A restrictive legend is a notation placed on a stock certificate or document indicating that the securities in question are subject to specific restrictions on resale, often to comply with regulatory requirements such as securities laws. This legend serves to inform potential buyers that the securities cannot be freely transferred or sold without meeting certain conditions or obtaining approval.
The Company shall provide to the Warrant Agent and each Holder prompt written notice of any time that the Company is unable to deliver the Warrant ADSs via DTC transfer or otherwise (without restrictive legend), because (A) the Commission has issued a stop order with respect to the Registration Statement, (B) the Commission otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, (C) the Company has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or (D) otherwise (each a “Restrictive Legend Event”). To the extent that a Restrictive Legend Event occurs after the Holder has exercised a Warrant in accordance with the terms of the Warrants but prior to the delivery of the Warrant ADSs, the Company shall, at the election of the Holder, which shall be given within five (5) days of receipt of such notice of the Restrictive Legend Event, either (A) rescind the previously submitted Election to Purchase and the Company shall return all consideration paid by registered holder for such shares upon such rescission or (B) treat the attempted exercise as a cashless exercise as described in the next paragraph and refund the cash portion of the exercise price to the Holder. If a Restrictive Legend Event has occurred and no exemption from the registration requirements is available, the Warrant shall only be exercisable on a cashless basis in accordance with Section 3.3.7(iii) below.
Until such time that a request under Section 6.7(a) is first timely made and the Representation Letter is timely delivered pursuant to Section 6.7(a) by a Merger Consideration Holder and then thereafter so long as the applicable Rule 144 Opinions and accompanying instructions for removal of the Restrictive Legends have been delivered to the Exchange Agent on (i) July 1, 2022, for any request made on June 24, 2022 and (ii) within five (5) Trading Days after the date of request under Section 6.7(a) (in each case subject to timely delivery of the Representation Letter pursuant to Section 6.7(a) and the applicable instructions from the Merger Consideration Holder to the Exchange Agent and/or to the Parent’s transfer agent) for the certificates or book-entry forms evidencing the Merger Consideration and the Restrictive Legends have been removed as soon as practicable thereafter, the obligations of Parent in Section 6.5, except pursuant to Section 6.5(j), shall be suspended and deemed inapplicable. If (i) the applicable Rule 144 Opinion(s) and accompanying instructions for removal of the Restrictive Legends have not been delivered to the Exchange Agent and/or (ii) the applicable Restrictive Legends have not in fact been removed, in each case for the certificates or book-entry forms evidencing the Merger Consideration held by all Merger Consideration Holders who have tendered valid Representation Letters to Parent and instructions for removal of the Restrictive Legend to the Exchange Agent and/or to the Parent’s transfer agent after following the procedures in Section 6.7(a), and such failure to deliver such Rule 144 opinion(s) and/or cause the removal of such Restrictive Legends is not cured within fifteen (15) Trading Days of such request under Section 6.7(a), the obligations of Parent in Section 6.5 shall again become applicable as of such time (such time, the “Applicable Date”) and going forward, except that in such circumstance:
The Company shall issue the Exchange Shares representing the originally Preferred Stock without any restrictions on transfer and without any restrictive legend. The Company shall issue the Exchange Shares representing the interest on the originally Preferred Stock only with a restrictive legend.
If the Warrants cannot be exercised as a result of a Restrictive Legend Event, or if a Restrictive Legend Event occurs after a Holder has exercised Warrants but prior to the delivery of the Warrant Shares, we must, at the election of the Holder, either (i) rescind the previously submitted notice of Warrant exercise, in which case we must return all consideration paid for such Warrant Shares, or (ii) treat the attempted exercise as a cashless exercise, as described below, and refund the cash portion of the exercise price to the Holder. The Holder must make this election within five days of receipt of our notice of the Restrictive Legend Event.
These shares were issued with a standard Rule 144 restrictive legend.
