FIRST AMENDMENT Dated as of December 19, 2007 to SERIES A PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF MARCH 14, 2007
Exhibit
10.4
EXECUTION COPY
FIRST AMENDMENT
Dated as of December 19, 2007
to
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF MARCH 14, 2007
Dated as of December 19, 2007
to
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF MARCH 14, 2007
THIS FIRST AMENDMENT TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this “Amendment”) is
entered into as of this 19th day of December, 2007 among XStream Systems, Inc., a
Delaware corporation (“Company”), the investors identified as “Original Series A Investors” on
Appendix I-B hereto and the investors identified as “New Series B Investors” on Appendix I-B hereto
(together with the Original Series A Investors, the “Second Closing Investors”).
WITNESSETH:
WHEREAS, the Company and the Original Series A Investors, among others, are parties to a
certain Series A Preferred Stock Purchase Agreement dated as of March 14, 2007 (the “Series A
Preferred Stock Purchase Agreement”), which they desire to amend in order to provide for, among
other things, (i) the amendment of the terms of the Series A Redeemable Convertible Preferred
Stock, $.0001 par value per share of the Company, (ii) the issuance, as provided herein, of shares
of Series B Redeemable Convertible Preferred Stock, $.0001 par value per share of the Company,
along with warrants to purchase common stock of the Company, to the Second Closing Investors and
(iii) the possible issuance, as provided herein, of shares of Series C Redeemable Convertible
Preferred Stock, $.0001 par value per share of the Company, along with warrants to purchase common
stock of the Company, to certain of the Second Closing Investors;
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth,
the parties to this Amendment hereby agree as follows:
1. Amendments to the Series A Preferred Stock Purchase Agreement. The Series A
Preferred Stock Purchase Agreement shall be amended as follows:
(a) Section 1.1 of the Series A Preferred Stock Purchase Agreement shall be amended as
follows:
(i) to delete the existing definitions of the terms “Additional Preferred
Stock,” “Additional Preferred Shares,” “Certificate of Designations” and “Defaulted
Shares”; and
(ii) to amend the existing definitions of the terms “Business Plan,” “Common
Stock,” “Conversion Common Shares,” “Investors,” “Registration Rights Agreement,”
“Restricted Securities,” “Series A Preferred Shares,” “Series A Preferred Stock,”
“Shareholders Agreement” and “Transaction Documents” to read in their entirety as
follows:
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“Business Plan” means the Company’s Business Plan dated December 5, 2007, a
copy of which has been provided to each Investor.
“Common Stock” means the common stock, $.0001 par value per share of the
Company.
“Conversion Common Shares” means (i) the Common Stock issued or issuable upon
conversion or redemption of the Preferred Stock, (ii) the Common Stock issued or
issuable upon the exercise of the Warrants and (iii) any Common Stock issued or
issuable with respect to the securities referred to in clauses (i) or (ii) above by
way of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reincorporation. For purposes of
this Agreement, any Person who holds Preferred Stock or Warrants shall be deemed to
be the holder of the Conversion Common Shares obtainable upon conversion of the
Preferred Stock or exercise of the Warrants, regardless of any restriction or
limitation on the conversion of the Preferred Stock or exercise of the Warrants;
such Conversion Common Shares shall be deemed to be in existence; and such Person
shall be entitled to exercise the rights of a holder of Conversion Common Shares
hereunder. As to any particular Conversion Common Shares, such shares shall cease
to be Conversion Common Shares when they have been (x) effectively registered under
the Securities Act and disposed of in accordance with the registration statement
covering them, (y) distributed to the public through a broker, dealer or market
maker pursuant to Rule 144 under the Securities Act (or any similar provision then
in force) or (z) repurchased by the Company.
“Investors” means the First Closing Investors and the Second Closing Investors.
“Registration Rights Agreement” means the Original Registration Rights
Agreement, as amended by the First Amendment to Registration Rights Agreement.
“Restricted Securities” means (i) the Preferred Stock issued hereunder, (ii)
the Common Stock issued upon conversion or redemption of the Preferred Stock, (iii)
the Warrants issued hereunder, (iv) the Common Stock issued upon exercise of the
Warrants and (v) any securities issued with respect to the securities referred to in
clauses (i), (ii), (iii) or (iv) above by way of a stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger, consolidation
or other reincorporation. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance with
the registration statement covering them, (b) distributed to the public through a
broker, dealer or market maker pursuant to Rule 144 (or any similar provision then
in force) under the Securities Act or become eligible for sale pursuant to Rule
144(k) (or any similar provision then in force) under the Securities Act or (c)
otherwise transferred and new certificates for them not bearing the Securities Act
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legend prescribed by Section 6.3 have been delivered by the Company in
accordance with Section 6.4. Whenever any particular securities cease to be
Restricted Securities, the holder thereof shall be entitled to receive from the
Company, without being charged therefor by the Company, new securities of like tenor
not bearing a Securities Act legend of the character prescribed by Section
6.3.
“Series A Preferred Shares” means shares of Series A Preferred Stock.
“Series A Preferred Stock” means the Series A Redeemable Convertible Preferred
Stock, $.0001 par value per share of the Company.
“Shareholders Agreement” means, as the context may require, the Original
Shareholders Agreement or the Amended and Restated Shareholders Agreement.
“Transaction Documents” means this Agreement, the Shareholders Agreement, the
Registration Rights Agreement, the Series B Warrant Agreement, the Series C Warrant
Agreement and each of the other agreements, documents and instruments expressly
contemplated hereby and thereby.
(iii) to add the following definitions:
“Amended and Restated Shareholders Agreement” means the Amended and Restated
Securityholders Agreement to be dated as of the Second Closing Date among the
Company, the Investors and the other parties thereto, the form of which is attached
as Exhibit K.
“Debenture Holder” has the meaning set forth in Section 2.5.
“Debenture Holder Investors” means the Debenture Holders who are listed on
Appendix I-B as a New Series B Investor and become a party to this Agreement in
accordance with Section 2.5.
“Equity Participation Investor” means each Second Closing Investor for whom
“Cash” or “Notes” is specified opposite such Second Closing Investor’s name in the
column labeled “Form of Consideration” on Appendix I-B hereto as the form of
consideration to be used to pay the amount of the purchase price set forth opposite
such Second Closing Investor’s name in the column labeled “Purchase Price for Series
B Units to be purchased at Second Closing” on Appendix I-B hereto.
“Equity Participation Period” has the meaning set forth in Section
3.5(a).
“Equity Participation Closing” has the meaning set forth in Section
3.5(b).
“Exercise Notice” has the meaning set forth in Section 3.5(a).
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“First Amendment to Registration Rights Agreement” means the First Amendment to
Registration Rights Agreement dated as of the date of the Second Closing among the
Company and the Investors, the form of which is attached as Exhibit L.
“First Closing Investors” means the Investors listed on Appendix I-A.
“New Series B Investors” means the Persons identified as such on Appendix
I-B.
“Original Certificate of Designations” means the Certificate of Designations
relating to the Series A Preferred Stock, filed with the Delaware Secretary of State
on March 14, 2007 in connection with the First Closing.
“Original Registration Rights Agreement” means the Registration Rights
Agreement dated as of March 14, 2007 among the Company, the Original Series A
Investors and the other parties thereto, the form of which is attached as
Exhibit C.
“Original Series A Investors” means the Persons identified as such on
Appendix I-B.
“Original Shareholders Agreement” means the Shareholders Agreement dated as of
March 14, 2007 among the Company, the Original Series A Investors and the other
parties thereto.
“Preferred Stock” means shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock.
“Pro Rata Share” means, with respect to a Second Closing Investor, the result
obtained by dividing the number of Series B Units purchased by such Second Closing
Investor by the aggregate number of Series B Units purchased by all Second Closing
Investors.
“Second Closing Investors” means the Persons listed on Appendix I-B.
“Series A Certificate of Designations” means the Amended and Restated
Certificate of Designations relating to the Series A Preferred Stock, substantially
in the form attached as Exhibit A-1.
“Series B Certificate of Designations” means the Certificate of Designations
relating to the Series B Preferred Stock, substantially in the form attached as
Exhibit A-2.
“Series B Preferred Shares” means shares of Series B Preferred Stock.
“Series B Preferred Stock” means the Series B Redeemable Convertible Preferred
Stock, $.0001 par value per share of the Company.
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“Series B Unit” means one Series B Preferred Share and five (5) Series B
Warrants.
“Series B Warrant” means a warrant to purchase one share of Common Stock in the
form attached as Exhibit A to the Series B Warrant Agreement.
“Series B Warrant Agreement” means the Warrant Agreement dated as of the Second
Closing Date in substantially the form attached hereto as Exhibit I under
which the Series B Warrants will be issued.
“Series C Certificate of Designations” means the Certificate of Designations
relating to the Series C Preferred Stock, substantially in the form attached as
Exhibit A-3.
“Series C Preferred Shares” means shares of Series C Preferred Stock.
“Series C Preferred Stock” means the Series C Redeemable Convertible Preferred
Stock, $.0001 par value per share of the Company.
“Series C Purchaser” has the meaning set forth in Section 3.5(a).
“Series C Unit” means one Series C Preferred Share and five (5) Series C
Warrants.
“Series C Warrant” means a warrant to purchase one share of Common Stock in the
form attached as Exhibit A to the Series C Warrant Agreement.
“Series C Warrant Agreement” means the Warrant Agreement dated as of the Second
Closing Date in substantially the form attached hereto as Exhibit J under
which the Series C Warrants will be issued.
“Warrant” means any of, and “Warrants” means all of, the Series B Warrants and
the Series C Warrants.
(b) Sections 2.1, 2.2, 2.3, 2.4 and 2.5 of the Series A Preferred Stock Purchase
Agreement shall be amended to read in their entirety as follows:
2.1 Authorization of Preferred Shares. (a) Prior to the First
Closing, the Company authorized (i) the issuance and sale to the Investors of an
aggregate of up to 2,250,000 Series A Preferred Shares having the rights and
preferences set forth in the Original Certificate of Designations, and (ii) the
reservation for issuance of 2,250,000 shares of Common Stock upon conversion or
redemption of the Series A Preferred Shares.
(b) Prior to the Second Closing, the Company shall authorize (i) the issuance
and sale to the Second Closing Investors of an aggregate of up to 1,450,000 Series B
Preferred Shares having the rights and preferences set forth in the Series B
Certificate of Designations, (ii) the reservation for issuance of an
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additional 1,450,000 shares of Common Stock upon conversion or redemption of
such Series B Preferred Shares and (iii) the reservation for issuance of an
additional 7,250,000 shares of Common Stock upon exercise of the Series B Warrants.
(c) Prior to the Second Closing, the Company shall authorize (i) the issuance
and sale of an aggregate of up to 1,000,000 Series C Preferred Shares having the
rights and preferences set forth in the Series C Certificate of Designations in
connection with the exercise by the Equity Participation Investors of their rights
under Section 3.5, (ii) the reservation for issuance of an additional
1,000,000 shares of Common Stock upon conversion or redemption of such Series C
Preferred Shares and (iii) the reservation for issuance of an additional 5,000,000
shares of Common Stock upon exercise of the Series C Warrants.
(d) Upon delivery of its executed counterpart to this Agreement in accordance
with Section 4.2(b), each of the Original Series A Investors consents to the
issuance by the Company of, and waives its preemptive rights in respect of, the
Series B Preferred Stock and the Series C Preferred Stock.
2.2 Purchase and Sale of Preferred Shares. (a) Subject to the terms
and the conditions set forth herein, and in reliance upon the representations and
warranties of the Company and the First Closing Investors set forth herein or in any
certificate or other document delivered pursuant hereto, the Company issued, sold
and delivered to each First Closing Investor, free and clear of all Liens (except as
set forth in the Registration Rights Agreement and the Shareholders Agreement), and
each First Closing Investor purchased at the First Closing, the number of Series A
Preferred Shares set opposite such First Closing Investor’s name in the column
labeled “Series A Preferred Shares purchased at the First Closing” on Appendix
I-A from the Company at a purchase price of $3.7999696 per share.
(b) Subject to the terms and the conditions set forth herein, and in reliance
upon the representations and warranties of the Company and the Second Closing
Investors set forth herein or in any certificate or other document delivered
pursuant hereto, the Company shall issue, sell and deliver to each Second Closing
Investor, free and clear of all Liens (except as set forth in the Registration
Rights Agreement and the Shareholders Agreement), and each Second Closing Investor
shall purchase at the Second Closing, the number of Series B Units set opposite such
Second Closing Investor’s name in the column labeled “Series B Units to be purchased
at the Second Closing” on Appendix I-B from the Company at a purchase price
of $3.00 per Series B Unit, subject to the limitation set forth in Section
2.5 with respect to the Debenture Holder Investors. The Series B Preferred
Shares shall accrue dividends from the date of issuance.
2.3 Closings. (a) The first closing took place at the offices of
GY&S, 000 Xxxxx Xxxxxxx Xxxxx, Xxxxx 000-Xxxx, Xxxx Xxxx Xxxxx, Xxxxxxx at 10:00
a.m., local time, on March 14, 2007 (the “First Closing”). The time and date on
which
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the First Closing was held is sometimes referred to herein as the “First
Closing Date.”
(b) The second closing shall take place at the offices of Blank Rome LLP, 0000
Xxxxx Xxxxxxx Xxxxxxx — Xxxxx 000, Xxxx Xxxxx, Xxxxxxx at 10:00 a.m., local time,
on December 19, 2007, or at such other place or time or on such other date as shall
be agreed to by the Company and the Second Closing Investors (the “Second Closing”).
The time and date on which the Second Closing is actually held is sometimes
referred to herein as the “Second Closing Date.”
2.4 Delivery of Securities; Payment of Purchase Price. (a) Subject to
satisfaction or waiver of the conditions set forth in Article IV, at the
First Closing, the Company issued and delivered to each First Closing Investor
purchasing Series A Preferred Shares, free and clear of all Liens (except as set
forth in the Registration Rights Agreement and the Shareholders Agreement), a stock
certificate, duly executed by the Company and registered in the Company’s stock
ledger in the name of such First Closing Investor or such First Closing Investor’s
nominee, evidencing all of the Series A Preferred Shares purchased by such First
Closing Investor at the First Closing. Subject to satisfaction or waiver of the
conditions set forth in Article III, as payment in full for the Series A
Preferred Shares purchased by a First Closing Investor at the First Closing under
this Agreement, and against delivery of the stock certificate therefor as described
in this subparagraph (a), such First Closing Investor delivered at the First Closing
the amount set opposite such First Closing Investor’s name in the column labeled
“Purchase Price for Series A Preferred Shares to be purchased at the First Closing”
on Appendix I-A hereto to the account of the Company by wire transfer of
immediately payable funds, check or, if specified on Appendix I-A hereto,
exchange of outstanding promissory notes issued by the Company (the sum of such
amounts being referred to as the “First Purchase Price”).
(b) Subject to satisfaction or waiver of the conditions set forth in
Article IV, at the Second Closing, the Company shall issue and deliver to
each Second Closing Investor purchasing Series B Units, free and clear of all Liens
(except as set forth in the Registration Rights Agreement and the Shareholders
Agreement), (i) a stock certificate, duly executed by the Company and registered in
the Company’s stock ledger in the name of such Second Closing Investor or such
Second Closing Investor’s nominee, evidencing all of the Series B Preferred Shares
being purchased by such Second Closing Investor at the Second Closing and (ii) a
warrant certificate, duly executed by the Company and registered in the Company’s
ledger in the name of such Second Closing Investor or such Second Closing Investor’s
nominee, evidencing all of the Series B Warrants being purchased by such Second
Closing Investor at the Second Closing. Subject to satisfaction or waiver of the
conditions set forth in Article III, as payment in full for the Series B
Units being purchased by a Second Closing Investor at the Second Closing under this
Agreement, and against delivery of the stock and warrant certificates therefor as
described in this subparagraph (b), such Second Closing Investor shall deliver at
the Second Closing the amount set opposite such
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Investor’s name in the column labeled “Purchase Price for Series B Units to be
purchased at the Second Closing” on Appendix I-B hereto to the account of
the Company by wire transfer of immediately payable funds, check or, if “Debentures”
or “Notes” is the form of consideration specified in the column labeled “Form of
Consideration” on Appendix I-B hereto, cancellation of outstanding
debentures or promissory notes issued by the Company (the sum of such amounts being
referred to as the “Second Purchase Price”).
2.5 Debentures. Subject to the conditions of this Section 2.5,
the Parties have agreed that Persons listed in Appendix III (each, a
“Debenture Holder”) may become parties to this Agreement as “New Series B Investors”
for the purpose of purchasing Series B Units at the Second Closing on the terms, and
subject to the conditions, specified in this Agreement. The Company shall provide
written notice to each Debenture Holder, at such Debenture Holder’s address listed
on Appendix III, as to (i) the date scheduled for the Second Closing, (ii)
the opportunity for such Debenture Holder to become a party to this Agreement as a
“New Series B Investor” in accordance with this Section and (iii) the manner and
deadline for accepting such opportunity (as described in the next sentence). If any
such Debenture Holder shall determine to become a party to this Agreement as a “New
Series B Investor,” then such Debenture Holder shall, on or prior to the scheduled
date for the Second Closing, authorize the Company to cancel its original debenture
by delivering (1) its executed counterpart to this Agreement whereby such Debenture
Holder (i) agrees to observe and to be bound by, and to be entitled to the rights
provided by, this Agreement as if such Debenture Holder were named herein originally
as a “New Series B Investor,” (ii) confirms the aggregate consideration to be paid
by such Debenture Holder for Series B Units at the Second Closing by tendering an
equivalent principal amount of the debentures identified opposite such Debenture
Holder’s name on Appendix III (but excluding any warrants associated with
the tendered principal amount of debentures), (iii) confirms such Debenture Holder’s
agreement to deliver the agreed portion of the tendered principal amount of the
debentures at the Second Closing against the delivery of the Series B Units at a
purchase price of $3.00 per Series B Unit, (2) its executed joinder to the Amended
and Restated Shareholders Agreement and (3) its executed counterpart to the First
Amendment to Registration Rights Agreement. Notwithstanding the foregoing, the
ability of the Debenture Holders to become a party to this Agreement shall be
limited to no more than $1,450,000 aggregate principal amount of debentures of all
such Debenture Holders so electing to participate, with the right of the Company in
its sole discretion to allocate among such Debenture Holders as necessary in order
to meet such limitation.
(c) Sections 3.2, 3.3 and 3.4 of the Series A Preferred Stock Purchase Agreement shall
be amended to read in their entirety as follows:
3.2 Second Closing. The obligation of a Second Closing Investor to
purchase Series B Units at the Second Closing is subject to the fulfillment to the
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satisfaction of such Second Closing Investor, at or prior to the Second Closing
of each of the following conditions:
(a) Each of the representations and warranties of the Company contained in
Article VII shall be true, correct and complete in all material respects on
and as of the Second Closing Date as though then made, except for such
representations and warranties which expressly speak as of a certain date, which
representations and warranties shall be true, correct and complete in all material
respects as of the date specified;
(b) All covenants, agreements and conditions contained in this Agreement to be
performed or complied with by the Company on or prior to, or in connection with, the
Second Closing Date shall have been performed or complied with;
(c) No Event of Noncompliance (as defined in Series A Certificate of
Designations), or event which with notice or lapse of time or both would constitute
such an event, shall have occurred;
(d) Since October 31, 2007 (the date of the most recent financial statements
provided to the Second Closing Investors), there shall not have been any effect,
change or development that, individually or in the aggregate with such other
effects, changes or developments, has had, or could reasonably be expected to have,
a Material Adverse Effect;
(e) The Company shall have performed and operated its business in accordance
with the Business Plan, and in addition shall have satisfied the following
milestones:
(i) At least eight (8) prototype units of the XT250 shall have been
manufactured and built by the Company and/or its third party manufacturer,
Xxxxxxx Electronics Group, Inc.;
(ii) At least three (3) field test units of the XT250 shall have been
installed and in operation at major distributors and/or customers, including
the U.S. Drug Enforcement Agency, Intelligent Decisions and Remetronix;
(iii) Final, operable versions of the mechanical, hardware and software
designs of the XT250 production unit shall have been formally released by
the Company and delivered to Xxxxxxx Electronics Group, Inc.;
(iv) The Company shall have obtained necessary approval relating to the
XT250 from the Federal Communications Commission;
(v) The Company shall have developed and deployed a customer field
service team reasonably capable of supporting the number
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of XT250 production units sold and delivered to customers, or reasonably
anticipated to be sold and delivered to customers by December 31, 2007;
(vi) Completion of the planned MRI Phase 2 testing in a manner that
satisfies the objectives set forth on Appendix IV attached hereto;
(f) The Debenture Holder Investors shall, subject to the limitation set forth
in Section 2.5, have authorized the cancellation of their debentures by
delivering their counterpart signature page to this Agreement, their executed
joinder to the Amended and Restated Shareholders Agreement and their executed
counterpart to the First Amendment to Registration Rights Agreement; provided that
holders of a minimum of $1,225,000 of aggregate face principal amount of debenture
shall have either so authorized the cancellation of their debentures or shall have
shall have agreed to extend the maturity date of their debentures to December 31,
2009 and to change the interest rate thereon to 8% per annum;
(g) Each Second Closing Investor who is a holder of the notes issued by the
Company maturing on December 31, 2007 shall have authorized the cancellation of
their notes by delivering their counterpart signature page to this Agreement, their
joinder to the Amended and Restated Shareholders Agreement and their executed
counterpart to the First Amendment to Registration Rights Agreement; and
(h) The Company shall have delivered to Sidley Austin LLP each of the
following:
(i) copy of the Certificate of Incorporation, as amended, certified as
of a recent date by the Secretary of State of Delaware, including evidence
of the filing of the Series A Certificate of Designations relating to the
Series A Preferred Stock, the Series B Certificate of Designations relating
to the Series B Preferred Stock and the Series C Certificate of Designations
relating to the Series C Preferred Stock;
(ii) certificates of good standing and certificate of status of the
Company, as applicable, issued as of a recent date by the Secretaries of
State of Delaware and Florida;
(iii) certificate of the Chief Executive Officer or the President of
the Company, dated the Second Closing Date, to the effect that the
conditions specified in Sections 3.2(a) through 3.2(e) have
been satisfied fully;
(iv) certificate of the Secretary or an Assistant Secretary of the
Company, dated the Second Closing Date, in form and substance reasonably
satisfactory to Sidley Austin LLP, as to: (1) no amendments to the
Certificate of Incorporation since the date of certification referenced in
subparagraph (i) above; (2) the By-laws; and (3) the resolutions duly
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adopted by the Board and shareholders authorizing and approving, as
appropriate, the execution, delivery and performance of this Agreement and
each of the Transaction Documents to which the Company is a party and the
transactions contemplated hereby and thereby, including the authorization,
issuance, sale and delivery of the Series B Units and the Series C Units and
the reservation for issuance of the Conversion Common Shares;
(v) stock certificates, duly executed by the Company and registered in
the names of the Second Closing Investors (or their nominees) for the
respective number of Series B Preferred Shares set forth on Appendix
I-B, except, in the case of the Debenture Holder Investors, subject to
any allocation by the Company as permitted by Section 2.5;
(vi) its executed counterpart to this Agreement;
(vii) the Series B Warrant Agreement, duly executed by the Company,
together with Warrant Certificates (as defined in the Series B Warrant
Agreement), duly executed by the Company and registered in the names of the
Second Closing Investors (or their nominees) for the respective number of
Warrants set forth on Appendix I-B, except, in the case of the
Debenture Holder Investors, subject to any allocation by the Company as
permitted by Section 2.5);
(viii) the Series C Warrant Agreement, duly executed by the Company;
(ix) the Amended and Restated Shareholders Agreement, duly executed by
the Company and the New Series B Investors, together with satisfactory
evidence that such amendment and restatement has been approved by the
holders of at least a majority of the outstanding shares of Common Stock on
a fully-diluted basis, including a majority of the Series A Preferred Stock
voting as a separate class and on a fully-diluted and as converted basis;
(x) the First Amendment to Registration Rights Agreement, duly executed
by the Company, First Closing Investors who hold a majority of the
Registrable Securities (as defined the Original Registration Rights
Agreement) and the Second Closing Investors;
(xi) legal opinion of Blank Rome LLP, counsel for the Company, dated
the Second Closing Date, addressed to the Second Closing Investors and
substantially in the form attached hereto as Exhibit H; and
(xii) such other documents, instruments, approvals or opinions relating
to the transactions contemplated by this Agreement as the Second Closing
Investors or Sidley Austin LLP may reasonably request.
