USBC, Inc 8-K, filed Mar 15, 2021
USBC, Inc. (USBC)
8-K
2021-03-15
For: 2021-03-15
View Original
Added on
April 10, 2026
About this 8-K
USBC, Inc filed this 8-K on March 15, 2021.
Items reported
- Item 3.02: Unregistered sale of equity
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 15,
2021
KNOW LABS, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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000-30262
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90-0273142
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(State
of other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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500 Union Street, Suite 810
Seattle, Washington 98101
(Address of principal executive office)
(206) 903-1351
(Registrant’s telephone number, including area
code)
not applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2.
below):
☐ Written
communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
☐ Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a -12)
☐ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d -2(b))
☐ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e -4(c))
Securities registered pursuant to Section 12(b) of the Act:
None.
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933
(§230.405 of this chapter) or Rule 12b-2 of the Securities
Exchange Act of 1934 (§240.12b-2 of this
chapter).
Emerging growth company. ☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Item 3.02 Unregistered Sales of Equity
Securities.
On March 15, 2021, Know Labs, Inc. (the “Company”)
closed a private placement and received gross proceeds of
$14,279,000 in exchange for issuing Subordinated Convertible Notes
(the “Convertible Notes”) and Warrants (the
“Warrants”) in a private placement to 87 accredited
investors, pursuant to a series of substantially identical
Securities Purchase Agreements, Common Stock Warrants, and related
documents.
The Convertible Notes have a principal amount of $14,279,000 and
bear annual interest of 8%. Both the principal amount of and the
interest are payable on a payment-in-kind basis in shares of Common
Stock of the Company (the “Common Stock”). They are due
and payable (in Common Stock) on the earlier of (a) mandatory and
automatic conversion of the Convertible Notes into a financing that
yields gross proceeds of at least $5,000,000 (a “Qualified
Financing”) or (b) on the one-year anniversary of the
Convertible Notes (the “Maturity Date”). Investors will
be required to convert their Convertible Notes into Common Stock in
any Qualified Financing at a conversion price per share equal to
the lower of (i) $2.00 per share or (ii) a 25% discount to the
price per share paid by investors in the Qualified Financing. If
the Convertible Notes have not been paid or converted prior to the
Maturity Date, the outstanding principal amount of the Convertible
Notes will be automatically converted into shares of Common Stock
at the lesser of (a) $2.00 per share or (b) any adjusted price
resulting from the application of a “most favored
nations” provision, which requires the issuance of additional
shares of Common Stock to investors if the Company issues certain
securities at less than the then-current conversion
price.
The Warrants were granted on a 1:0.5 basis (one-half Warrant for
each full share of Common Stock into which the Convertible Notes
are convertible). The Warrants have a five-year term and an
exercise price equal to 120% of the per share conversion price of
the Qualified Financing or other mandatory conversion.
The Convertible Notes are initially convertible into 7,139,500
shares of Common Stock, subject to certain adjustments, and the
Warrants are initially exercisable for 3,569,750 shares of Common
Stock at an exercise price of $2.40 per share of Common Stock, also
subject to certain adjustments.
In connection with the private placement, the placement agent for
the Convertible Notes and the Warrants received a cash fee of
$661,720 and warrants to purchase 496,290 shares of the
Company’s common stock, all based on 4.63% of gross proceeds
to the Company.
As part of the Purchase Agreement, the Company entered into a
Registration Rights Agreement, which grants the investors
“demand” and “piggyback” registration
rights to register the shares of Common Stock issuable upon the
conversion of the Convertible Notes and the exercise of the
Warrants with the Securities and Exchange Commission for resale or
other disposition. In addition, the Convertible Notes are
subordinated to certain senior debt of the Company pursuant to a
Subordination Agreement executed by the investors.
The Convertible Notes and Warrants were issued in transactions that
were not registered under the Securities Act of 1933, as amended
(the “Act”) in reliance upon applicable exemptions from
registration under Section 4(a)(2) of the Act and/or Rule 506 of
SEC Regulation D under the Act.
The Company has closed the Convertible Notes and Warrants
offering.
The foregoing description of the financing is qualified in its
entirety by reference to the complete terms and conditions of
the forms of Securities Purchase Agreement, Subscription
Agreement, Subordinated Convertible Note, Common Stock Purchase
Warrant, Subordination Agreement, and Registration Rights
Agreement, copies of which are attached to this Current Report
on Form 8-K as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5 and 10.6,
respectively, and which are incorporated by reference into this
Item 3.02.
Item 9.01 Financial Statements and
Exhibits.
(d) Exhibits
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Exhibit No.
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Description
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Form of
Securities Purchase Agreement (filed herewith)
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Form of
Subscription Agreement (filed herewith)
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Form of
8% Subordinated Convertible Note (filed herewith)
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Form of
Common Stock Purchase Warrant (filed herewith)
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Form of
Subordination Agreement (filed herewith)
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Form of
Registration Rights Agreement (filed herewith)
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Press
Release dated March 15, 2021 related to the closing of Know Labs,
Inc. funding.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly
authorized.
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KNOW LABS,
INC.
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Date:
March
15, 2021
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By:
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/s/ Ronald
P. Erickson
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Ronald P. Erickson |
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Chairman
of the Board
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Exhibit 10.1
FORM OF SECURITIES PURCHASE AGREEMENT
This
SECURITIES PURCHASE AGREEMENT (the “Agreement”) is dated as of and
effective as of the date last written below (the
“Effective
Date”), by and between KNOW LABS, INC., a corporation
incorporated under the laws of the State of Nevada (the
“Company”), and
the undersigned purchaser (“Purchaser”).
WHEREAS, the
Company and Purchaser are executing and delivering this Agreement
in reliance upon the exemption from securities registration
afforded by Section 4(a)(2) of the Securities Act of 1933, as
amended (the “Securities
Act”), and Rule 506(b) of Regulation D
(“Regulation D”)
as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities
Act.
WHEREAS, Purchaser
desires to purchase from Company, and the Company desires to sell
and issue to Purchaser, upon the terms and subject to the
conditions contained herein, a subordinated convertible note (the
“Convertible
Note”), in the form attached hereto as Exhibit A, and warrants to
purchase shares of Common Stock (the “Warrants”), in the form attached
hereto as Exhibit
B.
NOW,
THEREFORE, in consideration of the premises and the mutual
covenants of the parties hereinafter expressed and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto, each intending to be
legally bound, agree as follows:
ARTICLE
I
DEFINITIONS
For
purposes of this Agreement, except as otherwise expressly provided
or otherwise defined elsewhere in this Agreement, or unless the
context otherwise requires, the capitalized terms in this Agreement
shall have the meanings assigned to them in the Convertible Note or
this Article as follows:
1.1 “Action” as to any Person, means
any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or
investigation pending or threatened in writing against or affecting
such Person, any of such Person’s subsidiaries or any of such
Person’s or such subsidiaries’ respective properties,
before or by any governmental authority, arbitrator, regulatory
authority (federal, state, county, local or foreign), stock market,
stock exchange or trading facility.
1.2 “Business Day” shall mean any day
other than a Saturday, Sunday, or a legal holiday on which federal
banks are authorized or required to be closed for the conduct of
commercial banking business.
1.3
“Common Stock” means the common
stock of the Company, par value $0.001 per share.
1.4
“Convertible Note(s)” shall have
the meaning given to it in the preamble above.
1.5
“Effective Date” means the date so
defined in the introductory paragraph of this
Agreement.
1.6 “Material Adverse Effect” means any
of (i) a material and adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material and
adverse effect on the results of operations, assets, properties,
business or condition (financial or otherwise) of the Company and
the subsidiaries, taken as a whole, or (iii) a material and adverse
impairment to the Company’s ability to perform on a timely
basis its obligations under any Transaction Document, provided,
however, that any effect(s) arising from or relating to any of the
following shall not be deemed, either alone or in combination, to
constitute, and shall not be taken into account in determining
whether there has been or will be, a Material Adverse Effect: (A)
conditions affecting the industries in which the business operates
(which effect(s), in each case, do not disproportionately affect
the Business relative to other companies conducting businesses
similar to the business); (B) general economic, financial market or
geopolitical conditions (which effect(s), in each case, do not
disproportionately affect the business relative to other companies
conducting businesses similar to the business); (C) any failure to
meet any projections or forecasts for the business for any period
ending (or for which revenues or earnings are released) on or after
the date hereof (provided that the underlying causes of any such
failure (subject to the other provisions of this definition) shall
not be excluded); (D) any change in accounting rules (including
generally accepted accounting principles in the United States), or
the enforcement, implementation or interpretation thereof, after
the date hereof; or (E) any effect caused by, relating to or
resulting from the announcement or pendency of the transactions
contemplated by this Agreement.
1.7 “Person” means any individual, sole
proprietorship, joint venture, partnership, limited liability
company, corporation, association, cooperation, trust, estate,
governmental authority, or any other entity of any nature
whatsoever.
1.8 “Securities” means, collectively,
the Convertible Notes, the Warrants, and any additional shares of
Common Stock issuable (i) in connection with a conversion of the
Convertible Notes,
(ii)
upon exercise of the Warrants or (iii) in accordance with any of
the terms or provisions of this Agreement or any other Transaction
Documents.
1.9 “Subordination Agreement” means the
Subordination Agreement dated the date hereof by and between
Purchaser and Clayton Struve, the form of which is attached hereto
as Exhibit
C.
1.10 “Subscription
Agreement” means the Subscription Agreement,
Suitability Questionnaire, and Accredited Investor Status
Certification executed by Purchaser, the form of which is attached
hereto as Exhibit
D.
1.11 “Transaction
Documents” means this Agreement any and all documents
or instruments executed or to be executed by the Company in
connection with this Agreement, including the Subscription
Agreement(s), the Convertible Note(s), the Warrant(s), and the
Subordination Agreement(s), together with all modifications,
amendments, extensions, future advances, renewals, and
substitutions thereof.
1.12
“Warrant(s)” shall have the meaning
given to it in the preamble above.
ARTICLE
II
PURCHASE AND SALE OF CONVERTIBLE NOTES AND WARRANTS
2.1 Purchase and Sale. Subject to
the satisfaction (or waiver) of the terms and conditions of this
Agreement, Purchaser agrees to purchase, and Company agrees to sell
and issue to Purchaser, the Convertible Notes and the Warrants in
the amount of the Purchase Price, all as set forth on Schedule 1 attached hereto. The
Purchase Price for each Convertible Note purchased shall be equal
to its face value. The aggregate principal amount of Convertible
Notes which may be purchased under this Agreement from time to time
shall not exceed $8,000,000; provided, that the Company may
increase such aggregate principal amount of Convertible Notes in
its sole discretion. The Company shall notify Purchaser of any such
increase, but Purchaser shall have no right of first offer,
preemptive right, or any similar right with respect to such
additional Convertible Notes.
2.2 Closing Date. The purchase and
sale of the Convertible Notes and Warrants to Purchaser shall take
place on the Effective Date, or such later date as the Company and
Purchaser may agree in writing, subject to satisfaction of the
conditions set forth in this Agreement (the “Closing Date”). Additional
closings with other purchasers of the Convertible Notes and
Warrants may be held from time to time in the sole discretion of
the Company.
2.3 Form of Payment. Subject to the
satisfaction of the terms and conditions of this Agreement, on the
Closing Date: (i) Purchaser shall deliver to the Company, to the
account designated in the Subscription Agreement, the Purchase
Price for the Convertible Note and Warrants and (ii) the Company
shall deliver to Purchaser the Convertible Note(s) and Warrant(s)
which Purchaser is purchasing hereunder, duly executed on behalf of
the Company, together with any other documents required to be
delivered pursuant to this Agreement.
ARTICLE
III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser
represents and warrants to the Company as follows:
3.1 Certifications in Subscription
Agreement. The certifications of Purchaser contained in the
Subscription Agreement are true and correct as of the Effective
Date, and Purchaser hereby reaffirms the representations,
warranties, agreements, acknowledgments, and understandings of
Purchaser contained in the Subscription Agreement as of the
Effective Date.
3.2 Additional Information. The
Purchaser understands and agrees that the Purchaser may be asked or
required to provide documentation (“Documentation”) to verify the
Purchaser’s accredited investor status. Notwithstanding
anything else contained herein or in other materials
provided to Purchaser, this Documentation may be retained and
reviewed by the Company and copies of the Documentation may be
provided to affiliates of the Company and Boustead Securities, LLC,
a member of FINRA and SIPC, who is acting as the Company’s
exclusive placement agent in connection with this offering (the
“Placement
Agent”), and its affiliates. Purchaser understands
that the Company may not accept Purchaser’s subscription if
Purchaser is not able to provide Documentation acceptable to
Company and the Placement Agent, or for any other
reason.
3.3 Reliance on Exemptions.
Purchaser understands that the Securities are being offered and
sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of,
and Purchaser’s compliance with, the representations,
warranties, agreements, acknowledgments, and understandings of
Purchaser set forth herein and in the Subscription Agreement to
determine the availability of such exemptions and the eligibility
of Purchaser to acquire the Securities.
3.4 Authorization, Enforcement.
This Agreement has been duly and validly authorized, executed and
delivered by, or on behalf of, Purchaser and is a valid and binding
agreement of Purchaser, enforceable in accordance with its terms,
except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’
rights and remedies.
3.5 Foreign Investors. If Purchaser
is not a United States person (as defined by Section 7701(a)(30) of
the Internal Revenue Code of 1986, as amended), Purchaser hereby
represents that it has satisfied itself as to the full observance
of the laws of its jurisdiction in connection with any invitation
to subscribe for the Securities or any use of this Subscription
Agreement, including
(i) the
legal requirements within its jurisdiction for the purchase of the
Securities, (ii) any foreign exchange restrictions applicable to
such purchase, (iii) any governmental or other consents that may
need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase,
holding, redemption, sale, or transfer of the Securities.
Purchaser’s subscription and payment for and continued
beneficial ownership of the Securities will not violate any
applicable securities or other laws of the Purchaser’s
jurisdiction.
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to Purchaser as
follows:
4.1 Organization. The Company is a
corporation, duly incorporated, validly existing and in good
standing under the laws of the State of Nevada. The Company has the
full corporate power and authority to: (i) enter into and execute
this Agreement and the other Transaction Documents and to perform
all of its obligations hereunder and thereunder; and (ii) own and
to conduct and carry on its business as currently conducted. The
Company is duly qualified to transact business and is in good
standing as a foreign corporation in each jurisdiction where
the character of its
business or the ownership or use and operation of its assets or
properties requires such qualification.
4.2 Authority and Approval of Agreement;
Binding Effect. The execution and delivery by Company of
this Agreement and the other Transaction Documents, and the
performance by Company of all of its obligations hereunder and
thereunder, including the issuance of the Securities, have been
duly and validly authorized and approved by the Company and its
board of directors pursuant to all applicable laws and no other
action or consent on the part of Company, its board directors or
any other Person is necessary or required by the Company to execute
this Agreement and the other Transaction Documents, consummate the
transactions contemplated herein and therein, perform all of
Company’s obligations hereunder and thereunder, or to issue
the Securities. This Agreement and each of the other Transaction
Documents have been duly and validly executed by Company (and the
officer executing this Agreement and all such other Transaction
Documents is duly authorized to act and execute same on behalf of
Company) and constitute the valid and legally binding agreements of
Company, enforceable against Company in accordance with their
respective terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, and other similar laws
relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.
