FORBEARANCE AGREEMENT
This
FORBEARANCE AGREEMENT (this “Agreement”)
is
entered into as of February 16, 2007, by and among the note holders identified
on Schedule A hereto (each
a
“Note
Holder”
and
collectively, the “Note
Holders”)
and
Biophan Technologies, Inc., a Nevada Corporation (the “Company”).
All
capitalized terms not defined in this Agreement but defined in that certain
Securities Purchase Agreement, dated as of October 11, 2006 (the “Purchase
Agreement”),
by
and among the Note Holders and the Company, shall have the meanings given to
such terms in the Purchase Agreement.
A. Pursuant
to the Purchase Agreement, on October 12, 2006, the Company issued to the Note
Holders (i) an aggregate of $7,250,000 face amount of Senior Secured Convertible
Notes (the “Notes”),
(ii)
warrants to purchase an aggregate of 5,410,498 shares of the Company’s common
stock, par value $0.005 per share, (the “Common
Stock”)
at an
exercise price of $0.81 per share (the “A
Warrants”)
(iii)
warrants to purchase an aggregate of 5,410,498 shares of Common Stock at an
exercise price of $0.89 per share (the “B
Warrants”)
and
(iv) warrants to purchase an aggregate of 10,820,896 shares of Common Stock
at
an exercise price of $0.67 per share (the “C
Warrants”),
in
the respective amounts set forth next to each Note Holders name on Schedule
A
hereto; and
B. Events
(as defined in the Purchase Agreement) (“Triggering
Events”),
including that the Registration Statement filed by the Company (No. 333-138632)
(the “Registration
Statement”)
was not
declared effective by the Commission by the Required Effectiveness Date have
occurred and remain uncured; and
C. The
Purchase Agreement provides, in part, that upon the occurrence of an Triggering
Event, and on each monthly anniversary of the Event Date, so long as the
Triggering Event remains uncured, the Company shall pay to each Purchaser
liquidated damages as provided in the Purchase Agreement and the Note Holders
are the Purchasers entitled to the benefits of the Purchase Agreement; and
D. The
Company failed to make a scheduled payment of principal on the Notes due and
payable on February 1, 2007 (the “Principal
Payment Default”);
and
E. Pursuant
to Section 8(e) of the Notes, the Note Holders are entitled to enforce any
and
all of their rights and remedies thereunder. Such rights include, but are not
limited to, the right to demand that the Company repurchase all of the
outstanding principal amount of the Notes at a repurchase price equal to 110%
of
such outstanding principal amount plus all accrued but unpaid interest thereon.
F. The
Company does not anticipate making any interest, principal, penalty payment
or liquidated damages payments on the Notes or with respect to the Purchase
Agreement prior to March 31, 2007 (together with the Principal Payment Default,
the “Payment
Defaults”);
and
G. The
Company has requested that the Note Holders forbear from exercising their rights
and remedies under the Purchase Agreement and Notes with respect to the
Triggering Events and the Payment Defaults (and any other defaults and Events
of
Default under the Notes) prior to March 31, 2007; and
H. In
consideration for the Note Holders entering into this Forbearance Agreement,
the
Company shall issue to the Note Holders warrants to purchase an aggregate of
60,000 shares of Common Stock with an exercise price of $0.51 per share (the
“Fee
Warrants”);
and
I. The
A
Warrants and B Warrants contain anti-dilution protection whereby, upon issuance
of the Fee Warrants, the exercise price of the A Warrants and B Warrants will
be
automatically adjusted to $0.51 per share pursuant to Section 9(d)(i) of the
respective warrant.
1. Forbearance.
1.1 No
Forbearance Except as Expressly Stated.
Nothing
in this Agreement shall in any way limit, restrict or bar any rights or remedies
available to the Note Holders (whether pursuant to the Purchase Agreement or
Note or at law or in equity or otherwise) or the exercise or enforcement thereof
by the Note Holders, except
only as
is expressly provided in this Section 1, and subject to the limitations set
forth therein.