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3.3 Waiver. (a) Any condition specified in this Article III
may be waived by an Investor if consented to in writing by such Investor;
provided, however, that in the event that an Investor declines to
waive a condition specified in this Article III (a “Non-Participating
Investor”), the Company and the remaining Investors may elect to proceed with the
First Closing or the Second Closing, as the case may be, with the aggregate number
of Series A Preferred Shares purchased and sold on the First Closing Date or the
aggregate number of Series B Units to be purchased and sold on the Second Closing
Date, as the case may be, being reduced by the number of Series A Preferred Shares
or Series B Units that otherwise would have been purchased by the Non-Participating
Investor, as set forth on Appendix I-A or Appendix I-B, as the case
may be; provided that the remaining Investors may, in their sole discretion, elect
to purchase, pro rata or otherwise, the Series A Preferred Shares or Series B Units,
as the case may be, that otherwise would have been purchased by the
Non-Participating Investor; and the Non-Participating Investor shall be deemed
removed from this Agreement and all other Transaction Agreements, if such
non-participation occurs at the First Closing, and the Non-Participating Investor
shall be deemed removed from the Second Closing, if such non-participation only
occurs at the Second Closing.
(b) In the event that (i) either or both of the conditions specified in
Sections 3.1(a) or 3.1(b) is waived in writing by an Investor in
connection with the First Closing or (ii) either or both of the conditions specified
in Sections 3.2(a) or 3.2(b) is waived in writing by an Investor in
connection with the Second Closing, such waiver shall serve as a waiver of such
Investor’s (but not any other Investor’s) rights or remedies against the Company for
any claims or losses based solely on such waived condition not being satisfied at
the applicable Closing, but shall not constitute a waiver by such Investor of any
rights or remedies accruing to such Investor thereafter.
3.4 Default by an Investor. [Omitted].
(d) Section 3.5 shall be added to the Series A Preferred Stock Purchase Agreement as
follows:
3.5 Equity Participation Right. (a) During the period from December
19, 2007 until (and including) October 19, 2008 (the “Equity Participation Period”),
each Equity Participation Investor shall have the right (but not the obligation) to
purchase from time to time during the Equity Participation Period up to such Equity
Participation Investor’s Pro Rata Share of up to 1,000,000 Series C Units at a
purchase price of $3.00 per Series C Unit. If an Equity Participation Investor
shall desire to exercise the right granted by this Section 3.5, such Equity
Participation Investor shall notify the Company in writing of such exercise within
the Equity Participation Period, which notice (an “Exercise Notice”) shall specify
the number of Series C Units that such Equity Participation Investor intends to
purchase and the name(s) in which the securities constituting the Series C Units are
to be issued. Each Equity Participation
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Investor who submits an Exercise Notice to the Company in accordance with this
Section 3.5(a) is referred to herein as a “Series C Purchaser.”
(b) In the event that the Company receives one or more Exercise Notices during
a calendar month, it shall schedule a closing for the purchase and sale of all
Series C Units covered by such Exercise Notices as of the first business day of the
month immediately following the receipt of such notices or on such other date as the
Series C Purchasers who sent such Exercise Notices and the Company shall mutually
agree (each such date, an “Equity Participation Closing”). The Company shall not be
obligated to schedule more than one Equity Participation Closing in any calendar
month. At each such scheduled Equity Participation Closing:
(i) the Company shall issue and deliver to each Series C Purchaser (x)
a certificate for the number of shares of Series C Preferred Stock purchased
by such Series C Purchaser, issued as directed by such Series C Purchaser,
and a certificate for the number of Series C Warrants purchased by such
Series C Purchaser, issued as directed by the Series C Purchaser, (y) a
certificate of the Secretary, or an assistant secretary, of the Company
substantially in the form of the certificate described in Section
3.2(h)(iv), but dated as of the date of such Equity Participation
Closing of the issuance of such Series C Units, and (z) an opinion of Blank
Rome LLP substantially similar to the form of the opinion attached hereto as
Exhibit H, but revised to address the issuance of the Series C
Units; and
(ii) each Series C Purchaser shall deliver the purchase price for the
Series C Units to be purchased by such Series C Purchaser at such Equity
Participation Closing.
(e) Section 4.2 of the Series A Preferred Stock Purchase Agreement shall be amended to
read in its entirety as follows:
4.2 Second Closing. The obligation of the Company to issue, sell and
deliver the Series B Preferred Shares at the Second Closing is subject to the
fulfillment to the reasonable satisfaction of the Company at or prior to the Second
Closing of the following conditions:
(a) The Second Closing Investors shall have delivered the Second Purchase Price
in accordance with Section 2.4(b);
(b) Each Second Closing Investor shall have delivered its executed counterpart
signature page to this Agreement;
(c) The Amended and Restated Shareholders Agreement, duly executed by the New
Series B Investors and the holders of at least a majority of the outstanding shares
of Common Stock on a fully-diluted basis, including a majority of the Series A
Preferred Stock voting as a separate class and on a fully-diluted and as converted
basis;
13
(d) The First Amendment to Registration Rights Agreement, duly executed by a
majority of the holders of Registrable Securities (as defined the Original
Registration Rights Agreement);
(e) Each of the representations and warranties of the Investors contained in
Article VIII shall be true, correct and complete in all material respects on
and as of the Second Closing Date as though then made, except for such
representations and warranties which expressly speak as of a certain date, which
representations and warranties shall be true, correct and complete in all material
respects as of the date specified.
(f) Section 7.4(a) of the Series A Preferred Stock Purchase Agreement shall be amended
to read in its entirety as follows:
(a)(i) As of the First Closing, the authorized capital stock of the Company
consisted solely of (1) ten million (10,000,000) shares of Common Stock, of which
1,696,284 shares were issued and outstanding; and (2) three million (3,000,000)
shares of preferred stock, $.0001 par value per share, of which 2,250,000 shares had
been designated as Series A Preferred Stock and 962,101 shares were issued and
outstanding. The Company had reserved for issuance (x) sufficient shares of Common
Stock for issuance upon conversion or redemption of all outstanding or authorized
Series A Preferred Shares and (y) 2,100,000 shares of Common Stock upon exercise of
options pursuant to its 2004 Stock Option Incentive Plan. Immediately after the
First Closing, the capitalization of the Company was as set forth in the
Capitalization Schedule attached to Schedule 7.4, which Capitalization
Schedule and Schedule 7.4 (A) reflected the capitalization of the Company
both on an actual shares outstanding basis and on a fully diluted basis assuming
conversion of all convertible securities and the exercise of all outstanding options
and warrants and all options reserved for future grant under any stock option plans
and (B) set forth (I) each outstanding option, warrant or other right to purchase
shares of capital stock of the Company or any of its Subsidiaries and (II) for each
such option, warrant or right, the holder thereof, the date of grant, the exercise
price and the number of shares subject thereto.
(ii) As of the Second Closing and immediately prior to the issuance of any
Series B Preferred Stock, the authorized capital stock of the Company shall consist
solely of (1) Thirty Million (30,000,000) shares of Common Stock, of which 1,702,156
shares are issued and outstanding; and (2) Six Million (6,000,000) shares of
preferred stock, $.0001 par value per share, of which (A) Nine Hundred Sixty Two
Thousand One Hundred One (962,101) shares have been designated Series A Preferred
Stock and all of which are issued and outstanding, (B) One Million Four Hundred
Fifty Thousand (1,450,000) shares have been designated Series B Preferred Stock of
which none are issued and outstanding and (C) One Million (1,000,000) shares have
been designated as Series C Preferred Stock of which none are issued and
outstanding. The Company has reserved for issuance (v) sufficient shares of Common
Stock for
14
issuance upon conversion or redemption of all outstanding or authorized Series
A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares, (x)
2,100,000 shares of Common Stock upon exercise of options pursuant to its 2004 Stock
Option Incentive Plan, (y) Seven Million Two Hundred Fifty Thousand (7,250,000)
shares of Common Stock upon exercise of the Series B Warrants and (z) Five Million
(5,000,000) shares of Common Stock upon exercise of the Series C Warrants.
Immediately after the Second Closing, the capitalization of the Company shall be as
set forth in the Second Closing Capitalization Schedule attached to Schedule
7.4, which Second Closing Capitalization Schedule and Schedule 7.4 (A)
reflects the capitalization of the Company both on an actual shares outstanding
basis and on a fully diluted basis assuming conversion of all convertible securities
and the exercise of all outstanding options and warrants and all options reserved
for future grant under any stock option plans and (B) sets forth (I) each
outstanding option, warrant or other right to purchase shares of capital stock of
the Company or any of its Subsidiaries and (II) for each such option, warrant or
right, the holder thereof, the date of grant, the exercise price and the number of
shares subject thereto.
(g) References to “Series A Preferred Shares” shall be changed to read “Preferred
Stock” in each of the following Articles or Sections of the Series A Preferred Stock
Purchase Agreement: 5.1, 5.2, 5.4, 5.5, 5.9, 5,11, 5.12 (second sentence only), 5.13, 5.14,
5.17, Article VII (introductory paragraph), 7.1, 7.2, 7.4(b), 7.4(c), 7.4(g), 7.4(h), 7.15,
Article VIII, 9.2, 9.3, 9.4 and 9.5.
(h) Section 9.1 of the Series A Preferred Stock Purchase Agreement shall be amended by
inserting the phrase “expire on December 31, 2008” in lieu of the phrase “expire on August
31, 2008”.
(i) Section 9.7 of the Series A Preferred Stock Purchase Agreement shall be amended to
read in its entirety as follows:
All notices or other communications required or permitted hereunder shall be in
writing and shall be deemed given or delivered (a) when delivered personally, (b) if
transmitted by facsimile when confirmation of transmission is received, (c) if sent
by registered or certified mail, postage prepaid, return receipt requested, three
business days after mailing or (d) if sent by reputable overnight courier service,
one business day after delivery to such service; and shall be addressed as follows:
If to the Company, to:
XStream Systems, Inc.
00000 000xx Xxxxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
00000 000xx Xxxxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
15
with a copy to:
Blank Rome LLP
0000 Xxxxx Xxxxxxx Xxxxxxx — Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
0000 Xxxxx Xxxxxxx Xxxxxxx — Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
If to any Investor, to such Investor’s address as set forth on Appendix
II or, in the case of Investors who were Debenture Holders, Appendix III
hereto.
(j) Appendix I to the Series A Preferred Stock Purchase Agreement shall be amended to
rename it “Appendix I-A” and to delete in their entirety the columns labeled “Series A
Preferred Shares to be purchased at the Second Closing” and “Purchase Price for Series A
Preferred Shares to be purchased at the Second Closing”.
(k) The Series A Preferred Stock Purchase Agreement is hereby further amended to add
Appendix I-B in the form attached to this Amendment as Appendix I-B.
(l) Appendix II to the Series A Preferred Stock Purchase Agreement shall be amended to
read in its entirety as set forth on Appendix II to this Amendment.
(m) Appendix III to the Series A Preferred Stock Purchase Agreement shall be amended to
read in its entirety as set forth on Appendix III to this Amendment.
(n) Exhibit A to the Series A Preferred Stock Purchase Agreement shall be amended to
read in its entirety in the form attached to this Amendment as Exhibits A-1 through A-3.
(o) Exhibit H to the Series A Preferred Stock Purchase Agreement is hereby amended to
read in its entirety in the form attached to this Amendment as Exhibit H.
(p) The Series A Preferred Stock Purchase Agreement is hereby further amended to add
Exhibits I, J, K and L in the respective forms attached to this Amendment as Exhibits I, J,
K and L.
(q) Schedule 7.4 to the Series A Preferred Stock Purchase Agreement is hereby amended
to include the Second Closing Capitalization Schedule in the form attached to this Amendment
as the “Second Closing Capitalization Schedule.”
2. Reference to and Effect on Series A Preferred Stock Purchase Agreement;
Reaffirmation.
(a) Upon the effectiveness of this Amendment, each reference in the Series A Preferred
Stock Purchase Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” “hereby” or
words of like import shall mean and be a reference to the Series A Preferred Stock Purchase
Agreement as amended hereby, and each reference to the Series
16
A Preferred Stock Purchase Agreement in any other document, instrument or agreement
executed and/or delivered in connection with the Series A Preferred Stock Purchase Agreement
shall mean and be a reference to the Series A Preferred Stock Purchase Agreement as amended
hereby.
(b) Except as specifically amended hereby, the Series A Preferred Stock Purchase
Agreement shall remain in full force and effect and is hereby ratified and confirmed. The
execution, delivery and effectiveness of this Amendment shall not constitute a waiver of any
provision contained in the Series A Preferred Stock Purchase Agreement, except as
specifically set forth herein.
3. Execution in Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be considered an original instrument, but all of which shall be
considered one and the same agreement, and shall become binding when one or more counterparts have
been signed by and delivered to each of the parties hereto. Delivery of an executed counterpart of
a signature page to this Amendment, whether manually executed or a facsimile of a manually executed
signature page, shall be as effective as delivery of a manually executed counterpart of this
Amendment.
4. Governing Law. This Amendment and the appendices, exhibits and schedules hereto
shall be governed by, and construed in accordance with, the laws of the State of Florida, without
giving effect to any choice of law or conflict of law rules or provisions (whether of the State of
Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Florida. In furtherance of the foregoing, the internal law of the State of
Florida shall control the interpretation and construction of this Amendment (and all schedules and
exhibits hereto), even though under that jurisdiction’s choice of law or conflict of law analysis,
the substantive law of some other jurisdiction would ordinarily apply.
5. Transaction Expenses. Irrespective of whether the Second Closing is consummated,
the Company shall pay all costs and expenses that it incurs in connection with the negotiation,
execution, delivery and performance of this Amendment and the transactions contemplated hereby. If
the Second Closing is consummated, the Company shall pay the reasonable fees (not to exceed
$50,000) and expenses of Sidley Austin LLP, special legal counsel to the Original Series A
Investors, and the reasonable fees and expenses of Blank Rome LLP, counsel to the Company. In
addition, the Company shall reimburse the Investors for reasonable legal expenses incurred in
connection with any amendment of, or waiver or consent requested under, this Amendment or any
Transaction Document, except for waivers, amendments or consents (a) not originally requested by
the Company and (b) not involving a change to or modification of any of the Company’s obligations,
covenants or agreements hereunder.
6. Interpretation.
(a) Capitalized terms used herein without definition shall have the respective
definitions assigned to those terms in the Series A Preferred Stock Purchase Agreement.
17
(b) For purposes of this Amendment, (i) the words “include,” “includes” and “including”
mean “including without limitation,” (ii) the word “or” is not exclusive and (iii) the words
“herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Amendment as a whole.
(c) Unless the context otherwise requires, references herein to Sections, Exhibits and
Schedules mean the Sections of, and the Exhibits and Schedules attached to, this Amendment.
Headings of Sections are inserted for convenience of reference only and shall not be deemed
a part of or to affect the meaning or interpretation of this Amendment. The Schedules and
Exhibits referred to herein shall be construed with and as an integral part of this
Amendment to the same extent as if they were set forth verbatim herein.
(d) Each of the parties to this Amendment has had the benefit of counsel in connection
with its review and negotiation of this Amendment. Consequently, the parties confirm that
this Amendment shall not be construed on the basis of any presumption or rule requiring
construction or interpretation against the party drafting an agreement or instrument or
causing any agreement or instrument to be drafted.