Removal of Restrictive Legend. Any ADSs representing the Securities, when issued, shall not bear the restrictive legend set forth in Section 4.6: (i) following a sale of such Securities pursuant to a registration statement covering the resale of such Securities, while such registration statement is effective under the Securities Act, (ii) following any sale of such Securities pursuant to Rule 144, (iii) if such Securities are eligible for sale under Rule 144, 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 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company agrees that at such time as the restrictive legend set forth in Section 4.6 is no longer required under this section, then no later than five (5) business days following the later of (i) delivery by the Subscriber to the Company of customary representations regarding the facts to support the removal of the restrictive legends; and (ii) delivery to the Depositary, as the case may be, the information reasonably required by the Depositary in connection with such request, the Company shall (x) in the event that such Securities are certificated, deliver or cause to be delivered to the Subscriber a certificate representing such Securities that is free from such restrictive legend, or (y) cause its Depositary, as the case may be, to remove any such restrictive legend in the Company’s records of its share capital.
The Company shall have delivered an opinion of counsel to Continental, reasonably satisfactory to Continental, for the purpose of removing the restrictive legend from the Securities, and such restrictive legend shall have been removed.
Restrictive Legend Events; Cashless Exercise Under Certain Circumstances. (a) The Company shall use its reasonable best efforts to maintain the effectiveness of the Registration Statement and the current status of the prospectus included therein or to file and maintain the effectiveness of another registration statement and another current prospectus covering the Warrants and the Warrant Shares at any time that the Warrants are exercisable. The Company shall provide to the Warrant Agent and each Holder prompt written notice of any time that the Company is unable to deliver the Warrant Shares via DTC transfer or otherwise without restrictive legend because (A) the Commission has issued a stop order with respect to the Registration Statement, (B) the Commission otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, (C) the Company has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, (D) the prospectus contained in the Registration Statement is not available for the issuance of the Warrant Shares to the Holder or (E) otherwise (each a “Restrictive Legend Event”). To the extent that the Warrants cannot be exercised as a result of a Restrictive Legend Event or a Restrictive Legend Event occurs after a Holder has exercised Warrants in accordance with the terms of the Warrants but prior to the delivery of the Warrant Shares, the Company shall, at the election of the Holder, which shall be given within five (5) days of receipt of such notice of the Restrictive Legend Event, either (A) rescind the previously submitted Election to Purchase and the Company shall return all consideration paid by such Holder upon such rescission or (B) treat the attempted exercise as a cashless exercise as described in paragraph (b) below and refund the cash portion of the exercise price to the Holder.
If a Restrictive Legend Event has occurred, the Warrant may be exercisable on a cashless basis pursuant to Section 2(c) of the Warrant Certificate. Notwithstanding anything herein to the contrary, the Company shall not be required to make any cash payments or net cash settlement to the Holder in lieu of delivery of the Warrant Shares. If the Warrant Shares are issued in such a cashless exercise, the Company acknowledges and agrees 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 Company agrees not to take any position contrary thereto.
A restrictive legend is a statement or notation placed on a stock certificate or other financial instrument indicating that the securities are subject to certain restrictions, particularly regarding resale or transfer. These legends act as a warning to the holder about the limitations connected to the security, often imposed by securities laws or the contract under which the securities were issued.
A restrictive legend should be used in the following circumstances:
Private Placements: When securities are issued in a private placement, they often lack registration with the SEC and require legends to inform holders of transfer restrictions.
Rule 144 Holding Period: If a security is subject to Rule 144’s holding period under the Securities Act of 1933, a legend informs holders they must meet specific conditions before reselling.
Employee Stock Plans: Shares issued under employee stock plans may have legends if they are contingent on vesting and cannot be freely transferred.
Agreements with Transfer Restrictions: When the issuer has agreements, such as lock-ups or rights of first refusal, that limit when and how a security can be sold.
When drafting a restrictive legend, clarity and compliance with the relevant securities law are crucial. A typical restrictive legend might read:
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAWS.”
Restrictive legends are often found in the following types of contracts:
Stock Purchase Agreements: Agreements where investors purchase securities in private transactions often have legends outlining the transfer restrictions.
Employee Stock Option Agreements: These agreements may contain legends based on restrictions related to vesting or other employment requirements.
Convertible Note Agreements: Notes that can be converted into equity often have legends to indicate restrictions once conversion occurs.
Investor Rights Agreements: These can include legends related to rights of first refusal or other constraints that may be placed on securities.
By incorporating a restrictive legend, issuers can ensure legal compliance and clearly communicate the restrictions associated with the securities, helping to protect both the company’s and investors’ interests.
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