1.2 Forbearance
Period.
The
Note Holders hereby agree that during the period commencing on the date hereof
and terminating on the earlier of either March 31, 2007 or the date on which
any
Termination Event (as defined below) first occurs (said period is hereinafter
referred to as the “Forbearance
Period”),
the
Note Holders will forbear from exercising any and all of the rights and remedies
which the Note Holders may have against the Company or any of their respective
assets under the Purchase Agreement or Notes or at law or in equity as a result
of the occurrence or continuance of any Payment Default or any other default
or
Event of Default under the Notes or any Triggering Event with respect to the
Purchase Agreement. Upon the occurrence of any Termination Event, the
Forbearance Period shall immediately and automatically terminate and be null
and
void and have no further force or effect.
1.3 Termination
Events.
The
occurrence of any of the following events shall constitute a Termination Event
(hereinafter referred to collectively as the “Termination
Events”
and each
singly as a “Termination
Event”)
under
this Agreement:
1.3.1 The
failure by the Company to promptly, punctually, and faithfully observe, perform,
discharge or comply with any provisions of this Agreement; or
1.3.2 The
determination that any written statement, certificate, report, financial
statement, representation or warranty made or furnished by the Company to the
Note Holders in connection with or pursuant to this Agreement is false when
it
was made in any material adverse respect, or omits or fails to state a material
fact necessary in order to make the statement, representation or warranty
contained therein not misleading in any material adverse respect;
or
1.3.3 The
occurrence of any action (a) taken or initiated by, assented or agreed to,
acquiesced in or permitted by the Company, or (b) taken or initiated by another
party which is not in control of or controlled by the Company (other than a
Note
Holder) and which is not acting with the assent, agreement, acquiescence or
permission of the Company, which action results in any of the following events:
(i) the filing of any complaint, application or petition seeking relief or
the
entry of any order of judgment for any such relief with respect to the Company
pursuant to the Bankruptcy Code, or pursuant to any similar state or federal
law
or procedure for any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar for debtors; (ii) the appointment of any
trustee, receiver, master, assignee, liquidator, custodian or other similar
party with respect to the Company or any of their respective properties; (iii)
any assignment for the benefit of other creditors of the Company; (iv) the
convening of any meeting of creditors, formal or informal, of the Company;
or
(v) the taking of possession, custody or control of a substantial part or all
of
the property of the Company by any other party; or
1.3.4 The
dissolution, termination of existence, winding up or liquidation of the Company;
or
1.3.5 Any
preferential transfer by the Company as described in Section 547 of the
Bankruptcy Code, or any fraudulent transfer or conveyance by the Company as
described in Section 548 of the Bankruptcy Code, or in the MFTA, in each case
without the requirement of the filings of any petition under the Bankruptcy
Code, or commencement of any action under the MFTA; or
1.3.6 The
Company, or any Person claiming by or through the Company, commences, joins
in,
assists, cooperates in or participates as an adverse party in any suit or other
proceeding against the Note Holders which relates to the Notes or the Purchase
Agreement.
1.4 Consequence
of Termination Event.
Notwithstanding any provision contained in this Agreement to the contrary,
the
parties hereto acknowledge and agree that upon the occurrence and during the
continuance of any Termination Event, that:
1.4.1 Subsection
1.2 of this Agreement shall immediately and automatically terminate and be
null
and void and have no further force or effect.
1.4.2 All
of
the other remaining provisions contained in this Agreement shall remain in
full
force and effect, and shall continue to be binding upon the parties hereto,
it
being understood and agreed that the Note Holders shall continue to retain
the
Fee Warrants.
2. Forbearance
Fee.