4.3 SEC Reports. Other than as
disclosed in the SEC Reports (with respect to a potential late
filing of a Form 8-K on June 27, 2017, about which the Company is
engaged in discussions with the SEC), the Company has filed all
reports, schedules, forms, statements and other documents required
to be filed by it under the Securities Exchange Act of 1934 (the
“Exchange Act”),
including pursuant to Section 13(a) or 15(d) thereof, for the two
years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material)
(the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”), on a timely basis
or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such
extension. As of their respective filing dates, or to the extent
corrected by a subsequent restatement, the SEC Reports complied in
all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the SEC
promulgated thereunder, and none of the SEC Reports, as amended
from time to time, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. All material agreements to which the Company or any
subsidiary is a party or to which the property or assets of the
Company or any of its subsidiaries are subject are included as part
of or specifically identified in the SEC Reports. The private
placement memorandum (the “PPM”) prepared in connection with
the offering contemplated by this Agreement and delivered to the
Purchaser does not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports
complies in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect
thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with U.S. generally
accepted accounting principles, and fairly present in all material
respects the
financial position of the Company and its consolidated subsidiaries
as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit
adjustments.
4.4 Capitalization. The authorized
capital stock of the Company is as set forth in the Company’s
latest Annual Report on Form 10-K or Quarterly Report on Form 10-Q
(as applicable) as filed with the SEC. As of the Effective Date,
and except as disclosed in the SEC Reports, (i) no shares of the
Company’s capital stock are subject to preemptive rights or
any other similar rights or any claims or encumbrances suffered or
permitted by the Company; (ii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or
contracts, commitments, understandings or arrangements by which the
Company is or may become bound to issue additional shares of
capital stock of the Company, or options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares
of capital stock of the Company; (iii) there are no outstanding
debt securities, notes, credit agreements, credit facilities or
other contracts or instruments evidencing indebtedness of the
Company or any of its, or by which the Company is or may become
bound;
(iv)
there are no outstanding registration statements with respect to
the Company or any of its securities; (v) there are no agreements
or arrangements under which the Company is obligated to register
the sale of any of their securities under the Securities Act
(except pursuant to this Agreement); (vi) there are no financing
statements securing obligations filed in connection with the
Company or any of its assets; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that
will be triggered by this Agreement or any related agreement or the
consummation of the transactions described herein or therein; and
(viii) there are no outstanding securities or instruments of the
Company which contain any redemption or similar provisions, and
there are no contracts by which the Company is or may become bound
to redeem a security of the Company. No further approval or
authorization of any stockholder, the Board of Directors or others
is required for the issuance and sale of the
Securities.
4.5 No Conflicts; Consents and
Approvals. The execution, delivery, and performance of this
Agreement and the Transaction Documents, and the consummation of
the transactions contemplated hereby and thereby, including the
issuance of any of the Securities, will not: (i) constitute a
violation of or conflict with the Articles of Incorporation or
Bylaws of the Company (the “Organizational Documents”); (ii)
constitute a violation of, or a default or breach under (either
immediately, upon notice, upon lapse of time, or both), or
conflicts with, or gives to any other Person any rights of
termination, amendment, acceleration or cancellation of, any
provision of any material contract to which Company is a party or
by which any of its assets or properties may be bound; or (iii)
constitute a violation of, or conflict with, any law(including
United States federal and state securities laws). The Company is
not in violation of its Organizational Documents and the Company is
not in default or breach (and no event has occurred which with
notice or lapse of time or both could put the Company in default or
breach) under, and the Company has not taken any action or failed
to take any action that would give to any other Person any rights
of termination, amendment, acceleration, or cancellation of, any
material contract to which the Company is a party or by which any
property or assets of the Company are bound or
affected.
4.6 Issuance of Securities. The
Securities are duly authorized and, upon issuance in accordance
with the terms hereof, shall be duly issued, fully paid and
non-assessable, and free from all encumbrances with respect to the
issue thereof, and will be issued in compliance with all applicable
United States federal and state securities laws.
4.7 Brokerage Fees. There is no
Person acting on behalf of the Company who is entitled to or has
any claim for any brokerage or finder’s fee or commission in
connection with the execution of this Agreement or the consummation
of the transactions contemplated hereby, except for Boustead
Securities, LLC, which is acting as placement agent (the
“Placement
Agent”) for the sale of the Securities.
4.8 No Material Adverse Changes.
Since the date of the latest audited financial statements included
within the SEC Reports and except as otherwise disclosed in the
PPM, there has not been any adverse change in the business,
financial condition, operations, results of operations, or future
prospects of the Company.
4.9 Litigation. There is no Action
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the
Securities or (ii) except as disclosed in the SEC Reports or the
PPM, could, if there were an unfavorable decision, individually or
in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any subsidiary,
nor to the knowledge of the Company or any subsidiary, any director
or officer thereof (in his or her capacity as such), is or has been
the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of
breach of fiduciary duty, except as disclosed in the SEC Reports or
the PPM. There has not been, and to the knowledge of the Company,
there is not pending or contemplated any investigation by the SEC
involving the Company or any current or former director or officer
of the Company (in his or her capacity as such). The SEC has not
issued any stop order or other order suspending the effectiveness
of any registration statement filed by the Company under the
Exchange Act or the Securities Act.
4.10 No
Undisclosed Material Liabilities. There are no liabilities
of the Company or any subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such
a liability, other than: (a) liabilities provided for in the
audited consolidated balance sheet of the Company and the
subsidiaries as of September 30, 2018 or disclosed in the notes
thereto; and (b) other undisclosed liabilities which, individually
or in the aggregate, have not resulted in or could reasonably be
expected to result in a Material Adverse Effect.
4.11 Intellectual
Property. The Company and its subsidiaries have, or have
rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights,
licenses and other similar rights (collectively, the
“Intellectual Property
Rights”) that are necessary or material for use in
connection with the business of the Company as described in the SEC
Reports and which the failure to so have could, individually or in
the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. Neither the
Company
nor any subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any subsidiary
violates or infringes upon the rights of any Person. Except as set
forth in the SEC Reports or the PPM, to the Company’s
knowledge, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of
the Intellectual Property Rights. The Company and its subsidiaries
have taken reasonable steps to protect the Company’s and its
subsidiaries’ rights in their Intellectual Property Rights
and confidential information (the “Confidential Information”). Each
employee, consultant and contractor who has had access to
Confidential Information which is necessary for the conduct of the
business of the Company and its subsidiaries as currently conducted
or as currently proposed to be conducted has executed an agreement
to maintain the confidentiality of such Confidential Information
and has executed appropriate agreements that are substantially
consistent with the Company’s standard forms thereof. Except
under confidentiality obligations, there has been no material
disclosure of any of the Company’s or its subsidiaries’
Confidential Information to any third party.
4.12 Solvency.
The Company has not (a) made a general assignment for the benefit
of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors;
(c) suffered the appointment of a receiver to take possession of
all, or substantially all, of its assets; (d) suffered the
attachment or other judicial seizure of all, or substantially all,
of its assets; (e) admitted in writing its inability to pay its
debts as they come due; or (f) made an offer of settlement,
extension or composition to its creditors generally.
4.13 Related
Party Transactions. Except as set forth in the SEC Reports
or the PPM: (a) none of the Company or any of its affiliates,
officers, directors, stockholders or employees, or any affiliate of
any of such Person, has any material interest in any property, real
or personal, tangible or intangible, including the Company’s
Intellectual Property used in or pertaining to the business of the
Company, except for the normal rights of a stockholder, or, to the
Company’s knowledge, any supplier, distributor or customer of
the Company, (b) there are no agreements, understandings or
proposed transactions between the Company and any of its officers,
directors, employees, affiliates, or, to the Company’s
knowledge, any affiliate thereof, (c) to the Company’s
knowledge, no employee, officer or director of the Company or any
of its Subsidiaries has any direct or indirect ownership interest
in any firm or corporation with which the Company is affiliated or
with which the Company has a business relationship, or any firm or
corporation that competes with the Company; (d) to the
Company’s knowledge, no member of the immediate family of any
officer or director of the Company is directly or indirectly
interested in any material contract of the Company filed as an
exhibit to the Company’s SEC Reports, or (e) there are no
amounts owed (cash and stock) to officers, directors and
consultants (salary, bonuses or other forms of
compensation).
4.14 Disclosure.
Neither the Company nor any Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any
information that constitutes or might constitute material,
non-public information, other than the terms of the transactions
contemplated hereby and other information that will be disclosed
promptly following the execution of this Agreement. The Company
understands and confirms that the Purchasers will rely on the
foregoing representation in effecting transactions in securities of
the Company.
ARTICLE
V
COVENANTS
5.1
Covenants.
(a) Corporate Existence. The
Company shall at all times preserve and maintain its: (i) existence
and good standing in the jurisdiction of its organization; and (ii)
its qualification to do business and good standing in each
jurisdiction where the nature of its business makes such
qualification necessary, and shall at all times continue as a going
concern in the business which the Company is presently
conducting.
(b)
Notice of Default. The Company
shall, promptly, but not more than five
(5)
days after the commencement thereof, give notice to Purchaser in
writing of the occurrence of any “Event of Default” (as such term is
defined in any of the Transaction Documents) or of any event which,
with the lapse of time, the giving of notice or both, would
constitute an Event of Default hereunder or under any other
Transaction Document.
(c) Reservation of Shares. So long
as any Securities are owned beneficially and/or of record by any
Purchaser or any transferee thereof, the Company covenants and
agrees that it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock a number of
shares of Common Stock sufficient for the sole purpose of issuance
upon conversion of the Convertible Notes, payment of interest on
the Convertible Note and exercise of the Warrants (and/or any
transferee thereof), free from preemptive rights or any other
actual contingent purchase rights of persons other than the
applicable Purchaser (and any other holders of any Convertible Note
and/or Warrants transferred from a Purchaser).
(d)
Transferability;
Certificate.
(i) The Securities may
only be disposed of in compliance with state and federal securities
laws. In connection with any transfer of the Securities other than
pursuant to an effective registration statement, to the Company, to
an affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 7.1(d)(ii), the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that
such transfer does not require registration of such transferred
Securities under the Securities Act.
(ii) Certificates
evidencing Securities will contain a standard legend referring to
transfer restrictions under the Securities Act.
(iii) The
Company acknowledges and agrees that a Purchaser may from time to
time pledge, and/or grant a security interest in some or all of the
Securities pursuant to a bona fide margin agreement in connection
with a bona fide margin account and, if required under the terms of
such agreement or account, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval or consent of
the Company and no legal opinion of legal counsel to the pledgee,
secured party or pledgor shall be required in connection with the
pledge, but such legal opinion may be =required in
connection with a subsequent transfer following default by the
Purchaser transferee of the pledge. No notice shall be required of
such pledge. At the appropriate Purchaser’s expense, the
Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer thereof including the
preparation and filing of any required prospectus supplement under
Rule 424(b)(3) of the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of selling
stockholders thereunder. Except as otherwise provided in Section
7.1(d)(iv), any Securities subject to a pledge or security interest
as contemplated by this Section 7.1(d)(iii) shall continue to bear
the legend set forth in this Section 7.1(d)(ii) and be subject to
the restrictions on transfer set forth in Section
7.1(d)(i).
(iv) Certificates
representing Securities shall be eligible for removal of the
restrictive legend (including the legend set forth in Section
7.1(d)(ii)): (i) following any sale of such Securities pursuant to
the plan of distribution in an effective registration statement (in
compliance with any prospectus delivery requirements) or (ii)
following a sale or transfer of such Securities pursuant to Rule
144 (assuming the transferee is not an affiliate of the Company),
or
(iii)
while such Securities are eligible for sale by the selling
Purchaser without the requirement for the Company to be in
compliance with the current public information required under Rule
144 as to such Securities and without volume or manner-of-sale
restrictions. The Company agrees that following such time as
legends are no longer required to be set forth on certificates
representing Securities under this Section 7.1(d), it will, no
longer than three trading days following the delivery by a
Purchaser to the Company or the transfer agent of a certificate
representing such Securities containing a restrictive legend,
deliver or instruct the transfer agent to deliver to such
Purchaser, Securities which are free of all restrictive and other
legends. If the Company is then eligible, certificates for
Securities subject to legend removal hereunder shall be transmitted
by the transfer agent to a Purchaser by crediting the prime
brokerage account of such Purchaser with the Depository Trust
Company System as directed by such Purchaser.
(e) Furnishing of Information. As
long as any Purchaser or any transferee owns any Securities, the
Company covenants to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant
to the Exchange Act. As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to such laws,
it will prepare and furnish to the Purchasers and make publicly
available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144.
The Company further covenants that it will take such further action
as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell the
Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.
(f) Integration. The Company shall
not, and shall use its best efforts to ensure that no affiliate of
the Company shall, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities
to the Purchasers, or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of
any trading market on which the Common Stock of the Company then
trades in a manner that would require stockholder
approval of the sale of the Securities to the
Purchasers.
(g) Securities Laws Disclosure;
Publicity. By (i) 9:30 a.m. (New York time) on the trading
day following the Closing Date, the Company shall issue a press
release, disclosing the transactions contemplated by the
Transaction Documents and the Closing and by (ii) 5:30
p.m.
(New York time) on the fourth Trading Day following the Closing
Date, the Company will file a Current Report on Form 8-K,
disclosing the material terms of the Transaction Documents (and
attach as exhibits thereto all existing Transaction Documents) and
the Closing. The Company covenants that following such disclosure,
the Purchasers shall no longer be in possession of any material,
non-public information with respect to the Company or any
subsidiary. In addition, the Company will make such other filings
and notices in the manner and time required by the SEC and the
trading market on which the Common Stock of the Company is quoted.
Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory
agency or trading market, without the prior written consent of such
Purchaser, except to the extent such disclosure is required by law
or trading market regulations.
(h) Indemnification of Purchasers.
The Company will indemnify and hold the Purchasers and their
respective directors, officers, shareholders, partners, members,
affiliates, employees and agents (each, an “Purchaser Party”) harmless
from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation in respect thereof
(collectively, “Losses”) that any such
Purchaser Party may suffer or incur as a result of or relating to
any misrepresentation, breach or inaccuracy of any representation,
warranty, covenant or agreement made by any of the Company in any
Transaction Document or in any certificate or other instrument
delivered by or on behalf of the Company. In addition to the
indemnity contained herein, the Company will reimburse each
Purchaser Party for its reasonable legal and other expenses
(including the cost of any investigation, preparation and travel in
connection therewith) incurred in connection therewith, as such
expenses are incurred.
(i) Non-Public Information. The
Company covenants and agrees that, except as specifically
contemplated by the Transaction Documents, neither it nor any other
Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto
such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on
the foregoing representations in effecting transactions in
securities of the Company.
ARTICLE
VI
CONDITIONS PRECEDENT TO THE COMPANY’ S OBLIGATIONS TO
SELL
The
obligation of the Company hereunder to issue and sell the
Securities to Purchaser is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions;
provided, that these conditions are for the Company’s sole
benefit and may be waived by the
Company at any time in its sole discretion:
6.1 Purchaser shall
have executed the Transaction Documents and delivered the Purchase
Price to the Company.
6.2 The representations
and warranties of Purchaser shall be true and correct in all
material respects as of the Closing Date (except for
representations and warranties that speak as of a specific date),
and Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied
with by Purchaser at or prior to the Closing Date.
6.3 The Company shall
have received such certificates, confirmations, resolutions,
acknowledgements, or other documentation necessary or advisable
from all applicable governmental authorities, including, but not
limited to, those located in the State of Nevada, as the Company
may require in order to evidence such governmental
authorities’ approval of this Agreement, the Transaction
Documents and the purchase of the Securities contemplated
hereby.
6.4 No statute, rule,
regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the
Transaction Documents.
ARTICLE
VII
CONDITIONS PRECEDENT TO THE PURCHASER’S OBLIGATIONS TO
PURCHASE
The
obligation of Purchaser hereunder to purchase the Convertible Note
is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions (in addition to any other
conditions precedent elsewhere in this Agreement); provided, that
these conditions are for Purchaser’s sole benefit and may be
waived by Purchaser at any time in its sole
discretion:
7.1 The Company
shall have executed and delivered the Transaction Documents to
Purchaser.
