscriber has full power and
authority necessary to enter into this Agreement and such other agreements and
to perform its obligations hereunder and under all other agreements entered into
by such Subscriber relating hereto.
(m) No Governmental Review. Such Subscriber understands that no
United States federal or state agency or any other governmental or state agency
has passed on or made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
(n) Correctness of Representations. Such Subscriber represents as
to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, unless such Subscriber otherwise notifies
the Company prior to the Closing Date shall be true and correct as of the
Closing Date.
(o) Survival. The foregoing representations and warranties shall
survive the Closing Date.
5. Company Representations and Warranties. The Company represents and
warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company is a corporation or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and has
the requisite corporate power to own its properties and to carry on its business
as presently conducted. The Company is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction where the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the failure to so qualify
would not have a Material Adverse Effect. For purposes of the Transaction
Documents, a "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
the financial condition, results of operations, prospects, properties or
business of the Company and its Subsidiaries taken as a whole. For purposes of
this Agreement, "SUBSIDIARY" means, with respect to any entity at any date, any
corporation, limited or general partnership, limited liability company, trust,
estate, association, joint venture or other business entity of which more than
30% of (i) the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity. The Subsidiaries as of the Closing Date are
set forth on SCHEDULE 5(A).
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(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and Subsidiary have been duly authorized and
validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement, the Note, the
Warrants, and Escrow Agreement, and all other agreements delivered together with
this Agreement or in connection herewith (collectively "TRANSACTION DOCUMENTS")
have been duly authorized, executed and delivered by the Company and are valid
and binding agreements of the Company enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity. The Company has
full corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations thereunder.
(d) Capitalization and Additional Issuances. The authorized and
outstanding capital stock of the Company and Subsidiaries as of the date of this
Agreement and the Closing Date (not including the Securities) are set forth on
SCHEDULE 5(D). There are no outstanding agreements or preemptive or similar
rights affecting the Company's Common Stock or equity and no outstanding rights,
warrants or options to acquire, or instruments convertible into or exchangeable
for, or agreements or understandings with respect to the sale or issuance of any
shares of Common Stock or equity of the Company or Subsidiaries or other equity
interest in the Company or Subsidiaries except as described on SCHEDULE 5(D).
The Common Stock, options, warrants, agreements and other rights to acquire
equity of the Company and any Subsidiary outstanding as of the last Business Day
preceding the Closing Date is set forth on SCHEDULE 5(D). The only officer,
director, employee and consultant stock option or stock incentive plan in effect
or contemplated by the Company as of the Closing Date is described on SCHEDULE
5(D).
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency, or body or arbitrator having jurisdiction over the
Company, Subsidiaries or any of their Affiliates, the OTC Bulletin Board
("BULLETIN BOARD") or the Company's shareholders is required for the execution
by the Company of the Transaction Documents and compliance and performance by
the Company of its obligations under the Transaction Documents, including,
without limitation, the issuance and sale of the Securities. The Transaction
Documents and the Company's performance of its obligations thereunder has been
unanimously approved by the Company's Board of Directors.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under the Transaction Documents by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or over the
properties or assets of the Company or any of its Affiliates, (C) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other instrument to which the Company or any of its Affiliates is a
party, by which the Company or any of its Affiliates is bound, or to which any
of the properties of the Company or any of its Affiliates is subject, or (D) the
terms of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its Affiliates is a party except the
violation, conflict, breach, or default of which would not have a Material
Adverse Effect; or
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(ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company or any of
its Affiliates except as described herein; or
(iii) result in the activation of any anti-dilution rights or
a reset or repricing of any debt or security instrument of any other creditor,
equity holder, or potential equity holder of the Company, nor result in the
acceleration of the due date of any obligation of the Company; or
(iv) will result in the triggering of any piggy-back
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized and
on the date of issuance of the Securities, the Securities will be duly and
validly issued, fully paid and non-assessable and if registered pursuant to the
1933 Act and resold pursuant to an effective registration statement will be free
trading and unrestricted;
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
(v) assuming the representations and warranties of the
Subscribers as set forth in Section 4 hereof are true and correct, will not
result in a violation of Section 5 under the 1933 Act.
(h) Litigation. There is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its Affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under the Transaction
Documents. There is no pending or, to the best knowledge of the Company, basis
for or threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation if adversely determined would have a
Material Adverse Effect.
(i) No Market Manipulation. The Company and its Affiliates have
not taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Securities or affect the price at which the Securities may be issued or
resold.
(j) Information Concerning Company. The Reports including the
exhibits and financial statements included therewith, and Other Written
Information contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the dates of the most
recent financial statements included in the Reports, and except as modified in
the Other Written Information or in the Schedules hereto, there has been no
Material Adverse Event relating to the Company's business, financial condition
or affairs not disclosed in the Reports. The Reports including the exhibits and
financial statements included therewith, and Other Written Information do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, taken
as a whole, not misleading in light of the circumstances when made.
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(k) Stop Transfer. The Company will not issue any stop transfer
order or other order impeding the sale, resale or delivery of any of the
Securities, except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such instruction is given
to the Subscriber.
(l) Defaults. The Company is not in violation of its articles of
incorporation or bylaws. The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect.
(m) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board which would impair the exemptions relied upon in this
Offering or the Company's ability to timely comply with its obligations
hereunder. Neither the Company nor any of its Affiliates will take any action or
steps that would cause the offer or issuance of the Securities to be integrated
with other offerings which would impair the exemptions relied upon in this
Offering or the Company's ability to timely comply with its obligations
hereunder. The Company will not conduct any offering that will be integrated
with the offer or issuance of the Securities that would impair the exemptions
relied upon in connection with the offer and sale of the Securities or the
Company's ability to timely comply with its obligations pursuant to the
Transaction Documents.
(n) No General Solicitation. Neither the Company, nor any of its
Affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 0000 Xxx) in connection with the offer or sale
of the Securities.
(o) Liabilities. The Company has no liabilities or obligations
which are material, individually or in the aggregate, other than those incurred
in the ordinary course of the Company businesses since the date of the most
recent audited financial statements of the Company contained in the Reports, and
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
(p) No Undisclosed Events or Circumstances. Since the date of the
most recent audited financial statements of the Company contained in the
Reports, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company prior to the date hereof and/or prior to the Closing
Date which has not been so publicly announced or disclosed in the Reports.
(q) Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company's equity or rights to receive equity of
the Company. The board of directors of the Company has concluded, in its good
faith business judgment that the issuance of the Securities is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Warrant Shares upon exercise of the Warrants, is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company or parties
entitled to receive equity of the Company.
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(r) No Disagreements with Accountants and Lawyers. There are no
material disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise between the Company and the accountants and lawyers
presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers, nor have there been
any such disagreements during the two years prior to the Closing Date.
(s) Investment Company. Neither the Company nor any Affiliate of
the Company is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(t) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, 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 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 the Foreign
Corrupt Practices Act of 1977, as amended.
(u) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") and has a class of Common
Stock registered pursuant to Section 12(g) of the 1934 Act. Pursuant to the
provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Commission during the twelve
months preceding the date of this Agreement and the Closing Date.
(v) Listing. The Company's Common Stock is quoted on the Bulletin
Board under the symbol AEMD.OB. The Company has not received any oral or written
notice that its Common Stock is not eligible nor will become ineligible for
quotation on the Bulletin Board nor that its Common Stock does not meet all
requirements for the continuation of such quotation. The Company satisfies all
the requirements for the continued quotation of its Common Stock on the Bulletin
Board.
(w) DTC Status. The Company's transfer agent is a participant in,
and the Common Stock is eligible for transfer pursuant to, the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email address of the Company transfer
agent is set forth on SCHEDULE 5(W) hereto.