[signature page follows]
18
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day
and year first above written.
| XSTREAM SYSTEMS, INC. |
||||
| By: | /s/ Xxxxxx X. Xxxx | |||
| Name: | Xxxxxx X. Xxxx | |||
| Title: | Chairman and CEO | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| Name: | ||||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of
the day and year first above written.
| XSTREAM SYSTEMS, INC. |
||||
| By: | /s/ Xxxxxx X. Xxxx | |||
| Name: | Xxxxxx X. Xxxx | |||
| Title: | Chairman and CEO | |||
| Signature Page to First Amendment to Series A Preferred Stock Purchase Agreement dated as of March 14, 2007 |
| INVESTOR: | ||||||
[ILLEGIBLE]
|
By: | /s/ Xxxxx X. Xxxxxxx
|
||||
| Name: Xxxxx X. Xxxxxxx |
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx X. Xxxxxxx | ||||
| Name: | Xxxxxx X. Xxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx X. Xxxxxxx | ||||
| Name: | Xxxxxx X. Xxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx Xxxxxxxxxx | ||||
| Name: | Xxxxxx Xxxxxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxxx X. Xxxxxxxxx | ||||
| Name: | Xxxxxxx X. Xxxxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxxx Xxxxxxx | ||||
| Name: | Xxxxxxx Xxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx X. Xxxx | ||||
| Name: | Xxxxxx X. Xxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx Xxxxxxxxxx | ||||
| Name: | Xxxxxx Xxxxxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxx X. Xxxxx, MD | ||||
| Name: | Xxxxx X. Xxxxx, MD | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx X. Xxxxxxxx | ||||
| Name: | Xxxxxx X. Xxxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxx X. Xxxxxx | ||||
| Name: | Xxxx X. Xxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx X. Xxxxxxx | ||||
| Name: | Xxxxxx X. Xxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxx X. Xxxxxxx | ||||
| Name: | Xxxx X. Xxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxx X. Xxxxxx | ||||
| Name: | Xxxx X. Xxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxxx X. Xxxx | ||||
| Name: | Xxxxxxx X. Xxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: XXXXXXX PARTNERS |
||||
| /s/ Xxxxxxx X. Xxxxxxx | ||||
| Name: | Xxxxxxx X. Xxxxxxx Xxxxxxx Partners |
|||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx X. Xxxx | ||||
| Name: | Xxxxxx X. Xxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx Xxxxxxx | ||||
| Name: | Xxxxxx Xxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxx X. Xxxxxx | ||||
| Name: | Xxxx X. Xxxxxx, XXX | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx X. Xxxxx III | ||||
| Name: | Xxxxxx X. Xxxxx III | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx X. Ireland | ||||
| Name: | Xxxxxx X. Ireland | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxxx Xxxxxxxx | ||||
| Name: | Xxxxxxx Xxxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxx Xxxxxx TR /s/ Xxxxxxx X. Xxxxxx TR |
||||
| Name: | Xxxxxxx X. Xxxxxx and Xxxxx Xxxx Xxxxxx Living Trust | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ XXXXXX X. XXXXXXX | ||||
| Name: | XXXXXX X. XXXXXXX | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxxx Xxxxxxxxxx | ||||
| Name: | Xxxxxxx Xxxxxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx Xxxxxxxxxx | ||||
| Name: | Xxxxxx Xxxxxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxx X. Xxxxxxxxx, trustee | ||||
| Name: | (Survivor’s Trust etc.) | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxx X. Xxxxxxx | ||||
| Name: | Xxxxx X. Xxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx Xxxxxxx [ILLEGIBLE] | ||||
| Name: | Xxxxxx Xxxxxxx [ILLEGIBLE] | |||
| XXXXXXX FAMILY LTD. PARTNERSHIP |
||||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: XXXXXX FAMILY INVESTMENTS LLC |
||||
| /s/ XXXXX X. XXXXXX | ||||
| Name: | XXXXX X. XXXXXX MANAGING MEMBER |
|||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx X. XxXxxxxxx | ||||
| Name: | Xxxxxx X. XxXxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx Xxxxxx | ||||
| Name: | Xxxxxx Xxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxx X. Xxxxxxxx | ||||
| Name: | Xxxx X. Xxxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxxx X. Xxxxx | ||||
| Name: | Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx Revocable Trust |
|||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxx Xxxxxx | ||||
| Name: | Xxxxx Xxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxxx Xxxxx | ||||
| Name: | Xxxxxxx Xxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Triantafillos Parlapanides | ||||
| Name: | Triantafillos Parlapanides | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ XXXXXX XXXXX | ||||
| Name: | XXXXXX XXXXX | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxx X. Xxxxxxxxxxx | ||||
| Name: | Xxxxxx X. Xxxxxxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ X.X. Xxxxxx | ||||
| Name: | X.X. Xxxxxx, Xx. | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ [ILLEGIBLE] | ||||
| Name: | The Xxxxxxx Xxxx & Xxxx Xxxx Revocable Trust DTD 8/9/06 |
|||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxx Xxxxxxxxx | ||||
| Name: | Xxxx Xxxxxxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| SAERIDAN INVESTMENTS GROUP LLC INVESTOR: |
||||
| /s/ XXXXXXXX X. XXXXXXXX | ||||
| Name: | XXXXXXXX X. XXXXXXXX MANAGING MEMBER |
|||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
| INVESTOR: |
||||
| /s/ Xxxxxxx Xxxxx | ||||
| Name: | Xxxxxxx Xxxxx | |||
Signature Page to First Amendment to
Series A Preferred Stock Purchase Agreement dated as of March 14, 0000
Series A Preferred Stock Purchase Agreement dated as of March 14, 0000
XXXXXXXX X-X
Second Closing Investors and Respective Amounts of Series B Units Being Purchased
| Purchase Price | ||||||||||||
| Series B Units | for Series B Units | |||||||||||
| to be purchased | to be purchased | Form of | ||||||||||
| Investor | at Second Closing | at Second Closing | Consideration | |||||||||
Original Series A Investors: |
||||||||||||
Xxxxxx Family Investments LLC |
167,001 | $ | 501,003 | Cash/Note | ||||||||
Xxxxxxx X. Xxxxx Revocable Trust |
50,000 | $ | 150,000 | Cash | ||||||||
Xxxxxxx Xxxxxx |
84,415 | $ | 253,247 | Note | ||||||||
Xxxxxxx Xxxxxxxx |
33,333 | $ | 100,000 | Cash | ||||||||
Xxxxxx Xxxxxxx |
41,666 | $ | 125,000 | Cash | ||||||||
Xxxxxx Xxxxxx |
41,666 | $ | 125,000 | Cash | ||||||||
52 River Course Associates LLC |
41,666 | $ | 125,000 | Cash | ||||||||
Xxxxxx Xxxxxxx |
67,053 | $ | 201,159 | Note | ||||||||
Xxxxxx Xxxxxxxxxx |
16,666 | $ | 50,000 | Cash | ||||||||
Xxxxxx Xxxxxxxxxx |
16,666 | $ | 50,000 | Cash | ||||||||
Xxxxxx Xxxxxxxx |
16,666 | $ | 50,000 | Cash | ||||||||
Xxxx Xxxxxx |
16,666 | $ | 50,000 | Cash | ||||||||
Xxxxxxx Xxxxx |
16,666 | $ | 50,000 | Cash | ||||||||
Xxxxx Xxxxx |
8,333 | $ | 25,000 | Cash | ||||||||
Xxxxxx Xxxxx |
8,333 | $ | 25,000 | Cash | ||||||||
Xxxx Xxxxxxxxx |
16,666 | $ | 50,000 | Cash | ||||||||
Xxxxxxxx Xxxxxxxx |
16,666 | $ | 50,000 | Cash | ||||||||
Xxxx Xxxxxxx |
5,000 | $ | 15,000 | Cash | ||||||||
The Xxxxxxx Xxxx & Xxxx Xxxx Revocable Trust |
8,333 | $ | 25,000 | Cash | ||||||||
Xxxxxxx Partners |
5,000 | $ | 15,000 | Cash | ||||||||
Xxxxxx Xxxxxxx |
16,721 | $ | 50,164 | Note | ||||||||
Xxxxxx X. Xxxxx Ill, Revocable Trust |
16,891 | $ | 50,674 | Note | ||||||||
Xxxxxx X. Xxxx |
16,896 | $ | 50,690 | Cash | ||||||||
X.X. Xxxxxx, Xx. |
16,858 | $ | 50,575 | Note | ||||||||
SUBTOTAL: |
745,827 | $ | 2,237,512 | |||||||||
Appendix I-B to the Series A Preferred Stock Purchase Agreement
| Purchase Price | ||||||||||||
| Series B Units | for Series B Units | |||||||||||
| to be purchased | to be purchased | Form of | ||||||||||
| Investor | at Second Closing | at Second Closing | Consideration | |||||||||
New Series B Investors: |
||||||||||||
Xxxxxxx Xxxxxxx |
83,333 | $ | 250,000 | Cash | ||||||||
Xxxx Xxxx |
16,666 | $ | 50,000 | Cash | ||||||||
Xxxxx Xxxxxx |
12,179 | $ | 36,539 | Note | ||||||||
Triantafillos Parlapanides |
8,407 | $ | 25,222 | Note | ||||||||
Xxxxxx X. Xxxxxxxxxx |
8,360 | $ | 25,082 | Note | ||||||||
Xxxxxx Xxxxxxx |
5,000 | $ | 15,000 | Cash | ||||||||
Xxxxx Xxxxxxx |
Cash | |||||||||||
Xxxxxxx X. Xxxxxxxxx Xx. |
8,333 | 25,000 | Cash | |||||||||
Andonia and Xxxxxxx Xxxxxxxxxx |
Cash | |||||||||||
SUBTOTAL: |
142,278 | $ | 426,843 | |||||||||
The Mayo Family Revocable Trust, 7/13/00 |
67,251 | $ | 201,753 | Debentures | ||||||||
Xxxx Xxxxxx, XXX |
67,251 | $ | 201,753 | Debentures | ||||||||
Xxxxxx Ireland |
33,625 | $ | 100,877 | Debentures | ||||||||
Xxxxxx X. Xxxx |
16,812 | $ | 50,438 | Debentures | ||||||||
Xxxxxx X. Xxxxxxx |
16,812 | $ | 50,438 | Debentures | ||||||||
Xxxxxx X. Xxxxxxx |
16,812 | $ | 50,438 | Debentures | ||||||||
Xxxxxxx X. Xxxxxx and Xxxxx Xxxx Xxxxxx Living Trust |
8,406 | $ | 25,219 | Debentures | ||||||||
Xxxxxx X. Xxxxx III, Revocable Trust |
33,625 | $ | 100,877 | Debentures | ||||||||
Xxxx X. Xxxxxxxx |
67,251 | $ | 201,753 | Debentures | ||||||||
Xxxxx X. Xxxxxxx, Xx. |
33,625 | $ | 100,877 | Debentures | ||||||||
Xxxxxx X. Xxxxxxxxxxx 2006 Personal Trust |
50,437 | $ | 151,315 | Debentures | ||||||||
Xxxxxx X. Xxxx |
33,625 | $ | 100,877 | Debentures | ||||||||
SUBTOTAL: |
445,532 | $ | 1,336,615 | |||||||||
TOTAL: |
1,333,637 | $ | 4,000,970 | |||||||||
Appendix I-B to the Series A Preferred Stock Purchase Agreement
APPENDIX II
Notice Information for each Investor
| NAME | ADDRESS | |||
1. |
Xxxxx X. Xxxxxx | REDACTED | ||
2 |
Xxxxxxxx X. Xxxxxxxx | |||
3. |
Xxxxxx Xxxxxxx | |||
4. |
Xxxxxxx Xxxxxx | |||
5. |
Summit Investors of Vero, Ltd. | |||
6. |
Xxxxxxx Xxxxxxx | REDACTED | ||
7. |
Xxxxxxx Xxxx | |||
8. |
Xxxxxxx Xxxxxxx |
Appendix II to the Series A Preferred Stock Purchase Agreement
| NAME | ADDRESS | |||
9. |
Xxxxxx Xxxxxxxx | REDACTED | ||
10. |
Xxxxxx and Xxxxx Xxxxxxx | |||
11 |
Xxxxx X. Xxxxxxx Xx. | |||
12 |
Xxxxxx Xxxxxxxxx | |||
13. |
Xxxx Xxxxxxx | |||
14. |
Xxxxx Xxxxx | REDACTED | ||
15. |
Xxxxxx Xxxxxxxxxx | |||
16. |
Xxxxxxx Family Partners | |||
17. |
Xxxxxxx Xxxxx |
Appendix II to the Series A Preferred Stock Purchase Agreement
| NAME | ADDRESS | |||
18. |
Xxxxxx Xxxxxxx | REDACTED | ||
19. |
Xxxxxxx Xxxxxxxx | |||
20. |
Xxxxxx Xxxxxxxxxx | |||
21. |
Xxxxxx Xxxxx | |||
22. |
Xxxxxx Xxxxx | |||
23. |
Xxxxxx Xxxxxxx | |||
24 |
Xxxx Xxxxxxxxx | REDACTED | ||
25. |
Xxxxx Xxxxxxx | |||
26. |
Xxxxxxx X. Xxxxx | |||
27. |
Xxxxxx Xxxxxx | |||
28. |
Xxxx Xxxxxx | |||
29. |
Xxxxx Xxxxxxxx | REDACTED |
Appendix II to the Series A Preferred Stock Purchase Agreement
| NAME | ADDRESS | |||
30. |
Xxxxxx X. Xxxxxxxxx | REDACTED | ||
31. |
Xxx Xxxxx | |||
32. |
Xxx Xxxx | |||
33. |
Xxxxxxx Xxxxxxxx | |||
34 |
C.B. (Xxxx) Xxxxxx | REDACTED | ||
35. |
Xxxxxx and Xxxxx Xxxx | |||
36. |
Andonia and Xxxxxxx Xxxxxxxxxx | |||
37. |
Xxxxxxx X. Calanzaro Jr. | |||
38. |
Xxxxx Xxxxxx | |||
39. |
Triantafillos Parlapanides | |||
40. |
Xxxxx Xxxxxxx | |||
41. |
Xxxxxx X. Xxxxxxxxxx | |||
42. |
Xxxx Xxxx | REDACTED |
Appendix II to the Series A Preferred Stock Purchase Agreement
APPENDIX III
List of Debenture Holders
| NAME AND ADDRESS OF | AMOUNT OF | |||||
| DEBENTURE HOLDER | DEBENTURE | |||||
| 1. | The Mayo Family Revocable Trust, 7/13/00 |
$ | 200,000 | |||
| 2. | Xxxx Xxxxxx, XXX REDACTED |
200,000 | ||||
| 3. | Xxxxxx Ireland REDACTED |
100,000 | ||||
| 4. | Xxxxxx X. Xxxxx, III Revocable Trust, 10/6/88 REDACTED |
100,000 | ||||
| 5. | Xxxxxx X. Grbb REDACTED |
50,000 | ||||
| 6. | X.X. Xxxxxx, Xx. REDACTED |
50,000 | ||||
| 7. | Xxxxxx X. Xxxxxxx REDACTED |
50,000 | ||||
| 8. | Xxxxxx X. Xxxxxxx REDACTED |
50,000 | ||||
| 9. | Xxx X. and Xxxxx Xxxxx XxXxx, Jr. REDACTED |
25,000 | ||||
| 10. | Xxxx X. Xxxxxxxx REDACTED |
25,000 | ||||
| 11. | Xxxxxxx M, Xxxxxx and Xxxxx Xxxx Xxxxxx Living Trust REDACTED |
25,000 | ||||
| 12. | Survivor Trust of the Xxxxxxxxx Revocable Trust, 2/22/83 REDACTED |
25,000 | ||||
| 13. | Xxxx X. Xxxxxxxx REDACTED |
200,000 | ||||
Appendix III to the Series A Preferred Stock Purchase Agreement
| NAME AND ADDRESS OF | AMOUNT OF | |||||
| DEBENTURE HOLDER | DEBENTURE | |||||
| 14. | Xxxxx X. Xxxxxxx, Xx. REDACTED |
100,000 | ||||
| 15. | R. Xxxxx Xxxxxx Trust 3/17/99 REDACTED |
50,000 | ||||
| 16. | Xxxx and Xxx Xxxxxx REDACTED |
25,000 | ||||
| 17. | Xxxxxx X. Xxxxxxxxxxx 2006 Personal Trust REDACTED |
150,000 | ||||
| 18. | Xxxxxx X. Xxxx REDACTED |
100,000 | ||||
TOTAL |
$ | 1,525,000 | ||||
Appendix III to the Series A Preferred Stock Purchase Agreement
EXHIBIT A-l
Series A Certificate of Designations
Series A Certificate of Designations
TERMS OF
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
XSTREAM SYSTEMS, INC.
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
XSTREAM SYSTEMS, INC.
(1) Designation, Par Value and Number. This series of Preferred Stock shall be
designated as “Series A Redeemable Convertible Preferred Stock.” The Corporation shall have the
authority to issue 962,101 shares of the Series A Preferred with a par value of $.0001 per share.
In accordance with the terms hereof, each share of Series A Preferred shall have the same relative
rights as, and be identical in all respects with, each other share of Series A Preferred.
(2) Dividends.
a. General. When and as declared by the Board, and to the fullest extent permitted
under the General Corporation Law of the State of Delaware, the Corporation shall pay preferential
dividends on each issued and outstanding share of the Series A Preferred; provided, however, that
no dividend shall be declared on the Series A Preferred unless a pro rata amount (based upon
relative Liquidation Value) is declared on each of the other series of Pari Passu Preferred.
Subject to Section 6(b)(ii), dividends on each issued and outstanding share of Series A
Preferred shall be cumulative and shall accrue on a daily basis at a rate of 5% per annum of the
Series A Liquidation Value thereof (with such accrued and unpaid dividends compounding on each
annual anniversary of the Series A Original Issuance Date) from and including the Series A Original
Issuance Date to and including the first to occur of (i) the date on which the Series A Liquidation
Value of such share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof
in connection with the liquidation of the Corporation, (ii) the date on which such share is
converted into shares of Common hereunder or (iii) the date on which such share is otherwise
acquired by the Corporation. Such dividends shall accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation legally available for
the payment of dividends, and such dividends shall be cumulative such that all accrued and unpaid
dividends shall be fully paid or declared with funds irrevocably set apart for payment before any
dividends, distributions, redemptions or other payments may be made with respect to any Series A
Junior Securities. If, under Delaware law, any dividends cannot be declared and paid in full when
due, the full amount which can be paid shall be paid pro rata to the holders of the Series A
Preferred and the aggregated deficiency shall be increased as provided below.
b. Distribution of Partial Dividend Payments. Except as otherwise provided herein, if
at any time the Corporation pays less than the total amount of dividends then accrued with respect
to the Series A Preferred, such payment shall be distributed pro rata among the holders thereof
based upon the aggregate accrued but unpaid dividends on the Series A Preferred held by each such
holder.
c. Participation in Common Dividends. If the Corporation declares or pays a dividend
or makes any distribution on the Common, then the holders of the outstanding shares of Pari Passu
Preferred (on a Common Equivalent Basis as of the record date for such dividend or distribution)
and the holders of the Common shall share pro rata in such dividend or distribution.
(3) Voting Rights.
a. General. In addition to the rights provided by law and Sections 3(b), 3(c)
and 3(d) below, the holders of the Series A Preferred shall be entitled to notice of all meetings
of stockholders in accordance with the Corporation’s By-laws, and except as otherwise provided
herein or required by applicable law, the holders of the Series A Preferred shall be entitled to
vote on all matters submitted to the stockholders for a vote, voting as a single class with the
Common and other securities that vote with the Common, with the holders of Series A Preferred
entitled to one vote for each share of Common issuable upon conversion of the Series A Preferred
held as of the record date for such vote or, if no record date is specified, as of the date of such
vote.
b. Actions Requiring the Consent of the Holders of Series A Preferred. So long as any
shares of Series A Preferred are outstanding, without the approval of at least a majority of the
shares of Series A Preferred then outstanding, the Corporation shall not file any resolution of the
Board with the Delaware Secretary of State that contains any provisions, or take any other action,
that would amend the terms of the Series A Preferred, increase the number of authorized Series A
Preferred, approve a reverse stock split or adversely affect or otherwise impair the rights or the
relative preferences or priorities of the holders of the Series A Preferred under this Certificate
of Incorporation or the By-laws.
c.
Actions Requiring the Consent of the Holders of Pari Passu Preferred and Conversion
Common Shares. So long as any shares of Pari Passu Preferred or Conversion Common Shares are
outstanding, the Corporation shall not take, and shall not permit any of its Subsidiaries to take,
any of the following actions without the approval of the holders of at least a majority of the
shares of all of the Pari Passu Preferred and Conversion Common Shares, voting as a single class on
a Common Equivalent Basis, then outstanding:
(i) amend this Certificate of Incorporation or the By-laws;
(ii) except for Permitted Issuances, authorize, issue or enter into any agreement
providing for the issuance (contingent or otherwise) of any capital stock or other equity
securities of the Corporation ranking pari passu or senior to the Series A Preferred (or any
securities convertible into or exchangeable for any capital stock or other equity securities
of the Corporation ranking pari passu or senior to the Series A Preferred);
(iii) except for the ratable payment of dividends on the Pari Passu Preferred,
directly or indirectly declare or pay any cash or property dividends or make any cash or
property distributions upon any of its capital stock or other equity securities;
(iv) directly or indirectly redeem, purchase or otherwise acquire any of the
Corporation’s capital stock or other equity securities (including, without limitation,
Options) other than (A) the Pari Passu Preferred pursuant to the terms of this Certificate
of Incorporation, (B) repurchases of the Corporation’s securities from employees upon
termination of an employee’s employment with the Corporation pursuant to terms approved by
the Board, (C) repurchases of Options outstanding as of the First Closing
-2-
Date pursuant to the terms of such Options or (D) pursuant to the terms of the
Shareholders Agreement;
(v) merge or consolidate with any Person (other than a wholly owned Subsidiary) or
take any action which results in a Change in Ownership;
(vi) sell, license, lease or otherwise transfer all or substantially all of its assets to
any Person (other than to a wholly owned Subsidiary of the Corporation) in any transaction or
series of related transactions;
(vii) liquidate, dissolve or effect a recapitalization, bankruptcy or reincorporation in
any form of transaction (including, without limitation, any reincorporation into a limited
liability company, a partnership or any other non-corporate entity that is treated as a partnership
for Federal income tax purposes);
(viii) make any loans or advances to, guarantees for the benefit of, or investments in, any
Person (other than a wholly owned Subsidiary established under the laws of a jurisdiction of the
United States or any of its territorial possessions), except for (A) reasonable advances to
employees in the ordinary course of business consistent with past practice and (B) advances to
newly-hired employees in order to cover such employees’ relocation expenses;
(ix) except as provided in the current Budget, create, incur, assume or suffer to exist
any Indebtedness;
(x) create, incur, assume or suffer to exist any Liens other than (A) Permitted Liens
and (B) Liens incurred in connection with the incurrence of Indebtedness not prohibited by clause
(ix) above;
(xi) acquire any interest in any company or business (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any joint venture, in either case, that is
material to the business of the Corporation and its Subsidiaries, taken as a whole (each, an
“Acquisition”), other than Acquisitions the aggregate value of which (after taking into account the
assumption of any Indebtedness or other liabilities in connection therewith) do not exceed $300,000
in any twelve-month period, measured after giving effect to any purchase price adjustments relating
thereto;
(xii) become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument that by its terms would (under any circumstances)
restrict the Corporation’s right to perform the provisions of the Preferred Stock Purchase
Agreement, the Shareholders Agreement, the Registration Rights Agreement, this Certificate of
Incorporation or the By-laws;
(xiii) except as provided in the current Budget, make or commit to make capital
expenditures for any fiscal year;
(xiv) except as required by Section 6(b)(i), increase the size of the Board to a
number greater than seven (7);
-3-
(xv) enter into or become a party to any license, agreement or other
arrangement after the First Closing Date with respect to Intellectual Property Rights
licensed to, or owned or developed by, the Corporation, except that the foregoing
shall not prevent the Corporation from entering into, or becoming a party to, any
such license, agreement or other arrangement that (A) has a term of one year or
less, (B) is nonexclusive and would be customary in connection with the sale of the
Corporation’s products or services, (C) relates to “off the shelf” software licenses
to the Corporation by a third party or (D) is approved by a majority of the Board
(including at least one of the Investor Directors); or
(xvi) change the primary line of business of the Corporation from materials
identification, verification and analysis, and any related field, or enter into any
material new line of business.
d. Election of Directors. Subject to Section 6(b)(i), for so
long as any shares of Pari Passu Preferred or Conversion Common Shares remain outstanding,
the holders of the Pari Passu Preferred and Conversion Common Shares, voting together as a
single class on a Common Equivalent Basis, shall be entitled to elect two (2) members of
the Board at each meeting or pursuant to each consent of the Corporation’s stockholders
for the election of directors, and to remove from office any such director and to fill any
vacancy caused by the resignation, death or removal of any such director.