7.2 The representations
and warranties of the Company shall be true and correct in all
material respects as of the Closing Date (except for
representations and warranties that speak as of a specific date)
and the Company shall have performed, satisfied, and complied in
all material respects with the covenants, agreements, and
conditions required by this Agreement to be performed, satisfied,
or complied with by the Company at or prior to the Closing
Date.
7.3 No statute, rule,
regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the
Transaction Documents.
7.4 No stop order or
suspension of trading shall have been imposed by the SEC or any
other governmental or regulatory body having jurisdiction over the
Company or the market(s) where the Common Stock of the Company is
listed or quoted with respect to public trading in the Common Stock
of the Company.
7.5 The Company shall
have executed such other agreements, certificates, confirmations or
resolutions as Purchaser may require to consummate the transactions
contemplated by this Agreement and the Transaction Documents,
including a closing statement and joint disbursement instructions
as may be required by Purchaser.
ARTICLE
IX
MISCELLANEOUS
8.1 Notices. All notices of
request, demand and other communications hereunder shall be
addressed to the parties as follows:
|
If
to the Company:
|
Know Labs,
Inc.
500
Union Street, Suite 810
Seattle,
WA, 98101
Attn:
Ronald P. Erickson, Chairman E-mail: ron@knowlabs.co
|
|
If
to Purchaser:
|
To
the address and other contact information specified in the
Subscription Agreement.
|
unless
the address is changed by the party by like notice given to the
other party. Notice shall be in writing and shall be deemed
delivered: (i) if mailed by certified mail, return receipt
requested, postage prepaid and properly addressed to the address
below, then three (3) Business Days after deposit of same in a
regularly maintained U.S. Mail receptacle; or (ii) if mailed by
Federal Express, UPS, or other nationally recognized overnight
courier service, next day delivery, then one (1) Business Day after
deposit of same in a regularly maintained receptacle of such
overnight courier; or (iii) if hand delivered or sent by email,
then upon hand delivery or receipt thereof. Notwithstanding the
foregoing, notice, consents, waivers, or other communications
referred to in this Agreement sent by e-mail shall be deemed to
have been delivered only when the sending party has confirmed (by
reply e-mail or some other form of written confirmation from the
receiving party) that the notice has been received by the other
party.
8.2 Entire Agreement. This
Agreement and the other Transaction Documents: (i) constitute the
entire agreement between the parties and (ii) are the final
expression of the intentions of the Company and Purchaser. No
promises, either expressed or implied, exist between the Company
and Purchaser, unless contained herein or in the Transaction
Documents. This Agreement and the Transaction Documents supersede
all negotiations, representations, warranties, commitments, offers,
and contracts (of any kind or nature, whether oral or written)
prior to the execution hereof.
8.3 Amendments; Waivers. No
amendment, modification, or termination of any provision of this
Agreement or of the Transaction Documents, or waiver or consent to
any departure by either party therefrom, shall in any event be
effective unless the same shall be in writing and signed by the
other party, and any such waiver or consent shall be effective only
for the specific purpose for which given.
8.4 Assignability. Purchaser may at
any time assign Purchaser’s rights in this Agreement, the
Convertible Notes, any Transaction Document, or any part thereof,
subject to applicable law, including federal and state securities
laws. The Company may not sell or assign this Agreement, any
Transaction Document, or any other agreement with Purchaser, or any
portion thereof, either voluntarily or by operation of law, nor
delegate any of its duties of obligations hereunder or thereunder,
without the prior written consent of Purchaser, which consent shall
not be unreasonably withheld. This Agreement shall be binding upon
Purchaser and the Company and their respective legal
representatives, successors and permitted assigns.
8.5 Governing Law. This Agreement
shall be governed by and be construed in accordance with the laws
of the State of Nevada without regard to the conflicts of law rules
of such state. The parties hereby irrevocably and unconditionally
submit, for themselves and their property, to the jurisdiction of
the state or federal courts situated in Las Vegas, Nevada, in
respect of actions brought against it in any action, suit, or
proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all
claims in respect of any such action, suit or proceeding may be
heard and determined in such courts. Each of the parties hereto
agrees that a final judgment in any such action, suit, or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner
provided by law.
8.6 Enforceability; Severability.
Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be
prohibited by, unenforceable or invalid under any jurisdiction,
such provision shall as to such jurisdiction, be severable and be
ineffective to the extent of such prohibition or invalidity,
without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any
other jurisdiction.
8.7 Interpretation. If any
provision in this Agreement requires judicial or similar
interpretation, the judicial or other such body interpreting or
construing such provision shall not apply the assumption that the
terms hereof shall be more strictly construed against one party
because of the rule that an instrument must be construed more
strictly against the party which itself or through its agents
prepared the same. The parties hereby agree that all parties and
their agents have participated in the preparation hereof
equally.
8.8 Execution. This Agreement may
be executed in one or more counterparts, all of which taken
together shall be deemed and considered one and the same Agreement,
and same shall become effective when counterparts have been signed
by each party and each party has delivered its signed counterpart
to the other party. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a
“.pdf’ format file or other similar format file,
such signature shall be
deemed an original for all purposes and shall create a valid and
binding obligation of the party executing same with the same force
and effect as if such facsimile or “.pdf’ signature
page was an original thereof.
8.9 Headings. The article and
section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of the Agreement.
8.10 No
Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.
8.11 Fees
and Expenses. Each party shall be responsible for paying its
own fees and expenses in connection with this Agreement, the other
Transaction Agreements, and the transactions contemplated hereby
and thereby. Notwithstanding the foregoing, the Company shall be
directly responsible for the payment the fees or commissions
payable to the Placement Agent.
8.12 Survival.
The representations, warranties, agreements and covenants contained
herein shall survive the Closing and the delivery of the Securities
for 18 months following the Closing Date.
(signature page follows)
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year last written
below.
By:
Name:
[Signature
page to Know Labs, Inc. Securities Purchase Agreement]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year last written
below.
COMPANY:
KNOW LABS, INC.
By:
Name:
Ronald P. Erickson Title: Chairman
Date:
By:
Name:
Phillip A. Bosua
Title:
Chief Executive Officer Date:
[Signature
page to Know Labs, Inc. Securities Purchase Agreement]
SCHEDULE
1
PURCHASE PRICE;
SECURITIES PURCHASED
|
Name of
purchaser
|
Purchase Price and
Principal Amount of Convertible Note Being Purchased
|
Number
of Shares issuable upon exercise of Warrant
Purchased
|
|
|
$
|
|
EXHIBIT A
FORM OF
CONVERTIBLE NOTE
EXHIBIT B
FORM OF
WARRANT
EXHIBIT C
FORM OF
SUBORDINATION AGREEMENT
EXHIBIT D
FORM OF
SUBSCRIPTION AGREEMENT
Exhibit 10.3
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
KNOW
LABS, INC.
|
Original
Issue Date: ____________________
|
Principal
Amount: ____________________
|
THIS
8.0% SUBORDINATED CONVERTIBLE NOTE (this “Note ”) is issued, dated, and
effective as of the Original Issue Date set forth above by Know
Labs, Inc., a Nevada corporation (the “Company”), having its principal
place of business at 500 Union Street, Suite 810, Seattle, WA
98101, to(together with its successors and permitted assigns, the
“Holder”),
pursuant to exemptions from registration under the Securities Act
of 1933, as amended (the “Securities Act”). The Company
promises to pay the aggregate unpaid Principal Amount under this
Note set forth above (the “Principal Amount”) to the Holder
on the earlier of: (1) mandatory and automatic conversion of this
Note into the next financing for the
Company,providedsuchfinancingyieldsgross proceeds to the Company of
at least $5 million as set forth below under “Mandatory
Conversion” (a “Qualified Financing”) or (2) the
one (1) year anniversary of this Note (the “Maturity Date”), and to pay
interest to the Holder on the aggregate unconverted and then
outstanding Principal Amount in accordance with the provisions of
this Note.
This
Note is subject to the following additional
provisions:
Section 1. Definitions. For the purposes
hereof, in addition to the terms defined elsewhere in this Note (a)
capitalized terms not otherwise defined herein shall have the
meanings set forth in the Securities Purchase Agreement and (b) the
following terms shall have the following meanings:
“Bankruptcy Event” means any of the
following events: (a) the Company commences a case or other
proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the
Company; (b) there is commenced against the Company any such case
or proceeding that is not dismissed within sixty (60) days after
commencement;
(c) the
Company is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered;
(d) the Company suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not
discharged or stayed
within sixty (60)
calendar days after such appointment; (e) the Company makes a
general assignment for the benefit of creditors; (f) the Company
calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (g) the
Company, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting
any of the foregoing.
“Business Day” means any day other
than a Saturday, Sunday, or a legal holiday on which federal banks
are authorized or required to be closed for the conduct of
commercial banking business.
“Change of Control” means any of
the following events: (a) consummation of any merger or
consolidation of the Company in which the Company is not the
continuing or surviving corporation, or pursuant to which shares of
the Company’s common stock are converted into cash,
securities, or other property, if following such merger or
consolidation the holders of the Company’s outstanding voting
securities immediately prior to such merger or consolidation own
less than fifty percent (50%) of the outstanding voting securities
of the surviving corporation; (b) consummation of any sale, lease,
exchange or other transfer, in one transaction or a series of
related transactions of all or substantially all of the
Company’s assets; or (c) a change in ownership of the
Company’s capital stock as a result of which the owners of
the Company’s outstanding capital stock immediately prior to
the change own less than fifty percent (50%) of the Company’s
outstanding capital stock following such change.
“Common Stock Equivalents” means
any securities of the Company or its subsidiaries which would
entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
“Event of Default” shall have the
meaning set forth in Section 5(a).
“Original Issue Date” means the
date of the first issuance of this Note as set forth above,
regardless of any transfers of this Note and regardless of the
number of instruments which may be issued to evidence this
Note.
“Permitted Indebtedness” means (a)
the indebtedness evidenced by this Note, (b) the indebtedness
existing on the Closing Date, (c) lease obligations and purchase
money indebtedness incurred in connection with the acquisition of
capital assets and lease obligations with respect to newly acquired
or leased assets, and (d) indebtedness that is expressly
subordinate to this Note pursuant to a written subordination
agreement with the Holder that is acceptable to the Holder in its
sole and absolute discretion.
“Permitted Lien” means the
individual and collective reference to the following: (a) liens
existing on the Closing Date, (b) liens for taxes, assessments and
other governmental charges or levies not yet due or liens for
taxes, assessments and other governmental charges or levies being
contested in good faith and by appropriate proceedings for which
adequate reserves (in the good faith judgment of the management of
the Company) have been established in accordance with GAAP; (c)
liens imposed by law which were incurred in the ordinary course of
the Company’s business, such as carriers’,
warehousemen’s and mechanics’ liens, statutory
landlords’ liens, and other similar liens arising in the
ordinary course of the Company’s business, and which (x) do
not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) are being contested in good faith
by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the
property or asset subject to such lien; and (d) liens incurred in
connection with Permitted Indebtedness.
“Securities Purchase Agreement”
means the Securities Purchase Agreement, dated as of the date
hereof, between the Company and the original Holder, as amended,
modified, or supplemented from time to time in accordance with its
terms.
|
Section 2.
|
Interest;
Prepayment.
|
|
a)
|
Interest Rate. Interest shall
accrue daily on the outstanding Principal
|
Amount
of this Note at a rate per annum equal to eight percent (8.0%), and
is Payable-In- Kind (“PIK”) as set forth
below.
b) Payment of Interest . On the
Maturity Date, the Company shall pay to the Holder any accrued but
unpaid and unconverted interest hereunder on the aggregate
unconverted and then outstanding Principal Amount of this Note. The
amount of interest that has accrued on the Principal Amount hereof
as of any date may be added to and included with the Principal
Amount being so converted on any date on which a conversion is
effected under Section 3 below.
c) Interest Calculations. Interest
shall be calculated on the basis of a three hundred sixty (360)-day
year, consisting of twelve (12) thirty (30) calendar day periods,
and shall accrue daily commencing on the Original Issue Date until
payment in full of the outstanding Principal Amount, together with
all accrued and unpaid interest and other amounts which may become
due hereunder, has been made or until such Principal Amount and
interest have been duly converted. Interest hereunder will be paid
to the Person in whose name this Note is registered on the records
of the Company regarding registration and transfers of this
Note.
d) Prepayment. This Note may be
prepaid by the Company at any time following the Original Issuance
Date on seven (7) day’s prior written to the
Holder.
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Section 3.
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Conversion.
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a)
Mandatory Conversion
on Qualified Financing. Each
Holder will be required to convert the Note into a Qualified
Financing at a conversion price per share equal to the lower of (i)
$2.00 or (ii) a twenty five percent (25%) discount to the price per
share paid by investors in such Qualified Financing. This mandatory
conversion shall be automatic and the Company will
provide notice to Holder at least seven (7) days prior to the
closing of a Qualified Financing as to the number of shares Holder
would receive based on applying the discounted pricing described
above for the Principal Amount and PIK shares. In conjunction with
any conversion, Holder will become a party to and will execute
appropriate subscription and other agreements in substantially the
form executed by investors in the Qualified
Financing.
b). Other Mandatory Conversion. If
the Note has not been paid or converted prior to the Maturity Date,
the outstanding Principal Amount of the Note will be automatically
converted on the Maturity Date into shares of common stock of the
Company based on the lesser of (i) $2.00 per share or (ii) any
adjusted price resulting from the application of the “Most
Favored Nations Provision” set forth below. In such event the
Anti-Dilution Period, as defined below, will be extended for a
further twelve (12) months.
c). Payment on Change of Control.
If prior to the Maturity Date, there is a Change of Control and the
Note has not previously been converted, a Holder may elect to have
the Note together with any accrued interest repaid in full at that
time in cash plus an additional ten percent (10%) on the Principal
Amount of the Note.
d). Most Favored Nations Provision.
If the Note has not been paid or converted prior to the Maturity
Date, and if at any time or from time to time prior to February 15,
2022 (the “Anti- Dilution
Period”) the Company issues any additional securities
(a “New
Issuance”) (including, but not limited to, any class
of shares, preferred stock, warrants, rights to subscribe for
shares, convertible debt or other securities convertible into any
share class, referred to below collectively as “Securities”) for a consideration
per share, after giving effect to, and net of, commissions, fees
and other expenses, that is less, or which on conversion or
exercise of the underlying security is less, than the conversion
price of the Holder (as adjusted for changes resulting from any
forward or reverse share splits, stock dividends and similar
events) (a “Down Round
Price”), the Company shall issue additional Securities
to Holder at no additional cost in an amount that it would have
received at the Down Round Price, rounded up to the next whole
share, on a full ratchet basis at no additional consideration
(“Holder’s Down Round
Issuances"). In the event that a New Issuance is made at a
Down Round Price and includes both equity securities and rights to
acquire additional securities (whether in the form of warrants,
options or other rights) (the “Rights”), then as part of any full
ratchet adjustment the Company shall also include, within the
Holder’s Down Round Issuances, that number of Rights which
Holder would have acquired had it participated in the New
Issuance.
Section 4. Negative Covenants. As long as
any portion of this Note remains outstanding, unless the Holder
shall have otherwise given prior written consent, the Company shall
not, and shall not permit any of its subsidiaries (whether or not a
subsidiary on any Closing Date) to, directly or
indirectly:
a) other than
Permitted Indebtedness, enter into, create, incur, assume,
guarantee, or suffer to exist any indebtedness for borrowed money
of any kind, including but not limited to, a guarantee, on or with
respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits
therefrom;
b) other than
Permitted Liens, enter into, create, incur, assume, or suffer to
exist any liens of any kind, on or with respect to any of its
property or assets now owned or hereafter
acquired or any interest therein or any income or profits
therefrom;
c) repay, repurchase,
or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its
Common Stock or Common Stock Equivalents other than repurchases of
Common Stock or Common Stock Equivalents of departing employees of
the Company, provided that such repurchases shall not exceed an
aggregate of $150,000 for all employees during the term of this
Note;
d) pay cash dividends
or distributions on Common Stock of the Company;
e) enter into any
transaction with any Affiliate of the Company which would be
required to be disclosed in any public filing with the Commission,
unless such transaction is expressly approved by a majority of the
disinterested directors of the Company (even if less than a quorum
otherwise required for board approval); or
f)
enter
into any agreement with respect to any of the
foregoing.