(x) Solvency. Based on the financial condition of the Company as
of the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Notes, (i) the Company's fair saleable value of
its assets exceeds the amount that will be required to be paid on or in respect
of the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature; The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
(y) Company Predecessor and Subsidiaries. The Company makes each
of the representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h),
(j), (l), (o), (p), (r), (s), (u), and (x) of this Agreement, as same relate to
the Subsidiary of the Company. All representations made by or relating to the
Company of a historical or prospective nature and all undertakings described in
Sections 9(g) through 9(l) shall relate, apply and refer to the Company and its
predecessors. The Company represents that it owns 100% of the outstanding equity
of the Subsidiaries and rights to receive equity of the Subsidiaries free and
clear of all liens, encumbrances and claims, except as set forth on Schedule
5(d). No person or entity other than the Company has the right to own and
receive any equity interest in the Subsidiaries.
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(z) Correctness of Representations. The Company represents that
the foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and, unless the Company otherwise notifies the
Subscribers prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date; provided, that, if such representation or
warranty is made as of a different date in which case such representation or
warranty shall be true as of such date.
(AA) Survival. The foregoing representations and warranties shall
survive the Closing Date.
6. Regulation D Offering/Legal Opinion. The offer and issuance of the
Securities to the Subscribers is being made pursuant to the exemption from the
registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. The
Company will provide, at the Company's expense, such legal opinions, if any, as
are reasonably necessary for the issuance and resale of the Common Stock
issuable upon exercise of the Warrants pursuant to an effective registration
statement, Rule 144 under the 1933 Act or an exemption from registration.
7.1. Mandatory Redemption at Subscriber's Election. Upon the occurrence
of an Event of Default (as defined in the Note or in this Agreement), that
continues for more than twenty (20) business days, (iii) a Change in Control (as
defined below), or (iv) of the liquidation, dissolution or winding up of the
Company, then at the Subscriber's election, the Company must pay to each
Subscriber ten (30) business days after request by each Subscriber ("CALCULATION
PERIOD"), a sum of money determined by multiplying up to the outstanding
principal amount of the Note designated by each such Subscriber by 120%, plus
accrued but unpaid interest ("MANDATORY REDEMPTION PAYMENT"). The Mandatory
Redemption Payment must be received by each Subscriber not later than thirty
(30) business days after request ("MANDATORY REDEMPTION PAYMENT DATE"). Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding. For purposes of this
Section 7.1, "CHANGE IN CONTROL" shall mean (i) the Company no longer having a
class of shares publicly traded or listed on a Principal Market (as defined in
Section 9(b)), (ii) the Company becoming a Subsidiary of another entity (other
than a corporation formed by the Company for purposes of reincorporation in
another U.S. jurisdiction), (iii) a majority of the board of directors of the
Company as of the Closing Date no longer serving as directors of the Company
except due to natural causes, and (iv) the sale, lease or transfer of
substantially all the assets of the Company or Subsidiaries.
7.2. Redemption. The Notes shall not be redeemable or callable by the
Company except as described in the Note.
8. Commission. The Company on the one hand, and each Subscriber (for
himself only) on the other hand, agree to indemnify the other against and hold
the other harmless from any and all liabilities to any persons claiming
brokerage commissions or finder's fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby or in connection with any
investment in the Company at any time, whether or not such investment was
consummated and arising out of such party's actions. The Company represents that
there are no parties entitled to receive fees, commissions, or similar payments
in connection with the Offering.
9. Covenants of the Company. The Company covenants and agrees with the
Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers, within
twenty-four hours after it receives notice of issuance by the Commission, any
state securities commission or any other regulatory authority of any stop order
or of any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
9
(b) Listing/Quotation. The Company shall promptly secure the
quotation or listing of the Common Stock and Warrant Shares upon each national
securities exchange, or automated quotation system upon which they are or become
eligible for quotation or listing (subject to official notice of issuance) and
shall maintain same so long as any Warrants are outstanding. The Company will
maintain the quotation or listing of its Common Stock on the American Stock
Exchange, National Capital Market, Nasdaq Global Market, Nasdaq Global Select
Market, New York Stock Exchange or Bulletin Board (whichever of the foregoing is
at the time the principal trading exchange or market for the Common Stock (the
"PRINCIPAL MARKET"), and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market, as applicable. The Company will provide the Subscribers copies
of all notices it receives notifying the Company of the threatened and actual
delisting of the Common Stock from any Principal Market. As of the date of this
Agreement and the Closing Date, the Bulletin Board is and will be the Principal
Market.
(c) Market Regulations. The Company shall notify the Commission,
the Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Subscribers and promptly provide copies thereof to the
Subscribers.
(d) Filing Requirements. From the date of this Agreement and until
the last to occur of (i) one (1) year after the Closing Date, (ii) until all the
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitations, or (iii) the Notes are not outstanding (the date of occurrence of
the last such event being the "END DATE"), the Company will (A) cause its Common
Stock to be registered under Section 12(b) or 12(g) of the 1934 Act, (B) comply
in all respects with its reporting and filing obligations under the 1934 Act,
(C) voluntarily comply with all reporting requirements that are applicable to an
issuer with a class of shares registered pursuant to Section 12(b) or Section
12(g) of the 1934 Act, if the Company is not subject to such reporting
requirements, and (D) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will not take any action
or file any document (whether or not permitted by the 1933 Act or the 1934 Act
or the rules thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under said acts until
the End Date. Until the End Date, the Company will continue the listing or
quotation of the Common Stock on a Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market. The Company agrees to timely file a
Form D with respect to the Securities if required under Regulation D and to
provide a copy thereof to each Subscriber promptly after such filing.
(e) Use of Proceeds. The proceeds of the Offering will be employed
by the Company for general working capital. The Purchase Price may not and will
not be used for accrued and unpaid officer and director salaries, payment of
financing related debt, redemption of outstanding notes or equity instruments of
the Company nor non-trade obligations outstanding on a Closing Date. For so long
as any Notes are outstanding, the Company will not prepay any financing related
debt obligations nor redeem any equity instruments of the Company.
(f) Reservation. Prior to the Closing Date, and at all times
thereafter, the Company shall have reserved, pro rata, on behalf of each holder
of a Warrant, from its authorized but unissued Common Stock, the amount of
Warrant Shares issuable upon exercise of the Warrants.
(g) DTC Program. At all times that Notes or Warrants are
outstanding, the Company will employ as the transfer agent for the Common Stock
and Warrant Shares a participant in the Depository Trust Company Automated
Securities Transfer Program.
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(h) Taxes. From the date of this Agreement and until the End Date,
the Company will promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Company;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on its books
adequate reserves with respect thereto, and provided, further, that the Company
will pay all such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefore. The Company undertakes to satisfy within sixty (60) days
after the Closing Date, out of the proceeds of the Offering, all outstanding tax
related charges payable by the Company which the Company represents do not
exceed $25,000.
(i) Insurance. From the date of this Agreement and until the End
Date, the Company will keep its assets which are of an insurable character
insured by financially sound and reputable insurers against loss or damage by
fire, explosion and other risks customarily insured against by companies in the
Company's line of business, in amounts sufficient to prevent the Company from
becoming a co-insurer and not in any event less than one hundred percent (100%)
of the insurable value of the property insured less reasonable deductible
amounts; and the Company will maintain, with financially sound and reputable
insurers, insurance against other hazards and risks and liability to persons and
property to the extent and in the manner customary for companies in similar
businesses similarly situated and to the extent available on commercially
reasonable terms.
(j) Books and Records. From the date of this Agreement and until
the End Date, the Company will keep true records and books of account in which
full, true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis.
(k) Governmental Authorities. From the date of this Agreement and
until the End Date, the Company shall duly observe and conform in all material
respects to all valid requirements of governmental authorities relating to the
conduct of its business or to its properties or assets.
(l) Intellectual Property. From the date of this Agreement and
until the End Date, the Company shall maintain in full force and effect its
corporate existence, rights and franchises and all licenses and other rights to
use intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business, unless it is sold for value.