(4) Liquidation, Dissolution, etc.
a. Significant Event. Upon any liquidation, Fundamental Change,
Change in Ownership, dissolution or winding up of the Corporation (whether voluntary or
involuntary) (each, a “Significant Event”):
(i) Each holder of Series A Preferred shall be entitled to receive,
prior and in preference to any distribution or payment made upon any Series A Junior
Securities, an amount equal to (i) the aggregate Series A Liquidation Value of all
shares of Series A Preferred held by such holder plus (ii) all accrued and unpaid
dividends on such shares of Series A Preferred. If, upon any Significant Event, the
Corporation’s assets to be distributed among the holders of the Pari Passu Preferred
are insufficient to permit payment to such holders of the aggregate amount to which
they are entitled to be paid under this Section 4(a)(i) and the equivalent
provisions of the other series of Pari Passu Preferred, then the entire assets
available to be distributed to the Corporation’s stockholders shall be distributed
pro rata among such holders of the Pari Passu Preferred based upon the aggregate
Liquidation Value (plus all accrued and unpaid dividends) of the shares of Pari
Passu Preferred held by each such holder.
(ii) After payment to the holders of the Series A Preferred of the
amounts set forth in the first sentence of Section 4(a)(i), the entire remaining
assets and funds of the Corporation legally available for distribution, if any,
shall be distributed pro rata among the holders of the Common and the holders of
the Pari Passu Preferred (on a Common Equivalent Basis).
-4-
b. Form of Consideration. Whenever the distribution provided for in this Section
4 shall be payable in a form other than securities or cash, the value of such distribution
shall be the fair market value as determined in good faith by the Board, including a majority of
the Investor Directors.
c. Distribution upon Change in Ownership. Upon any Significant Event effected as a
result of a Change in Ownership, any proceeds received by stockholders of the Corporation other
than holders of Pari Passu Preferred in accordance with the terms of such Pari Passu Preferred
(including, without limitation, any amounts received by any stockholders in respect of any
employment, non-competition, consulting or other similar agreement entered into in connection with
such Change in Ownership that, in the case of employment or consulting agreements, provide for
payments to such stockholder that are in excess of the compensation payable to such stockholder
prior to such Change in Ownership (other than, in the case of employment, for increases in annual
compensation not in excess of 20% of the annual compensation payable to such stockholder in the
last completed fiscal year prior to such Change in Ownership)) shall be construed as being received
by the Corporation and thereafter distributed to the holders of the Pari Passu Preferred and Common
in accordance with Section 4(a)(ii).
(5) Redemptions.
a. Redemption at the Option of Holders. At any time on or after March 14,
2012, upon the request of the holders of at least a majority of the then outstanding shares of
Series A Preferred, each of the holders of the then outstanding Series A Preferred shall have the
right (a “Redemption Right”) to require the Corporation to redeem all or any of their shares of
Series A Preferred at a price per share equal to the Series A Liquidation Value plus a rate of
return on such amount (after taking into account all dividends paid by the Corporation pursuant to
Section 2(a)) equal to 7% per annum, compounded annually. Any holder of Series A Preferred
may exercise his, her or its Redemption Right by delivering to the Corporation a Redemption Notice
on or after March 14, 2012, provided that holders of at least a majority of the then outstanding
shares of Pari Passu Preferred have requested a redemption pursuant to this Section 5(a)
and the equivalent provisions of the other series of Pari Passu Preferred. Within ten (10) days
after the date of a Redemption Notice delivered by any holder of Series A Preferred, the
Corporation shall notify all other holders of Pari Passu Preferred that the Redemption Right has
been exercised, and each other holder of Pari Passu Preferred shall have the right, exercisable by
written notice delivered to the Corporation within thirty (30) days after receipt of such notice
from the Corporation, to request that all or a portion of such other holder’s shares of Pari Passu
Preferred be redeemed on the Redemption Date together with the shares of Series A Preferred of the
holder who delivered the Redemption Notice. The Corporation shall be obligated to redeem the total
number of shares of Series A Preferred requested to be redeemed in accordance herewith on the
Redemption Date. For each share of Series A Preferred which is to be redeemed on a particular
Redemption Date in accordance with this Section 5 (a), the Corporation shall be obligated
on the date specified for redemption thereof in the written notice with respect thereto, to pay to
the holder thereof (upon surrender by such holder at the Corporation’s principal office of the
certificate representing such share) such amount specified in this Section 5(a) in
immediately available funds.
b. Inadequate Funds: Redemption Notes. If the funds of the
Corporation
-5-
legally available for redemption of Series A Preferred on any Redemption Date are insufficient to
redeem the total number of shares of Series A Preferred and all other shares of Pari Passu
Preferred to be redeemed on such date: (i) those funds which are legally available shall be used to
redeem the maximum possible number of shares of Pari Passu Preferred ratably among the holders of
such shares to be redeemed based upon the aggregate amount to which they are entitled to be paid
under this Section 5 and the equivalent provisions of the other series of Pari Passu
Preferred; and (ii) with respect to those shares of Pari Passu Preferred requested to be redeemed
but for which funds are not legally available (the “Non-Funded Shares”), the Corporation shall
issue and deliver to each holder of Non-Funded Shares a promissory note (each a “Redemption Note”).
Each Redemption Note shall be payable one year from date of issuance and shall bear interest at the
rate of 8% per annum, compounded quarterly, and shall have an aggregate principal amount per
Non-Funded Share equal to the Series A Liquidation Value plus a rate of return on such amount
(after taking into account all dividends paid by the Corporation pursuant to Section 2(a))
equal to 7% per annum, compounded annually. A Redemption Note may be prepaid by the Company at any
time without penalty. The issuance of Redemption Notes shall be made without charge to the holders
of the Non-Funded Shares receiving such Redemption Notes for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with the issuance thereof, and the Corporation
shall pay the fees and expenses of each holder of Non-Funded Shares in connection with the issuance
of Redemption Notes, including reasonable attorney’s fees and expense. Subject to the terms of any
then existing senior debt or credit facility, the terms and documentation relating to each
Redemption Note shall provide that the debt obligation evidenced thereby shall at all times be pari
passu with the most senior debt or credit facility of the Corporation outstanding at any time
during the term of the Redemption Note. Each Redemption Note shall also contain customary terms and
conditions, including, without limitation, a cross-acceleration provision with respect to any
amount of Indebtedness of the Company or any of its Subsidiaries and appropriate negative
covenants, including, without limitation, negative covenants prohibiting the Corporation, without
the consent of the holders of a majority of aggregate principal amount of all of the Redemption
Notes outstanding, from taking, or permitting any of its Subsidiaries to take, any of the actions
specified in Sections 3(b)(i) - xvi.
c. Reissuance of Certificate. If fewer than the total number of shares of Series A
Preferred represented by any certificate are redeemed in any installment, a new certificate
representing the number of unredeemed shares of Series A Preferred (other than any Non-Funded
Shares) will be issued to the holder thereof without cost to such holder promptly after surrender
of the certificate representing the redeemed shares of Series A Preferred.
d. Redeemed or Otherwise Acquired Shares. All rights pertaining to shares of the
Series A Preferred that are redeemed or otherwise acquired by the Corporation and, subject to
Section 5(b), all rights pertaining to shares that are deemed to be Non-Funded Shares,
shall cease, and such shares shall not thereafter be (i) reissued, sold or transferred, (ii)
entitled to any dividends accruing after the date of redemption or acquisition or (iii) deemed to
be issued and outstanding for any purpose whatsoever. The shares of Series A Preferred not redeemed
(other than any Non-Funded Shares) shall remain issued and outstanding and entitled to all the
rights and preferences provided herein.
-6-
(6) Events of Noncompliance.
a. Definition. An “Event of Noncompliance” shall
be deemed to have occurred if:
(i) the Corporation shall fail to make any redemption payment required under Section 5
or the equivalent provisions of the other series of Pari Passu Preferred (whether or not
such payment is legally permissible or is prohibited by any agreement to which the
Corporation is subject);
(ii) (v) the Corporation breaches any of its covenants or agreements contained in
the Preferred Stock Purchase Agreement, which breach has, or is more likely than not to
have, an adverse effect of $100,000 or more in the aggregate on the holders of the Pari
Passu Preferred, (x) such breach does not result directly from action by the Corporation at
express the direction of the Board (including in such direction a majority of the Investor
Directors), (y) the Corporation fails to cure such breach within 30 days of written notice
thereof from any holder of the Pari Passu Preferred and (z) the holders of at least a
majority of the outstanding shares of Pari Passu Preferred after such 30-day period send a
notice of such Event of Noncompliance to the Corporation;
(iii) (x) any representation or warranty made by the Corporation under the
Preferred Stock Purchase Agreement shall have been untrue or incorrect in any material
respect when made, the result of which has, or is more likely than not to have, an adverse
effect of $100,000 or more on (A) the condition (financial or otherwise), operating results,
business, assets, operations, employee relations or client relations of the Corporation,
taken as a whole (other than to the extent resulting from a change in accounting methods
required by GAAP) or (B) the holders of the Pari Passu Preferred, (y) the Corporation fails
to cure such breach within 30 days of written notice thereof from any holder of the Pari
Passu Preferred and (z) the holders of at least a majority of the outstanding shares of Pari
Passu Preferred send a notice of such Event of Noncompliance to the Corporation;
(iv) the Corporation shall commence or enter into any bankruptcy,
receivership, liquidation or assignment for the benefit of any creditors;
(v) the Corporation shall default under one or more indentures, agreements or
other instruments under which any Indebtedness aggregating at least $100,000 of the
Corporation or any of its Subsidiaries is or may be issued, and such default shall continue
for a period of time sufficient to permit the acceleration of the maturity of any
Indebtedness of the Corporation or any of its Subsidiaries outstanding thereunder (which
default has not been cured or waived), other than a default which directly results from
action by the Corporation at the express direction of the Board (including in such direction
a majority of the Investor Directors); or
(vi) a judgment in excess of $500,000 is rendered against the Corporation and, within 60
days after entry thereof, such judgment is not discharged or execution thereof stayed
pending appeal, or within 60 days after the expiration of such stay, such judgment
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is not discharged.
b. Consequences of Events of Noncompliance.
(i) Additional Directors. Upon the occurrence of an Event of Noncompliance and
for so long as such Event of Noncompliance continues, the holders of Pari Passu Preferred and
Conversion Common Shares shall be entitled to appoint such number of additional Investor Directors
to the Board (selected by the holders of a majority of the Pari Passu Preferred and Conversion
Common Shares) such that the holders of Pari Passu Preferred and Conversion Common Shares have
appointed a majority of the Board. Upon notice from the holders of a majority of the outstanding
Pari Passu Preferred and Conversion Common Shares, voting as a single class on a Common Equivalent
Basis, then outstanding that they intend to exercise their rights under this Section 6(b)(i), the
Corporation shall immediately take whatever action is necessary so as to effectuate this
Section 6(b)(i), including, without limitation, increasing the size of the Board and
electing such additional Investor Directors.
(ii) Increased Dividend Rate. Upon the occurrence of an Event of Noncompliance
and for so long as such Event of Noncompliance continues, the dividend rate on the Series A
Preferred set forth in Section 2(a) shall be increased from 5% to 7% per annum.
(iii) Redemption of Pari Passu Preferred. Upon the occurrence of an Event of
Noncompliance and for so long as such Event of Noncompliance continues, the holders of a majority
of the shares of Pari Passu Preferred then outstanding may require by notice given to the
Corporation that all of the shares of Pari Passu Preferred be immediately (and in no event later
than five business days after such request) redeemed by the Corporation at a price per share of
Pari Passu Preferred equal to the their respective Liquidation Values plus a rate of return on such
amount (after taking into account all dividends paid by the Corporation pursuant to Section
2(a)) equal to 7% per annum, compounded annually.
(iv) Inadequate Funds. If the funds of the Corporation legally available for
redemption of Pari Passu Preferred pursuant to Section 6(b)(iii) are insufficient to redeem
all shares of Pari Passu Preferred, the provisions of Sections 5(b) and (c) shall apply to
the same extent as if such provisions were set forth in their entirety in this Section 6(b)(iv).
(v) Reissuance of Certificate. If fewer than the total number of shares of
Series A Preferred or Conversion Common Shares represented by any certificate are redeemed in any
installment pursuant to Section 6(b)(iv), a new certificate representing the number of
unredeemed shares of such Series A Preferred or Conversion Common Shares, as the case may be, will
be issued to the holder thereof without cost to such holder promptly after surrender of the
certificate representing the redeemed shares of Series A Preferred or Conversion Common Shares, as
the case may be.
c. No Limitation of Rights. If any Event of Noncompliance exists, each
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holder of Series A Preferred shall also have any other rights that such holder is entitled to under
any contract or agreement at any time and any other rights that such holder may have pursuant to
applicable law.
d. Survival of Representations and Warranties. For the purposes of
determining an Event of Noncompliance, the representations and warranties referred to in
Section 6(a)(iii) shall have the respective survival periods set forth in the
Preferred Stock Purchase Agreement.
(7) Conversion.
a. Conversion Procedure.
(i) At any time and from time to time, a holder of Series A Preferred shall have
the right to convert all or any portion of its shares of Series A Preferred into the number
of shares of Common computed by dividing (x) the aggregate Series A Liquidation
Value of the shares of Series A Preferred to be converted by (y) the Series A Conversion
Price then in effect.
(ii) All shares of Series A Preferred shall automatically convert into Common
(pursuant to the computation set forth in Section 7(a)(i)) upon (A) the affirmative written
consent of the holders of at least a majority of the outstanding shares of Pari Passu
Preferred or (B) receipt by the Corporation of total gross offering proceeds of at least
$50,000,000 from the sale of shares of Common pursuant to the Corporation’s firm commitment
underwritten Public Offering of the Common, at a gross price per share not less than $16 (as
adjusted to reflect stock splits, stock dividends, stock combinations, recapitalizations and
like occurrences) (a “Qualified IPO”).
(iii) Each conversion of Series A Preferred shall be deemed to have been effected
as of the close of business on the earlier of (A) the date specified in the affirmative
written consent of the holders of at least a majority of the outstanding shares of Series A
Preferred or (B) the date immediately prior to the closing date of a Qualified IPO (any such
date referred to in clause (A) or (B) being referred to as a “Conversion Date”). At the time
any such conversion has been effected, the rights of the holder of the shares of Series A
Preferred converted as a holder of Series A Preferred shall cease and the Person or Persons
in whose name or names any certificate or certificates for shares of Common are to be issued
upon such conversion shall be deemed to have become the holder or holders of record of the
shares of Common represented thereby.
(iv) As soon as possible after a conversion has been effected (but in any event
within five (5) business days in the case of subparagraph (A) below), the Corporation shall
deliver to the converting holder:
(A) certificates representing the number of shares of Common issuable by reason of
such conversion in such name or names and such denomination or denominations as the
converting holder has specified; and
(B) a certificate representing any shares of Series A Preferred
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which were represented by the certificate or certificates delivered to the Corporation in
connection with such conversion but which were not converted.
(v) The issuance of certificates for shares of Common upon conversion of Series A
Preferred shall be made without charge to the holders of such Series A Preferred or Common for any
issuance tax in respect thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Common. Upon conversion of each share of Series A
Preferred, the Corporation shall take all such actions as are necessary in order to insure that the
Common issuable with respect to such conversion shall be validly issued, fully paid and
nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the
issuance thereof.
(vi) The Corporation shall not close its books against the transfer of Series A Preferred
or of Common issued or issuable upon conversion of Series A Preferred in any manner that interferes
with the timely conversion of Series A Preferred. The Corporation shall assist and cooperate with
any holder of shares of Series A Preferred required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of shares hereunder (including,
without limitation, making any filings required to be made by the Corporation).
(vii) The Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common, solely for the purpose of issuance upon the conversion of shares of
the Series A Preferred, such number of shares of Common as are issuable upon the conversion of all
outstanding Series A Preferred. All shares of Common which are so issuable shall, when issued, be
duly and validly issued, fully paid and nonassessable and free from all taxes, liens, charges and
encumbrances. The Corporation shall take all such actions as may be necessary to insure that all
such shares of Common may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which shares of Common may
be listed (except for official notice of issuance which shall be delivered immediately by the
Corporation upon each such issuance). The Corporation shall not take any action that would cause
the number of authorized but unissued shares of Common to be less than the number of such shares
required to be reserved hereunder for issuance upon conversion of the Series A Preferred.
(viii) If any fractional interest in a share of Common would, except for the provisions of
this subparagraph, be delivered upon any conversion of the Series A Preferred, the Corporation, in
lieu of delivering the fractional share therefor, may pay an amount to the holder thereof equal to
the fair market value per share of Common as of the date of conversion as determined in good faith
by the Board, including a majority of the Investor Directors, multiplied by such fractional
interest; provided, however, that in the case of a Qualified IPO the fair market value per share
of Common shall be the gross price per share of Common in such Qualified IPO. The determination as
to whether or not to make any cash payment in lieu of the issuance of fractional shares shall be
based upon the total number of shares of Series A Preferred being converted at any one time by the
holder thereof, not upon each share of Series A Preferred being converted.
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(ix) All certificates representing shares of Series A Preferred which are required
to be surrendered for conversion in accordance with the provisions hereof shall, from and after the
Conversion Date, be deemed to have been retired and cancelled, and the shares of Series A
Preferred converted pursuant to this Section 7 represented thereby shall, from and after
the Conversion Date, be deemed to have been converted into Common for all purposes, notwithstanding
any failure of the holder or holders thereof to surrender such certificates on or prior to the
Conversion Date. The Corporation from time to time may take such appropriate corporate action as
may be necessary to reduce the authorized number of shares of the Series A Preferred Stock
accordingly.
b. Conversion Price.
(i) The initial Series A Conversion Price shall be $3.7999696 per share of Common
(subject to adjustment in the event of stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences). In order to prevent dilution of the conversion rights
granted under this Section 7, the Series A Conversion Price shall be subject to adjustment
from time to time pursuant to this Section 7(b).
(ii) If and whenever on or after the Series A Original Issuance Date the Corporation
issues or sells or, in accordance with this Section 7, is deemed to have issued or sold,
any shares of its Common for a consideration per share less than the Series A Conversion Price in
effect immediately prior to the time of such issuance, then immediately upon such issuance or sale
or deemed issuance or sale the Series A Conversion Price shall be reduced to the conversion price
determined by dividing (A) the sum of (1) the product derived by multiplying the Series A
Conversion Price in effect immediately prior to such issuance or sale by the number of shares of
Common Deemed Outstanding immediately prior to such issuance or sale, plus (2) the consideration,
if any, received by the Corporation upon such issuance or sale, by (B) the number of shares of
Common Deemed Outstanding immediately after such issue or sale.