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Section 5.
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Events of Default.
|
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a)
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“Event of Default” means, wherever
used herein, any of the
|
following events
(whatever the reason for such event and whether such event shall be
voluntary or involuntary or effected by operation of law or
pursuant to any judgment, decree or order of any court, or any
order, rule or regulation of any administrative or governmental
body), provided that an event specified in item i, ii, iii, or vii
below will not become an Event of Default unless and until it is
not cured, if possible to cure, within the earlier to occur of (i)
five (5) Business Days after notice of such failure sent by the
Holder or by any other Holder and (ii) ten (10) Business Days after
the Company has become or should have become aware of such
failure:
i. any default in the
payment of (A) the Principal Amount of this Note or (B) interest,
and other amounts owing to the Holder of this Note, as and when the
same shall become due and payable;
ii. the Company shall
fail to observe or perform any other covenant or agreement
contained in this Note;
iii. a
default or event of default shall occur under any of the
Transaction Documents (subject to any grace or cure period provided
in the applicable Transaction Document);
iv. any representation
or warranty made in the Transaction Documents shall be untrue or
incorrect in any material respect as of the date when made or
deemed made;
v.
the Company shall be subject to a Bankruptcy
Event;
vi.
the Company shall default on any of its
obligations under any mortgage, credit
agreement, or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or
by which there may be secured or evidenced, any indebtedness for
borrowed money or money due under any long term leasing or
factoring arrangement that (A) involves an obligation greater than
$100,000, whether such indebtedness now exists or shall hereafter
be created and (B) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would
otherwise become due and payable;
vii. if
at any time commencing six (6) months from the date hereof the
Company is not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, or has
failed to file all reports required to be filed thereunder during
the then preceding twelve (12) months;
viii. any
monetary judgment, writ or similar final process shall be entered
or filed against the Company, any subsidiary or any of their
respective property or other assets for more than $100,000, and
such judgment, writ or similar final process shall remain
unvacated, unbonded, or unstayed for a period of forty-five (45)
calendar days; provided, however, that any judgment which is
covered by insurance or an indemnity from a creditworthy party
(such creditworthiness as reasonably determined by the Holder)
shall not be included in calculating the amount of such judgment,
writ, or final process so long as the Company provides the Holder a
written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder)
to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such
insurance or indemnity within forty-five (45) calendar days of the
issuance of such judgment.
(b)
Acceleration Upon Event of
Default. If any Event of Default occurs, the outstanding
Principal Amount of this Note, plus accrued but unpaid interest and
other amounts owing in respect thereof through the date of
acceleration, shall become, at the Holder’s election (which
the Holder shall not make more than the later of thirty (30)
calendar days after the date such Event of Default is cured or
otherwise resolved and the Holder is aware of such cure or
resolution), immediately due and payable in cash. If there is such
an acceleration, then upon the payment in full of the amounts due
hereunder, the Holder shall promptly surrender this Note to or as
directed by the Company. In connection with such acceleration
described herein, the Holder need not provide, and the Company
hereby waives, any presentment, demand, protest, or other notice of
any kind, and the Holder may immediately and without expiration of
any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable
law. Such acceleration may be rescinded and annulled by Holder at
any time prior to payment hereunder and the Holder shall have all
rights as a holder of the Note until such time, if any, as the
Holder receives full payment pursuant to this Section 5(b). No such
rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.
|
Section 6.
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Miscellaneous.
|
|
a)
|
Notices. Any and
all notices or other communications or deliveries to
be
|
provided by the
Holder hereunder, including, without limitation, any notice of
conversion, shall be in writing and delivered in the manner and to
the address(s) set forth in the Securities
Purchase
Agreement.
b) Absolute Obligation. Except as
expressly provided herein, no provision of this Note shall alter or
impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and accrued interest, as
applicable, on this Note at the time, place, and rate, and in the
coin or currency, herein prescribed. This Note is a direct debt
obligation of the Company.
c) Lost or Mutilated Note. If this
Note shall be mutilated, lost, stolen, or destroyed, the Company
shall execute and deliver, in exchange and substitution for and
upon cancellation of a mutilated Note, or in lieu of or in
substitution for a lost, stolen, or destroyed Note, a new Note for
the Principal Amount of this Note so mutilated, lost, stolen, or
destroyed, but only upon receipt of evidence of such loss, theft,
or destruction of such Note, and of the ownership hereof,
reasonably satisfactory to the Company.
d) Governing Law. All questions
concerning the construction, validity, enforcement and
interpretation of this Note shall be governed by and construed and
enforced in accordance with the internal laws of the State of
Nevada, without regard to the principles of conflict of laws
thereof. Each party agrees that all legal proceedings concerning
the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees, or agents) shall be commenced in
the state and federal courts sitting in Nevada (the
“Nevada
Courts”). Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the Nevada Courts for the
adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such Nevada
Courts, or such Nevada Courts are improper or inconvenient venue
for such proceeding. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered
or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this
Note and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by applicable law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted
by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Note or the
transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Note, then
the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorney’s fees and
other costs and expenses reasonably incurred in the investigation,
preparation and prosecution of such action or
proceeding.
e) Waiver. Any waiver by the
Company or the Holder of a breach of any provision of this Note
shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Note on one or more occasions
shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict
adherence to that term or any other term of this Note. Any waiver
by the Company or the Holder must be in writing.
f) Severability. If any provision
of this Note is invalid, illegal or unenforceable, the balance of
this Note shall remain in effect, and if any provision is
inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it
shall be found that any interest or other amount deemed interest
due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under
applicable law. The Company covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of
the principal of or interest on this Note as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which
may affect the covenants or the performance of this indenture, and
the Company (to the extent it may lawfully do so) hereby expressly
waives all benefits or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay, or
impeded the execution of any power herein granted to the Holder,
but will suffer and permit the execution of every such as though no
such law has been enacted.
g) Next Business Day. Whenever any
payment or other obligation hereunder shall be due on a day other
than a Business Day, such payment shall be made on the next
succeeding Business Day.
h) Headings. The headings
contained herein are for convenience only, do not constitute a part
of this Note and shall not be deemed to limit or affect any of the
provisions hereof.
i) Series of Notes. This Note is
one of a series of Notes of the Company in the aggregate principal
amount of up to Five Million Dollars as described in that certain
Confidential Private Placement Memorandum, dated January 2019,
delivered to the Holder in connection with the transactions
contemplated by the Transaction Documents. All Notes in such series
shall rank equally and ratably without preference or priority of
any said Notes over any others thereof.
(signature page follows)
IN
WITNESS WHEREOF, the Company has caused this Note to be duly
executed by a duly authorized officer as of the date first above
indicated.
KNOW
LABS, INC.
|
By:
_______________________________
|
|
Name: Ronald P.
Erickson
|
|
Title:
Chairman
|
|
By: _______________________________
|
|
Name: Phillip A.
Bosua
|
|
Title: Chief
Executive Officer
|
Exhibit 10.4
NEITHER
THIS SECURITY NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
KNOW
LABS, INC.
FORM
OF COMMON STOCK PURCHASE WARRANT
|
Warrant
Shares: _________________
|
Initial
Exercise Date: _________________
|
|
|
Issue
Date: _________________
|
THIS COMMON STOCK
PURCHASE WARRANT (the "Warrant")
certifies that, for value received,
________________________________ (together with its successors and
permitted assigns, the “Holder”) is entitled, upon the
terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the Initial Exercise
Date and on or prior to 5:00 p.m. Pacific Time on [5 years from
Issue Date] (the “Termination
Date”) but not thereafter, to subscribe for and
purchase from Know Labs, Inc., a Nevada corporation (the
“Company”), up
toshares (as subject to adjustment hereunder, the
“Warrant
Shares”) of the common stock of the Company, par
value$0.001 per share (the “Common Stock”). The purchase price
of one share of Common Stock under this Warrant shall be equal to
the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms
used and not otherwise defined herein shall have the meanings set
forth in that certain Securities Purchase Agreement, dated as of
the date hereof, between the Company and the original Holder, as
amended, modified, or supplemented from time to time in accordance
with its terms (the “Securities Purchase
Agreement”).
Section 2.
Exercise.
a) Exercise of the
purchase rights represented by this Warrant may be made, in whole
or in part, at any time or times on or after the Initial Exercise
Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder at the
address of the Holder set forth in the Securities Purchase
Agreement) of a duly executed facsimile copy (or e-mail attachment)
of the Notice of Exercise in the form annexed hereto (the
“Notice of
Exercise”). Within two (2) Trading Days following the
date of exerciseas aforesaid, the Holder shall deliver the
aggregate Exercise Price for the shares specified in the applicable
Notice of Exercise by wire transfer or cashier’s check drawn
on a United States bank unless the cashless exercise procedure
specified in Section 2(c) below is specified in the applicable
Notice of Exercise. The term "Trading Day" shall mean a day on which
the principal securities exchange or quotation system on which the
Common Stock is listed or admitted to trading is open for the
transaction of business. No ink-original Notice of Exercise shall
be required, nor shall any medallion guarantee (or other type of
guarantee or notarization) of any Notice of Exercise form be
required. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant
to the Company until the Holder has purchased all of the Warrant
Shares available hereunder and the Warrant has been exercised in
full, in which case, the Holder shall surrender this Warrant to the
Company for cancellation within two (2) Trading Days of the date
the final Notice of Exercise is delivered to the Company. Partial
exercises of this Warrant resulting in purchases of a portion of
the total number of Warrant Shares available hereunder shall have
the effect of lowering the outstanding number of Warrant Shares
purchasable hereunder in an amount equal to the applicable number
of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and
the date of such purchases. The Company shall deliver any objection
to any Notice of Exercise within one (1) Business Day of receipt of
such notice. The Holder and any
assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this Section, following the
purchase of a portion of the Warrant Shares hereunder, the number
of Warrant Shares available for purchase hereunder at any given
time may be less than the amount stated on the face
hereof.
b) Exercise Price. The exercise
price per share of the Common Stock under this Warrant shall be
$2.40, subject to adjustment hereunder (the “Exercise Price”).
c) Cashless Exercise. If, after
the six month anniversary of the Initial Exercise Date, at the time
of exercise hereof there is no effective registration statement
registering, or the prospectus contained therein is not available
for the issuance of the Warrant Shares to the Holder, then this
Warrant may also be exercised, in whole or in part, at such time by
means of a “cashless exercise” in which the Holder
shall be entitled to receive a number of Warrant Shares equal to
the quotient obtained by dividing [(A-B)*(X)] by (A),
where:
(A) =
the last VWAP immediately preceding the date of delivery of the
Notice of Exercise giving rise to the applicable “cashless
exercise,” as set forth in the applicable Notice of Exercise
(to clarify, the "last VWAP" will be the last VWAP as calculated
over an entire Trading Day such that, in the event that this
Warrant is exercised at a time that the Trading Market is open, the
prior Trading Day's VWAP shall be used in this
calculation);
(B) =
the Exercise Price of this Warrant, as adjusted hereunder;
and
(X) =
the number of Warrant Shares that would be issuable upon exercise
of this Warrant in accordance with the terms of this Warrant if
such exercise were by means of a cash exercise rather than a
cashless exercise.
If
Warrant Shares are issued in such a cashless exercise, the parties
acknowledge and agree that in accordance with Section 3(a)(9) of
the Securities Act, the Warrant Shares shall take on the registered
characteristics of the Warrants being exercised, and the holding
period of the Warrants being exercised may be tacked on to the
holding period of the Warrant Shares. The Company agrees not to
take any position contrary to this Section 2(c).
For
avoidance of doubt, no “cashless exercise” under this
Section 2(c) may occur (i) during the first six months following
the Initial Exercise Date or (ii) after the six months following
the Initial Exercise Date if there is an effective registration
statement registering the issuance of the Warrant Shares to the
Holder.
“VWAP” means, for any date, the
price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the
Trading Market on which the Common Stock is then listed or quoted
as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:00 p.m. (New York City time)), (b)
if OTCQB or OTCQX is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on OTCQB or OTCQX as applicable, (c) if the Common
Stock is not then listed or quoted for trading on OTCQB or OTCQX
and if prices for the Common Stock are then reported in the
“Pink Sheets” published by OTC Markets, Inc. (or a
similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the
Common Stock so reported, or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Purchasers of a
majority in interest of the Securities then outstanding and
reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.
d)
Mechanics of
Exercise.
i. Delivery of Warrant Shares Upon
Exercise. The Company shall cause the Warrant Shares
purchased hereunder to be transmitted by the Transfer Agent to the
Holder by crediting the account of the Holder’s or its
designee’s balance account with The Depository Trust Company
through its Deposit or Withdrawal at Custodian system
(“DWAC”) if
theCompany is then a participant in such system and either (A)
there is an effective registration statement permitting the
issuance of the Warrant Shares to or resale of the Warrant Shares
by Holder or (B) this Warrant is being exercised via
“cashless exercise”, and otherwise by physical delivery
of a certificate, registered in the Company’s share register
in the name of the Holder or its designee, for the number of
Warrant Shares to which the Holder is entitled pursuant to such
exercise to the address specified by the Holder in the Notice of
Exercise by the date that is two (2) Trading Days after the
delivery to the Company of the Notice of Exercise (such date, the
“Warrant Share Delivery
Date”). The Warrant Shares shall be deemedto have been
issued, and Holder or any other person so designated to be named
therein shall be deemed to have become a holder of record of such
shares for all purposes, as of the date the Warrant has been
exercised, with payment to the Company of the Exercise Price (or by
cashless exercise, if permitted) and all taxes required to be paid
by the Holder, if any, pursuant to Section 2(d)(v) prior to the
issuance of such shares, having been paid.
ii. Delivery of New Warrants Upon
Exercise. Notwithstanding Section 2(a) above, if this
Warrant shall have been exercised in part, the Company shall, at
the request of a Holder and upon surrender of this Warrant
certificate, at the time of delivery of the Warrant Shares, deliver
to the Holder a new Warrant evidencing the rights of the Holder to
purchase the unpurchased Warrant Shares called for by this Warrant,
which new Warrant shall in all other respects be identical with
this Warrant.
iii. Rescission
Rights. If the Company fails to cause the Transfer Agent to
transmit to the Holder the Warrant Shares pursuant to Section
2(d)(i) by the Warrant Share Delivery Date, then the Holder will
have the right to rescind such exercise.
iv. No Fractional Shares or Scrip.
No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. As to any fraction of
a share which the Holder would otherwise be entitled to purchase
upon such exercise, the Company shall, pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price.
v. Charges, Taxes and Expenses.
Issuance of Warrant Shares shall be made without charge to the
Holder for any issue or transfer tax or other incidental expense in
respect of the issuance of such Warrant Shares, all of which taxes
and expenses shall be paid by the Company, and such Warrant Shares
shall be issued in the name of the Holder or in such name or names
as may be directed by the Holder; provided, that in the event
Warrant Shares are to be issued in a name other than the name of
the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by
the Holder and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto. The Company shall pay all Transfer Agent fees
required for same-day processing of any Notice of Exercise and all
fees to the Depository Trust Company (or another established
clearing corporation performing similar functions) required for
same-day electronic delivery of the Warrant Shares.
vi. Closing of Books. The Company
will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms
hereof.