The
Company shall issue to the Note Holders on the date hereof Fee Warrants, in
substantially the form attached hereto as Exhibit I, in the denominations set
forth opposite the names of the Note Holders on Schedule B. Each Note Holder,
by
accepting a Fee Warrant, represents and warrants to the Company and to each
other Note Holder that (i) it is acquiring such Fee Warrant for investment
purposes and with no present intention of distributing such Fee Warrant or
any
shares of Common Stock issuable upon exercise thereof in violation of applicable
securities laws, (ii) it is acquiring such Fee Warrant hereunder in the ordinary
course of its business, and (iii) it understands that the Company, in issuing
the Fee Warrants, is relying upon, among other things, the representations
and
warranties of such Note Holder herein.
3. Anti-dilution
Provisions of Outstanding Notes and Warrants.
3.1
Adjustment of the A Warrants and the B Warrants.
The
Company hereby acknowledges that, pursuant to Section 9(d)(i) of each of the
A
Warrants and B Warrants, upon the issuance of the Fee Warrants, the exercise
price of the A Warrants and B Warrants will automatically be adjusted from
$0.81
per share and $0.89 per share, respectively, to $0.51 per share.
3.2
No
Adjustment of the C Warrants and the Notes.
The
Note Holders hereby waive the application of Section 9(d)(i) of the C Warrants
and of Section 10(d)(i) of the Notes to the issuance of the Fee Warrants and
agree that, notwithstanding the provisions of such Sections, no adjustment
to
the conversion price of the Notes or to the exercise of the exercise price
of
the C Warrants as a result of the issuance of the Fee Warrants.
4. Operating
Expenses.
The
Company hereby covenants and agrees that the Company will not incur expenses
(other than the accrual of interest, penalties and liquidated damages on the
Notes or under the Purchase Agreement) in excess of $500,000 during each
thirty-day period commencing on the date of this Agreement and terminating
on
the date on which the Registration Statement is declared effective by the
Commission, without the prior written consent of Note Holders then holding
Notes
representing, in the aggregate, at least sixty percent (60%) of the face amount
of all outstanding Notes. Upon request from any Note Holder, the Company shall
provide weekly cash flow statements to such Note Holder or to an authorized
designee of such Note Holder; provided, that such Note Holder first executes
and
delivers to the Company a non-disclosure agreement in form and substance
satisfactory to the Company.
5. General
Release.
The
Company on its own behalf, and on behalf of its successors and assigns, and
any
Person acting for or on behalf of, or claiming through, any of them, and each
of
them (collectively, the “Releasing
Parties”),
for
good and valuable consideration, receipt and sufficiency of which are hereby
acknowledged, fully, finally and forever releases and discharges the Note
Holders and each of their past, present and future officers, directors, agents,
attorneys, employees, representatives, predecessors, successors, assigns, heirs,
parents, subsidiaries, and any Person acting for or on behalf of any of them,
and each of them (collectively, the“Released
Parties”),
of and
from any and all claims, actions, causes and rights of action, suits, debts,
sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, obligations, promises, trespasses,
damages, judgments, executions, losses, claims, liabilities and demands of
any
kind or nature whatsoever, whether at law, in equity or otherwise, whether
known
or unknown, contingent or absolute, suspected or unsuspected, disclosed or
undisclosed, hidden or concealed, disputed or undisputed, liquidated or
unliquidated, matured or unmatured and whether or not accrued, and whether
or
not asserted or assertable in law, equity or otherwise, for, upon or by reason
of any act, omission or other matter, cause or thing whatsoever from the
beginning of the world until the date hereof relating to, arising from or in
any
manner whatsoever connected with (a) the Purchase Agreement or Notes and (b)
all
actions taken or contemplated to be taken in connection with, arising from
or in
any manner whatsoever relating to the Purchase Agreement or Notes, which any
of
the Releasing Parties ever had or may have had, now has or may now have against
any of the Releasing Parties for, upon or by reason of any act, omission or
other matter, cause or thing whatsoever from the beginning of the world until
the date hereof.
6. No
Setoffs, Counterclaims or Defenses.