(iii) Notwithstanding the foregoing, there shall be no adjustment in the Series A
Conversion Price as a result of any issuance or sale (or deemed issuance or sale) of:
(A) shares of Common issued upon conversion of the Series A Preferred;
(B) shares of Common issued upon the exercise of Options or other Convertible
Securities outstanding as of the First Closing Date;
(C) securities issued pursuant to a Board-approved (including at least one of
the Investor Directors) bona fide acquisition of an entity by merger, purchase of
substantially all of the assets or other reorganization;
(D) shares of Common issued to Catalyst pursuant to the Options granted
under the Catalyst Letter Agreements;
(E) shares of Common or other securities issued as a dividend or distribution
on, or in connection with a split of or recapitalization of,
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any of the capital stock of the Corporation;
(F) up to an aggregate of 250,000 shares of Common reserved for issuance
per year pursuant to the Option Plan (subject to adjustment in the event of
stock splits, stock dividends, stock combinations, recapitalizations and like
occurrences) and shares of Common reserved for issuance pursuant to the
Option Plan in lieu of the repayment of certain salary deferrals as approved
by a majority of the Board (including at least one of the Investor
Directors), which foregoing shares may be subject to Options or restricted
stock awards granted under the Option Plan; provided that any Options that
expire or terminate unexercised or any restricted stock awards that are
repurchased by the Corporation pursuant to the terms of such award shall not
be counted toward the maximum number set forth in this subparagraph (F)
unless and until such shares are subject to new restricted stock awards (or
new Options) pursuant to the terms of the Option Plan;
(G) shares of Common issued or issuable (including options to acquire
such shares of Common) to suppliers or third-party service providers in
connection with the provision of goods or services pursuant to transactions
in the ordinary course of business and approved by a majority of the Board,
including at least one of the Investor Directors;
(H) shares of Common issued or issuable in connection with
bona-fide sponsored research, collaboration, technology license, development,
OEM, marketing or other similar agreements or strategic partnerships or joint
ventures entered into in the ordinary course of business and approved by a
majority of the Board, including at least one of the Investor Directors (and
by at least a majority of the shares of Pari Passu Preferred and Conversion
Common Shares, voting as a single class on a Common Equivalent Basis, then
outstanding, if required pursuant to Section 3(c)); or
(I) securities issued in connection with a Qualified IPO;
provided that the aggregate number of shares of Common issued or issuable pursuant to
clauses (G) and (H) above shall not exceed 100,000 in any twelve-month period;
c. Effect on Conversion Price of Certain Events. For purposes of
determining the Series A Conversion Price under Section 7, the following shall be
applicable:
(i) Issuance of Options. If the Corporation in any manner grants, issues
or sells any Options (other than any Options permitted by Section 7(b)(iii)) and the
price per share for which Common is issuable upon the exercise of such Options, or upon
conversion or exchange of any Convertible Securities issuable upon exercise of such Options,
is less than the Series A Conversion Price in effect immediately prior to the time of the
granting, issuance or sale of such Options, then the total maximum number of
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shares of Common issuable upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time
of the granting, issuance or sale of such Options for such price per share. For purposes of this
paragraph, the “price per share for which Common is issuable” shall be determined by
dividing (A) the sum of (1) the total amount, if any, received or receivable by the
Corporation as consideration for the granting, issuance or sale of such Options, plus (2) the
minimum aggregate amount of additional consideration payable to the Corporation upon exercise of
all such Options, plus (3) in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the
total maximum number of shares of Common issuable upon the exercise of’ such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon the exercise of such
Options. No further adjustment of the Conversion Price shall be made when Convertible Securities
are actually issued upon the exercise of such Options or when Common is actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in any manner issues
or sells any Convertible Securities and the price per share for which Common is issuable upon
conversion or exchange thereof is less than the Series A Conversion Price in effect immediately
prior to the time of such issuance or sale, then the maximum number of shares of Common issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this paragraph, the “price per
share for which Common is issuable” shall be determined by dividing (A) the sum of (1) the
total amount received or receivable by the Corporation as consideration for the issue or sale of
such Convertible Securities, plus (2) the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum
number of shares of Common issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Series A Conversion Price shall be made when Common is
actually issued upon the conversion or exchange of such Convertible Securities, and if any such
issuance or sale of such Convertible Securities is made upon exercise of any Options for which
adjustments of the Series A Conversion Price had been or are to be made pursuant to other
provisions of this Section 7, no further adjustment of the conversion price shall be made
by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase price provided for
in any Options, the additional consideration, if any, payable upon the conversion or exchange of
any Convertible Securities or the rate at which any Convertible Securities are convertible into or
exchangeable for Common changes at any time, the Series A Conversion Price in effect at the time of
such change shall be immediately adjusted to the Series A Conversion Price that would have been in
effect at such time had such Options or Convertible Securities still outstanding provided for such
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changed purchase price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; provided, that, if such adjustment of the Series A
Conversion Price would result in an increase in the Series A Conversion Price then in effect, the
Corporation will promptly give all holders of Series A Preferred written notice of such increase.
For purposes of this Section 7(c)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the Series A Original Issuance Date are changed in the manner described
in the immediately preceding sentence, then such Option or Convertible Security and the Common
deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued
as of the date of such change; provided, that, no such change shall at any time cause the Series A
Conversion Price hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon
the expiration of any Option or the termination of any right to convert or exchange any Convertible
Security without the exercise of any such Option or right, the Series A Conversion Price then in
effect hereunder shall be adjusted immediately to the Series A Conversion Price that would have
been in effect at the time of such expiration or termination had such Option or Convertible
Security, to the extent outstanding immediately prior to such expiration or termination, never been
issued; provided, that, if such expiration or termination would result in an increase in the Series
A Conversion Price then in effect, the Corporation will promptly give all holders of Series A
Preferred written notice of such increase. For purposes of this Section 7(c)(iv), the expiration or termination of any Option or Convertible Security that was outstanding as of
the Series A Original Issuance Date shall not cause the Series A Conversion Price hereunder to be
adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible
Security caused it to be deemed to have been issued after the Series A Original Issuance Date.
(v) Calculation of Consideration Received. If any Common, Option or Convertible
Security is issued or sold or deemed to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Corporation therefor (net of
discounts, commissions and related expenses). If any Common, Option or Convertible Security is
issued or sold for a consideration other than cash, the amount of the consideration other than cash
received by the Corporation shall be the fair market value of such consideration as determined in
good faith by the Board. If any Common, Option or Convertible Security is issued to the owners of
the non-surviving entity in connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor shall be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is attributable to such
Common, Option or Convertible Security, as the case may be. The fair value of any consideration
other than cash and securities shall be the fair market value as determined in good faith by the
Board.
(vi) Integrated Transactions. In case any Option is issued in connection with the
issuance or sale of other securities of the Corporation, together comprising one integrated
transaction in which no specific exercise price is allocated to such Option by the parties thereto,
the Option shall be deemed to have been issued at an exercise price of
$0.01.
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(vii) Treasury Shares. The number of shares of Common outstanding at any given time
shall not include shares owned or held by or for the account of the Corporation, and the
disposition of any shares so owned or held shall be considered an issuance or sale of such shares.
(viii) Record Date. If the Corporation takes a record of the holders of Common for the
purpose of entitling them (A) to receive a dividend or other distribution payable in Common,
Options or in Convertible Securities or (B) to subscribe for or purchase Common, Options or
Convertible Securities, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common deemed to have been issued or sold upon the declaration of such dividend
or upon the making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ix)
Subdivisions or Combinations of Common. If the Corporation at
any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common into a greater number of shares, the Series A Conversion Price
in effect immediately prior to such subdivision shall be reduced proportionately, and if the
Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common into a smaller number of shares, the Series A Conversion Price in
effect immediately prior to such combination shall be increased proportionately.
(x) Recapitalization, Reorganization, Reclassification, Consolidation, Merger
or_Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of
all or substantially all of the Corporation’s assets or other transaction, in each case which is
effected in such a manner that the holders of Common are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common,
is referred to herein as an “Organic Change” Prior to the consummation of any Organic Change, the
Corporation shall make appropriate provisions (in form and substance reasonably satisfactory to the
holders of a majority of the Series A Preferred then outstanding) to insure that each of the
holders of Series A Preferred shall thereafter have the right to acquire and receive, in lieu of or
in addition to (as the case may be) the shares of Common immediately theretofore acquirable and
receivable upon the conversion of such holder’s Series A Preferred, such shares of stock,
securities or assets as such holder would have received in connection with such Organic Change if
such holder had converted its Series A Preferred immediately prior to such Organic Change. In each
such case, the Corporation shall also make appropriate provisions (in form and substance reasonably
satisfactory to the holders of a majority of the Series A Preferred then outstanding) to insure
that the provisions of this Section 7(c)shall thereafter be applicable to the securities
issued in exchange for the Series A Preferred (including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is other than the Corporation and
the value for the Common reflected by the terms of such consolidation, merger or sale is less than
the Series A Conversion Price in effect immediately prior to such consolidation, merger or sale, an
immediate adjustment of the Series A Conversion Price to the value for the
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Common so reflected and a corresponding immediate adjustment in the number of shares of
Common acquirable and receivable upon conversion of Series A Preferred). The Corporation
shall not effect any such consolidation, merger or sale, unless prior to the consummation
thereof, the successor entity (if other than the Corporation) resulting from consolidation
or merger or the entity purchasing such assets assumes by written instrument (in form and
substance satisfactory to the holders of a majority of the Series A Preferred then
outstanding) the obligation to deliver to each such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder may be entitled to
acquire.
(xi) Certain Other Events. If any event occurs of the type contemplated by
the provisions of this Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Board shall make an appropriate
adjustment in the Series A Conversion Price so as to protect the rights of the holders of
Series A Preferred; provided, that, no such adjustment shall increase the Series A Conversion
Price as otherwise determined pursuant to this Section 7 or decrease the number of
shares of Common issuable upon conversion of each share of Series A Preferred.
d. Notices.
(i) Immediately upon any adjustment of the Series A Conversion Price, the
Corporation shall give written notice thereof to all holders of Series A Preferred, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of Series A
Preferred at least 10 days prior to the date on which the Corporation closes its books or
takes a record (A) with respect to any dividend or distribution upon Common, (B) with
respect to any pro rata subscription offer to holders of Common or (C) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the holders of Series A
Preferred at least 10 days prior to the date on which any Organic Change shall take place.
(8) General.
a. Prior to the effective date of the Corporation’s initial Public Offering, the
Corporation shall keep at its principal office (or the office of its agent) a register for the
registration of Common and Series A Preferred. Upon the surrender of any certificate representing
Common or Series A Preferred at such place, the Corporation shall, at the request of the record
holder of such certificate, execute and deliver (at the Corporation’s expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of shares represented by
the surrendered certificate. Each such new certificate shall be registered in such name and shall
represent such number of shares as is requested by the holder of the surrendered certificate and
shall be substantially identical in form to the surrendered certificate, and dividends shall accrue
on the Common or Series A Preferred represented by such new certificate from the date to which
dividends have been fully paid on such Common or Series A Preferred
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represented by the surrendered certificate.
b. Upon receipt of
evidence reasonably satisfactory to the Corporation (an affidavit of the
registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing shares of Common or Series A Preferred, and in the case of
any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation upon surrender of such certificate, the
Corporation shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate, and dividends shall accrue on the Common or Series A Preferred represented
by such new certificate from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
c. Except as otherwise expressly provided hereunder, all notices referred to herein shall be
in writing and shall be delivered by registered or certified mail, return receipt requested and
postage prepaid, by reputable overnight courier service, charges prepaid or by personal delivery,
and shall be deemed to have been given (i) three (3) business days after being sent by registered
or certified mail, (ii) one business day after being deposited with such an overnight courier
service, and (iii) upon delivery, if by personal delivery, if mailed or delivered (A) to the
Corporation, at its principal executive offices, or (B) to any stockholder, at such holder’s
address as it appears in the stock records of the Corporation (unless otherwise indicated by any
such holder).
d. Any of the rights, powers or preferences of the holders of Series A Preferred and
Conversion Common Shares set forth herein may be waived or otherwise defeased by the affirmative
written consent of the holders of at least a majority of the shares of Series A Preferred and
Conversion Common Shares then outstanding, voting as a single class on a Common Equivalent Basis.
(9) Definitions. In this Certificate of Incorporation, the following terms
have the meanings specified or referred to in this Section 9.
“Acquisition” is defined in Section 3(b)(xi).
“Affiliate” means, with respect to any particular Person, any other Person that directly or
indirectly controls, is controlled by or is under common control with such particular Person. For
the purpose of this definition, “control” means the possession, directly or indirectly, of the power
to direct the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
“Appraised Value” means the value determined by an independent appraiser experienced in
valuing such type of consideration jointly selected by the Corporation and the holders of a
majority of the Conversion Common Shares. If the Corporation and the holders of a majority of the
Conversion Common Shares are unable to agree upon such an appraiser, the Corporation shall select
from a list of five such appraisers supplied by the holders of a majority of the
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Xxxxxxxxxx Xxxxxx Shares. The determination of such appraiser shall be final and binding upon the
parties, and the fees and expenses of such appraiser shall be borne by the Corporation.
“Board” means the Board of Directors of the Corporation.
“Budget” shall mean, with respect to a given fiscal year, the annual business plan and budget
as approved by the Board in accordance with the By-laws, as such
business plan and budget may be
amended from time to time by the Board in accordance with the By-laws.
“By-laws” means the By-laws of the Corporation.
“Catalyst”
means Catalyst Capital Investments LLC, a Delaware limited liability company.
“Catalyst Letter Agreements” means, collectively, (a) that certain letter agreement dated as
of May 31, 2006 between Catalyst and the Corporation regarding the introduction of prospective
suppliers and (b) that certain letter agreement dated as of May 31,2006 between Catalyst and the
Corporation regarding the introduction of prospective customers.
“Change in Ownership” means any sale, transfer or issuance or series of sales, transfers
and/or issuances of Common or Pari Passu Preferred by the Corporation or any holders thereof which
results in any Person or group of Persons (as the term “group” is used under the Securities
Exchange Act of 1934, as amended), other than the holders of Common and Pari Passu Preferred at
such time, owning capital stock of the Corporation possessing the voting power (under ordinary
circumstances) to elect a majority of the Board.
“Common” means the Corporation’s Common Stock, $.0001 par value per share.
“Common Deemed Outstanding” means, at any given time, the number of shares of Common actually
outstanding at such time, plus the number of shares of Common deemed to be outstanding pursuant to
Sections 7(c)(i) and 7(c)(ii) whether or not the Options or Convertible Securities
are actually convertible or exercisable at such time.
“Common Equivalent Basis” means, as of the date of such determination, (i) in respect of the
Series A Preferred, the number of shares of Common that each holder of Series A Preferred would be
entitled to receive upon conversion of its Series A Preferred into Common and (ii) in respect of
the Pari Passu Preferred, the number of shares of Common that each holder of Pari Passu Preferred
would be entitled to receive upon conversion of its Pari Passu Preferred into Common.
“Conversion Common Shares” means (i) the Common issued or issuable upon conversion of any
shares of Pari Passu Preferred and (ii) any Common issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other reincorporation. As
to any particular Conversion Common Shares, such shares shall cease to be Conversion Common Shares
when they have been (x) effectively registered under the Securities Act of 1933, as amended, and
disposed of in accordance with the registration statement covering them, (y) distributed to the
public through a broker, dealer or market maker pursuant to Rule 144
-18-
under the Securities Act of 1933, as then in effect, or any comparable statement under any
similar federal statute then in force or (z) repurchased by the Corporation.
“Conversion Date” is defined in Section 7(a)(iii).
“Convertible Securities” means any stock or securities directly or indirectly convertible
into or exchangeable for Common.
“Corporation”
means XStream Systems, Inc., a Delaware corporation.
“Event
of Noncompliance” is defined in Section
6(a).
“First
Closing Date” means March 14, 2007.
“Fundamental Change” means (i) any sale or transfer of more than 50% of the assets of the
Corporation and its Subsidiaries on a consolidated basis (measured either by book value in
accordance with generally accepted accounting principles consistently applied or by fair value
determined in the reasonable good faith judgment of the Board) in any transaction or series of
transactions (other than sales in the ordinary course of business and other than to a wholly owned
Subsidiary of the Corporation) and (ii) any merger or consolidation to which the Corporation is a
party, except for a merger in which the Corporation is the surviving corporation, the terms of the
Pari Passu Preferred are not changed, the Pari Passu Preferred is not exchanged for cash,
securities or other property, and after giving effect to such merger, the holders of the
Corporation’s outstanding capital stock immediately prior to the merger shall continue to own the
Corporation’s outstanding capital stock possessing the voting
power (under ordinary circumstances)
to elect a majority of the Board.
“GAAP” means United States generally accepted accounting principles, consistently applied
(except for any change required by GAAP).
“Indebtedness” means, with respect to any Person at any date, without duplication: (i) all
obligations of such Person for borrowed money or in respect of loans or advances; (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
(iii) all obligations in respect of letters of credit, whether or not drawn, and bankers’
acceptances issued for the account of such Person; (iv) all interest rate or currency caps,
collars, swaps or other similar protection agreements of such Person (valued on a market quotation
basis); (v) any indebtedness for the deferred purchase price of property or services with respect
to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade
payables and other current liabilities incurred in the ordinary course of business consistent with
past practice which are not more than 120 days past due, unless the same are being contested in
good faith by actions approved by the Board of Directors (including at least one of the Investor
Directors) and with respect to which the Corporation has set aside adequate reserves therefor in
accordance with GAAP); (vi) any commitment by which a Person assures a creditor against loss
(including, without limitation, contingent reimbursement obligations with respect to letters of
credit); (vii) any obligations under leases that are required to be capitalized in accordance with
GAAP; (viii) any indebtedness secured by a Lien on a Person’s assets; or (ix) any guarantee or
other contingent obligation (including, without limitation, obligations to repurchase, reimburse or
keep well) in respect of the items set forth in the foregoing clauses (i) through (viii).
-19-
“Intellectual Property Rights” means all (i) patents, patent applications, patent disclosures
and inventions, (ii) trademarks, service marks, trade dress, trade names, URL’s, logos and
corporate names and registrations and applications for registration thereof, together with all of
the goodwill associated therewith, (iii) copyrights (registered or unregistered) and copyrightable
works and registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software, data, data bases
and documentation thereof, (vi) trade secrets and other confidential information (including,
without limitation, ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial and marketing plans and customer and
supplier lists and information), (vii) other intellectual property rights and (viii) copies and
tangible embodiments thereof (in whatever form or medium).
“Investor Director” shall mean any director of the Board designated by the Investors
pursuant to the terms of the Shareholders Agreement.
“Investors” has the meaning set forth in the Shareholders Agreement.
“Liens” means any mortgage, pledge, security interest, encumbrance, lien, claim or charge of
any kind (including, without limitation, any conditional sale or other title retention agreement or
lease in the nature thereof), any sale of receivables with recourse against the Corporation or any
Affiliate, any filing or agreement to file a financing statement as debtor under the Uniform
Commercial Code or any similar statute other than to reflect ownership by a third party of
property leased to the Corporation under a lease which is not in the nature of a conditional sale
or title retention agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
“Liquidation Value” means, (i) in respect of the Series A Preferred, the Series A Liquidation
Value, (ii) in respect of the Series B Preferred, the Series B Liquidation Value and (iii) in
respect of the Series C Preferred, the Series C Liquidation Value.
“Non-Funded
Shares” is defined in Section 5(b).
“Option Plan” means the Corporation’s 2004 Stock Option Incentive Plan.
“Options” means any agreements, rights, warrants or options to subscribe for or purchase
Common or Convertible Securities.
“Organic Change” is defined in Section 7(c)(x).
“Pari
Passu Preferred Stock” means shares of Series A Preferred, Series B Preferred and Series
C Preferred.
“Permitted Issuances” means the issuance and sale of the Pari Passu Preferred expressly
contemplated by the Preferred Stock Purchase Agreement.
-20-
“Permitted Liens” means (i) liens with respect to taxes not yet due and payable or which are
being contested in good faith by appropriate proceedings and for which appropriate reserves have
been established in accordance with GAAP, (ii) mechanics’, materialmen’s or contractors’ liens or
encumbrances or any similar lien or restriction and (iii) easements, rights-of-way, restrictions
and other similar charges and encumbrances not interfering with the ordinary conduct of the
business of the Corporation.
“Person” means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization, a
governmental entity or any department, agency or political subdivision thereof or any other entity.
“Preferred Stock Purchase Agreement” means the Series A Preferred Stock Purchase Agreement
dated as of March 14, 2007, as amended, by and among the Corporation and the purchasers of the
securities named therein (as the same may be amended, modified, restated or replaced).
“Public Offering” means any offering by the Corporation of its capital stock or equity
securities to the public pursuant to an effective registration statement under the Securities Act
of 1933, as then in effect, or any comparable statement under any similar federal statute then in
force.
“Qualified IPO” is defined in Section 7(a)(ii).
“Redemption Date” means 45 days after the date of any Redemption Notice.
“Redemption Notice” means a written notice by one or more holders of the Series A
Preferred to the Corporation stating their intention to exercise the Redemption Right and the
number of each such holder’s shares of Series A Preferred to be redeemed.
“Redemption Note” is defined in Section 5(b).
“Redemption Right” is defined in Section 5(a).
“Registration Rights Agreement” means the Registration Rights Agreement dated as of March 14,
2007, as amended, by and among the Corporation and the investors named therein (as the same may be
amended, modified, restated or replaced).
“Series A Conversion Price” is defined in Section 7(b).
“Series A Junior Securities” means any of the Corporation’s equity securities (whether or not
currently authorized or outstanding) which by its terms is junior to the Series A Preferred, but
shall not include any shares of Series B Preferred or Series C Preferred.
“Series A Liquidation Value” means $3.7999696 per share, subject to equitable adjustments to
reflect stock splits, stock dividends, stock combinations, recapitalizations and like occurrences.
-21-
“Series A Original Issuance Date” means, with respect to any share of Series A
Preferred, the date of the issuance of such share of Series A Preferred pursuant to the Preferred
Stock Purchase Agreement.
“Series A Preferred” means the Series A Redeemable Convertible Preferred Stock
of the Corporation, $.0001 par value per share.
“Series B Liquidation Value” means $3.00 per share, subject to equitable
adjustments to reflect stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences.
“Series B Preferred” means the Series B Redeemable Convertible Preferred Stock of
the Corporation, $.0001 par value per share.
“Series B Warrants” means the warrants to purchase Common issued by the
Corporation pursuant to the Warrant Agreement dated as of December 19, 2007.
“Series C Liquidation Value” means $3.00 per share, subject to equitable
adjustments to reflect stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences.
“Series C Preferred” means the Series C Redeemable Convertible Preferred Stock of
the Corporation, $.0001 par value per share.
“Series C Warrants” means the warrants to purchase Common to be issued by the
Corporation pursuant to the Warrant Agreement dated as of December 19, 2007.
“Significant Event” is defined in Section 4(a).
“Shareholders Agreement” means the Amended and Restated Securityholders
Agreement dated as of December 19, 2007 by and among the Corporation and the
securityholders of the Corporation named therein (as the same may be amended,
modified, restated or replaced).
“Subsidiary” means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled (without
regard to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that Person or
a combination thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or indirectly,
by any Person or one or more of the other Subsidiaries of that Person or a combination
thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or other
business entity if such Person or Persons shall be allocated a majority of the gains
or losses of such limited liability company, partnership, association or other
business entity or shall be or control (or have the power to control) a managing
director, manager or general partner of such limited liability company, partnership,
association or other business entity.
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“Warrants” means the Series B Warrants and the Series C Warrants.
-23-
EXHIBIT A-2
Series B Certificate of Designations
Series B Certificate of Designations
TERMS OF
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
XSTREAM SYSTEMS, INC.