Section
3. Certain
Adjustments.
a) Stock Dividends and Splits. If
the Company, at any time while this Warrant is outstanding: (i)
pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or
equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of
Common Stock issued by the Company upon exercise of this Warrant),
(ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of
shares, or (iv) issues by reclassification of shares of the Common
Stock any shares of capital stock of the Company, then in each case
the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common
Stock (excluding
treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event, and the
number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted such that the aggregate Exercise Price of
this Warrant shall remain unchanged. Any adjustment made pursuant
to this Section 3(a) shall become effective immediately after the
record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.
b) Calculations. All calculations
under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of
this Section 3, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if
any) issued and outstanding.
c)
Notice to Holder.
i. Adjustment to Exercise Price.
Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly deliver to the Holder
a notice setting forth the Exercise Price after such adjustment and
any resulting adjustment to the number of Warrant Shares and
setting forth a brief statement of the facts requiring such
adjustment.
ii. Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any
other distribution in whatever form) on the Common Stock, (B) the
Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Company shall authorize the
granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class
or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially
all of the assets of the Company, or any compulsory share exchange
whereby the Common Stock is converted into other securities, cash
or property, or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation, or winding up of the affairs
of the Company, then, in each case, the Company shall cause to be
delivered to the Holder (unless such notice is filed with the
Commission, which in such case, no additional notice is required to
be provided to the Holder), at least ten (10) calendar days prior
to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to
bedetermined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, or share exchange is
expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record
shall be entitled
to exchange their shares of the Common Stock for securities, cash
or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided
that the failure to deliver such notice or any defect therein or in
the delivery thereof shall not affect the validity of the corporate
action required to be specified in such notice. The Holder shall
remain entitled to exercise this Warrant during the period
commencing on the date of such notice to the effective date of the
event triggering such notice except as may otherwise be expressly
set forth herein.
Section 4.
Transfer of
Warrant.
a) Transferability. This Warrant
and all rights hereunder (including, without limitation, any
registration rights) are transferable, in whole or in part, upon
surrender of this Warrant at the principal office of the Company or
its designated agent, together with a written assignment of this
Warrant substantially in the form attached hereto dulyexecuted by
the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee
or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be
cancelled. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant
to the Company unless the Holder has assigned this Warrant in full,
in which case, the Holder shall surrender this Warrant to the
Company within two (2) Business Days of the date the Holder
delivers an assignment form to the Company assigning this Warrant
full. The Warrant, if properly assigned in accordance herewith, may
be exercised by a new holder for the purchase of Warrant Shares
without having a new Warrant issued.
b) New Warrants. This Warrant may
be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants
are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 4(a), as to any transfer which
may be involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with
such notice. All Warrants issued on transfers or exchanges shall be
dated the initial issuance date of this Warrant and shall be
identical with this Warrant except as to the number of Warrant
Shares issuable pursuant thereto.
c) Warrant Register. The Company
shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”), in the name of
the record Holder hereof from time to time. The Company may deem
and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent
actual notice to the contrary.
Section
5. Miscellaneous.
a) No Rights as Stockholder Until
Exercise. This Warrant does not entitle the Holder to any
voting rights, dividends, or other rights as a stockholder of the
Company prior to the exercise hereof as set forth in Section
2(d)(i).
b) Loss, Theft, Destruction, or
Mutilation of Warrant. The Company covenants that upon
receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate relating to the Warrant Shares, and in case of
loss, theft, or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not
include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in
lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays,
etc. If the last or appointed day for the taking of any
action or the expiration of any right required or granted herein
shall not be a Business Day, then, such action may be taken or such
right may be exercised on the next succeeding Business
Day.
d)
Authorized Shares.
The
Company covenants that, during the period the Warrant is
outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase
rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock
certificates to execute and issue the necessary Warrant Shares upon
the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any
requirements of the Trading Market upon which the Common Stock may
be listed. The Company covenants that all Warrant Shares which may
be issued upon the exercise of the purchase rights represented by
this Warrant will, upon exercise of the purchase rights represented
by this Warrant and payment for such Warrant Shares in accordance
herewith, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges created by
the Company in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such
issue).
Except
and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek toavoid the observance or performance of any
of the terms of this Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment.
Without limiting the generality of the foregoing, the Company will
(i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to
such increase in par value, (ii) take all such action as may be
necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the
exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction
thereof, as may be, necessary to enable the Company to perform its
obligations under this Warrant.
Before
taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from
any public regulatory body or bodies having jurisdiction
thereof.
e) No Net Cash Settlement.
Notwithstanding anything herein to the contrary, in no event will
the Holder hereof be entitled to receive a net-cash settlement as
liquidated damages in lieu of physical settlement in shares of
Common Stock, regardless of whether the Common Stock underlying
this Warrant is registered pursuant to an effective registration
statement; provided, however, that the foregoing will not preclude
the Holder from seeking other remedies at law or equity for
breaches by the Company of its registration obligations
hereunder.
f) Jurisdiction. All questions
concerning the construction, validity, enforcement, and
interpretation of this Warrant shall be determined in accordance
with the provisions of the Securities Purchase
Agreement.
g) Restrictions. The Holder
acknowledges that the Warrant Shares acquired upon the exercise of
this Warrant, if not registered, will have restrictions upon resale
imposed by state and federal securities laws.
h) Non-waiver. No course of
dealing or any delay or failure to exercise any right hereunder on
the part of Holder shall operate as a waiver of such right or
otherwise prejudice the Holder’s rights, powers, or
remedies.
i) Notices. Any notice, request or
other document required or permitted to be given or delivered to
the Holder by the Company shall be delivered in accordance with the
notice provisions of the Securities Purchase
Agreement.
j) Limitation of Liability. No
provision hereof, in the absence of any affirmative action by the
Holder to exercise this Warrant to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Holder, shall
give rise to any liability of the Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the
Company.
k) Remedies. The Holder, in
addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific
performanceof its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this
Warrant and hereby agrees to waive and not to assert the defense in
any action for specific performance that a remedy at law would be
adequate.
l) Successors and Assigns. Subject
to applicable securities laws, this Warrant and the rights and
obligations evidenced hereby shall inure to the benefit of and be
binding upon the successors and permitted assigns of the Company
and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for
the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant
Shares.
m) Amendment. This Warrant may be
modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.
n) Severability. Wherever
possible, each provision of this Warrant shall be interpreted in
such manner as to be effective and valid under applicable law, but
if any provision of this Warrant shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this
Warrant.
o) Headings. The headings used in
this Warrant are for the convenience of reference only and shall
not, for any purpose, be deemed a part of this
Warrant.
(signature page follows)
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized as of the date first above
indicated.
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By:
____________________
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Name: Ronald P.
Erickson
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Title:
Chairman
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By: ____________________
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Name: Phillip A.
Bosua
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Title: Chief
Executive Officer
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NOTICE
OF EXERCISE
TO:
KNOW LABS,
INC.
(1) The undersigned
hereby elects to purchase ____________________ Warrant Shares of
the Company pursuant to the terms of the attached Warrant (only if
exercised in full), and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if
any.
(2) Payment shall
take the form of (check applicable box):
[ ] in lawful money
of the United States; or
[ ] if
permitted the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection
2(c), to exercise this Warrant with respect to the maximum number
of Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 2(c).
(3) Please issue said
Warrant Shares in the name of the undersigned or in such other name
as is specified below:
__________________________________
The
Warrant Shares shall be delivered to the following DWAC Account
Number:
__________________________________
__________________________________
__________________________________
[SIGNATURE OF
HOLDER]
Name of Investing
Entity: __________________________________
Signature of Authorized Signatory of Investing
Entity: __________________________________
Name of Authorized
Signatory: __________________________________
Title of Authorized
Signatory: __________________________________
Date:
__________________________________
ASSIGNMENT
FORM
(To assign the foregoing Warrant, execute this form and supply
required information. Do not use this form to purchase
shares.)
FOR
VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
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Name:
__________________________________
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(Please
Print)
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Address:
__________________________________
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(Please
Print)
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Dated:
__________________________________
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Holder’s
Signature: __________________________________
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Holder’s
Address: __________________________________
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Exhibit 10.5
KNOW
LABS, INC.
FORM
OF SUBORDINATION AGREEMENT
THIS
SUBORDINATION AGREEMENT (this "Agreement") dated
__________________________ , is between
___________________________________ (the "Subordinated Creditor"), and Clayton
Struve ("Senior
Creditor").
A. Subordinated
Creditor is purchasing a certain Subordinated Convertible Note of
even date hereof (the “Note”) from Know Labs, Inc., a
Nevada corporation (the "Company") pursuant to that certain
Securities Purchase Agreement dated as of the date hereof between
the Company and Subordinated Creditor (the “Securities Purchase Agreement”).
All capitalized terms not otherwise defined in this Agreement shall
have the meanings assigned to them in the Securities Purchase
Agreement.
B. Senior Creditor has
previously provided loans to the Company in the aggregate amount of
$1,071,000 (the “Senior
Loan”).
C. As a condition to
purchasing the Note, Subordinated Creditor has agreed to
subordinate the Note and related obligations to Subordinated
Creditor (the "Subordinated
Debt") to all of the Company’s indebtedness and
obligations to Senior Creditor (the "Senior Debt").
THE
PARTIES AGREE AS FOLLOWS:
1. All Subordinated
Debt payments are subordinated to Senior Creditor's right to full
payment and performance of the Senior Debt and all of the Company's
other obligations to Senior Creditor existing now or later,
together with collection costs, including attorneys' fees, and
including any interest accruing after any Bankruptcy
Event.
2.
Subordinated
Creditor will not:
a) demand or receive
from the Company (and the Company will not pay) any part of the
Subordinated Debt, by payment, prepayment, or otherwise, which may
now or hereafter be owing by the Company to Subordinated Creditor,
or
b) accelerate the
Subordinated Debt, or begin to or participate in any action against
the Company with respect to such Subordinated Debt, until all the
Senior Debt is paid, or
c) assign any of the
Subordinated Debt or any collateral security therefore without
notice to or consent of Senior Creditor and unless assigned
pursuant to an assignment made expressly subject to this
Agreement.
This
does not prohibit each such Subordinated Creditor from converting
any Subordinated Debt into equity securities of the Company or
exercising any rights as a stockholder of the Company.
3. Subordinated
Creditor must deliver to Senior Creditor, in the form received, any
payment, distribution, security, or proceeds it receives on the
Subordinated Debt other than according to this
Agreement.
4. These provisions
remain in full force and effect, despite any Bankruptcy Event, and
Senior Creditor's claims against the Company and the Company's
estate will be fully paid before any payment is made to any
Subordinated Creditor with respect to the Subordinated
Debt.
5. Until the Senior
Debt is paid, Subordinated Creditor irrevocably appoints Senior
Creditor as its attorney-in-fact, with power of attorney with power
of substitution, in each such Subordinated Creditor's name or in
Senior Creditor's name, for Senior Creditor's use and benefit
without notice to each such Subordinated Creditor, to do the
following in the case of any Bankruptcy Event involving the
Company:
a) file any claims for
the Subordinated Debt for Subordinated Creditor if such
Subordinated Creditor does not do so at least thirty (30) days
before the time to file claims expires; and
b) accept or reject
any plan of reorganization or arrangement for Subordinated Creditor
and vote Subordinated Creditor's claims in respect of the
Subordinated Debt in any way it chooses.
6. Subordinated
Creditor will immediately place a legend on the Subordinated Debt
instruments that the instruments are subject to this Agreement. No
amendment of the Subordinated Debt documents will modify this
Agreement in any way that terminates or impairs the subordination
of the Subordinated Debt or the subordination of the security
interest or lien that Senior Creditor has in the Company's
property.
7. This Agreement
shall be binding upon Subordinated Creditor, its successors, or
assigns, and shall inure to the benefit of and be enforceable by
each Senior Creditor and its successors or assigns.
8. This Agreement
shall terminate upon the date on which the Senior Debt shall have
been paid in full.
9. Senior Creditor may
administer and manage its credit and other relationships with the
Company in its own best interest, without notice or consent of
Subordinated Creditor. At any time and from time to time, Senior
Creditor may enter into any amendment or agreement with the Company
as Senior Creditor may deem proper.
All
conditions, covenants, duties, and obligations contained in this
Agreement can be waived only by written agreement. Forbearance or
indulgence in any form or manner by party shall not be construed as
a waiver, nor in any way limit the remedies available to that
party.
11. If one or more
provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this
Agreement, and the balance of the Agreement shall be interpreted as
if such provision were so excluded, and shall be enforceable in
accordance with its terms.
12. This Agreement may
be executed in two or more counterparts, each of which is an
original and all of which together constitute one
instrument.
13. This Agreement
shall be governed by and be construed in accordance with the laws
of the State of Nevada without regard to the conflicts of law rules
of such state. The parties hereby irrevocably and unconditionally
submit, for themselves and their property, to the jurisdiction of
the courts sitting in Las Vegas, Nevada and any appellate court
from any thereof, in respect of actions brought against it in any
action, suit or proceeding arising out of or relating to this
Agreement, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect
of any such action, suit or proceeding may be heard and determined
in such courts. Each of the parties hereto agrees that a final
judgment in any such action, suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.
14. If there is an
action to enforce the rights of a party under this Agreement, the
party prevailing will be entitled, in addition to other relief, all
reasonable costs and expenses, including reasonable attorneys'
fees, incurred in the action.
(signature pages follow)
IN
WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first set forth above.
SUBORDINATED
CREDITOR:
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By:
___________________________
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Name:
|
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Title (if
applicable):
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[Signature page to
Know Labs, Inc. Subordination Agreement]
IN
WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first set forth above.
AGREED
AND ACKNOWLEDGED:
KNOW
LABS, INC.
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By: ___________________________
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Name: Ronald P.
Erickson
|
|
Title:
Chairman
|
|
|
|
By: ___________________________
|
|
Name: Phillip A.
Bosua
|
|
Title: Chief
Executive Officer
|
|
|
|
|
|
[Signature page to
Know Labs, Inc. Subordination Agreement]
|
Exhibit 10.6
FORM
OF REGISTRATION RIGHTS AGREEMENT
This
REGISTRATION RIGHTS
AGREEMENT (this “Agreement”) is made and
entered into as of , 2021, by and among Know Labs, Inc., a
Nevada corporation (the “Company”) and the investors
identified on Schedule
A hereto (each, including their respective successors and
assigns, an “Investor” and collectively, the
“Investors”).
WHEREAS, in connection with the
Securities Purchase Agreement by and among the parties hereto of
even date herewith (the “Purchase Agreement”), the Company
has agreed, upon the terms and subject to the conditions set forth
in the Purchase Agreement, to issue and sell to each Investor units
comprised of (i) subordinated convertible notes (the
“Convertible
Notes”) and (ii) warrants to purchase fifty percent
(50%) of one share of the Company’s common stock, $0.001 par
value per share (“Common
Stock”) at an exercise price of $2.40 per whole share
(the “Warrants”); and
WHEREAS, in accordance with the terms of
the Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar successor
statute (collectively, the “Securities Act”), and applicable
state securities laws.
NOW, THEREFORE, in consideration of the
premises and the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and each of the Investors
hereby agree as follows:
1. Definitions. Capitalized terms
used and not otherwise defined herein that are defined in the
Purchase Agreement will have the respective meanings given such
terms in the Purchase Agreement. As used in this Agreement, the
following terms have the respective meanings set forth in this
Section 1 and other terms are defined throughout this
Agreement:
“Commission Comments” means
written comments pertaining solely to Rule 415 which are received
by the Company from the Commission to a filed Registration
Statement, which either (i) requires the Company to limit the
number of Registrable Securities which may be included therein to a
number which is less than the number sought to be included thereon
as filed with the Commission or (ii) requires the Company to either
exclude Registrable Securities held by specified Holders or deem
such Holders to be underwriters with respect to Registrable
Securities they seek to include in such Registration
Statement.