(m) Properties. From the date of this Agreement and until the End
Date, the Company will keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a Material Adverse
Effect.
(n) Confidentiality/Public Announcement. From the date of this
Agreement and until the End Date, the Company agrees that except in connection
with a Form 8-K and the registration statement or statements regarding the
Securities or in correspondence with the SEC regarding same, it will not
disclose publicly or privately the identity of the Subscribers unless expressly
agreed to in writing by each Subscriber to be identified but only to the extent
required by law and then only upon five days prior notice to Subscriber. In any
event and subject to the foregoing, the Company undertakes to file a Form 8-K or
make a public announcement describing the Offering not later than the first
business day after the Closing Date. Prior to filing or announcement, such Form
8-K or public announcement will be provided to Subscribers for their review and
approval. In the Form 8-K or public announcement, the Company will specifically
disclose the amount of Common Stock outstanding immediately after the Closing.
Upon delivery by the Company to the Subscribers after the Closing Date of any
notice or information, in writing, electronically or otherwise, and while a
11
Note, Warrants, or Warrant Shares are held by such Subscribers, unless the
Company has in good faith determined that the matters relating to such notice do
not constitute material, nonpublic information relating to the Company or
Subsidiaries, the Company shall within one business day after any such delivery
publicly disclose such material, nonpublic information on a Report on Form 8-K
or otherwise. IN THE EVENT THAT THE COMPANY BELIEVES THAT A NOTICE OR
COMMUNICATION TO A SUBSCRIBER CONTAINS MATERIAL, NONPUBLIC INFORMATION, RELATING
TO THE COMPANY OR SUBSIDIARIES, THE COMPANY SHALL SO INDICATE TO SUCH SUBSCRIBER
CONTEMPORANEOUSLY WITH DELIVERY OF SUCH NOTICE OR INFORMATION. IN THE ABSENCE OF
ANY SUCH INDICATION, SUCH SUBSCRIBER SHALL BE ALLOWED TO PRESUME THAT ALL
MATTERS RELATING TO SUCH NOTICE AND INFORMATION DO NOT CONSTITUTE MATERIAL,
NONPUBLIC INFORMATION RELATING TO THE COMPANY OR ITS SUBSIDIARIES.
(o) Non-Public Information. The Company covenants and agrees that
except for the Reports, Other Written Information and schedules and exhibits to
this Agreement, which information the Company undertakes to publicly disclose
not later than the sooner of the required or actual filing date of the Form 8-K
described in Section 9(n) above, neither it nor any other person acting on its
behalf will at any time provide any Subscriber or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Subscriber shall have agreed in writing
to receive such information. The Company understands and confirms that each
Subscriber shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
(p) Negative Covenants. So long as a Note is outstanding, without
the consent of the Subscribers, the Company will not and will not permit any of
its Subsidiaries to directly or indirectly:
(i) amend its certificate of incorporation, bylaws or its
charter documents so as to materially and adversely affect any rights of the
Subscriber;
(ii) repay, redeem, repurchase or offer to repay, redeem,
repurchase or otherwise acquire or make any dividend or distribution in respect
of any of its Common Stock, preferred stock, warrants, options or other equity
securities other than to the extent permitted or required under the Transaction
Documents; or
(iii) prepay or redeem any financing related debt or past due
obligations outstanding as of the Closing Date.
(q) Seniority. Except as otherwise provided for herein, until the
Notes are fully satisfied or converted, the Company shall not grant nor allow
any security interest to be taken in the assets of the Company or any
Subsidiary; nor issue any debt, equity or other instrument which would give the
holder thereof directly or indirectly, a right in any assets of the Company or
any Subsidiary, equal or superior to any right or potential of the holder of a
Note in or to such assets.
(r) Notices. For so long as the Subscribers hold any Securities,
the Company will maintain as United States address and United States fax number
for notices purposes under the Transaction Documents.
10. Covenants of the Company Regarding Indemnification. The Company
agrees to indemnify, hold harmless, reimburse and defend the Subscribers, the
Subscribers' officers, directors, agents, Affiliates, members, managers, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation by
Company or breach of any representation or warranty by Company in this Agreement
or in any Exhibits or Schedules attached hereto, or other agreement delivered
pursuant hereto; or (ii) after any applicable notice and/or cure periods, any
breach or default in performance by the Company of any covenant or undertaking
to be performed by the Company hereunder, or any other agreement entered into by
the Company and Subscriber relating hereto. The procedures set forth in Section
11.6 shall apply to the indemnification set forth in Section 10(a).
12
11. Registration Rights.
11.1. Registration Statement. The Company shall file with the Commission a
Form SB-2 registration statement (the "REGISTRATION STATEMENT") (or such other
form that it is eligible to use) in order to register on behalf of the holder of
Warrants and Warrant Shares ("SELLER" or "SELLERS") all of the Warrant Shares
("REGISTRABLE SECURITIES") for resale and distribution under the 1933 Act within
sixty (60) calendar days after the Closing Date (the "FILING DATE"), and cause
the Registration Statement to be declared effective not later than one hundred
and eighty (180) calendar days after the Closing Date (the "EFFECTIVE DATE").
The Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber, pro rata, and not issued, employed or reserved for
anyone other than each such person. The Registration Statement will immediately
be amended or additional registration statements will be immediately filed by
the Company as necessary to register additional shares of Common Stock to allow
the public resale of all Common Stock included in and issuable by virtue of the
Registrable Securities. It shall be deemed a Non-Registration Event if at any
time after the date the Registration Statement is declared effective by the
Commission ("ACTUAL EFFECTIVE DATE") the Company has registered for unrestricted
resale on behalf of the Subscribers less than all of the Registrable Securities
required to be registered as described in this Agreement (such amount of
unregistered Common stock being the "SHORTFALL"). The Company shall cause to be
registered a sufficient amount of shares of Common stock in order to eliminate
the Shortfall within 60 days after the date the Shortfall occurs.
11.2. Registration Procedures. If and whenever the Company is required by
the provisions of Section 11.1(i) to effect the registration of any Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:
(a) subject to the timelines provided in this Agreement, prepare
and file with the Commission a registration statement required by Section 11,
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), promptly
provide to the holders of the Registrable Securities copies of all filings and
Commission letters of comment and notify the Subscribers (by telecopier and by
e-mail addresses provided by the Subscribers) on or before the second business
day thereafter that the Company receives notice that (i) the Commission has no
comments or no further comments on the Registration Statement, and (ii) the
registration statement has been declared effective (failure to timely provide
notice as required by this Section 11.2(a) shall be a material breach of the
Company's obligation and an Event of Default as defined in the Notes and a
Non-Registration Event as defined in Section 11.4 of this Agreement);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
so long as Warrants are outstanding, and comply with the provisions of the 1933
Act with respect to the disposition of all of the Registrable Securities covered
by such registration statement in accordance with the Sellers' intended method
of disposition set forth in such registration statement for such period;
(c) furnish to the Sellers, at the Company's expense, such number
of copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement or make them electronically available;
(d) use its reasonable best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Sellers shall request
in writing, provided, however, that the Company shall not for any such purpose
be required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;
13
(e) if applicable, list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) notify the Subscribers within twenty-four hours of the
Company's becoming aware that a prospectus relating thereto is required to be
delivered under the 1933 Act, of the happening of any event of which the Company
has knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing or which becomes subject to a Commission, state or other governmental
order suspending the effectiveness of the registration statement covering any of
the Registrable Securities;
(g) provided same would not be in violation of the provision of
Regulation FD under the 1934 Act, make available for inspection by the Sellers
during reasonable business hours, and any attorney, accountant or other agent
retained by the Seller or underwriter, all publicly available, non-confidential
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
publicly available, non-confidential information reasonably requested by the
seller, attorney, accountant or agent in connection with such registration
statement at such requesting Seller's expense; and
(h) provide to the Sellers copies of the registration statement
and amendments thereto five business days prior to the filing thereof with the
Commission. Any Subscriber's failure to comment on any Registration Statement or
other document provided to a Subscriber or its counsel shall not be construed to
constitute approval thereof nor the accuracy thereof.