The
Company hereby represents and warrants to the Note Holders, and agrees, that
the
Company has no defense, setoff or counterclaim to the payment of the
indebtedness, obligations and liabilities owed by the Company to the Note
Holders under or pursuant to the Purchase Agreement or Notes. To the extent
any
such defense, setoff or counterclaim ever existed or may exist, the Company
hereby irrevocably waives and releases any and all such defenses, counterclaims
and setoffs that may now exist or that may hereafter be claimed to have existed
on or before the date hereof.
7. No
Waiver.
Nothing
herein shall constitute a waiver by the Note Holders of any default or Event
of
Default under the Notes or any Triggering Event with respect to the Purchase
Agreement, and each Note Holder expressly reserves all of its rights and
remedies in respect thereof, subject, however, to the provisions of Section
1
above. Nothing contained in this Agreement shall constitute a waiver of any
term
or condition by, nor a bar (except to the extent provided in Section 1 above)
to
the exercise of any right or remedy available to, the Note Holders under or
with
respect to the Purchase Agreement or Notes. All rights and remedies of the
Note
Holders are cumulative, and not exclusive, and all rights and remedies herein
are in addition to any rights and remedies otherwise available to the Note
Holders under the Purchase Agreement and Notes or at law or in equity or
otherwise. Notwithstanding the provisions of this Section 7, the Note Holders
hereby waive the provisions of Sections 4.6(a) and 4.6(b) of the Purchase
Agreement solely for the purpose of permitting the Company to issue Fee Warrants
to the Note Holders as contemplated in this Agreement.
8. Conditions
to Effectiveness.
The
effectiveness of this Agreement and all of the obligations of each of the
undersigned Note Holders hereunder is subject to the satisfaction of the
following conditions precedent, each of which shall be in form, scope and
substance satisfactory to such Note Holder:
8.1 Forbearance
Agreement.
Such
Note Holder shall have received this Agreement, as executed and delivered by
the
Company.
8.2 Corporate
Proceedings of Company.
Such
Note Holder shall have received a copy of the resolutions of the Board of
Directors of the Company authorizing the execution, delivery and performance
of
this Agreement and the issuance of the Fee Warrants, as certified by the
Secretary of the Company, which certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or
rescinded.
8.3 Forbearance
Fee.
A Fee
Warrant in the denomination set forth opposite the name of such Note Holder
on
Schedule B shall have been issued and delivered to such Note
Holder.
8.4 Other.
Such
Note Holder shall have received from the Company such other documents,
instruments, certificates and affidavits as it may reasonably
require.
9. Miscellaneous.
9.1 Voluntary
Act.
Each
Note Holder acknowledges, agrees and respectively says under the penalties
of
perjury, that (a) it is executing this Agreement as its free act and deed,
(b)
it is not acting under any duress or undue influence, (c) it has received from
the Company good and adequate consideration, the receipt and sufficiency of
which are hereby acknowledged, in connection with the execution of this
Agreement and (d) it has done so after consultation with, or after the
opportunity to consult with, its own legal counsel.
9.2 Individual
Act.
The
obligations of each Note Holder under this Agreement are several and not joint
with the obligations of any other Note Holder, and no Note Holder shall be
responsible in any way for the performance or non-performance of the obligations
of any other Note Holder hereunder. Nothing contained herein or in the Purchase
Agreement or Notes, and no action taken by any Note Holder pursuant thereto,
shall be deemed to constitute the Note Holders as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Note Holders are in any way acting in concert or as a group with respect to
such
obligations or the transactions contemplated by this Agreement. Each Note Holder
shall be entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of this Agreement or out of the
Purchase Agreement or the Notes, and it shall not be necessary for any other
Note Holder to be joined as an additional party in any proceeding for such
purpose.
9.3 Successors
and Assigns.
This
Agreement is binding upon and shall inure to the benefit of the parties hereto,
and their respective heirs, executors, administrators, successors and assigns.
Nothing herein is intended to be for the benefit of any party other than the
parties to this Agreement.