“Effective Date” means, as
to a Registration Statement, the date on which such Registration
Statement is first declared effective by the
Commission.
“Effectiveness Date” means
(a) with respect to the initial Registration Statement required to
be filed pursuant to Section 2(a), the earlier of: (i) the
120th day following the Final
Closing Date and (ii) the fifth Trading Day following the date on
which the Company is notified by the Commission that the initial
Registration Statement will not be reviewed or is no longer subject
to further review and comments; (b) with respect to any additional
Registration Statements required to be filed under Section 2(b) due
to SEC Restrictions, the earlier of: (i) the 90th day following the applicable
Restriction Termination Date and (ii) the fifth Trading Day
following the date
on which the Company is notified by the Commission that such
Registration Statement will not be reviewed or is no longer subject
to further review and comments; and (c) with respect to a
Registration Statement required to be filed under Section 2(c), the
earlier of: (i) the 90th day
following the date on which the Company becomes eligible to utilize
Form S-3 to register the resale of Common Stock, and (ii) the fifth
Trading Day following the date on which the Company is notified by
the Commission that the Registration Statement will not be reviewed
or is no longer subject to further review and
comments.
“Effectiveness Period”
means, as to any Registration Statement required to be filed
pursuant to this Agreement, the period commencing on the Effective
Date of such Registration Statement and ending on (a) the date that
all of the Registrable Securities covered by such Registration
Statement have been publicly sold by the Holders of the Registrable
Securities included therein, or (b) such time as all of the
Registrable Securities covered by such Registration Statement may
be sold by the Holders without volume restrictions pursuant to Rule
144 as determined by the counsel to the Company pursuant to a
written opinion letter to such effect, addressed and acceptable to
the Company's transfer agent and the affected Holders.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended.
“Filing Date” means (a) with
respect to the initial Registration Statement required to be filed
pursuant to Section 2(a), the 45th day following the Final Closing Date;
(b) with respect to any additional Registration Statements required
to be filed under Section 2(b) due to SEC Restrictions, the
30th day following the
applicable Restriction Termination Date; and (c) with respect to a
Registration Statement required to be filed under Section 2(c), the
30th day following the date on
which the Company becomes eligible to utilize Form S-3 to register
the resale of Common Stock.
“Final Closing Date” means
the date on which the final closing of the purchase and sale of the
Convertible Notes and Warrants occurs pursuant to Section 2.2 of
the Purchase Agreement.
“FINRA” means the Financial
Industry Regulatory Authority, Inc.
“Holder” or “Holders” means the holder
or holders, as the case may be, from time to time of Registrable
Securities and, if other than an Investor, a Person (as defined in
the Purchase Agreement) to whom the rights hereunder have been
properly assigned pursuant to Section 7 hereof.
“Investment Amount” means,
with respect to each Investor, the Investment Amount indicated on
such Investor’s signature page to this Agreement, which is
also reflected on the Schedule of Investors attached hereto as
Schedule
A.
“Nevada Courts” means the
state and federal courts sitting in Nevada.
“Proceeding” means an
action, claim, suit, investigation or proceeding (including,
without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
“Prospectus” means the
prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously
omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Registration
Statement, and all other amendments and supplements to the
Prospectus, including post -effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference
in such Prospectus.
“Registrable Securities”
means: (i) any shares of Common Stock issuable upon the conversion
of the Convertible Notes issued to Investors pursuant to the
Purchase Agreement,
(ii)
any shares of Common Stock issuable upon the exercise of the
Warrants issued to the Investors pursuant to the Purchase
Agreement, (iii) any shares of Common Stock issuable upon the
exercise of warrants issued to Boustead Securities, LLC, (the
“Placement
Agent”) as compensation in connection with the
financing that is the subject of the Purchase Agreement
(“Placement Agent Warrant
Shares”) and (iv) any securities issued or issuable
upon any stock split, dividend or other distribution,
recapitalization or similar event, or any price adjustment as a
result of such stock splits, reverse stock splits or similar events
with respect to any of the securities referenced in (i)
–
(iv)
above. Notwithstanding the foregoing, a security shall cease to be
a Registrable Security for purposes of this Agreement from and
after such time as the Holder of such security may resell such
security without volume restrictions under Rule 144, as determined
by the counsel to the Company pursuant to a written opinion letter
to such effect, addressed and acceptable to the Company’s
transfer agent and the affected Holders.
“Registration Statement”
means the initial registration statement required to be filed in
accordance with Section 2(a) and any additional registration
statements required to be filed under this Agreement, including in
each case the Prospectus, amendments and supplements to such
registration statements or Prospectus, including pre- and post-
effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference
therein.
“Required Holders” means the
Holders of at least a majority of the Registrable
Securities.
“Rule 144” means Rule 144
promulgated by the Commission pursuant to theSecurities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially
the same effect as such Rule.
“Rule 415” means Rule 415
promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially
the same effect as such Rule.
“Rule 424” means Rule 424
promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially
the same effect as such Rule.
“Selling Holder
Questionnaire” means the selling security holder
notice and questionnaire attached as Annex B hereto.
"Trading Day" means a day on which the
Trading Market on which the Common Stock is listed or quoted for
trading is open for the transaction of business.
“Trading Market” means any of the
New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select
Market, the NASDAQ Global Market, the NASDAQ Capital Market, the
OTCBB, the OTCQB, the OTCQX or any other market on which the Common
Stock is listed or quoted for trading on the date in
question.
2.
Registration.
(a) On or prior to the
applicable Filing Date, the Company shall prepare and file with the
Commission one Registration Statement covering the resale of all
Registrable Securities not already covered by an existing and
effective Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415. Each Registration Statement
required to be filed under this Agreement shall be filed on Form
S-1 (or on such other form appropriate for such purpose) and
contain (except if otherwise required pursuant to written comments
received from the Commission upon a review of such Registration
Statement, other than as to the characterization of any Holder as
an underwriter, which shall not occur unless such characterization
is consistent with written information provided by the Holder in
the Selling Holder Questionnaire) the “Plan of
Distribution” substantially in the form attached hereto as
Annex A. The
Company shall cause each Registration Statement required to be
filed under this Agreement to be declared effective under the
Securities Act as soon as possible but, in any event, no later than
its Effectiveness Date, and shall use its commercially reasonable
best efforts to keep each such Registration Statement continuously
effective during its entire Effectiveness Period. By 5:00 p.m. (New
York City time) on the Trading Day immediately following the
Effective Date of each Registration Statement, the Company shall
file with the Commission in accordance with Rule 424 under the
Securities Act the final prospectus to be used in connection with
sales pursuant to such Registration Statement (whether or not such
filing is technically required under such Rule).
(b) Notwithstanding
anything to the contrary contained in this Section 2, if the
Company receives Commission Comments, and following discussions
with and responses to the Commission in which the Company uses its
commercially reasonable best efforts to cause as many Registrable
Securities for as many Holders as possible to be included in the
Registration Statement filed pursuant to Section 2(a) without
characterizing any Holder as an underwriter unless such
characterization is consistent with written information provided by
the Holder in the Selling Holder Questionnaire (and in such regard
uses its commercially reasonable best efforts to cause the
Commission to permit any Holder or its counsel to participate in
Commission conversations on such issue together with the
Company’s counsel, and timely conveys relevant information
concerning such issue with the Holders or their counsel) (the day
that such discussions and responses are concluded shall be referred
to as the “Tolling
Date”), the Company is unable to cause the inclusion
of all Registrable Securities, then the Company may, following not
less than three (3) Trading Days prior written notice to the
Holders (i) remove from the Registration Statement such Registrable
Securities (the “Cut Back
Shares”) and/or(ii) agree to such
restrictions and limitations on the registration and resale of the
Registrable Securities, in each case as the Commission may require
in order for the Commission to allow such Registration Statement to
become effective; provided, that in no event may
the Company characterize any Holder as an underwriter unless such
characterization is consistent with written information provided by
the Holder in the Selling Holder Questionnaire (collectively, the
“SEC
Restrictions”). Unless the SEC Restrictions otherwise
require, any cut -back imposed pursuant to this Section 2(b) shall
be allocated among the Registrable Securities of the Holders on a
pro rata basis. No liquidated damages under Section 2(d) shall
accrue on or as to any Cut Back Shares, and the required
Effectiveness Date for such Registration Statement will be tolled
until such time as the Company is able to effect the registration
of the Cut Back Shares in accordance with any SEC Restrictions if
such Registrable Securities cannot at such time be resold by the
Holders thereof without volume limitations pursuant to Rule 144
(such date, the “Restriction
Termination Date”). From and after the Restriction
Termination Date, all provisions of this Section 2 shall again be
applicable to the Cut Back Shares (which, for avoidance of doubt,
retain their character as “Registrable Securities”) if
such Registrable Securities cannot at such time be resold by the
Holders thereof without volume limitations pursuant to Rule 144 so
that the Company will be required to file with and cause to be
declared effective by the Commission such additional Registration
Statements in the time frames set forth herein as necessary to
ultimately cause to be covered by effective Registration Statements
all Registrable Securities. For the avoidance of doubt, the time
period starting from the Tolling Date and ending with the
Restriction Termination Date shall be excluded in calculating the
applicable Effectiveness Date.
(c) Promptly following
any date on which the Company becomes eligible to use a
registration statement on Form S-3 to register Registrable
Securities for resale, the Company shall file a Registration
Statement on Form S-3 covering all Registrable Securities (or a
post- effective amendment on Form S-3 to the then effective
Registration Statement) and shall cause such Registration Statement
to be filed by the Filing Date for such Registration Statement and
declared effective under the Securities Act as soon as possible
thereafter, but in any event prior to the Effectiveness Date
therefor. Such Registration Statement shall contain (except if
otherwise required pursuant to written comments received from the
Commission upon a review of such Registration Statement, other than
as to the characterization of any Holder as an underwriter, which
shall not occur unless such characterization is consistent with
written information provided by the Holder in the Selling Holder
Questionnaire) the “Plan of Distribution” in
substantially the form attached hereto as Annex A. The Company shall use
its commercially reasonable best efforts to keep such Registration
Statement continuously effective under the Securities Act during
the entire Effectiveness Period. By 5:00 p.m. (New York City time)
on the Trading Day immediately following the Effective Date of such
Registration Statement, the Company shall file with the Commission
in accordance with Rule 424 under the Securities Act the final
prospectus to be used in connection with sales pursuant to such
Registration Statement (whether or not such filing is technically
required under such Rule).
(d) If: (i) a
Registration Statement is not filed on or prior to its Filing Date
covering the Registrable Securities required under this Agreement
to be included therein, or (ii) a Registration Statement is not
declared effective by the Commission on or prior to its required
Effectiveness Date or if by the Trading Day immediately following
the Effective Date the Company shall not have filed a
“final” prospectus for the Registration Statement with
the Commission under Rule 424(b) (whether or not such a prospectus
is technically required by such Rule), or (iii)
after its Effective Date, without regard for the reason thereunder
or efforts therefore, such Registration Statement ceases for any
reason to be effective and available to the Investors as to the
Registrable Securities to which it is required to cover at any time
prior to the expiration of its Effectiveness Period for more than
an aggregate of 30 Trading Days (which need not be consecutive)
(any such failure or breach being referred to as an “Event,” and for purposes of
clauses (i) or (ii) the date on which such Event occurs, or for
purposes of clause (iii) the date which such 30 Trading Day-period
is exceeded, being referred to as “Event Date”), then in
addition to any other rights the Investors may have hereunder or
under applicable law, on each such Event Date and on each monthly
anniversary of each such Event Date (if the applicable Event shall
not have been cured by such date) until the applicable Event is
cured, the Company shall pay to each Investor an amount in cash, as
partial liquidated damages and not as a penalty, equal to 1.0% of
the aggregate Investment Amount paid by such Investor pursuant to
the Purchase Agreement. The parties agree that in no event will the
Company be liable for liquidated damages under this Agreement in
excess of 1.0% of the aggregate Investment Amount of the Investors
in any single month and the maximum aggregate liquidated damages
payable to a Investor under this Agreement shall be ten percent
(10%) of the aggregate Investment Amount paid by such Investor
pursuant to the Purchase Agreement per Event. The partial
liquidated damages pursuant to the terms hereof shall apply on a
daily pro-rata basis for any portion of a month prior to the cure
of an Event (except in the case of the first Event Date), and shall
cease to accrue (unless earlier cured) upon the expiration of the
Effectiveness Period.
(e) Each Holder agrees
to furnish to the Company a completed Questionnaire in the form
attached to this Agreement as Annex B (a “Selling Holder
Questionnaire”). The Company shall not be required to
include the Registrable Securities of a Holder in a Registration
Statement and shall not be required to pay any liquidated or other
damages under Section 2(d) to any Holder who fails to furnish to
the Company a fully completed Selling Holder Questionnaire at least
two Trading Days prior to the Filing Date (subject to the
requirements set forth in Section 3(a)).
3. Registration Procedures. In
connection with the Company’s registration obligations
hereunder:
(a) The Company shall
not file a Registration Statement, any Prospectus or any amendments
or supplements thereto in which the “Selling
Stockholder” section thereof differs in any material respect
from the disclosure received from a Holder in its Selling Holder
Questionnaire (as amended or supplemented). The Company shall not
file a Registration Statement, any Prospectus or any amendments or
supplements thereto in which it (i) characterizes any Holder as an
underwriter, unless such characterization is consistent with
written information provided by the Holder in the Selling Holder
Questionnaire, (ii) excludes a particular Holder due to such Holder
refusing to be named as an underwriter, or (iii) reduces the number
of Registrable Securities being registered on behalf of a Holder
except pursuant to, in the case of subsection (iii), the Commission
Comments, without, in each case, such Holder’s express
written authorization, unless such reduction is made pursuant to
Section 2(b) hereof. The Company shall also ensure that each
Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall 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 (in the case of prospectuses, in the light of
the circumstances in which they were
made) not misleading, except to the extent, but only to the extent,
that such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent
that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly
for use in the Registration Statement, such Prospectus or such form
of Prospectus or in any amendment or supplement thereto (it being
understood that the Holder has approved Annex A hereto for this
purpose).
(b) The Company shall
(i) prepare and file with the Commission such amendments, including
post-effective amendments, to each Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep
such Registration Statement continuously effective as to the
applicable Registrable Securities for its Effectiveness Period and,
if required under Section 2(b) with respect to Cut Back Shares,
prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant
to Rule 424; (iii) respond as promptly as reasonably possible to
any comments received from the Commission with respect to each
Registration Statement or any amendment thereto and, as promptly as
reasonably possible provide the Holders true and complete copies of
all correspondence from and to the Commission relating to such
Registration Statement that would not result in the disclosure to
the Holders of material and non-public information concerning the
Company; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect
to the Registration Statement(s) and the disposition of all
Registrable Securities covered by each Registration
Statement.
(c) The Company shall
notify the Holders as promptly as reasonably possible (and, in the
case of (i)(A) below, not less than three Trading Days prior to
such filing and, in the case of (v) below, not less than three
Trading Days prior to the financial statements in any Registration
Statement becoming ineligible for inclusion therein) and (if
requested by any such Person) confirm such notice in writing no
later than one Trading Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment
to a Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a
“review” of such Registration Statement and whenever
the Commission comments in writing on such Registration Statement
(the Company shall provide true and complete copies thereof and all
written responses thereto to that pertain to the Holders as a
Selling Stockholder or to the Plan of Distribution, but not
information which the Company believes would constitute material
and non-public information); and (C) with respect to each
Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or
any other Federal or state governmental authority for amendments or
supplements to a Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of
any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) of the receipt
by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and
(v) of the occurrence of any event or passage of time that makes
the financial statements included
in a Registration Statement ineligible for inclusion therein or any
statement made in such Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any
revisions to such Registration Statement, Prospectus or other
documents so that, in the case of such Registration Statement or
the Prospectus, as the case may be, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading, except to the extent, but only to the extent, that
such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent
that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly
for use in the Registration Statement, such Prospectus or such form
of Prospectus or in any amendment or supplement thereto (it being
understood that the Holder has approved Annex A hereto for this
purpose).