11.3. Provision of Documents. In connection with each registration
statement described in this Section 11, each Seller will furnish to the Company
in writing such information and representation letters with respect to itself
and the proposed distribution by it as reasonably shall be necessary in order to
assure compliance with federal and applicable state securities laws.
11.4. Non-Registration Events. The Company agrees that the Sellers will
suffer damages if the Registration Statement is not filed by the Filing Date and
not declared effective by the Commission by the Effective Date, and maintained
in the manner and time periods contemplated by Section 11 hereof, and it would
not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or before the
Filing Date, (B) the Registration Statement is not declared effective on or
before the required Effective Date, (C) due to the action or inaction of the
Company the Registration Statement is not declared effective within three (3)
business days after receipt by the Company or its attorneys of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed or that the Commission has no further comments, (D) the Registration
Statement is filed and declared effective but shall thereafter cease to be
effective without being succeeded within 20 business days by an effective
replacement or amended registration statement or for a period of time which
shall exceed 20 days in the aggregate per year (defined as every rolling period
of 365 consecutive days commencing on the Actual Effective Date (each such event
referred to in clauses A through D of this Section 11.4 is referred to herein as
a "NON-REGISTRATION EVENT"), then the Company shall deliver to the holder of
Registrable Securities, as "LIQUIDATED DAMAGES", an amount equal to two percent
(2%) for each 30 days (or such lesser pro-rata amount for any period of less
than 30 days) of the Principal Amount of the Notes issued on the Closing Date to
Subscriber multiplied by a fraction, the numerator of which is the amount of
Warrants and Warrant Shares held by the Subscriber during the pendency of the
Non-Registration Event and the denominator of which is the amount of Warrants
issued to such Subscriber on the Closing Date. The Company must pay the
Liquidated Damages in cash. The Liquidated Damages must be paid within 10 days
after the end of each 30 day period or shorter part thereof for which Liquidated
Damages are payable. In the event a Registration Statement is filed by the
14
Filing Date but is withdrawn prior to being declared effective by the
Commission, then such Registration Statement will be deemed to have not been
filed and Liquidated Damages will be calculated accordingly. All oral or written
comments received from the Commission relating to the Registration Statement
must be satisfactorily responded to within ten business days after receipt of
comments from the Commission. Failure to timely respond to Commission comments
is a Non-Registration Event for which Liquidated Damages shall accrue and be
payable by the Company to the holders of Registrable Securities at the same rate
and amounts set forth above calculated from the eleventh day after the comments
were received through the date responses to the comments are given to the
Commission. The amount of Liquidated Damages payable in the aggregate for all
Non-Registration Events may not exceed $75,000.
11.5. Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses (if required), fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the NASD, transfer taxes, and fees of
transfer agents and registrars, are called "REGISTRATION EXPENSES." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities are called "SELLING EXPENSES." The Company will pay all
Registration Expenses in connection with the registration statement under
Section 11. Selling Expenses in connection with each registration statement
under Section 11 shall be borne by the Seller and may be apportioned among the
Sellers in proportion to the number of shares sold by the Seller relative to the
number of shares sold under such registration statement or as all Sellers
thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the 1933 Act pursuant to Section 11, the Company will, to the extent
permitted by law, indemnify and hold harmless the Seller, each officers,
directors, agents, Affiliates, members, managers, control persons, and principal
shareholders of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller in
writing specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
15
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities pursuant to such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnifying party shall have reasonably concluded that there may be reasonable
defenses available to indemnified party which are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified parties, as a group, shall have the right to
select one separate counsel, reasonably satisfactory to the indemnified and
indemnifying party, and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the 1933 Act in any case in which either (i) a
Seller, or any controlling person of a Seller, makes a claim for indemnification
pursuant to this Section 11.6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
16
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation and provided, further, however, that the liability
of the Seller hereunder shall be limited to the net proceeds actually received
by the Seller from the sale of Registrable Securities pursuant to such
Registration Statement.
11.7. Delivery of Unlegended Shares.
(a) Within seven (7) business days (such seventh business day
being the "UNLEGENDED SHARES DELIVERY DATE") after the business day on which the
Company has received (i) a notice that Warrant Shares have been sold pursuant to
the Registration Statement or Rule 144 under the 1933 Act, (ii) a representation
that the prospectus delivery requirements, or the requirements of Rule 144, as
applicable and if required, have been satisfied, and (iii) the original share
certificates representing the shares of Common Stock that have been sold, and
(iv) in the case of sales under Rule 144, customary representation letters of
the Subscriber and/or a Subscriber's broker regarding compliance with the
requirements of Rule 144, the Company at its expense, (y) shall deliver, and
shall cause legal counsel selected by the Company to deliver to its transfer
agent (with copies to Subscriber) an appropriate instruction and opinion of such
counsel, directing the delivery of shares of Common Stock without any legends
including the legend set forth in Section 4(i) above (the "UNLEGENDED SHARES");
and (z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted certificate, if any, to the Subscriber at the address specified in the
notice of sale, via express courier, by electronic transfer or otherwise on or
before the Unlegended Shares Delivery Date.
(b) In lieu of delivering physical certificates representing the
Unlegended Shares, upon request of a Subscriber, so long as the certificates
therefor do not bear a legend and the Subscriber is not obligated to return such
certificate for the placement of a legend thereon, the Company will cause its
transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Subscriber's prime broker with the Depository Trust Company through
its Deposit Withdrawal Agent Commission system, if such transfer agent
participates in such DWAC system. Such delivery must be made on or before the
Unlegended Shares Delivery Date.
(c) The Company understands that a delay in the delivery of the
Unlegended Shares pursuant to Section 11 hereof later than the Unlegended Shares
Delivery Date could result in economic loss to a Subscriber. As compensation to
a Subscriber for such loss, the Company agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Subscriber for late delivery of
Unlegended Shares in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default. If during any 360 day period, the Company fails to deliver
Unlegended Shares as required by this Section 11.7 for an aggregate of thirty
(30) days, then each Subscriber or assignee holding Warrant Shares subject to
such default may, at its option, require the Company to redeem all or any
portion of the Warrant Shares subject to such default at a price per share equal
to the greater of (i) 120% of the purchase price of such shares, or (ii) the
highest closing price of the Common Stock during the aforedescribed thirty day
period as reported by Bloomberg L.P. for the Principal Market, multiplied by the
aggregate Exercise Price of the Warrant Shares subject to such default
("UNLEGENDED REDEMPTION AMOUNT"). The Company shall pay any payments incurred
under this Section in immediately available funds not later than thirty (30)
business days after demand.