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
XSTREAM SYSTEMS, INC.
(1) Designation, Par Value and Number. This series of Preferred Stock shall be
designated as “Series B Redeemable Convertible Preferred Stock.” The Corporation shall have the
authority to issue 1,450,000 shares of the Series B Preferred with a par value of $.0001 per
share. In accordance with the terms hereof, each share of Series B Preferred shall have the same
relative rights as, and be identical in all respects with, each other share of Series B
Preferred.
(2) Dividends.
a. General. When and as declared by the Board, and to the fullest extent
permitted under the General Corporation Law of the State of Delaware, the Corporation shall pay
preferential dividends on each issued and outstanding share of the
Series B Preferred, provided,
however, that no dividend shall be declared on the Series B Preferred unless a pro rata amount
(based upon relative Liquidation Value) is declared on each of the other series of Pari Passu
Preferred. Subject to Section 6(b)(ii), dividends on each issued and outstanding share of Series B
Preferred shall be cumulative and shall accrue on a daily basis at a rate of 5% per annum of the
Series B Liquidation Value thereof (with such accrued and unpaid dividends compounding on each
annual anniversary of the Series B Original Issuance Date) from and including the Series B Original
Issuance Date to and including the first to occur of (i) the date on which the Series B Liquidation
Value of such share (plus all accrued and unpaid dividends thereon)
is paid to the holder thereof in
connection with the liquidation of the Corporation, (ii) the date on which such share is converted
into shares of Common hereunder or (iii) the date on which such share is otherwise acquired by the
Corporation. Such dividends shall accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Corporation legally available for the payment of
dividends, and such dividends shall be cumulative such that all accrued and unpaid dividends shall
be fully paid or declared with funds irrevocably set apart for payment before any dividends,
distributions, redemptions or other payments may be made with respect
to any Series B Junior
Securities. If, under Delaware law, any dividends cannot be declared
and paid in full when due, the
full amount which can be paid shall be paid pro rata to the holders
of the Series B Preferred and
the aggregated deficiency shall be increased as provided below.
b. Distribution of Partial Dividend Payments. Except as otherwise provided
herein, if at any time the Corporation pays less than the total amount of dividends then accrued
with respect to the Series B Preferred, such payment shall be distributed pro rata among the holders
thereof based upon the aggregate accrued but unpaid dividends on the Series B Preferred held by
each such holder.
c. Participation in Common Dividends. If the Corporation declares or pays a
dividend or makes any distribution on the Common, then the holders of
the outstanding shares of Pari
Passu Preferred (on a Common Equivalent Basis as of the record date for such dividend or
distribution) and the holders of the Common shall share pro rata in
such dividend or distribution.
(3) Voting Rights.
a. General. In addition to the rights provided by law and Sections 3(b), 3(c)
and 3(d) below, the holders of the Series B Preferred shall be entitled to notice of all meetings
of stockholders in accordance with the Corporation’s By-laws, and except as otherwise provided
herein or required by applicable law, the holders of the Series B Preferred shall be entitled to
vote on all matters submitted to the stockholders for a vote, voting as a single class with the
Common and other securities that vote with the Common, with the holders of Series B Preferred
entitled to one vote for each share of Common issuable upon conversion of the Series B Preferred
held as of the record date for such vote or, if no record date is
specified, as of the date of such
vote.
b. Actions Requiring the Consent of the Holders of Series B Preferred. So long as any
shares of Series B Preferred are outstanding, without the approval of at least a majority of the
shares of Series B Preferred then outstanding, the Corporation shall not file any resolution of the
Board with the Delaware Secretary of State that contains any provisions, or take any other action,
that would amend the terms of the Series B Preferred, increase the number of authorized Series B
Preferred, approve a reverse stock split or adversely affect or otherwise impair the rights or the
relative preferences or priorities of the holders of the Series B Preferred under this Certificate
of Incorporation or the By-laws.
c. Actions Requiring the Consent of the Holders of Pari Passu Preferred and Conversion
Common Shares. So long as any shares of Pari Passu Preferred or Conversion Common Shares are
outstanding, the Corporation shall not take, and shall not permit any of its Subsidiaries to take,
any of the following actions without the approval of the holders of at least a majority of the
shares of all of the Pari Passu Preferred and Conversion Common Shares, voting as a single class on
a Common Equivalent Basis, then outstanding:
(i) amend this Certificate of Incorporation or the By-laws;
(ii) except for Permitted Issuances, authorize, issue or enter into any
agreement providing for the issuance (contingent or otherwise) of any capital stock or
other equity securities of the Corporation ranking pari passu or senior to the Series B
Preferred (or any securities convertible into or exchangeable for any capital stock or
other equity securities of the Corporation ranking pari passu or senior to the Series B
Preferred);
(iii) except for the ratable payment of dividends on the Pari Passu Preferred,
directly or indirectly declare or pay any cash or property dividends or make any cash or
property distributions upon any of its capital stock or other equity securities;
(iv) directly or indirectly redeem, purchase or otherwise acquire any of the
Corporation’s capita] stock or other equity securities (including, without limitation,
Options) other than (A) the Pari Passu Preferred pursuant to the terms of this Certificate
of Incorporation, (B) repurchases of the Corporation’s securities from employees upon
termination of an employee’s employment with the Corporation pursuant to terms approved by
the Board, (C) repurchases of Options outstanding as of the First Closing
-2-
Date pursuant to the terms of such Options or (D) pursuant to the terms of the
Shareholders Agreement;
(v) merge or consolidate with any Person (other than a wholly owned Subsidiary)
or take any action which results in a Change in Ownership;
(vi) sell, license, lease or otherwise transfer all or substantially all of its assets
to any Person (other than to a wholly owned Subsidiary of the Corporation) in any transaction or
series of related transactions;
(vii) liquidate, dissolve or effect a recapitalization, bankruptcy or reincorporation in
any form of transaction (including, without limitation, any reincorporation into a limited
liability company, a partnership or any other non-corporate entity that is treated as a
partnership for Federal income tax purposes);
(viii) make any loans or advances to, guarantees for the benefit of, or investments in,
any Person (other than a wholly owned Subsidiary established under the laws of a jurisdiction of
the United States or any of its territorial possessions), except for (A) reasonable advances to
employees in the ordinary course of business consistent with past practice and (B) advances to
newly-hired employees in order to cover such employees’ relocation expenses;
(ix) except as provided in the current Budget, create, incur, assume or suffer to exist
any Indebtedness;
(x) create, incur, assume or suffer to exist any Liens other than (A) Permitted Liens
and (B) Liens incurred in connection with the incurrence of Indebtedness not prohibited by clause
(ix) above;
(xi) acquire any interest in any company or business (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any joint venture, in either case, that is
material to the business of the Corporation and its Subsidiaries, taken as a whole (each, an
“Acquisition”), other than Acquisitions the aggregate value of which (after taking into account the
assumption of any Indebtedness or other liabilities in connection therewith) do not exceed $300,000
in any twelve-month period, measured after giving effect to any purchase price adjustments relating
thereto;
(xii) become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument that by its terms would (under any circumstances)
restrict the Corporation’s right to perform the provisions of the Preferred Stock Purchase
Agreement, the Shareholders Agreement, the Registration Rights Agreement, this Certificate of
Incorporation or the By-laws;
(xiii) except as provided in the current Budget, make or commit to make capital
expenditures for any fiscal year;
(xiv)
except as required by Section 6(b)(i), increase the size of the Board to a
number greater than seven (7);
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(xv) enter into or become a party to any license, agreement or other arrangement
after the First Closing Date with respect to Intellectual Property Rights licensed to, or
owned or developed by, the Corporation, except that the foregoing shall not prevent the
Corporation from entering into, or becoming a party to, any such license, agreement or other
arrangement that (A) has a term of one year or less, (B) is nonexclusive and would be
customary in connection with the sale of the Corporation’s products or services, (C) relates
to “off the shelf” software licenses to the Corporation by a third party or (D) is approved
by a majority of the Board (including at least one of the Investor Directors); or
(xvi) change the primary line of business of the Corporation from materials
identification, verification and analysis, and any related field, or enter into any material
new line of business.
d. Election of Directors. Subject to Section 6(b)(i), for so long as
any shares
of Pari Passu Preferred or Conversion Common Shares remain outstanding, the holders of the Pari
Passu Preferred and Conversion Common Shares, voting together as a single class on a Common
Equivalent Basis, shall be entitled to elect two (2) members of the Board at each meeting or
pursuant to each consent of the Corporation’s stockholders for the election of directors, and to
remove from office any such director and to fill any vacancy caused by the resignation, death or
removal of any such director.
(4) Liquidation, Dissolution, etc.
a. Significant Event. Upon any liquidation, Fundamental Change, Change in
Ownership, dissolution or winding up of the Corporation (whether voluntary or involuntary)
(each, a “Significant Event”):
(i) Each holder of Series B Preferred shall be entitled to receive, prior and
in preference to any distribution or payment made upon any Series B Junior Securities, an
amount equal to (i) the aggregate Series B Liquidation Value of all shares of Series B
Preferred held by such holder plus (ii) all accrued and unpaid dividends on such shares of
Series B Preferred. If, upon any Significant Event, the Corporation’s assets to be
distributed among the holders of the Pari Passu Preferred are insufficient to permit
payment to such holders of the aggregate amount to which they are entitled to be paid under
this Section 4(a)(i) and the equivalent provisions of the other series of Pari
Passu Preferred, then the entire assets available to be distributed to the Corporation’s
stockholders shall be distributed pro rata among such holders of the Pari Passu Preferred
based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of the
shares of Pari Passu Preferred held by each such holder.
(ii) After payment to the holders of the Series B Preferred of the amounts set
forth in the first sentence of Section 4(a)(i), the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be distributed
pro rata among the holders of the Common and the holders of the Pari Passu Preferred (on a
Common Equivalent Basis).
-4-
b. Form of Consideration. Whenever the distribution provided for in this
Section 4 shall be payable in a form other than securities or cash, the value of such distribution
shall be the fair market value as determined in good faith by the Board, including a majority of
the Investor Directors.
c. Distribution upon Change in Ownership. Upon any Significant Event effected
as a result of a Change in Ownership, any proceeds received by stockholders of the Corporation
other than holders of Pari Passu Preferred in accordance with the terms of such Pari Passu
Preferred (including, without limitation, any amounts received by any stockholders in respect of
any employment, non-competition, consulting or other similar agreement entered into in connection
with such Change in Ownership that, in the case of employment or consulting agreements, provide
for payments to such stockholder that are in excess of the compensation payable to such
stockholder prior to such Change in Ownership (other than, in the case of employment, for
increases in annual compensation not in excess of 20% of the annual compensation payable to such
stockholder in the last completed fiscal year prior to such Change in Ownership)) shall be
construed as being received by the Corporation and thereafter distributed to the holders of the
Pari Passu Preferred and Common in accordance with Section 4(a)(ii).
(5) Redemptions.
a. Redemption at the Option of Holders. At any time on or after March 14,
2012, upon the request of the holders of at least a majority of the then outstanding shares of
Series B Preferred, each of the holders of the then outstanding Series B Preferred shall have the
right (a “Redemption Right” to require the Corporation to redeem all or any of their shares of
Series B Preferred at a price per share equal to the Series B Liquidation Value plus a rate of
return on such amount (after taking into account all dividends paid by the Corporation pursuant to
Section 2(a)) equal to 7% per annum, compounded annually. Any holder of Series B Preferred may
exercise his, her or its Redemption Right by delivering to the Corporation a Redemption Notice on
or after March 14, 2012, provided that holders of at least a majority of the then outstanding
shares of Pari Passu Preferred have requested a redemption pursuant to this Section 5(a) and the
equivalent provisions of the other series of Pari Passu Preferred. Within ten (10) days after the
date of a Redemption Notice delivered by any holder of Series B Preferred, the Corporation shall
notify all other holders of Pari Passu Preferred that the Redemption Right has been exercised, and
each other holder of Pari Passu Preferred shall have the right, exercisable by written notice
delivered to the Corporation within thirty (30) days after receipt of such notice from the
Corporation, to request that all or a portion of such other holder’s shares of Pari Passu Preferred
be redeemed on the Redemption Date together with the shares of Series B Preferred of the holder who
delivered the Redemption Notice. The Corporation shall be obligated to redeem the total number of
shares of Series B Preferred requested to be redeemed in accordance herewith on the Redemption
Date. For each share of Series B Preferred which is to be redeemed on a particular Redemption Date
in accordance with this Section 5(a), the Corporation shall be obligated on the date
specified for redemption thereof in the written notice with respect thereto, to pay to the holder
thereof (upon surrender by such holder at the Corporation’s principal office of the certificate
representing such share) such amount specified in this Section 5(a) in immediately
available funds.
b. Inadequate Funds; Redemption Notes. If the funds of the Corporation
-5-
legally available for redemption of Series B Preferred on any Redemption Date are insufficient to
redeem the total number of shares of Series A Preferred and all other shares of Pari Passu
Preferred to be redeemed on such date: (i) those funds which are legally available shall be used to
redeem the maximum possible number of shares of Pari Passu Preferred ratably among the holders of
such shares to be redeemed based upon the aggregate amount to which they are entitled to be paid
under this Section 5 and the equivalent provisions of the other series of Pari Passu
Preferred; and (ii) with respect to those shares of Pari Passu Preferred requested to be redeemed
but for which funds are not legally available (the “Non-Funded Shares”), the Corporation shall
issue and deliver to each holder of Non-Funded Shares a promissory note (each a “Redemption Note”).
Each Redemption Note shall be payable one year from date of issuance and shall bear interest at the
rate of 8% per annum, compounded quarterly, and shall have an aggregate principal amount per
Non-Funded Share equal to the Series B Liquidation Value plus a rate of return on such amount
(after taking into account all dividends paid by the Corporation pursuant to Section 2(a))
equal to 7% per annum, compounded annually. A Redemption Note may be prepaid by the Company at any
time without penalty. The issuance of Redemption Notes shall be made without charge to the holders
of the Non-Funded Shares receiving such Redemption Notes for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with the issuance thereof, and the Corporation
shall pay the fees and expenses of each holder of Non-Funded Shares in connection with the issuance
of Redemption Notes, including reasonable attorney’s fees and expense. Subject to the terms of any
then existing senior debt or credit facility, the terms and documentation relating to each
Redemption Note shall provide that the debt obligation evidenced thereby shall at all times be pari
passu with the most senior debt or credit facility of the Corporation outstanding at any time
during the term of the Redemption Note. Each Redemption Note shall also contain customary terms and
conditions, including, without limitation, a cross-acceleration provision with respect to any
amount of Indebtedness of the Company or any of its Subsidiaries and appropriate negative
covenants, including, without limitation, negative covenants prohibiting the Corporation, without
the consent of the holders of a majority of aggregate principal amount of all of the Redemption
Notes outstanding, from taking, or permitting any of its Subsidiaries to take, any of the actions
specified in Sections 3(b)(i) — xvi.
c. Reissuance of Certificate. If fewer than the total number of shares of Series B
Preferred represented by any certificate are redeemed in any installment, a new certificate
representing the number of unredeemed shares of Series B Preferred (other than any Non-Funded
Shares) will be issued to the holder thereof without cost to such holder promptly after surrender
of the certificate representing the redeemed shares of Series B Preferred.
d. Redeemed or Otherwise Acquired Shares. All rights pertaining to shares of the
Series B Preferred that are redeemed or otherwise acquired by the Corporation and, subject to
Section 5(b), all rights pertaining to shares that are deemed to be Non-Funded Shares,
shall cease, and such shares shall not thereafter be (i) reissued, sold or transferred, (ii)
entitled to any dividends accruing after the date of redemption or acquisition or (iii) deemed to
be issued and outstanding for any purpose whatsoever. The shares of Series B Preferred not redeemed
(other than any Non-Funded Shares) shall remain issued and outstanding and entitled to all the
rights and preferences provided herein.
-6-
(6) Events of Noncompliance.
a. Definition. An “Event of Noncompliance” shall be deemed to have
occurred if:
(i) the Corporation shall fail to make any redemption payment required under Section 5
or the equivalent provisions of the other series of Pari Passu Preferred (whether or not
such payment is legally permissible or is prohibited by any agreement to which the
Corporation is subject);
(ii) (v) the Corporation breaches any of its covenants or agreements contained in
the Preferred Stock Purchase Agreement, which breach has, or is more likely than not to
have, an adverse effect of $100,000 or more in the aggregate on the holders of the Pari
Passu Preferred, (x) such breach does not result directly from action by the Corporation at
express the direction of the Board (including in such direction a majority of the Investor
Directors), (y) the Corporation fails to cure such breach within 30 days of written notice
thereof from any holder of the Pari Passu Preferred and (z) the holders of at least a
majority of the outstanding shares of Pari Passu Preferred after such 30-day period send a
notice of such Event of Noncompliance to the Corporation;
(iii) (x) any representation or warranty made by the Corporation under the
Preferred Stock Purchase Agreement shall have been untrue or incorrect in any material
respect when made, the result of which has, or is more likely than not to have, an adverse
effect of $100,000 or more on (A) the condition (financial or otherwise), operating results,
business, assets, operations, employee relations or client relations of the Corporation,
taken as a whole (other than to the extent resulting from a change in accounting methods
required by GAAP) or (B) the holders of the Pari Passu Preferred, (y) the Corporation fails
to cure such breach within 30 days of written notice thereof from any holder of the Pari
Passu Preferred and (z) the holders of at least a majority of the outstanding shares of Pari
Passu Preferred send a notice of such Event of Noncompliance to the Corporation;
(iv) the Corporation shall commence or enter into any bankruptcy,
receivership, liquidation or assignment for the benefit of any creditors;
(v) the Corporation shall default under one or more indentures, agreements or
other instruments under which any Indebtedness aggregating at least $100,000 of the
Corporation or any of its Subsidiaries is or may be issued, and such default shall continue
for a period of time sufficient to permit the acceleration of the maturity of any
Indebtedness of the Corporation or any of its Subsidiaries outstanding thereunder (which
default has not been cured or waived), other than a default which directly results from
action by the Corporation at the express direction of the Board (including in such direction
a majority of the Investor Directors); or
(vi) a judgment in excess of $500,000 is rendered against the Corporation and,
within 60 days after entry thereof, such judgment is not discharged or execution thereof
stayed pending appeal, or within 60 days after the expiration of such stay, such judgment
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is not discharged.
b. Consequences of Events of Noncompliance.
(i) Additional Directors. Upon the occurrence of an Event of Noncompliance and
for so long as such Event of Noncompliance continues, the holders of Pari Passu Preferred and
Conversion Common Shares shall be entitled to appoint such number of additional Investor Directors
to the Board (selected by the holders of a majority of the Pari Passu Preferred and Conversion
Common Shares) such that the holders of Pari Passu Preferred and Conversion Common Shares have
appointed a majority of the Board. Upon notice from the holders of a majority of the outstanding
Pari Passu Preferred and Conversion Common Shares, voting as a single class on a Common Equivalent
Basis, then outstanding that they intend to exercise their rights under this Section
6(b)(i), the Corporation shall immediately take whatever action is necessary so as to
effectuate this Section 6(b)(i), including, without limitation, increasing the size of the
Board and electing such additional Investor Directors.
(ii) Increased Dividend Rate. Upon the occurrence of an Event of Noncompliance
and for so long as such Event of Noncompliance continues, the dividend rate on the Series B
Preferred set forth in Section 2(a) shall be increased from 5% to 7% per annum.
(iii) Redemption of Pari Passu Preferred. Upon the occurrence of an Event of
Noncompliance and for so long as such Event of Noncompliance continues, the holders of a majority
of the shares of Pari Passu Preferred then outstanding may require by notice given to the
Corporation that all of the shares of Pari Passu Preferred be immediately (and in no event later
than five business days after such request) redeemed by the Corporation at a price per share of
Pari Passu Preferred equal to the their respective Liquidation Values plus a rate of return on such
amount (after taking into account all dividends paid by the Corporation pursuant to Section
2(a)) equal to 7% per annum, compounded annually.
(iv) Inadequate Funds. If the funds of the Corporation legally available for
redemption of Pari Passu Preferred pursuant to Section 6(b)(iii) are insufficient to redeem
all shares of Pari Passu Preferred, the provisions of Sections 5(b) and (c) shall apply to
the same extent as if such provisions were set forth in their entirety in this Section
6(b)(iv).
(v) Reissuance of Certificate. If fewer than the total number of shares of
Series B Preferred or Conversion Common Shares represented by any certificate are redeemed in any
installment pursuant to Section 6(b)(iv), a new certificate representing the number of
unredeemed shares of such Series B Preferred or Conversion Common Shares, as the case may be, will
be issued to the holder thereof without cost to such holder promptly after surrender of the
certificate representing the redeemed shares of Series B Preferred or Conversion Common Shares, as
the case may be.
c. No Limitation of Rights. If any Event of Noncompliance exists, each
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holder of Series B Preferred shall also have any other rights that such holder is entitled to under
any contract or agreement at any time and any other rights that such holder may have pursuant to
applicable law.
d. Survival of Representations and Warranties. For the purposes of
determining an Event of Noncompliance, the representations and warranties referred to in
Section 6(a)(iii) shall have the respective survival periods set forth in the
Preferred Stock Purchase Agreement.
(7) Conversion.
a. Conversion Procedure.
(i) At any time and from time to time, a holder of Series B Preferred shall have
the right to convert all or any portion of its shares of Series B Preferred into the number
of shares of Common computed by dividing (x) the aggregate Series B Liquidation
Value of the shares of Series B Preferred to be converted by (y) the Series B Conversion
Price then in effect.