(d) The Company shall
use its commercially reasonable best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of
a Registration Statement, or the suspension of the qualification of
any of the Registrable Securities for sale in any jurisdiction and,
if such an order or suspension is issued, to obtain the withdrawal
of such order or suspension at the earliest possible moment and to
notify the Holders of the issuance of such order and the resolution
thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
(e) The Company shall
furnish to the Holders, without charge and at the option of the
Company in electronic format, at least one conformed copy of each
Registration Statement and each amendment thereto and all exhibits
to the extent requested by the Holders (including those previously
furnished) promptly after the filing of such documents with the
Commission.
(f) The Company shall
promptly deliver to the Holders, without charge, as many copies of
each Prospectus or Prospectuses (including each form of prospectus)
and each amendment or supplement thereto as the Holders may
reasonably request. The Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the
selling Holders in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment
or supplement thereto.
(g) Prior to any public
offering of Registrable Securities, the Company shall register or
qualify such Registrable Securities for offer and sale under the
securities or Blue Sky laws of all jurisdictions within the United
States as any Holder may request, to keep each such registration or
qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the
Registration Statements; provided, that in connection
with any such registration or qualification, the Company shall not
be required to (i) qualify to do business in any jurisdiction where
the Company would not otherwise be required to qualify, (ii)
subject itself to general taxation in any such jurisdiction, (iii)
file a general consent to service of process
in any jurisdiction, or (iv) make any change to the Company’s
articles of incorporation or bylaws.
(h) The Company shall
cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be
delivered to a transferee pursuant to the Registration
Statement(s), which certificates shall be free, to the extent
permitted by the Purchase Agreement, of all restrictive legends,
and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may
request.
(i) Upon the occurrence
of any event contemplated by Section 3(c)(v), as promptly as
reasonably possible, the Company shall prepare a supplement or
amendment, including a post-effective amendment, to the affected
Registration Statements or a supplement to the related Prospectus
or any document incorporated or deemed to be incorporated therein
by reference, and file any other required document so that, as
thereafter delivered, no Registration Statement nor any Prospectus
will contain an 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, in light of the circumstances under
which they were made, not misleading.
(j) The Company shall
notify the Holders in writing of the happening of any event, as
promptly as practicable after becoming aware of such event, as a
result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading (provided, that in no event
shall such notice contain any material, nonpublic information), and
promptly prepare a supplement or amendment to such Registration
Statement to correct such untrue statement or omission. The Company
shall also promptly notify the Holders in writing when a prospectus
or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective
amendment has become effective.
(k) If any Holder is
required under applicable securities laws to be described in the
Registration Statement as an underwriter, at the reasonable request
of such Holder, the Company shall furnish to such Holder, on the
date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as a Holder may
reasonably request: (i) a letter, dated such date, from the
Company’s independent certified public accountants in form
and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public
offering, addressed to the Holders, and (ii) an opinion, dated as
of such date, of counsel representing the Company for purposes of
such Registration Statement, in form, scope and substance
reasonably acceptable to such counsel and as is customarily given
in an underwritten public offering, addressed to the
Holders.
(l) The Company shall
hold in confidence and not make any disclosure of information
concerning a Holder provided to the Company unless: (i) disclosure
of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is
ordered pursuant to a subpoena or other final, non-appealable
order from a court or governmental body of competent jurisdiction,
or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or
any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning a Holder is
sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice to
such Holder and allow such Holder, at the Holder’s expense,
to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, such information.
(m) The Company shall
use its commercially reasonable best efforts to cause all of the
Registrable Securities covered by a Registration Statement to be
listed on each Trading Market on which securities of the same class
or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the
rules of such exchange. The Company shall pay all fees and expenses
in connection with satisfying its obligation under this Section
3(m).
(n) The Company shall
cooperate with the Holders who hold Registrable Securities being
offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any
restrictive legend to the extent permitted by the Purchase
Agreement) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates
to be in such denominations or amounts, as the case may be, as the
Holders may reasonably request and registered in such names as the
Holders may request.
(o) If requested by a
Holder, the Company shall as soon as practicable: (i) incorporate
in a prospectus supplement or post-effective amendment such
information as a Holder reasonably requests to be included therein
relating to the sale and distribution of Registrable Securities,
including, without limitation, information with respect to the
number of Registrable Securities being offered or sold, the
purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering;
(ii) make all required filings of such prospectus supplement or
post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any
Registration Statement if reasonably requested by a Holder holding
any Registrable Securities.
(p) The Company shall
use its commercially reasonable best efforts to cause the
Registrable Securities covered by a Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to consummate the disposition of
such Registrable Securities.
4. Registration Expenses. All fees
and expenses incident to the performance of or compliance with this
Agreement by the Company shall be borne by the Company whether or
not any Registrable Securities are sold pursuant to a Registration
Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with any Trading
Market on which the Common Stock is then listed or quoted for
trading, (B) with respect to
filings with FINRA by any underwriter’s counsel for
compensation review pursuant to FINRA Rule 5110, and (C) in
compliance with applicable state securities orBlue Sky laws), (ii)
printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing
prospectuses if the printing of prospectuses is reasonably
requested by a Holder), (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Company,
(v) Securities Act liability insurance, if the Company so desires
such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. In addition, the
Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit and
the fees and expenses incurred in connection with the listing of
the Registrable Securities on any securities exchange as required
hereunder. In no event shall the Company be responsible for any
broker or similar commissions incurred by any Holder or, except to
the extent provided for in the Transaction Documents (as defined in
the Purchase Agreement), any legal fees or other cost of the
Holders in connection with this Agreement.
5.
Indemnification.
(a) Indemnification by the Company.
The Company shall, notwithstanding any termination of this
Agreement, indemnify and hold harmless each Holder, the officers,
directors, agents, investment advisors, partners, members and
employees of each of them, each Person who controls any such Holder
(within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent
permitted by applicable law, from and against any and all losses,
claims, damages, liabilities, costs (including, without limitation,
reasonable costs of preparation and reasonable attorneys' fees) and
expenses (collectively, “Losses”), as incurred, arising out
of or relating to any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, any
Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of the circumstances
under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements or
omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for
use therein, or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in
writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (it being understood that the
Holder has approved Annex
A hereto for this purpose) or (2) in the case of an
occurrence of an event of the type specified in Section
3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified the Holder in writing
that the Prospectus is outdated or defective and prior to the
receipt by such Holder of an Advice (as defined below) or an
amended or supplemented Prospectus, but only if and to the extent
that following the receipt of the Advice or the amended or
supplemented Prospectus the misstatement or omission giving rise to
such Loss would have been corrected. The Company shall notify the
Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) Indemnification by Holders.
Each Holder shall, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange
Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable
law, from and against all Losses, as incurred, arising solely out
of or based solely upon: (x) such Holder's failure to comply with
the prospectus delivery requirements of the Securities Act or (y)
any untrue statement of a material fact contained in any
Registration Statement, any Prospectus, or any form of prospectus,
or in any amendment or supplement thereto, or arising solely out of
or based solely upon any omission of a material fact required to be
stated therein or necessary to make the statements therein not
misleading to the extent, but only to the extent that, (1) such
untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method
of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in
the Registration Statement (it being understood that the Holder has
approved Annex A
hereto for this purpose), such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (2) in the
case of an occurrence of an event of the type specified in Section
3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing
that the Prospectus is outdated or defective and prior to the
receipt by such Holder of an Advice or an amended or supplemented
Prospectus, but only if and to the extent that following the
receipt of the Advice or the amended or supplemented Prospectus the
misstatement or omission giving rise to such Loss would have been
corrected. In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification
Proceedings. If any Proceeding shall be brought or asserted
against any Person entitled to indemnity hereunder (an
“Indemnified
Party”), such Indemnified Party shall promptly notify
the Person from whom indemnity is sought (the “Indemnifying Party”) in writing,
and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred
in connection with defense thereof; provided, that the failure of
any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be
finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced
the Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense
of such Indemnified Party or Parties unless: (1) the Indemnifying
Party has agreed in writing to pay such fees and expenses; (2) the
Indemnifying Party shall have failed promptly to assume the defense
of such Proceeding and to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that
conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying
Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not
have the right to assume the defense thereof and such counsel shall
be at the expense of the Indemnifying Party); provided, that the Indemnifying
Party shall pay for no more than one separate set of counsel for
all Indemnified Parties and such legal counsel shall be selected by
the Required Holders. The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably withheld.
No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party,
unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject
matter of such Proceeding.
All
fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner
not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within ten Trading Days of written
notice thereof to the Indemnifying Party (regardless of whether it
is ultimately determined that an Indemnified Party is not entitled
to indemnification hereunder; provided, that the Indemnifying
Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d) Contribution. If a claim for
indemnification under Section 5(a) or 5(b) is unavailable to an
Indemnified Party (by reason of public policy or otherwise), then
each Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as
is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact
or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct
or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred
by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such
party in accordance with its terms.
The
parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not
take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of
this Section 5(d), (i) no Person involved in the sale of
Registrable Securities which Person is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) in connection with such sale shall be
entitled to contribution from any Person involved in such sale of
Registrable Securities who was not guilty of fraudulent
misrepresentation; and (ii) no Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Holder from the sale
of the Registrable Securities subject to the Proceeding exceeds the
amount of any damages that such Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
The
indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Reports Under the Exchange Act.
With a view to making available to the Holders the benefits of Rule
144 or any other similar rule or regulation of the SEC that may at
any time permit the Holders to sell Registrable Securities of the
Company to the public without registration, the Company agrees, for
so long as Registrable Securities are outstanding and held by the
Holders, to:
(a) make and keep
public information available, as those terms are understood,
defined and required in Rule 144;
(b) file with the SEC
in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act so long as
the Company remains subject to such requirements and the filing of
such reports and other documents is required for the applicable
provisions of Rule 144; and
(c) furnish to each
Holder so long as such Holder owns Registrable Securities, promptly
upon request, such information as may be reasonably and customarily
requested to permit the Holders to sell such securities pursuant to
Rule 144 without registration.
7. Assignment of Registration
Rights. The rights under this Agreement shall be
automatically assignable by the Investors to any permitted
transferee of all or any portion of such Investor’s
Registrable Securities if: (i) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within five (5) Trading
Days after such assignment; (ii) the Company is, within five (5)
Trading Days after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned; (iii)
immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is
restricted under the Securities Act or applicable state securities
laws; (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this sentence the transferee
or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein; and (v) such transfer shall
have been made in accordance with the applicable requirements of
the Purchase Agreement.
8.
Miscellaneous.
(a) Third Party Beneficiary. The
Placement Agent is an intended third party beneficiary of this
Agreement and have all of the rights of an “Investor”
under this Agreement and the Placement Agent Warrant Shares (and
any capital stock of the Company issued or issuable, with
respect to the warrants issued to Placement Agent in connection
with the financing that is the subject of the Purchase Agreement,
as a result of any stock split, stock dividend, recapitalization,
exchange, anti-dilution adjustment or similar event or otherwise,
without regard to any limitations on exercises of the Warrants, if
any) constitute Registrable Securities for all purposes of this
Agreement.
(b) Remedies. In the event of a
breach by the Company or by a Holder, of any of their obligations
under this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will
be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages
would not provide adequate compensation for any losses incurred by
reason of a breach by it of any of the provisions of this Agreement
and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(c) No Piggyback on Registrations.
Neither the Company nor any of its security holders (other than the
Holders in such capacity pursuant hereto) may include securities of
the Company in a Registration Statement other than the Registrable
Securities, and the Company shall not during the Effectiveness
Period enter into any agreement providing any such right to any of
its security holders without the prior written consent of the
Required Holders, which shall not be unreasonably
withheld.
(d) Compliance. Each Holder
covenants and agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the
Registration Statement.
(e) Discontinued Disposition. Each
Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence
of any event of the kind described in Section 3(c), such Holder
will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement or until it is advised in writing (the
“Advice”) by the
Company that the use of the applicable Prospectus may be resumed,
and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration
Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph.
(f) Piggy-Back Registrations. If at
any time during the Effectiveness Period there is not an effective
Registration Statement covering all of the Registrable Securities
and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its
own account or the account of others under the Securities Act of
any of its equity securities, other than on Form S-4 or Form S-8
(each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other
employee benefit plans, then the Company shall send to each Holder
written notice of such determination and, if within fifteen
calendar days after receipt of such notice, any
such Holder shall so request in writing, the Company shall include
in such registration statement all or any part of such Registrable
Securities such holder requests to be registered, subject to
customary underwriter cutbacks applicable to all holders of
registration rights.
(g) Amendments and Waivers.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written
consent of the Company and the Required Holders. Any amendment or
waiver effected in accordance with this Section 8(g) shall be
binding upon each Investor and the Company. No such amendment shall
be effective to the extent that it applies to less than all of the
Holders. No consideration shall be offered or paid to any Person to
amend or consent to a waiver or modification of any provision of
this Agreement unless the same consideration also is offered to all
of the parties to this Agreement. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of certain
Holders and that does not directly or indirectly affect the rights
of other Holders may be given by Holders of at least a majority of
the Registrable Securities to which such waiver or consent
relates.
(h) Notices. Any notices, consents,
waivers or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be
deemed to have been delivered if delivered in accordance with
Section 6.3 of the Purchase Agreement.
(i) Successors and Assigns. This
Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties and shall
inure to the benefit of each Holder. The Company may not assign its
rights or obligations hereunder without the prior written consent
of the Required Holders, provided, that in the event
that the Company is a party to a merger, consolidation, share
exchange or similar business combination transaction in which the
Common Stock is converted into the equity securities of another
Person, from and after the effective time of such transaction, such
Person shall, by virtue of such transaction, be deemed to have
assumed the obligations of the Company hereunder, the term
“Company” shall be deemed to refer to such Person and
the term “Registrable Securities” shall be deemed to
include the securities received by the Investors in connection with
such transaction unless such securities are otherwise freely
tradable by the Investors after giving effect to such transaction.
Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase
Agreement.
(j) Execution and Counterparts.
This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original and,
all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by
facsimile or email transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect
as if such facsimile or email signature were the original
thereof.
(k) Governing Law. All questions
concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed
and enforced in
accordance with the internal laws of the State of Nevada, without
regard to the principles of conflicts of law thereof. Each party
agrees that all Proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this
Agreement (whether brought against a party hereto or its respective
Affiliates, employees or agents) will be commenced in the Nevada
Courts. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the Nevada Courts for the adjudication of
any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any Proceeding, any
claim that it is not personally subject to the jurisdiction of any
Nevada Court, or that such Proceeding has been commenced in an
improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to
process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect
for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. Each
party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in
any Proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Agreement, then the
prevailing party in such Proceeding shall be reimbursed by the
other party for its attorney’s fees and other costs and
expenses incurred with the investigation, preparation and
prosecution of such Proceeding.
(l) Cumulative Remedies. The
remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
(m) Entire Agreement. This
Agreement, the other Transaction Documents and the instruments
referenced herein and therein constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the
instruments referenced herein and therein supersede all prior
agreements and understandings among the parties hereto with respect
to the subject matter hereof and thereof.
(n) Severability. If any term,
provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find
and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
(o) Headings. The headings in this
Agreement are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.
(p) Independent Nature of Holders'
Obligations and Rights. The obligations of each Holder under
this Agreement are several and not joint with the obligations of
each other Holder, and no Holder shall be responsible in any way
for the performance of the obligations of any other Holder under
this Agreement. Nothing contained herein or in any Transaction
Document, and no action taken by any Holder pursuant thereto, shall
be deemed to constitute the Holders as a partnership, an
association, a joint venture or any other kind of entity, or create
a presumption that the Holders are in any way acting in concert or
as a group with respect to such obligations or the transactions
contemplated by this Agreement or any other Transaction Document.