(d) In addition to any other rights available to a Subscriber, if
the Company fails to deliver to a Subscriber Unlegended Shares as required
pursuant to this Agreement, within three (3) business days after the Unlegended
Shares Delivery Date and the Subscriber or a broker on the Subscriber's behalf,
purchases (in an open market transaction or otherwise) shares of common stock to
deliver in satisfaction of a sale by such Subscriber of the shares of Common
Stock which the Subscriber was entitled to receive from the Company (a
17
"BUY-IN"), then the Company shall pay in cash to the Subscriber (in addition to
any remedies available to or elected by the Subscriber) on demand the amount by
which (A) the Subscriber's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (B) the
aggregate purchase price of the shares of Common Stock delivered to the Company
for reissuance as Unlegended Shares together with interest thereon at a rate of
15% per annum accruing until such amount and any accrued interest thereon is
paid in full (which amount shall be paid as liquidated damages and not as a
penalty). For example, if a Subscriber purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of
purchase price of shares of Common Stock delivered to the Company for reissuance
as Unlegended Shares, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery of Unlegended
Shares as described in Section 11.7 and the Company is required to deliver such
Unlegended Shares pursuant to Section 11.7 or the Warrant Shares pursuant to the
Warrants, the Company may not refuse to deliver Unlegended Shares based on any
claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, or for any other reason,
unless, an injunction or temporary restraining order from a court, on notice,
restraining and or enjoining delivery of such Unlegended Shares shall have been
sought and obtained by the Company or at the Company's request or with the
Company's assistance, and the Company has posted a surety bond for the benefit
of such Subscriber in the amount of 120% of the amount of the aggregate purchase
price of the Warrant Shares which are subject to the injunction or temporary
restraining order, which bond shall remain in effect until the final
unappealable disposition of the litigation of the dispute and the proceeds of
which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber's favor.
12. (a) Right of Participation. For so long as Notes are outstanding,
the Subscribers shall be given not less than ten (10) business days prior
written notice of any proposed sale by the Company of its Common Stock or other
securities or equity linked debt obligations, except in connection with (i) full
or partial consideration in connection with a strategic merger, acquisition,
consolidation or purchase of substantially all of the securities or assets of
corporation or other entity which holders of such securities or debt are not at
any time granted registration or registration rights, (ii) the Company's
issuance of securities in connection with strategic license agreements and other
partnering arrangements so long as such issuances are not for the purpose of
raising capital and which holders of such securities or debt are not at any time
granted registration or registration rights, (iii) the Company's issuance of
Common Stock or the issuances or grants of options to purchase Common Stock to
employees, directors, and consultants pursuant to plans described on SCHEDULE
5(D), (iv) as a result of the exercise of Warrants which are granted or issued
pursuant to this Agreement on the terms described in the Transaction Documents
as of the Closing Date (collectively the foregoing are "EXCEPTED ISSUANCES") and
(v) as set forth on SCHEDULE 12(A). The Subscribers who exercise their rights
pursuant to this Section 12(a) shall have the right during the ten business days
following receipt of the notice to purchase by application of the outstanding
balance of the Notes including principal, interest, liquidated damages and any
other amount then owing to such Subscriber by the Company, such Common Stock,
debt or other securities in accordance with the terms and conditions set forth
in the notice of sale. In the event such terms and conditions are modified
during the notice period, the Subscribers shall be given prompt notice of such
modification and shall have the right during the ten business days following the
notice of modification to exercise such right. In the event the exercise of the
rights described in this Section 12(a) would or could result in the issuance of
an amount of Common Stock of the Company that would exceed the maximum amount
that may be issued to a Subscriber calculated in the manner described in Section
10 of the Warrant, then the issuance of such additional shares of Common Stock
of the Company to such Subscriber will be deferred in whole or in part until
such time as such Subscriber is able to beneficially own such Common Stock
without exceeding the applicable maximum amount set forth calculated in the
manner described in Section 10 of the Warrant. The determination of when such
Common Stock may be issued shall be made by each Subscriber as to only such
Subscriber.
18
(b) Favored Nations Provision. Other than in connection with the
Excepted Issuances, if at any time the Warrants are outstanding, the Company
shall agree to or issue (the "LOWER PRICE ISSUANCE") any Common Stock or
securities convertible into or exercisable for shares of Common Stock (or modify
any of the foregoing which may be outstanding) to any person or entity at a
price per share or exercise price per share which shall be less than the Warrant
exercise price, without the consent of each Subscriber, then the Company shall
issue, for each such occasion, additional shares of Common Stock to each
Subscriber respecting those Warrants and Warrant Shares that remain outstanding
at the time of the Lower Price Issuance so that the average per share purchase
price of the shares of Common Stock issued to each Subscriber (of the Warrant
Shares still owned by a Subscriber) is equal to such other lower price per share
and the Warrant Exercise Price shall automatically be reduced to such other
lower price. The delivery to a Subscriber of the additional shares of Common
Stock shall be not later than the closing date of the transaction giving rise to
the requirement to issue additional shares of Common Stock. Each Subscriber is
granted the registration rights described in Section 11 hereof in relation to
such additional shares of Common Stock. For purposes of the issuance and
adjustment described in this paragraph, the issuance of any security of the
Company carrying the right to convert such security into shares of Common Stock
or of any warrant, right or option to purchase Common Stock shall result in the
issuance of the additional shares of Common Stock upon the sooner of the
agreement to or actual issuance of such convertible security, warrant, right or
option and again at any time upon any subsequent issuances of shares of Common
Stock upon exercise of such purchase rights if such issuance is at a price lower
than the Warrant Exercise Price in effect upon such issuance. The rights of each
Subscriber set forth in this Section 12 are in addition to any other rights the
Subscriber has pursuant to this Agreement and the Warrant. Each Subscriber is
also given the right to elect to substitute any term or terms of any other
offering in connection with which such Subscriber has rights as described in
Section 12(a), for any term or terms of the Offering in connection with Warrants
owned by such Subscriber as of the date the notice described in Section 12(a) is
required to be given to such Subscriber.
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Aethlon Medical, Inc.,
0000 Xxxxxx Xxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxx, XX 00000, Attn: Xxxxx X. Xxxxx,
CEO, telecopier: (000) 000-0000, with a copy by telecopier only to: Xxxxxxxxxx &
Xxxxx LLP, 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxx Xxxxxxx, XX 00000, Attn:
Xxxxxxxx Xxxx, Esq., telecopier: (000) 000-0000, and (ii) if to the Subscriber,
to: the one or more addresses and telecopier numbers indicated on the signature
pages hereto.
(b) Entire Agreement; Assignment. This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by the Company and the affected Subscriber
and as described in Section 13(h). Neither the Company nor the Subscribers have
relied on any representations not contained or referred to in this Agreement and
the documents delivered herewith. No right or obligation of the Company shall be
assigned without prior notice to and the written consent of the Subscribers.
19
(c) Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(d) Law Governing this Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of California without
regard to principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of California or in the federal courts
located in the state and county of California. The parties to this Agreement
hereby irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. THE PARTIES EXECUTING
THIS AGREEMENT AND OTHER AGREEMENTS REFERRED TO HEREIN OR DELIVERED IN
CONNECTION HEREWITH ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE IN PERSONAM
JURISDICTION OF SUCH COURTS AND HEREBY IRREVOCABLY WAIVE TRIAL BY JURY. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
Each party hereby irrevocably waives personal service of process and consents to
process being served in any suit, action or proceeding in connection with this
Agreement or any other Transaction Document 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.
(e) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
Subject to Section 13(d) hereof, the Company hereby irrevocably waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction in California of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(f) Independent Nature of Subscribers. The Company acknowledges
that the obligations of each Subscriber under the Transaction Documents are
several and not joint with the obligations of any other Subscriber, and no
Subscriber shall be responsible in any way for the performance of the
obligations of any other Subscriber under the Transaction Documents. The Company
acknowledges that each Subscriber has represented that the decision of each
Subscriber to purchase Securities has been made by such Subscriber independently
of any other Subscriber and independently of any information, materials,
statements or opinions as to the business, affairs, operations, assets,
properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company which may have been made or given by any
other Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the Registration Statement and (ii) review by, and
consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
20
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
(g) Damages. In the event the Subscriber is entitled to receive
any liquidated damages pursuant to the Transactions, the Subscriber may elect to
receive the greater of actual damages or such liquidated damages.
(h) Consent. As used in the Agreement, "consent of the
Subscribers" or similar language means the consent of holders (the "REQUIRED
HOLDERS") of not less than 75% of the total of the Warrants and Warrant Shares
issued and issuable upon exercise of outstanding Warrants held by Subscribers on
the date consent is requested.