9.4 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original as against any party whose signature appears thereon, and
all
of which shall together constitute one and the same instrument. This Agreement
shall become binding and effective as to the undersigned upon execution and
as
to all Note Holders when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon
as
the signatories. Executed counterparts may be delivered by facsimile or other
electronic transmission and such delivery shall be deemed to be delivery of
an
executed original notwithstanding any subsequent failure or refusal to deliver
a
counterpart signed in ink.
9.5 Integration;
Severability.
This
Agreement constitutes and integrates the entire agreement between the parties
as
to its subject matter and supersedes any and all prior or contemporaneous
discussions, understandings and negotiations; and the Company expressly
acknowledges and agrees that the Note Holders have made no agreements,
representations, warranties or promises concerning the subject of this Agreement
except as expressly set forth in this Agreement. If any term or provision of
this Agreement shall be determined to be invalid or unenforceable in any
instance, such determination shall not affect the enforceability or validity
of
such term or provision in any other instance or the enforceability and validity
of any other term or provision, each of which shall remain in full force and
effect.
9.6 Notices.
All
notices required or permitted hereunder shall be in writing and delivered in
accordance with the provisions of the Purchase Agreement.
9.7 Amendment.
Neither
this Agreement nor any of the provisions hereof can be changed, waived,
discharged or terminated, except by an instrument in writing signed by the
party
against whom enforcement of the change, waiver, discharge or termination is
sought.
9.8 Further
Assurances.
The
Company agrees that it shall hereafter execute and deliver, or cause to be
executed and delivered, such documents and do, or cause to be done, such acts
and things as might reasonably be requested by the Note Holders to more fully
vest in and secure to the Note Holders the benefits of this
Agreement.
9.9 No
Conflicts.
To the
extent and only to the extent that any provision contained in this Agreement
is
directly inconsistent and conflicts with any corresponding provision contained
in the Purchase Agreement or Notes, then the provision contained in this
Agreement will control over the corresponding provision contained in the
Purchase Agreement or Notes. To the extent possible, however, provisions of
this
Agreement, the Purchase Agreement and Notes shall be interpreted to compliment
and supplement each other and the absence of any provision or portion thereof
in
any such document shall not be deemed to be an inconsistency with any other
such
document which contains such provision or portion thereof.
9.10 Construction
of Agreement.
Should
any provision of this Agreement require interpretation or construction, it
is
agreed by the parties hereto that the court, administrative body or other entity
interpreting or construing this Agreement shall not apply any presumption that
the provisions hereof shall be more strictly construed against one party by
reason of the rule of construction that a document is to be construed more
strictly against the party who itself or through its agents prepared the same,
it being agreed that the parties and their respective attorneys and agents
have
fully participated in the preparation, review and analysis of this
Agreement.
9.11 Governing
Law; Jurisdiction.
This
Agreement shall be construed in accordance with and governed by the laws of
the
State of New York, without giving effect to the conflict of law provisions
thereof. The Company submits itself to the non-exclusive jurisdiction of the
Courts of the State of New York for all purposes with respect to this Agreement
and the Purchase Agreement and Notes.
BIOPHAN TECHNOLOGIES, INC. | ||
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By: | /s/ Xxxxxx X. Xxxxxxxx | |
Name: Xxxxxx X. Xxxxxxxx |
||
Title:
Chief
Financial Officer
|
TRUK OPPORTUNITY FUND, LLC | ||
By: Atoll Asset Management, LLC | ||
|
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By: |
/s/
Xxxxxxx X. Xxxx
|
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Name: Xxxxxxx X. Xxxx |
||
Title:
Principal
|
CRESCENT INTERNATIONAL LTD. | ||
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By: | /s/ Maxi Brezzi | |
Name: Maxi Brezzi |
||
Title:
Authorized
Signatory
|
HARBORVIEW MASTER FUND LP | ||
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By: |
/s/
Xxxxx Xxxxxx /s/
Xxxxxx Xxx Xxxxxx
|
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Name: Navigator Management Ltd. |
||
Title:
Authorized
Signatory
|
CAMOFI MASTER LDC | ||
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By: |
/s/
Xxxxxxx X. Xxxx
|
|
Name: Xxxxxxx X. Xxxx |
||
Title:
Authorized
Signatory
|
CRANSHIRE CAPITAL, L.P. | ||
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By: | /s/ Xxxxxxxx X. Xxxxx | |
Name: Xxxxxxxx X. Xxxxx |
||
Title:
President
- Downsview Capital
The General Partner
|
CASTERLIGG
MASTER INVESTMENTS LTD.