Each Holder acknowledges that no other Holder will be acting as
agent of such Holder in enforcing its rights under this Agreement.
Each Holder shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of
this Agreement, and it shall not be necessary for any other Holder
to be joined as an additional party in any Proceeding for such
purpose. The Company acknowledges that each of the Holders has been
provided with the same Registration Rights Agreement for the
purpose of closing a transaction with multiple Holders and not
because it was required or requested to do so by any
Holder.
(signature page follows)
IN WITNESS WHEREOF, the parties have
executed this Registration Rights Agreement as of the date first
written above.
KNOW
LABS, INC.
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By:
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Name: Ronald P.
Erickson
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Title:
Chairman
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By:
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Name: Phillip A.
Bosua
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Title: Chief
Executive Officer
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INVESTORS:
The
Investors executing the Signature Page in the form attached hereto
as Annex C and
delivering the same to the Company or its agents shall be deemed to
have executed this Agreement and agreed to the terms
hereof.
Annex
A
Plan
of Distribution
The
Selling Stockholders and any of their pledgees, donees,
transferees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of common stock on any stock
exchange, market or trading facility on which the shares are traded
or quoted or in private transactions. These sales may be at fixed
or negotiated prices. The Selling Stockholders may use any one or
more of the following methods when selling shares:
ordinary brokerage
transactions and transactions in which the broker-dealer solicits
Investors;
block
trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
purchases by a
broker-dealer as principal and resale by the broker-dealer for its
account; an exchange distribution in accordance with the rules of
the applicable exchange; privately negotiated
transactions;
through
the writing of options on the shares;
to
cover short sales made after the date that this Registration
Statement is declared effective by the Commission;
broker-dealers may
agree with the Selling Stockholders to sell a specified number of
such shares at a stipulated price per share; and
a
combination of any such methods of sale.
The
selling stockholders may also sell shares under Rule 144 of the
Securities Act of 1933, as amended (the “Securities
Act”), if available, rather than under this prospectus. The
selling stockholders shall have the sole and absolute discretion
not to accept any purchase offer or make any sale of shares if it
deems the purchase price to be unsatisfactory at any particular
time.
The
selling stockholders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the
shares directly to market makers acting as principals and/or
broker-dealers acting as agents for themselves or their customers.
Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may
act as agents or to whom they sell as principal or both, which
compensation as to a particular broker-dealer might be in excess of
customary commissions. Market makers and block purchasers
purchasing the shares will do so for their own account and at their
own risk. It is possible that a selling stockholder will attempt to
sell shares of common stock in block transactions to market makers
or other purchasers at a price per share which may be below the
then existing market price. We cannot assure that all or any of the
shares offered in this prospectus will be issued to, or sold
by, the selling
stockholders. The selling stockholders and any brokers, dealers or
agents, upon effecting the sale of any of the shares offered in
this prospectus, may be deemed to be “underwriters” as
that term is defined under the Securities Act, the Exchange Act and
the rules and regulations of such acts. In such event, any
commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed
to be underwriting commissions or discounts under the Securities
Act.
We are
required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the
selling stockholders, but excluding brokerage commissions or
underwriter discounts.
The
selling stockholders, alternatively, may sell all or any part of
the shares offered in this prospectus through an underwriter. The
selling stockholders have not entered into any agreement with a
prospective underwriter and there is no assurance that any such
agreement will be entered into.
The
selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling
stockholder defaults on a margin loan, the broker may, from time to
time, offer and sell the pledged shares. The selling stockholders
and any other persons participating in the sale or distribution of
the shares will be subject to applicable provisions of the Exchange
Act, and the rules and regulations under such act, including,
without limitation, Regulation M. These provisions may restrict
certain activities of, and limit the timing of purchases and sales
of any of the shares by, the selling stockholders or any other such
person. In the event that any of the selling stockholders are
deemed an affiliated purchaser or distribution participant within
the meaning of Regulation M, then the selling stockholders will not
be permitted to engage in short sales of common stock. Furthermore,
under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and
certain other activities with respect to such securities for a
specified period of time prior to the commencement of such
distributions, subject to specified exceptions or exemptions. In
addition, if a short sale is deemed to be a stabilizing activity,
then the selling stockholders will not be permitted to engage in a
short sale of our common stock. All of these limitations may affect
the marketability of the shares.
If a
selling stockholder notifies us that it has a material arrangement
with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this
prospectus is a part, and file a prospectus supplement to describe
the agreements between the selling stockholder and the
broker-dealer.
Annex
B
KNOW
LABS, INC.
Selling
Securityholder Notice and Questionnaire
The
undersigned beneficial owner of common stock (the “Common Stock”), of Know
Labs, Inc., a Nevada corporation (the “Company”), understands that
the Company has filed or intends to file with the Securities and
Exchange Commission (the “Commission”) a Registration
Statement for the registration and resale of the Registrable
Securities, in accordance with the terms of the Registration Rights
Agreement, dated as of [], 2020 (the “Registration Rights
Agreement”), among the Company and the Investors named
therein. A copy of the Registration Rights Agreement is available
from the Company upon request at the address set forth below. All
capitalized terms used and not otherwise defined herein shall have
the meanings ascribed thereto in the Registration Rights
Agreement.
The
undersigned hereby provides the following information to the
Company and represents and warrants that such information is
accurate:
QUESTIONNAIRE
1.
Name.
(a)
Full Legal Name of
Selling Securityholder
_______________________________________________________________________
(b)
Full Legal Name of
Registered Holder (if not the same as (a) above) through which
Registrable Securities Listed in Item 3 below are
held:
_______________________________________________________________________
(c)
Full Legal Name of
Natural Control Person (which means a natural person who directly
or indirectly alone or with others has power to vote or dispose of
the securities covered by the questionnaire):
_______________________________________________________________________
2.
Address
for Notices to Selling Securityholder:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
Telephone: _______________________________________________________________________
Fax:
_______________________________________________________________________
Contact Person: _______________________________________________________________________
3.
Beneficial
Ownership of Registrable Securities:
Type
and Principal Amount of Registrable Securities beneficially
owned:
_______________________________________________________________________
_______________________________________________________________________
4.
Broker-Dealer
Status:
(a)
Are you a
broker-dealer?
Yes [ ]
No [ ]
Note:
If yes, the Commission’s staff has indicated that you should
be identified as an underwriter in the Registration
Statement.
(b)
Are you an
affiliate of a broker-dealer?
Yes [ ]
No [ ]
(c)
If you are an
affiliate of a broker-dealer, do you certify that you bought the
Registrable Securities in the ordinary course of business, and at
the time of the purchase of the Registrable Securities to be
resold, you had no agreements or understandings, directly or
indirectly, with any person to distribute the Registrable
Securities?
Yes [ ]
No [ ]
Note:
If no, the Commission’s staff has indicated that you should
be identified as an underwriter in the Registration
Statement.
5.
Beneficial
Ownership of Other Securities of the Company Owned by the Selling
Securityholder.
Except as set forth below in this Item 5, the undersigned is not
the beneficial or registered owner of any securities of the Company
other than the Registrable Securities listed above in Item
3.
Type
and Amount of Other Securities beneficially owned by the Selling
Securityholder:
_______________________________________________________________________
_______________________________________________________________________
6.
Relationships
with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners
of 5% of more of the equity securities of the undersigned) has held
any position or office or has had any other material relationship
with the Company (or its predecessors or affiliates) during the
past three years.
State
any exceptions here:
_______________________________________________________________________
_______________________________________________________________________
7. The
Company has advised each Selling Stockholder that it is the view of
the Commission that it may not use shares registered on the
Registration Statement to cover short sales of Common Stock made
prior to the date on which the Registration Statement is declared
effective by the Commission, in accordance with 1997 Securities and
Exchange Commission Manual of Publicly Available Telephone
Interpretations Section A.65. If a Selling Stockholder uses the
prospectus for any sale of the Common Stock, it will be subject to
the prospectus delivery requirements of the Securities Act. The
Selling Stockholders will be responsible to comply with the
applicable provisions of the Securities Act and Exchange Act, and
the rules and regulations thereunder promulgated, including,
without limitation, Regulation M, as applicable to such Selling
Stockholders in connection with resales of their respective shares
under the Registration Statement.
The
undersigned agrees to promptly notify the Company of any
inaccuracies or changes in the information provided herein that may
occur subsequent to the date hereof and prior to the Effective Date
for the Registration Statement.
Certain
legal consequences arise from being named as a Selling
Securityholder in the Registration Statement and related
prospectus. Accordingly, the undersigned is advised to consult
their own securities law counsel regarding the consequence of being
named or not being named as a Selling Securityholder in the
Registration Statement and the related prospectus.
By
signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6
and the inclusion of such information in the Registration Statement
and the related prospectus. The undersigned understands that such
information will be relied upon by the Company in connection with
the preparation or amendment of the Registration Statement and the
related prospectus. The undersigned hereby elects to include the
Registrable Securities owned by it and listed above in Item 3
(unless otherwise specified in Item 3) in the Registration
Statement.
IN
WITNESS WHEREOF the undersigned, by authority duly given, has
caused this Notice and Questionnaire to be executed and delivered
either in person or by its duly authorized agent.
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Dated:
_____________________
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Beneficial Owner:
_____________________
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By: _____________________
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Name:
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Title:
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PLEASE
EMAIL A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE
TO:
KNOW
LABS, INC.
Attention: Ron
Erickson
Email:
ron@knowlabs.com
Annex
C
Registration
Rights Agreement
Investor
Counterpart Signature Page
The
undersigned, desiring to: (i) enter into this Registration Rights
Agreement, dated as of _____________________________ (the
“Agreement”),
between the undersigned, Know Labs, Inc., a Nevada corporation (the
“Company”), and
the other parties thereto, in or substantially in the form
furnished to the undersigned and (ii) purchase the securities of
the Company appearing below, hereby agrees to purchase such
securities from the Company as of the Closing and further agrees to
join the Agreement as a party thereto, with all the rights and
privileges appertaining thereto, and to be bound in all respects by
the terms and conditions thereof.
IN WITNESS WHEREOF, the undersigned has
executed the Agreement as of
Name and Address, Fax No. and Social Security No./EIN of
Investor:
|
_______________________________________________________
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_______________________________________________________
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_______________________________________________________
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Fax No.:
_______________________________________________________
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Soc. Sec.
No./EIN:
_______________________________________________________
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If a partnership, corporation, trust or other business
entity:
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By:
_____________________
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Name:
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Title:
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If an individual:
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Signature:
_________________________________
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Investment
Amount: _________________________________
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Amount
of Units to be Purchased:
_________________________________
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ADDRESS
FOR NOTICE
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c/o:
_________________________________
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Street:
_________________________________
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City/State/Zip:
_________________________________
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Attention:
_________________________________
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| Tel: _________________________________ |
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Fax: _________________________________
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DELIVERY
INSTRUCTIONS
(if
different from above)
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c/o:
_________________________________
|
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Street:
_________________________________
|
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City/State/Zip:
_________________________________
|
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Attention:
_________________________________
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| Tel: _________________________________ |
Schedule
A
SCHEDULE
OF INVESTORS
|
|
Investment
|
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Number
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TOTALS
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Exhibit 99.1
Know
Labs Announces Close of Financing
$14.2
Million for Product Development, Clinical Testing and Preparation
for Up List to a Major Exchange
Seattle,
WA. – March 15, 2021 - OTCQB: KNWN
Know Labs, Inc., an emerging leader in non-invasive medical
diagnostics, through its proprietary electromagnetic energy
technology platforms, announced today that it has closed on $14.2
million of financing. The financing was largely led by existing
investors and insiders.
The
financing is another step in the Company’s plans to up list
on a major exchange, either NASDAQ or the NYSE, and supports
continuing development and clinical testing on its platform
technology with its first focus on non-invasive blood glucose
monitoring, and future FDA approval. The current financing provides
sufficient capital so that management can ensure product
development stays on track and an up list to a major exchange is
event driven rather than driven by a need for capital.
As
previously stated, the Company believes an up list to a major
exchange will:
●
Provide additional
opportunities to attract institutional and retail investors,
allowing the Company to broaden its investor base in the United
States and internationally;
●
Increase the
visibility of the Company, its growth strategy, accomplishments and
results to date;
●
Enable an
aggressive growth strategy;
●
Increase liquidity
of the Company's common shares; and
●
Raise the Company's
overall profile and ultimately enhance shareholder
value.
Product
development and clinical testing remain focused on:
●
Relationships with
internationally recognized clinical research institutions to
perform laboratory-based validation testing to confirm internal
test results;
●
Continued work on
miniaturization of the Know Labs platform diagnostic technology,
internal testing and refinement of the use of its trade secret
algorithms for exacting determination of the platform’s first
use in determining blood glucose levels;
●
Expanding the
Company’s Intellectual Property portfolio;
●
Preparation for
submitting the Know Labs technology to the FDA for approval of its
non-invasive blood glucose monitoring technology; and
●
Providing support
to its Particle subsidiary as it launches its disinfecting light
bulb into the marketplace.
About Know Labs, Inc.
Know
Labs, Inc. is a public company whose shares trade under the stock
symbol “KNWN.” The Company’s technology uses
spectroscopy to
direct electromagnetic energy through a substance or material to
capture a unique molecular signature. The Company refers to its
technology as Bio-RFID™. The Bio-RFID technology can be
integrated into a variety of wearable, mobile or bench-top form
factors. This patented and patent pending technology makes it
possible to effectively conduct analyses that could only previously
be performed by invasive and/or expensive and time-consuming
lab-based tests. The first application of the Bio-RFID technology
will be in a product marketed as a glucose monitor. Those wishing
to stay up to date on the developments at Know Labs can subscribe
to the Company’s YouTube channel at this link. For more
information, visit the company’s website at www.knowlabs.co.
The Know Labs subsidiary corporation, Particle, Inc., develops and
markets Particle™ light bulbs that provide warm, white light
and disinfectant light to safely kill germs and viruses, providing
biosecurity in the home, school and office ecosystem. You can learn
more about the Particle bulb at www.particlebulb.com.
Safe Harbor Statement
This
release contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 and Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These statements appear in a number of places in this
release and include all statements that are not statements of
historical fact regarding the intent, belief or current
expectations of Know Labs, Inc., its directors or its officers with
respect to, among other things: (i) financing plans; (ii) trends
affecting its financial condition or results of operations; (iii)
growth strategy and operating strategy; and (iv) performance of
products. You can identify these statements by the use of the words
“may,” “will,” “could,”
“should,” “would,” “plans,”
“expects,” “anticipates,”
“continue,” “estimate,”
“project,” “intend,” “likely,”
“forecast,” “probable,”
“potential,” and similar expressions and variations
thereof are intended to identify forward-looking statements.
Investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and
uncertainties, many of which are beyond Know Labs, Inc.’s
ability to control, and actual results may differ materially from
those projected in the forward-looking statements as a result of
various factors. These risks and uncertainties also include such
additional risk factors as are discussed in the Company’s
filings with the U.S. Securities and Exchange Commission, including
its Annual Report on Form 10-K for the fiscal year ended September
30, 2020, Forms 10-Q and 8-K, and in other filings we make with the
Securities and Exchange Commission from time to time. These
documents are available on the SEC Filings section of the Investor
Relations section of our website at www.knowlabs.co.
The Company cautions readers not to place undue reliance upon any
such forward-looking statements, which speak only as of the date
made. The Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after
the date on which such statement is made.
Know Labs, Inc. Contact:
Jordyn
(Theisen) Hujar
jordyn@knowlabs.co
Ph.
(206) 629-6414