(i) Equal Treatment. No consideration 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 and paid
to all the Subscribers and their permitted successors and assigns.
(j) Maximum Payments. Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus refunded
to the Company.
(k) Calendar Days. All references to "days" in the Transaction
Documents shall mean calendar days unless otherwise stated. The terms "business
days" and "trading days" shall mean days that the New York Stock Exchange is
open for trading for three or more hours. Time periods shall be determined as if
the relevant action, calculation or time period were occurring in New York City.
Any deadline that falls on a non-business day in any of the Transaction
Documents shall be automatically extended to the next business day and interest,
if any, shall be calculated and payable through such extended period.
(l) Captions: Certain Definitions. The captions of the various
sections and paragraphs of this Agreement have been inserted only for the
purposes of convenience; such captions are not a part of this Agreement and
shall not be deemed in any manner to modify, explain, enlarge or restrict any of
the provisions of this Agreement. As used in this Agreement the term "person"
shall mean and include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
(m) Severability. In the event that any term or provision of this
Agreement shall be finally determined to be superseded, invalid, illegal or
otherwise unenforceable pursuant to applicable law by an authority having
jurisdiction and venue, that determination shall not impair or otherwise affect
the validity, legality or enforceability: (i) by or before that authority of the
remaining terms and provisions of this Agreement, which shall be enforced as if
the unenforceable term or provision were deleted, or (ii) by or before any other
authority of any of the terms and provisions of this Agreement.
21
(n) Successor Laws. References in the Transaction Documents to
laws, rules, regulations and forms shall also include successors to and
functionally equivalent replacements of such laws, rules, regulations and forms.
[THIS SPACE INTENTIONALLY LEFT BLANK]
22
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
AETHLON MEDICAL, INC.
a Nevada corporation
By: /s/ Xxxxx X. Xxxxx
-------------------------------
Name: Xxxxx X. Xxxxx
Title: CEO
Dated: January __, 2008
------------------------- ----------------- ------------------ -----------------
SUBSCRIBER PURCHASE PRICE PRINCIPAL AMOUNT CLASS C
(CASH) OF NOTE WARRANTS
------------------------- ----------------- ------------------ -----------------
_______________________
(Signature)
By: ___________________
Name: _________________
Title: ________________
------------------------- ----------------- ------------------ -----------------
23
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibit A Form of Note
Exhibit B Form of Class C Warrant
Schedule 5(a) Subsidiaries
Schedule 5(d) Additional Issuances / Capitalization
Schedule 5(w) Transfer Agent
Schedule 12(a) Excepted Issuances
24
EXHIBIT A
---------
FORM OF NOTE
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
PRINCIPAL AMOUNT: $220,000.00 ISSUE DATE: JANUARY __, 2008
PURCHASE PRICE: $200,000.00
PROMISSORY NOTE
---------------
FOR VALUE RECEIVED, AETHLON MEDICAL, INC., a Nevada corporation
(hereinafter called "Borrower"), hereby promises to pay to , (the "Holder") or
its registered assigns or successors in interest or order, without demand, the
sum of Two Hundred and Twenty Thousand Dollars ($220,000.00) ("Principal
Amount"), with interest compounded monthly at the annual rate of nine percent
(9%) on October __, 2008 (the "Maturity Date"), if not sooner paid.
This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1. Application of Principal Interest. All amounts payable to the Holder
on this Note, whether or not due may be applied, at the discretion of the
Holder, towards the purchase price of equity or debt of the Borrower pursuant to
Section 12 of the Subscription Agreement.
1.2. Discount for Cash Payment. Provided an Event of Default (as defined
in Article II) nor an event which with the passage of time or the giving of
notice could become an Event of Default, has not occurred, and further provided
the Holder has not exercised the Holder's rights set forth in Section 1.1, then
upon the timely payment of this Note in cash, the principal portion payable upon
this Note shall be equal to the outstanding Principal Amount multiplied by
..9091. Interest and other sums payable on or in connection with this Note shall
be paid in full without deduction.
1.3. Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, which, if susceptible to cure is not cured
within the cure periods (if any) set forth in Article II, otherwise then from
the first date of such occurrence, the annual interest rate on this Note shall
(subject to Section 3.7) be twelve percent (12%), and be due on demand.
25
ARTICLE II
EVENTS OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth on
Schedule 2.1 hereto and below:
2.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of Principal Amount, interest or other sum due under this Note or
any Transaction Document when due.
2.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of the Subscription Agreement, this Note or Transaction
Document in any material respect and such breach, if subject to cure, continues
for a period of ten (10) business days after written notice to the Borrower from
the Holder.
2.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement, Transaction Document or in any agreement, statement or certificate
given in writing pursuant hereto or in connection herewith or therewith shall be
false or misleading in any material respect as of the date made and the Closing
Date.
2.4 Receiver or Trustee. The Borrower or any Subsidiary of Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for them or for a substantial part
of their property or business; or such a receiver or trustee shall otherwise be
appointed.
2.5 Judgments. Any money judgment, writ or similar final process shall
be entered or filed against Borrower or any subsidiary of Borrower or any of
their property or other assets for more than $100,000, and shall remain
unvacated, unbonded, unappealed, unsatisfied, or unstayed for a period of
forty-five (45) days.
2.6 Non-Payment. A default by the Borrower under any one or more
obligations in an aggregate monetary amount in excess of $100,000 for more than
twenty (20) days after the due date, unless the Borrower is contesting the
validity of such obligation in good faith and has segregated cash funds equal to
not less than one-half of the contested amount.
2.7 Bankruptcy. Bankruptcy, insolvency, reorganization, or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law,
or the issuance of any notice in relation to such event, for the relief of
debtors shall be instituted by or against the Borrower or any Subsidiary of
Borrower and if instituted against them are not dismissed within forty-five (45)
days of initiation.
2.8 Delisting. Delisting of the Common Stock from any Principal Market
for a period of ten consecutive trading days.
2.9 Stop Trade. An SEC or judicial stop trade order or Principal Market
trading suspension with respect to Borrower's Common Stock that lasts for five
or more consecutive trading days.
2.10 Non-Registration Event. The occurrence of a Non-Registration Event
as described in Section 11.4 of the Subscription Agreement.
2.11 Cross Default. A default by the Borrower of a material term,
covenant, warranty or undertaking of any Transaction Document or other agreement
to which the Borrower and Holder are parties, or the occurrence of a material
event of default under any such other agreement to which Borrower and Holder are
parties, which is not cured after any required notice and/or cure period.
26
2.12 Financial Statement Restatement. The restatement of any financial
statements filed by the Borrower with the Securities and Exchange Commission for
any date or period from two years prior to the Issue Date of this Note and until
this Note is no longer outstanding, if the result of such restatement would, by
comparison to the unrestated financial statements, have constituted a Material
Adverse Effect.
2.13 Other Note Default. The occurrence of any Event of Default under any
Other Note between Borrower and Holder.
ARTICLE III
MISCELLANEOUS
3.1 Failure or Indulgence Not Waiver. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
3.2 Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Borrower to: Aethlon Medical, Inc.,
0000 Xxxxxx Xxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxx, XX 00000, Attn: Xxxxx X. Xxxxx,
CEO, telecopier: (000) 000-0000, with a copy by telecopier only to: Xxxxxxxxxx &
Xxxxx LLP, 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxx Xxxxxxx, XX 00000, Attn:
Xxxxxxxx Xxxx, Esq., telecopier: (000) 000-0000, and (ii) if to the Holder, to
the name, address and telecopy number set forth on the front page of this Note.