(ii) All shares of Series B Preferred shall automatically convert into Common
(pursuant to the computation set forth in Section 7(a)(i)) upon (A) the affirmative
written consent of the holders of at least a majority of the outstanding shares of Pari
Passu Preferred or (B) receipt by the Corporation of total gross offering proceeds of at
least $50,000,000 from the sale of shares of Common pursuant to the Corporation’s firm
commitment underwritten Public Offering of the Common, at a gross price per share not less
than $16 (as adjusted to reflect stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences) (a “Qualified IPO”).
(iii) Each conversion of Series B Preferred shall be deemed to have been effected
as of the close of business on the earlier of (A) the date specified in the affirmative
written consent of the holders of at least a majority of the outstanding shares of Series B
Preferred or (B) the date immediately prior to the closing date of a Qualified IPO (any such
date referred to in clause (A) or (B) being referred to as a “Conversion
Date”). At the time
any such conversion has been effected, the rights of the holder of the shares of Series B
Preferred converted as a holder of Series B Preferred shall cease and the Person or Persons
in whose name or names any certificate or certificates for shares of Common are to be issued
upon such conversion shall be deemed to have become the holder or holders of record of the
shares of Common represented thereby.
(iv) As soon as possible after a conversion has been effected (but in any event
within five (5) business days in the case of subparagraph (A) below), the Corporation shall
deliver to the converting holder:
(A) certificates representing the number of shares of Common issuable by reason of
such conversion in such name or names and such denomination or denominations as the
converting holder has specified; and
(B) a certificate representing any shares of Series B Preferred
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which were represented by the certificate or certificates delivered to the Corporation in
connection with such conversion but which were not converted.
(v) The issuance of certificates for shares of Common upon conversion of Series B
Preferred shall be made without charge to the holders of such Series B Preferred or Common for any
issuance tax in respect thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Common. Upon conversion of each share of Series B
Preferred, the Corporation shall take all such actions as are necessary in order to insure that the
Common issuable with respect to such conversion shall be validly issued, fully paid and
nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the
issuance thereof.
(vi) The Corporation shall not close its books against the transfer of Series B Preferred
or of Common issued or issuable upon conversion of Series B Preferred in any manner that interferes
with the timely conversion of Series B Preferred. The Corporation shall assist and cooperate with
any holder of shares of Series B Preferred required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of shares hereunder (including,
without limitation, making any filings required to be made by the Corporation).
(vii) The Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common, solely for the purpose of issuance upon the conversion of shares of
the Series B Preferred, such number of shares of Common as are issuable upon the conversion of all
outstanding Series B Preferred. All shares of Common which are so issuable shall, when issued, be
duly and validly issued, fully paid and nonassessable and free from all taxes, liens, charges and
encumbrances. The Corporation shall take all such actions as may be necessary to insure that all
such shares of Common may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which shares of Common
may be listed (except for official notice of issuance which shall be delivered immediately by the
Corporation upon each such issuance). The Corporation shall not take any action that would cause
the number of authorized but unissued shares of Common to be less than the number of such shares
required to be reserved hereunder for issuance upon conversion of the Series B Preferred.
(viii) If any fractional interest in a share of Common would, except for the provisions of
this subparagraph, be delivered upon any conversion of the Series B Preferred, the Corporation, in
lieu of delivering the fractional share therefor, may pay an amount to the holder thereof equal to
the fair market value per share of Common as of the date of conversion as determined in good faith
by the Board, including a majority of the Investor Directors, multiplied by such fractional
interest; provided, however, that in the case of a Qualified IPO the fair market value per share of
Common shall be the gross price per share of Common in such Qualified IPO. The determination as to
whether or not to make any cash payment in lieu of the issuance of fractional shares shall be based
upon the total number of shares of Series B Preferred being converted at any one time by the holder
thereof, not upon each share of Series B Preferred being converted.
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(ix) All certificates representing shares of Series B Preferred which are required to be
surrendered for conversion in accordance with the provisions hereof shall, from and after the
Conversion Date, be deemed to have been retired and cancelled, and ‘ the shares of Series B
Preferred converted pursuant to this Section 7 represented thereby shall, from and after
the Conversion Date, be deemed to have been converted into Common for all purposes, notwithstanding
any failure of the holder or holders thereof to surrender such certificates on or prior to the
Conversion Date. The Corporation from time to time may take such appropriate corporate action as
may be necessary to reduce the authorized number of shares of the Series B Preferred Stock
accordingly.
b. Conversion Price.
(i) The initial Series B Conversion Price shall be $3.00 per share of Common (subject
to adjustment in the event of stock splits, stock dividends, stock combinations, recapitalizations
and like occurrences). In order to prevent dilution of the conversion rights granted under this
Section 7, the Series B Conversion Price shall be subject to adjustment from time to time
pursuant to this Section 7(b).
(ii) If and whenever on or after the Series B Original Issuance Date the Corporation
issues or sells or, in accordance with this Section 7, is deemed to have issued or sold,
any shares of its Common for a consideration per share less than the Series B Conversion Price in
effect immediately prior to the time of such issuance, then immediately upon such issuance or sale
or deemed issuance or sale the Series B Conversion Price shall be reduced to the conversion price
determined by dividing (A) the sum of (1) the product derived by multiplying the Series B
Conversion Price in effect immediately prior to such issuance or sale by the number of shares of
Common Deemed Outstanding immediately prior to such issuance or sale, plus (2) the consideration,
if any, received by the Corporation upon such issuance or sale, by (B) the number of shares of
Common Deemed Outstanding immediately after such issue or sale.
(iii) Notwithstanding the foregoing, there shall be no adjustment in the Series B
Conversion Price as a result of any issuance or sale (or deemed issuance or sale) of:
(A) shares of Common issued upon conversion of the Pari Passu Preferred;
(B) shares of Common issued upon the exercise of the Warrants;
(C) shares of Common issued upon the exercise of Options or other Convertible
Securities outstanding as of the First Closing Date;
(D) securities issued pursuant to a Board-approved (including at least one of
the Investor Directors) bona fide acquisition of an entity by merger, purchase of
substantially all of the assets or other reorganization;
(E) shares of Common issued to Catalyst pursuant to the Options granted
under the Catalyst Letter Agreements;
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(F) shares of Common or other securities issued as a dividend
or distribution on, or in connection with a split of or recapitalization
of, any of the capital stock of the Corporation;
(G) up to an aggregate of 250,000 shares of Common reserved for
issuance per year pursuant to the Option Plan (subject to adjustment in the
event of stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences) and shares of Common reserved for
issuance pursuant to the Option Plan in lieu of the repayment of certain
salary deferrals as approved by a majority of the Board (including at least
one of the Investor Directors), which foregoing shares may be subject to
Options or restricted stock awards granted under the Option Plan; provided
that any Options that expire or terminate unexercised or any restricted
stock awards that are repurchased by the Corporation pursuant to the terms
of such award shall not be counted toward the maximum number set forth in
this subparagraph (G) unless and until such shares are subject to new
restricted stock awards (or new Options) pursuant to the terms of the
Option Plan;
(H) shares of Common issued or issuable (including options to
acquire such shares of Common) .to suppliers or third-party service
providers in connection with the provision of goods or services pursuant to
transactions in the ordinary course of business and approved by a majority
of the Board, including at least one of the Investor Directors;
(I) shares of Common issued or issuable in connection with
bona-fide sponsored research, collaboration, technology license, development,
OEM, marketing or other similar agreements or strategic partnerships or joint
ventures entered into in the ordinary course of business and approved by a
majority of the Board, including at least one of the Investor Directors (and
by at least a majority of the shares of Pari Passu Preferred and Conversion
Common Shares, voting as a single class on a Common Equivalent Basis, then
outstanding, if required pursuant to Section 3(c));
(J) securities issued in connection with a Qualified IPO;
or
(K) Permitted Issuances;
provided that the aggregate number of shares of Common issued or issuable pursuant to
clauses (H) and (I) above shall not exceed 100,000 in any twelve-month period;
c. Effect on Conversion Price of Certain Events. For purposes of determining
the Series B Conversion Price under Section 7, the following shall be applicable:
(i) Issuance of Options. If the Corporation in any manner grants, issues or
sells any Options (other than any Options permitted by Section 7(b)(iii)) and the price per
share for which Common is issuable upon the exercise of such Options, or upon
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conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is
less than the Series B Conversion Price in effect immediately prior to the time of the granting,
issuance or sale of such Options, then the total maximum number of shares of Common issuable upon
the exercise of such Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Corporation at the time of the granting, issuance or sale
of such Options for such price per share. For purposes of this paragraph, the “price per share for
which Common is issuable” shall be determined by dividing (A) the sum of (1) the total
amount, if any, received or receivable by the Corporation as consideration for the granting,
issuance or sale of such Options, plus (2) the minimum aggregate amount of additional
consideration payable to the Corporation upon exercise of all such Options, plus (3) in the
case of such Options which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of
shares of Common issuable upon the exercise of such Options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of such Options. No further adjustment
of the Conversion Price shall be made when Convertible Securities are actually issued upon the
exercise of such Options or when Common is actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in any manner issues
or sells any Convertible Securities and the price per share for which Common is issuable upon
conversion or exchange thereof is less than the Series B Conversion Price in effect immediately
prior to the time of such issuance or sale, then the maximum number of shares of Common issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this paragraph, the “price per
share for which Common is issuable” shall be determined by dividing (A) the sum of (1) the
total amount received or receivable by the Corporation as consideration for the issue or sale of
such Convertible Securities, plus (2) the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum
number of shares of Common issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Series B Conversion Price shall be made when Common is
actually issued upon the conversion or exchange of such Convertible Securities, and if any such
issuance or sale of such Convertible Securities is made upon exercise of any Options for which
adjustments of the Series B Conversion Price had been or are to be made pursuant to other
provisions of this Section 7, no further adjustment of the conversion price shall be made by reason
of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase price provided
for in any Options, the additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities or the rate at which any Convertible Securities are convertible into
or exchangeable for Common changes at any
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time, the Series B Conversion Price in effect at the time of such change shall be immediately
adjusted to the Series B Conversion Price that would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time initially granted,
issued or sold; provided, that, if such adjustment of the Series B Conversion Price would result in
an increase in the Series B Conversion Price then in effect, the Corporation will promptly give all
holders of Series B Preferred written notice of such increase. For purposes of this Section
7(c)(iii), if the terms of any Option or Convertible Security that was outstanding as of the
Series B Original Issuance Date are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the date of such change;
provided, that, no such change shall at any time cause the Series B Conversion Price hereunder to
be increased.
(iv)
Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible
Security without the exercise of any such Option or right, the Series B Conversion Price then in
effect hereunder shall be adjusted immediately to the Series B Conversion Price that would have
been in effect at the time of such expiration or termination had such Option or Convertible
Security, to the extent outstanding immediately prior to such expiration or termination, never been
issued; provided, that, if such expiration or termination would result in an increase in the Series
B Conversion Price then in effect, the Corporation will promptly give all holders of Series B
Preferred written notice of such increase. For purposes of this Section 7(c)(iv), the
expiration or termination of any Option or Convertible Security that was outstanding as of the
Series B Original Issuance Date shall not cause the Series B Conversion Price hereunder to be
adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible
Security caused it to be deemed to have been issued after the Series B Original Issuance Date.
(v)
Calculation of Consideration Received. If any Common, Option or Convertible
Security is issued or sold or deemed to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Corporation therefor (net of
discounts, commissions and related expenses). If any Common, Option or Convertible Security is
issued or sold for a consideration other than cash, the amount of the consideration other than cash
received by the Corporation shall be the fair market value of such consideration as determined in
good faith by the Board. If any Common, Option or Convertible Security is issued to the owners of
the non-surviving entity in connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor shall be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is attributable to such
Common, Option or Convertible Security, as the case may be. The fair value of any consideration
other than cash and securities shall be the fair market value as determined in good faith by the
Board.
(vi)
Integrated Transactions. In case any Option is issued in connection with
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the issuance or sale of other securities of the Corporation, together comprising one integrated
transaction in which no specific exercise price is allocated to such Option by the parties thereto,
the Option shall be deemed to have been issued at an exercise price of $0.01.
(vii) Treasury Shares. The number of shares of Common outstanding at any given time
shall not include shares owned or held by or for the account of the Corporation, and the
disposition of any shares so owned or held shall be considered an issuance or sale of such shares.
(viii) Record Date. If the Corporation takes a record of the holders of Common for
the purpose of entitling them (A) to receive a dividend or other distribution payable in Common,
Options or in Convertible Securities or (B) to subscribe for or purchase Common, Options or
Convertible Securities, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common deemed to have been issued or sold upon the declaration of such dividend or
upon the making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ix) Subdivisions or Combinations of Common. If the Corporation at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common into a greater number of shares, the Series B Conversion Price
in effect immediately prior to such subdivision shall be reduced proportionately, and if the
Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common into a smaller number of shares, the Series B Conversion Price in
effect immediately prior to such combination shall be increased proportionately.
(x)
Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Corporation’s assets or other transaction, in each case which is effected
in such a manner that the holders of Common are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in exchange for Common, is
referred to herein as an “Organic Change.” Prior to the consummation of any Organic Change, the
Corporation shall make appropriate provisions (in form and substance reasonably satisfactory to the
holders of a majority of the Series B Preferred then outstanding) to insure that each of the
holders of Series B Preferred shall thereafter have the right to acquire and receive, in lieu of or
in addition to (as the case may be) the shares of Common immediately theretofore acquirable and
receivable upon the conversion of such holder’s Series B Preferred, such shares of stock,
securities or assets as such holder would have received in connection with such Organic Change if
such holder had converted its Series B Preferred immediately prior to such Organic Change. In each
such case, the Corporation shall also make appropriate provisions (in form and substance reasonably
satisfactory to the holders of a majority of the Series B Preferred then outstanding) to insure
that the provisions of this Section 7(c) shall thereafter be applicable to the securities
issued in exchange for the Series B Preferred (including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is other than the Corporation and
the value for the
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Common reflected by the terms of such consolidation, merger or sale is less than the Series
B Conversion Price in effect immediately prior to such consolidation, merger or sale, an
immediate adjustment of the Series B Conversion Price to the value for the Common so
reflected and a corresponding immediate adjustment in the number of shares of Common
acquirable and receivable upon conversion of Series B Preferred). The Corporation shall not
effect any such consolidation, merger or sale, unless prior to the consummation thereof,
the successor entity (if other than the Corporation) resulting from consolidation or merger
or the entity purchasing such assets assumes by written instrument (in form and substance
satisfactory to the holders of a majority of the Series B Preferred then outstanding) the
obligation to deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to acquire.
(xi) Certain Other Events. If any event occurs of the type contemplated
by the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Board shall make an
appropriate adjustment in the Series B Conversion Price so as to protect the rights of the
holders of Series B Preferred; provided, that, no such adjustment shall increase the Series
B Conversion Price as otherwise determined pursuant to this Section 7 or decrease
the number of shares of Common issuable upon conversion of each share of Series B
Preferred.
d. Notices.
(i) Immediately upon any adjustment of the Series B Conversion Price, the
Corporation shall give written notice thereof to all holders of Series B Preferred, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of Series B
Preferred at least 10 days prior to the date on which the Corporation closes its books or
takes a record (A) with respect to any dividend or distribution upon Common, (B) with
respect to any pro rata subscription offer to holders of Common or (C) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the holders of Series B
Preferred at least 10 days prior to the date on which any Organic Change shall take place.
(8) General.
a. Prior to the effective date of the Corporation’s initial Public Offering, the
Corporation shall keep at its principal office (or the office of its agent) a register for the
registration of Common and Series B Preferred. Upon the surrender of any certificate representing
Common or Series B Preferred at such place, the Corporation shall, at the request of the record
holder of such certificate, execute and deliver (at the Corporation’s expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of shares represented by
the surrendered certificate. Each such new certificate shall be registered in such name and shall
represent such number of shares as is requested by the holder of the surrendered
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certificate and shall be substantially identical in form to the surrendered certificate, and
dividends shall accrue on the Common or Series B Preferred represented by such new certificate from
the date to which dividends have been fully paid on such Common or Series B Preferred represented
by the surrendered certificate.
b. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the
registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing shares of Common or Series B Preferred, and in the case of
any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation upon surrender of such certificate, the
Corporation shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate, and dividends shall accrue on the Common or Series B Preferred represented
by such new certificate from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
c. Except as otherwise expressly provided hereunder, all notices referred to herein shall be
in writing and shall be delivered by registered or certified mail, return receipt requested and
postage prepaid, by reputable overnight courier service, charges prepaid or by personal delivery,
and shall be deemed to have been given (i) three (3) business days after being sent by registered
or certified mail, (ii) one business day after being deposited with such an overnight courier
service, and (iii) upon delivery, if by personal delivery, if mailed or delivered (A) to the
Corporation, at its principal executive offices, or (B) to any stockholder, at such holder’s
address as it appears in the stock records of the Corporation (unless otherwise indicated by any
such holder).
d. Any of the rights, powers or preferences of the holders of Series B
Preferred and Conversion Common Shares set forth herein may be waived or otherwise defeased by the
affirmative written consent of the holders of at least a majority of the shares of Series B
Preferred and Conversion Common Shares then outstanding, voting as a single class on a Common
Equivalent Basis.
(9) Definitions. In this Certificate of Incorporation, the following terms have the
meanings specified or referred to in this Section 9.
“Acquisition” is defined in Section 3(b)(xi).
“Affiliate” means, with respect to any particular Person, any other Person that
directly or indirectly controls, is controlled by or is under common control with such
particular Person. For the purpose of this definition, “control” means the possession,
directly or indirectly, of the power to direct the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
“Appraised Value” means the value determined by an independent appraiser experienced in
valuing such type of consideration jointly selected by the Corporation and the holders of
a majority of the Conversion Common Shares. If the Corporation and the
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holders of a majority of the Conversion Common Shares are unable to agree upon such an appraiser,
the Corporation shall select from a list of five such appraisers supplied by the holders of a
majority of the Conversion Common Shares. The determination of such appraiser shall be final and
binding upon the parties, and the fees and expenses of such-appraiser shall be borne by the
Corporation.
“Board” means the “Board of Directors of the Corporation.
“Budget” shall mean, with respect to a given fiscal year, the annual business plan and budget
as approved by the Board in accordance with the By-laws, as such business plan and budget may be
amended from time to time by the Board in accordance with the By-laws.
“By-laws” means the By-laws of the Corporation.
“Catalyst” means Catalyst Capital Investments LLC, a Delaware limited liability company.
“Catalyst Letter Agreements” means, collectively, (a) that certain letter agreement dated as
of May 31, 2006 between Catalyst and the Corporation regarding the introduction of prospective
suppliers and (b) that certain letter agreement dated as of May 31, 2006 between Catalyst and the
Corporation regarding the introduction of prospective customers.
“Change in Ownership” means any sale, transfer or issuance or series of sales, transfers
and/or issuances of Common or Pari Passu Preferred by the Corporation or any holders thereof which
results in any Person or group of Persons (as the term “group” is used under the Securities
Exchange Act of 1934, as amended), other than the holders of Common and Pari Passu Preferred at
such time, owning capital stock of the Corporation possessing the voting power (under ordinary
circumstances) to elect a majority of the Board.
“Common” means the Corporation’s Common Stock, $.0001 par value per share.
“Common Deemed Outstanding” means, at any given time, the number of shares of Common actually
outstanding at such time, plus the number of shares of Common deemed to be outstanding pursuant to
Sections 7(c)(i) and 7(c)(ii) whether or not the Options or Convertible Securities
are actually convertible or exercisable at such time.
“Common Equivalent Basis” means, as of the date of such determination, (i) in respect of the
Series B Preferred, the number of shares of Common that each holder of Series B Preferred would be
entitled to receive upon conversion of its Series B Preferred into Common and (ii) in respect of
the Pari Passu Preferred, the number of shares of Common that each holder of Pari Passu Preferred
would be entitled to receive upon conversion of its Pari Passu Preferred into Common.
“Conversion Common Shares” means (i) the Common issued or issuable upon conversion of any
shares of Pari Passu Preferred and (ii) any Common issued or issuable
-18-
with respect to the securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger, consolidation or
other reincorporation. As to any particular Conversion Common Shares, such shares shall cease to be
Conversion Common Shares when they have been (x) effectively registered under the Securities Act of
1933, as amended, and disposed of in accordance with the registration statement covering them, (y)
distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act of 1933, as then in effect, or any comparable statement under any similar federal
statute then in force or (z) repurchased by the Corporation.
“Conversion Date” is defined in Section 7(a)(iii).
“Convertible Securities” means any stock or securities directly or indirectly
convertible into or exchangeable for Common.
“Corporation” means XStream Systems, Inc., a Delaware corporation.
“Event of Noncompliance” is defined in Section 6(a).
“First Closing Date” means March 14, 2007.
“Fundamental Change” means (i) any sale or transfer of more than 50% of the assets of the
Corporation and its Subsidiaries on a consolidated basis (measured either by book value in
accordance with generally accepted accounting principles consistently applied or by fair value
determined in the reasonable good faith judgment of the Board) in any transaction or series of
transactions (other than sales in the ordinary course of business and other than to a wholly owned
Subsidiary of the Corporation) and (ii) any merger or consolidation to which the Corporation is a
party, except for a merger in which the Corporation is the surviving corporation, the terms of the
Pari Passu Preferred are not changed, the Pari Passu Preferred is not exchanged for cash,
securities or other property, and after giving effect to such merger, the holders of the
Corporation’s outstanding capital stock immediately prior to the merger shall continue to own the
Corporation’s outstanding capital stock possessing the voting power (under ordinary circumstances)
to elect a majority of the Board.