|
||
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By: | /s/ Xxxxxxx X. Xxxxx | |
Name: Xxxxxxx X. Xxxxx |
||
Title:
Senior
Managing Director
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BRIDGEPOINTE
MASTER FUND LTD.
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||
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By: | /s/ Xxxx X. Xxxxxx | |
Name: Xxxx X. Xxxxxx |
||
Title:
Director
|
XXXXXXXX
INVESTMENT MASTER
FUND
LTD
|
||
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By: | /s/ Xxxxxxx Xxxxxxxx | |
Name: Xxxxxxx Xxxxxxxx |
||
Title:
Vice
President
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HIGHBRIDGE
INTERNATIONAL LLC
|
||
By:
Highbridge Capital Management, LLC
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||
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By: | /s/ Xxxxx X. Xxxxxxx | |
Name: Xxxxx X. Xxxxxxx |
||
Title:
Senior
Vice President
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IROQUOIS
MASTER FUND, LTD.
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||
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By: | /s/ Xxxxxx Xxxxxxxx | |
Name: Xxxxxx Xxxxxxxx |
||
Title:
Authorized
Signator
|
SCHEDULE
A
Note
Holders
|
Note
Principal Amount
|
A
Warrant Shares
|
B
Warrant Shares
|
C
Warrant Shares
|
Truk
Opportunity Fund, LLC
|
$500,000.00
|
373,135
|
373,134
|
746,269
|
Crescent
International Ltd.
|
$500,000.00
|
373,135
|
373,134
|
746,269
|
Harborview
Master Fund LP
|
$500,000.00
|
373,135
|
373,134
|
746,269
|
CAMOFI
Master LDC
|
$1,000,000.00
|
746,269
|
746,268
|
1,492,537
|
Cranshire
Capital, L.P.
|
$750,000.00
|
559,702
|
559,701
|
1,119,403
|
Castlerigg
Master Investments Ltd.
|
$1,000,000.00
|
746,269
|
746,268
|
1,492,537
|
BridgePointe
Master Fund Ltd.
|
$750,000.00
|
559,702
|
559,701
|
1,119,403
|
Xxxxxxxx
Investment Master Fund Ltd
|
$500,000.00
|
373,135
|
373,134
|
746,269
|
Highbridge
International LLC
|
$500,000.00
|
373,135
|
373,134
|
746,269
|
Iroquois
Master Fund, Ltd.
|
$1,250,000.00
|
932,836
|
932,836
|
1,865,672
|
SCHEDULE
B
Note
Holders
|
Note
Principal Amount
|
Fee
Warrant Shares
|
Truk
Opportunity Fund, LLC
|
$500,000.00
|
4,138
|
Crescent
International Ltd.
|
$500,000.00
|
4,138
|
Harborview
Master Fund LP
|
$500,000.00
|
4,138
|
CAMOFI
Master LDC
|
$1,000,000.00
|
8,276
|
Cranshire
Capital, L.P.
|
$750,000.00
|
6,207
|
Castlerigg
Master Investments Ltd.
|
$1,000,000.00
|
8,276
|
BridgePointe
Master Fund Ltd.
|
$750,000.00
|
6,207
|
Xxxxxxxx
Investment Master Fund Ltd
|
$500,000.00
|
4,138
|
Highbridge
International LLC
|
$500,000.00
|
4,138
|
Iroquois
Master Fund, Ltd.
|
$1,250,000.00
|
10,344
|