3.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
3.4 Assignees. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.
3.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
3.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, INCLUDING, BUT NOT LIMITED
TO, CALIFORNIA STATUTES OF LIMITATIONS. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the civil or state courts of California or in the
federal courts located in the State and county of California. Both parties and
the individual signing this Agreement on behalf of the Borrower agree to submit
to the jurisdiction of such courts. The prevailing party shall be entitled to
27
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or unenforceability of any other provision of this Note. Nothing contained
herein shall be deemed or operate to preclude the Holder from bringing suit or
taking other legal action against the Borrower in any other jurisdiction to
collect on the Borrower's obligations to Holder, to realize on any collateral or
any other security for such obligations, or to enforce a judgment or other
decision in favor of the Holder.
3.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
3.8. Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
3.9 Redemption. This Note may not be redeemed, called or prepaid without
the consent of the Holder.
3.10 Non-Business Days. Whenever any payment or any action to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of California, such payment may be due or action shall be required on the
next succeeding business day and, for such payment, such next succeeding day
shall be included in the calculation of the amount of accrued interest payable
on such date.
28
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by an authorized officer as of the ____ day of January, 2008.
AETHLON MEDICAL, INC.
By:_____________________________
Name:
Title: President & CEO
WITNESS:
_______________________________
[Print Name]
Chief Financial Officer
29
EXHIBIT B
---------
FORM OF WARRANT
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Right to Purchase 660,000 shares of Common Stock of Aethlon
Medical, Inc. (subject to adjustment as provided herein)
CLASS C COMMON STOCK PURCHASE WARRANT
No. 2008-C- Issue Date: January __, 2008
AETHLON MEDICAL, INC., a corporation organized under the laws of the State
of Nevada (the "Company"), hereby certifies that, for value received,
___________________________________, or its assigns (the "Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company at any time
commencing after the Issue Date until 5:00 p.m., E.S.T on the third anniversary
of the Issue Date (the "Expiration Date"), up to 660,000 fully paid and
nonassessable shares of Common Stock at a per share purchase price of $0.50. The
aforedescribed purchase price per share, as adjusted from time to time as herein
provided, is referred to herein as the "Purchase Price." The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein. The Company may reduce the Purchase Price for
some or all of the Warrants, temporarily or permanently. Capitalized terms used
and not otherwise defined herein shall have the meanings set forth in that
certain Subscription Agreement (the "SUBSCRIPTION AGREEMENT"), dated as of
January __, 2008, entered into by the Company and the Holder.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Aethlon Medical, Inc. and any
corporation which shall succeed or assume the obligations of Aethlon Medical,
Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.001 par value per share, as authorized on the date of the Subscription
Agreement, and (b) any other securities into which or for which any of the
securities described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
30
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
(d) The term "Warrant Shares" shall mean the Common Stock issuable upon
exercise of this Warrant.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and delivery within two days thereafter of payment, in
cash, wire transfer or by certified or official bank check payable to the order
of the Company, in the amount obtained by multiplying the number of shares of
Common Stock for which this Warrant is then exercisable by the Purchase Price
then in effect. The original Warrant is not required to be surrendered to the
Company until it has been fully exercised.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by delivery of a Subscription Form in the manner and
at the place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise provided the Holder has surrendered the original Warrant, the Company,
at its expense, will forthwith issue and deliver to or upon the order of the
Holder hereof a new Warrant of like tenor, in the name of the Holder hereof or
as such Holder (upon payment by such Holder of any applicable transfer taxes)
may request, the whole number of shares of Common Stock for which such Warrant
may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common
Stock as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange
or is quoted on the NASDAQ Global Market, Nasdaq Global Select Market, the
NASDAQ Capital Market, the California Stock Exchange, the American Stock
Exchange, LLC, or OTC Bulletin Board, then the average of the closing or last
sale prices, respectively, reported for the ten trading days immediately
preceding the Determination Date;
(b) If the Company's Common Stock is not traded on an
exchange or on the NASDAQ Global Market, Nasdaq Global Select Market, the NASDAQ
Capital Market, the California Stock Exchange, the American Stock Exchange, LLC,
or OTC Bulletin Board, but is traded in the over-the-counter market, then the
average of the closing bid and ask prices reported for the ten trading days
immediately preceding the Determination Date;
(c) Except as provided in clause (d) below and Section 3.1,
if the Company's Common Stock is not publicly traded, then as the Holder and the
Company agree, or in the absence of such an agreement, by arbitration in
accordance with the rules then standing of the American Arbitration Association,
before a single arbitrator to be chosen from a panel of persons qualified by
education and training to pass on the matter to be decided with such arbitration
to be conducted in California City, California; or
31
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
1.7 Delivery of Stock Certificates, etc. on Exercise. The Company
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder hereof as the record owner of such
shares as of the close of business on the date on which delivery of a
Subscription Form shall have occurred and payment made for such shares as
aforesaid. As soon as practicable after the exercise of this Warrant in full or
in part, and in any event within seven (7) business days thereafter ("Warrant
Share Delivery Date"), the Company at its expense (including the payment by it
of any applicable issue taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct in compliance with applicable
securities laws, a certificate or certificates for the number of duly and
validly issued, fully paid and non-assessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which such Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then Fair Market Value of one full
share of Common Stock, together with any other stock or other securities and
property (including cash, where applicable) to which such Holder is entitled
upon such exercise pursuant to Section 1 or otherwise. The Company understands
that a delay in the delivery of the Warrant Shares after the Warrant Share
Delivery Date could result in economic loss to the Holder. As compensation to
the Holder for such loss, the Company agrees to pay (as liquidated damages and
not as a penalty) to the Holder for late issuance of Warrant Shares upon
exercise of this Warrant the proportionate amount of $100 per business day after
the Warrant Share Delivery Date for each $10,000 of Purchase Price of Warrant
Shares for which this Warrant is exercised which are not timely delivered. The
Company shall pay any payments incurred under this Section in immediately
available funds within thirty (30) business days after demand. Furthermore, in
addition to any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of the Warrant
Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of
the relevant Warrant exercise by delivery of a notice to such effect to the
Company, whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to the exercise of the relevant portion
of this Warrant, except that the liquidated damages described above shall be
payable through the date notice of revocation or rescission is given to the
Company.
32
1.8 Buy-In. In addition to any other rights available to the
Holder, if the Company fails to deliver to a Holder the Warrant Shares as
required pursuant to this Warrant, within seven (7) business days after the
Warrant Share Delivery Date and the Holder or a broker on the Holder's behalf,
purchases (in an open market transaction or otherwise) shares of common stock to
deliver in satisfaction of a sale by such Holder of the Warrant Shares which the
Holder was entitled to receive from the Company (a "BUY-IN"), then the Company
shall pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) on demand, the amount by which (A) the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
common stock so purchased exceeds (B) the aggregate Purchase Price of the
Warrant Shares required to have been delivered together with interest thereon at
a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if a Holder purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to
$10,000 of Purchase Price of Warrant Shares to have been received upon exercise
of this Warrant, the Company shall be required to pay the Holder $1,000, plus
interest. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In.
1.9 The Company agrees and acknowledges that despite the pendency
of a not yet effective Registration Statement which includes for registration
the Registrable Securities (as defined in Section 11.1(iv) of the Subscription
Agreement), a Holder is permitted to and the Company will issue to such Holder
Warrant Shares upon exercise of the Warrants.
2. Cashless Exercise.
(a) If a registration statement (as described in Section 11 of the
Subscription Agreement) ("Registration Statement") is effective and the Holder
may sell all of its shares of Common Stock upon exercise of all of the Warrants
issued to the Holder on the Issue Date pursuant to such Registration Statement,
this Warrant may be exercised in whole or in part for cash only as set forth in
Section 1 above. If such Registration Statement is not available, the payment
upon exercise may be made at the option of the Holder either in (i) cash, wire
transfer or by certified or official bank check payable to the order of the
Company equal to the applicable aggregate Purchase Price, (ii) by delivery of
Common Stock issuable upon exercise of the Warrants in accordance with Section
(b) below or (iii) by a combination of any of the foregoing methods, for the
number of Common Stock specified in such form (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the holder per the terms of this Warrant) and the holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities)
determined as provided herein.
(b) Subject to the provisions herein to the contrary, if the Fair
Market Value of one share of Common Stock is greater than the Purchase Price (at
the date of calculation as set forth below), in lieu of exercising this Warrant
for cash, the holder may elect to receive shares equal to the value (as
determined below) of this Warrant (or the portion thereof being cancelled) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Subscription Form in which event the Company shall issue
to the holder a number of shares of Common Stock computed using the following
formula:
X= Y (A-B)
-------
A
Where X= the number of shares of Common Stock to be issued to the
holder
Y= the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being
exercised (at the date of such calculation)
A= the average of the closing sale prices of the Common
Stock for the five (5) Trading Days immediately prior to
(but not including) the Exercise Date, or Fair Market
Value, whichever is less
B= Purchase Price (as adjusted to the date of such
calculation)
33
For purposes of Rule 144 promulgated under the 1933 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 the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued pursuant to the Subscription
Agreement.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Fundamental Transaction. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the Company
with or into another entity, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (C)
any tender offer or exchange offer (whether by the Company or another entity) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, (D) the Company
consummates a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with one or more persons or entities whereby such other persons or
entities acquire more than the 50% of the outstanding shares of Common Stock
(not including any shares of Common Stock held by such other persons or entities
making or party to, or associated or affiliated with the other persons or
entities making or party to, such stock purchase agreement or other business
combination), (E) any "person" or "group" (as these terms are used for purposes
of Sections 13(d) and 14(d) of the 0000 Xxx) is or shall become the "beneficial
owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of
50% of the aggregate Common Stock of the Company, or (F) 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 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, (a) upon 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 upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the Company is acquired in
(1) a transaction where the consideration paid to the holders of the Common
Stock consists solely of cash, (2) a "Rule 13e-3 transaction" as defined in Rule
13e-3 under the 1934 Act, or (3) a transaction involving a person or entity not
traded on a national securities exchange, the Nasdaq Global Select Market, the
Nasdaq Global Market or the Nasdaq Capital Market, cash equal to the
Black-Scholes Value. For purposes of any such exercise, the determination of the
Purchase 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 Purchase 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. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new warrant consistent with the foregoing provisions
and evidencing the Holder's right to exercise such warrant 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 3.1 and insuring
that this Warrant (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.
34
"Black-Scholes Value" shall be determined in accordance with the Black-Scholes
Option Pricing Model obtained from the "OV" function on Bloomberg L.P. using (i)
a price per share of Common Stock equal to the VWAP of the Common Stock for the
Trading Day immediately preceding the date of consummation of the applicable
Fundamental Transaction, (ii) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the remaining term of this Warrant as
of the date of such request and (iii) an expected volatility equal to the 100
day volatility obtained from the HVT function on Bloomberg L.P. determined as of
the Trading Day immediately following the public announcement of the applicable
Fundamental Transaction.
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in California, NY, as trustee for the
Holder of the Warrants. Such property shall be delivered only upon payment of
the Warrant exercise price.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.4 Share Issuance. Until the Expiration Date, if the Company
shall issue any Common Stock except for the Excepted Issuances (as defined in
the Subscription Agreement), prior to the complete exercise of this Warrant for
a consideration less than the Purchase Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Purchase Price shall be reduced to such other lower price for then outstanding
Warrants. For purposes of this adjustment, the issuance of any security or debt
instrument of the Company carrying the right to convert such security or debt
instrument into Common Stock or of any warrant, right or option to purchase
Common Stock shall result in an adjustment to the Purchase Price upon the
issuance of the above-described security, debt instrument, warrant, right, or
option if such issuance is at a price lower than the Purchase Price in effect
upon such issuance and again at any time upon any subsequent issuances of shares
of Common Stock upon exercise of such conversion or purchase rights if such
issuance is at a price lower than the Purchase Price in effect upon such
issuance. Common Stock issued or issuable by the Company for no consideration
will be deemed issuable or to have been issued for $0.0001 per share of Common
Stock. The reduction of the Purchase Price described in this Section 3.4 is
subject to the provisions of, and in addition to the other rights of the Holder
described in, the Subscription Agreement.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
35
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof, be entitled to receive shall be adjusted to
a number determined by multiplying the number of shares of Common Stock that
would otherwise (but for the provisions of this Section 4 be issuable on such
exercise by a fraction of which (a) the numerator is the Purchase Price that
would otherwise (but for the provisions of this Section 4 be in effect, and (b)
the denominator is the Purchase Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor"). On the
surrender for exchange of this Warrant, with the Transferor's endorsement in the
form of Exhibit B attached hereto (the "Transferor Endorsement Form") and
together with an opinion of counsel reasonably satisfactory to the Company that
the transfer of this Warrant will be in compliance with applicable securities
laws, the Company will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense, twice only, will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
36
9. Registration Rights. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference.
10. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common Stock
on such date. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
1934 Act , and Rule 13d-3 thereunder. Subject to the foregoing, the Holder shall
not be limited to aggregate exercises which would result in the issuance of more
than 4.99%. The restriction described in this paragraph may be waived, in whole
or in part, upon sixty-one (61) days prior notice from the Holder to the Company
to increase such percentage to up to 9.99%, but not in excess of 9.99%. The
Holder may decide whether to convert a Convertible Note or exercise this Warrant
to achieve an actual 4.99% or up to 9.99% ownership position as described above,
but not in excess of 9.99%.
11. Warrant Agent. The Company may, by written notice to the Holder of
the Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing
Common Stock (or Other Securities) on the exercise of this Warrant pursuant to
Section 1, exchanging this Warrant pursuant to Section 7, and replacing this
Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
12. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: if to the Company, to: Aethlon Medical, Inc., 0000
Xxxxxx Xxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxx, XX 00000, Attn: Xxxxx X. Xxxxx, CEO,
telecopier: (000) 000-0000, with a copy by telecopier only to: Xxxxxxxxxx &
Xxxxx LLP, 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxx Xxxxxxx, XX 00000, Attn:
Xxxxxxxx Xxxx, Esq., telecopier: (000) 000-0000, and (ii) if to the Holder, to
the address and telecopier number listed on the first paragraph of this Warrant.
37
14. Law Governing This Warrant. This Warrant shall be governed by and
construed in accordance with the laws of the State of California without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Warrant shall be
brought only in the state courts of California or in the federal courts located
in the state and county of California. The parties to this Warrant hereby
irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. The Company and Holder
waive trial by jury. The prevailing party shall be entitled to recover from the
other party its reasonable attorney's fees and costs. In the event that any
provision of this Warrant or any other agreement delivered in connection
herewith is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of any agreement. Each party hereby irrevocably waives personal service of
process and consents to process being served in any suit, action or proceeding
in connection with this Agreement or any other Transaction Document 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.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
AETHLON MEDICAL, INC.
By: ____________________________
Name:
38
EXHIBIT A
---------
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: AETHLON MEDICAL, INC.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is ______________________________________________________________
_______________________________________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________ ________________________________
(Signature must conform to name
of holder as specified on the
face of the Warrant)
________________________________
________________________________
(Address)
39
EXHIBIT B
---------
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of AETHLON MEDICAL, INC. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
AETHLON MEDICAL, INC. with full power of substitution in the premises.
------------------------ -------------------------- ---------------------------
Transferees Percentage Transferred Number Transferred
------------------------ -------------------------- ---------------------------
------------------------ -------------------------- ---------------------------
------------------------ -------------------------- ---------------------------
------------------------ -------------------------- ---------------------------
Dated: ______________, ______ ________________________________
(Signature must conform to name
of holder as specified on the
face of the warrant)
Signed in the presence of:
______________________________ ________________________________
(Name) ________________________________
(address)
ACCEPTED AND AGREED:
[TRANSFEREE] ________________________________
________________________________
(address)
______________________________
(Name)
40