“GAAP” means United States generally accepted accounting principles, consistently
applied (except for any change required by GAAP).
“Indebtedness” means, with respect to any Person at any date, without duplication: (i) all
obligations of such Person for borrowed money or in respect of loans or advances; (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
(iii) all obligations in respect of letters of credit, whether or not drawn, and bankers’
acceptances issued for the account of such Person; (iv) all interest rate or currency caps,
collars, swaps or other similar protection agreements of such Person (valued on a market quotation
basis); (v) any indebtedness for the deferred purchase price of property or services with respect
to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade
payables and other current liabilities incurred in the ordinary course of business consistent with
past practice
-19-
which are not more than 120 days past due, unless the same are being contested in good faith by
actions approved by the Board of Directors (including at least one of the Investor Directors) and
with respect to which the Corporation has set aside adequate reserves therefor in accordance with
GAAP); (vi) any commitment by which a Person assures a creditor against loss (including, without
limitation, contingent reimbursement obligations with respect to letters of credit); (vii) any
obligations under leases that are required to be capitalized in accordance with GAAP; (viii) any
indebtedness secured by a Lien on a Person’s assets; or (ix) any guarantee or other contingent
obligation (including, without limitation, obligations to repurchase, reimburse or keep well) in
respect of the items set forth in the foregoing clauses (i) through (viii).
“Intellectual Property Rights” means all (i) patents, patent applications, patent disclosures
and inventions, (ii) trademarks, service marks, trade dress, trade names, URL’s, logos and
corporate names and registrations and applications for registration thereof, together with all of
the goodwill associated therewith, (iii) copyrights (registered or unregistered) and copyrightable
works and registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software, data, data bases
and documentation thereof, (vi) trade secrets and other confidential information (including,
without limitation, ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial and marketing plans and customer and
supplier lists and information), (vii) other intellectual property rights and (viii) copies and
tangible embodiments thereof (in whatever form or medium).
“Investor Director” shall mean any director of the Board designated by the Investors
pursuant to the terms of the Shareholders Agreement.
“Investors” has the meaning set forth in the Shareholders Agreement.
“Liens” means any mortgage, pledge, security interest, encumbrance, lien, claim or charge of
any kind (including, without limitation, any conditional sale or other title retention agreement or
lease in the nature thereof), any sale of receivables with recourse against the Corporation or any
Affiliate, any filing or agreement to file a financing statement as debtor under the Uniform
Commercial Code or any similar statute other than to reflect ownership by a third party of property
leased to the Corporation under a lease which is not in the nature of a conditional sale or title
retention agreement, or any subordination arrangement in favor of another Person (other than any
subordination arising in the ordinary course of business).
“Liquidation Value” means, (i) in respect of the Series A Preferred, the Series A Liquidation
Value, (ii) in respect of the Series B Preferred, the Series B Liquidation Value and (iii) in
respect of the Series C Preferred, the Series C Liquidation Value.
“Non-Funded
Shares” is defined in Section 5(b).
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“Option Plan” means the Corporation’s 2004 Stock Option Incentive Plan.
“Options” means any agreements, rights, warrants or options to subscribe for or purchase
Common or Convertible Securities.
“Organic Change” is defined in Section 7(c)(x).
“Pari Passu Preferred Stock” means shares of Series A Preferred, Series B Preferred and
Series C Preferred.
“Permitted
Issuances” means the issuance and sale of the Pari Passu Preferred expressly
contemplated by the Preferred Stock Purchase Agreement.
“Permitted
Liens” means (i) liens with respect to taxes not yet due and payable or which are
being contested in good faith by appropriate proceedings and for which appropriate reserves have
been established in accordance with GAAP, (ii) mechanics’, materialmen’s or contractors’ liens or
encumbrances or any similar lien or restriction and (iii) easements, rights-of-way, restrictions
and other similar charges and encumbrances not interfering with the ordinary conduct of the
business of the Corporation.
“Person” means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization, a
governmental entity or any department, agency or political subdivision thereof or any other entity.
“Preferred Stock Purchase Agreement” means the Series A Preferred Stock Purchase
Agreement dated as of March 14, 2007, as amended, by and among the Corporation and the
purchasers of the securities named therein (as the same may be amended, modified, restated or
replaced).
“Public Offering” means any offering by the Corporation of its capital stock or equity
securities to the public pursuant to an effective registration statement under the Securities Act
of 1933, as then in effect, or any comparable statement under any similar federal statute then in
force.
“Qualified IPO” is defined in Section 7(a)(ii).
“Redemption Date” means 45 days after the date of any Redemption Notice.
“Redemption Notice” means a written notice by one or more holders of the Series B Preferred to
the Corporation stating their intention to exercise the Redemption Right and the number of each
such holder’s shares of Series B Preferred to be redeemed.
“Redemption Note” is defined in Section 5(b).
“Redemption Right” is defined in Section 5(a).
-21-
“Registration Rights Agreement” means the Registration Rights Agreement dated as of March
14, 2007, as amended, by and among the Corporation and the investors named therein (as the same may be amended, modified, restated or replaced).
“Series A Liquidation Value” means $3.7999696 per share, subject to equitable adjustments to
reflect stock splits, stock dividends, stock combinations, recapitalizations and like occurrences.
“Series A Preferred” means the Series A Redeemable Convertible Preferred Stock of the
Corporation, $.0001 par value per share.
“Series B Conversion Price” is defined in Section 7(b).
“Series B Junior Securities” means any of the Corporation’s equity securities (whether or not
currently authorized or outstanding) which by its terms is junior to the Series B Preferred, but
shall not include any shares of Series A Preferred or Series C Preferred.
“Series B Liquidation Value” means $3.00 per share, subject to equitable adjustments to
reflect stock splits, stock dividends, stock combinations, recapitalizations and like occurrences.
“Series B Original Issuance Date” means, with respect to any share of Series B Preferred, the
date of the issuance of such share of Series B Preferred pursuant to the Preferred Stock Purchase
Agreement.
“Series B Preferred” means the Series B Redeemable Convertible Preferred Stock of the
Corporation, $.0001 par value per share.
“Series B Warrants” means the warrants to purchase Common issued by the Corporation
pursuant to the Warrant Agreement dated as of December 19, 2007.
“Series C Liquidation Value” means $3.00 per share, subject to equitable adjustments to
reflect stock splits, stock dividends, stock combinations, recapitalizations and like occurrences.
“Series C Preferred” means the Series C Redeemable Convertible Preferred Stock of the
Corporation, $.0001 par value per share.
“Series C Warrants” means the warrants to purchase Common to be issued by the Corporation
pursuant to the Warrant Agreement dated as of December 19, 2007.
“Significant Event” is defined in Section 4(a).
“Shareholders Agreement” means the Amended and Restated Securityholders Agreement dated as of
December 19, 2007 by and among the Corporation and the securityholders of the Corporation named
therein (as the same may be amended, modified, restated or replaced).
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“Subsidiary” means, with respect to any Person, any corporation, limited liability company,
partnership, association or other business entity of which (i) if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more of the other Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if such Person or
Persons shall be allocated a majority of the gains or losses of such limited liability company,
partnership, association or other business entity or shall be or control (or have the power to
control) a managing director, manager or general partner of such limited liability company,
partnership, association or other business entity.
“Warrants” means the Series B Warrants and the Series C Warrants.
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EXHIBIT A-3
Series C Certificate of Designations
Series C Certificate of Designations
TERMS OF
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
XSTREAM SYSTEMS, INC.
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
XSTREAM SYSTEMS, INC.
(1) Designation, Par Value and Number. This series of Preferred Stock shall be
designated as “Series C Redeemable Convertible Preferred Stock,” The Corporation shall have the
authority to issue 1,000,000 shares of the Series C Preferred with a par value of $.0001 per share.
In accordance with the terms hereof, each share of Series C Preferred shall have the same relative
rights as, and be identical in all respects with, each other share of Series C Preferred.
(2) Dividends.
a. General. When and as declared by the Board, and to the fullest extent permitted
under the General Corporation Law of the State of Delaware, the Corporation shall pay preferential
dividends on each issued and outstanding share of the Series C Preferred; provided, however, that
no dividend shall be declared on the Series C Preferred unless a pro rata amount (based upon
relative Liquidation Value) is declared on each of the other series of Pari Passu Preferred.
Subject to Section 6(b)(iii), dividends on each issued and outstanding share of Series
C Preferred shall be cumulative and shall accrue on a daily basis at a rate of 5% per annum of the
Series C Liquidation Value thereof (with such accrued and unpaid dividends compounding on each
annual anniversary of the Series C Original Issuance Date) from and including the Series C Original
Issuance Date to and including the first to occur of (i) the date on which the Series C Liquidation
Value of such share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof
in connection with the liquidation of the Corporation, (ii) the date on which such share is
converted into shares of Common hereunder or (iii) the date on which such share is otherwise
acquired by the Corporation. Such dividends shall accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation legally available for
the payment of dividends, and such dividends shall be cumulative such that all accrued and unpaid
dividends shall be fully paid or declared with funds irrevocably set apart for payment before any
dividends, distributions, redemptions or other payments may be made with respect to any Series C
Junior Securities. If, under Delaware law, any dividends cannot be declared and paid in full when
due, the full amount which can be paid shall be paid pro rata to the holders of the Series C
Preferred and the aggregated deficiency shall be increased as provided below.
b.
Distribution of Partial Dividend Payments. Except as otherwise provided herein, if
at any time the Corporation pays less than the total amount of dividends then accrued with respect
to the Series C Preferred, such payment shall be distributed pro rata among the holders thereof
based upon the aggregate accrued but unpaid dividends on the Series C Preferred held by each such
holder.
c.
Participation in Common Dividends. If the Corporation declares or pays a dividend
or makes any distribution on the Common, then the holders of the outstanding shares of Pari Passu
Preferred (on a Common Equivalent Basis as of the record date for such dividend or
distribution) and the holders of the Common shall share pro rata in such dividend or distribution.
| (3) | Voting Rights. |
a. General. In addition to the rights provided by law and Sections 3(b), 3(c)
and 3(d) below, the holders of the Series C Preferred shall be entitled to notice of
all meetings of stockholders in accordance with the Corporation’s By-laws, and except as otherwise
provided herein or required by applicable law, the holders of the Series C Preferred shall be
entitled to vote on all matters submitted to the stockholders for a vote, voting as a single class
with the Common and other securities that vote with the Common, with the holders of Series C
Preferred entitled to one vote for each share of Common issuable upon conversion of the Series C
Preferred held as of the record date for such vote or, if no record date is specified, as of the
date of such vote.
b. Actions Requiring the Consent of the Holders of Series G Preferred. So long as any
shares of Series C Preferred are outstanding, without the approval of at least a majority of the
shares of Series C Preferred then outstanding, the Corporation shall not file any resolution of the
Board with the Delaware Secretary of State that contains any provisions, or take any other action,
that would amend the terms of the Series C Preferred, increase the number of authorized Series C
Preferred, approve a reverse stock split or adversely affect or otherwise impair the rights or the
relative preferences or priorities of the holders of the Series C Preferred under this Certificate
of Incorporation or the By-laws.
c. Actions Requiring the Consent of the Holders of Pari Passu Preferred and Conversion
Common Shares. So long as any shares of Pari Passu Preferred or Conversion Common Shares are
outstanding, the Corporation shall not take, and shall not permit any of its Subsidiaries to take,
any of the following actions without the approval of the holders of at least a majority of the
shares of all of the Pari Passu Preferred and Conversion Common Shares, voting as a single class on
a Common Equivalent Basis, then outstanding:
(i) amend this Certificate of Incorporation or the By-laws;
(ii) except for Permitted Issuances, authorize, issue or enter into any agreement
providing for the issuance (contingent or otherwise) of any capital stock or other equity
securities of the Corporation ranking pari passu or senior to the Series C Preferred (or any
securities convertible into or exchangeable for any capital stock or other equity securities
of the Corporation ranking pari passu or senior to the Series C Preferred);
(iii) except for the ratable payment of dividends on the Pari Passu Preferred,
directly or indirectly declare or pay any cash or property dividends or make any cash or
property distributions upon any of its capital stock or other equity securities;
(iv) directly or indirectly redeem, purchase or otherwise acquire any of the
Corporation’s capital stock or other equity securities (including, without limitation, Options)
other than (A) the Pari Passu Preferred pursuant to the terms of this Certificate of
Incorporation, (B) repurchases of the Corporation’s securities from employees upon termination of
an employee’s employment with the Corporation pursuant to terms approved by the Board, (C)
repurchases of Options outstanding as of the First Closing
-2-
Date pursuant to the terms of such Options or (D) pursuant to the terms of the
Shareholders Agreement;
(v) merge or consolidate with any Person (other than a wholly owned
Subsidiary) or take any action which results in a Change in Ownership;
(vi) sell, license, lease or otherwise transfer all or substantially all of its
assets to any Person (other than to a wholly owned Subsidiary of the Corporation) in any
transaction or series of related transactions;
(vii) liquidate, dissolve or effect a recapitalization, bankruptcy or
reincorporation in any form of transaction (including, without limitation, any
reincorporation into a limited liability company, a partnership or any other non-corporate
entity that is treated as a partnership for Federal income tax purposes);
(viii) make any loans or, advances to, guarantees for the benefit of, or
investments in, any Person (other than a wholly owned Subsidiary established under the laws
of a jurisdiction of the United States or any of its territorial possessions), except for
(A) reasonable advances to employees in the ordinary course of business consistent with
past practice and (B) advances to newly-hired employees in order to cover such employees’
relocation expenses;
(ix) except as provided in the current Budget, create, incur, assume or suffer to
exist any Indebtedness;
(x) create, incur, assume or suffer to exist any Liens other than (A) Permitted
Liens and (B) Liens incurred in connection with the incurrence of Indebtedness not
prohibited by clause (ix) above;
(xi) acquire any interest in any company or business (whether by a purchase of
assets, purchase of stock, merger or otherwise), or enter into any joint venture, in either
case, that is material to the business of the Corporation and its Subsidiaries, taken as a
whole (each, an “Acquisition”), other than Acquisitions the aggregate value of which (after
taking into account the assumption of any Indebtedness or other liabilities in connection
therewith) do not exceed $300,000 in any twelve-month period, measured after giving effect
to any purchase price adjustments relating thereto;
(xii) become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument that by its terms would (under any
circumstances) restrict the Corporation’s right to perform the provisions of the Preferred
Stock Purchase Agreement, the Shareholders Agreement, the Registration Rights Agreement,
this Certificate of Incorporation or the By-laws;
(xiii) except as provided in the current Budget, make or commit to make capital
expenditures for any fiscal year;
(xiv) except as required by Section 6(b)(i), increase the size of the Board to a
number greater than seven (7);
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(xv) enter into or become a party to any license, agreement or other arrangement
after the First Closing Date with respect to Intellectual Property Rights licensed to, or
owned or developed by, the Corporation, except that the foregoing shall not prevent the
Corporation from entering into, or becoming a party to, any such license, agreement or
other arrangement that (A) has a term of one year or less, (B) is nonexclusive and would be
customary in connection with the sale of the Corporation’s products or services, (C)
relates to “off the shelf software licenses to the Corporation by a third party or (D) is
approved by a majority of the Board (including at least one of the Investor Directors); or
(xvi) change the primary line of business of the Corporation from materials
identification, verification and analysis, and any related field, or enter into any
material new line of business.
d.
Election of Directors. Subject to Section 6(b)(i), for so long as
any shares of Pari Passu Preferred or Conversion Common Shares remain outstanding, the holders of
the Pari Passu Preferred and Conversion Common Shares, voting together as a single class on a Common
Equivalent Basis, shall be entitled to elect two (2) members of the Board at each meeting or
pursuant to each consent of the Corporation’s stockholders for the election of directors, and to
remove from office any such director and to fill any vacancy caused by the resignation, death or
removal of any such director.
(4) Liquidation, Dissolution, etc.
a. Significant Event. Upon any liquidation, Fundamental Change, Change in
Ownership, dissolution or winding up of the Corporation (whether voluntary or involuntary) (each, a
“Significant Event”):
(i) Each holder of Series C Preferred shall be entitled to receive, prior and
in preference to any distribution or payment made upon any Series C Junior Securities, an
amount equal to (i) the aggregate Series C Liquidation Value of all shares of Series C
Preferred held by such holder plus (ii) all accrued and unpaid dividends on such shares of
Series C Preferred. If, upon any Significant Event, the Corporation’s assets to be
distributed among the holders of the Pari Passu Preferred are insufficient to permit
payment to such holders of the aggregate amount to which they are entitled to be paid under
this Section 4(a)(i) and the equivalent provisions of the other series of Pari
Passu Preferred, then the entire assets available to be distributed to the Corporation’s
stockholders shall be distributed pro rata among such holders of the Pari Passu Preferred
based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of the
shares of Pari Passu Preferred held by each such holder.
(ii) After payment to the holders of the Series C Preferred of the amounts set
forth in the first sentence of Section 4(a)(i), the entire remaining assets and funds of
the Corporation legally available for distribution, if any, shall be distributed pro rata
among the holders of the Common and the holders of the Pari Passu Preferred (on a Common
Equivalent Basis).
-4-
b. Form of Consideration. Whenever the distribution provided for in this Section
4 shall be payable in a form other than securities or cash, the value of such distribution
shall be the fair market value as determined in good faith by the Board, including a majority of
the Investor Directors.
c. Distribution upon Change in Ownership. Upon any Significant Event effected as a
result of a Change in Ownership, any proceeds received by stockholders of the Corporation other,
than holders of Pari Passu Preferred in accordance with the terms of
such Pari Passu Preferred
(including, without limitation, any amounts received by any stockholders in respect of any
employment, non-competition, consulting or other similar agreement entered into in connection with
such Change in Ownership that, in the case of employment or consulting agreements, provide for
payments to such stockholder that are in excess of the compensation payable to such stockholder
prior to such Change in Ownership (other than, in the case of employment, for increases in annual
compensation not in excess of 20% of the annual compensation payable to such stockholder in the
last completed fiscal year prior to such Change in Ownership)) shall be construed as being received
by the Corporation and thereafter distributed to the holders of the
Pari Passu Preferred and Common
in accordance with Section 4(a)(ii).
| (5) | Redemptions. |
a. Redemption at the Option of Holders. At any time on or after March 14,
2012, upon the request of the holders of at least a majority of the then outstanding shares of
Series C Preferred, each of the holders of the then outstanding Series C Preferred shall have the
right (a “Redemption Right”) to require the Corporation to redeem all or any of their shares of
Series C Preferred at a price per share equal to the Series C Liquidation Value plus a rate of
return on such amount (after taking into account all dividends paid by the Corporation pursuant to
Section 2(a)) equal to 7% per annum, compounded annually. Any holder of Series C Preferred
may exercise his, her or its Redemption Right by delivering to the Corporation a Redemption Notice
on or after March 14, 2012, provided that holders of at least a majority of the then outstanding
shares of Pari Passu Preferred have requested a redemption pursuant to this Section 5 (a)
and the equivalent provisions of the other series of Pari Passu Preferred. Within ten (10) days
after the date of a Redemption Notice delivered by any holder of Series C Preferred, the
Corporation shall notify all other holders of Pari Passu Preferred that the Redemption Right has
been exercised, and each other holder of Pari Passu Preferred shall have the right, exercisable by
written notice delivered to the Corporation within thirty (30) days after receipt of such notice
from the Corporation, to request that all or a portion of such other holder’s shares of Pari Passu
Preferred be redeemed on the Redemption Date together with the shares of Series C Preferred of the
holder who delivered the Redemption Notice. The Corporation shall be obligated to redeem the total
number of shares of Series C Preferred requested to be redeemed in accordance herewith on the
Redemption Date. For each share of Series C Preferred which is to be redeemed on a particular
Redemption Date in accordance with this Section 5(a), the Corporation shall be obligated on the
date specified for redemption thereof in the written notice with respect thereto, to pay to the
holder thereof (upon surrender by such holder at the Corporation’s principal office of the
certificate representing such share) such amount specified in this Section 5(a) in immediately
available funds.
b. Inadequate Funds; Redemption Notes. If the funds of the Corporation
-5-
legally available for redemption of Series C Preferred on any Redemption Date are insufficient to
redeem the total number of shares of Series A Preferred and all other shares of Pari Passu
Preferred to be redeemed on such date: (i) those funds which are legally available shall be used to
redeem the maximum possible number of shares of Pari Passu Preferred ratably among the holders of
such shares to be redeemed based upon the aggregate amount to which they are entitled to be paid
under this Section 5 and the equivalent provisions of the other series of Pari Passu
Preferred; and (ii) with respect to those shares of Pari Passu Preferred requested to be redeemed
but for which funds are not legally available (the “Non-Funded Shares”), the Corporation shall
issue and deliver to each holder of Non-Funded Shares a promissory note (each a “Redemption Note”).
Each Redemption Note shall be payable one year from date of issuance and shall bear interest at the
rate of 8% per annum, compounded quarterly, and shall have an aggregate principal amount per
Non-Funded Share equal to the Series C Liquidation Value plus a rate of return on such amount
(after taking into account all dividends paid by the Corporation pursuant to Section 2(a))
equal to 7% per annum, compounded annually. A Redemption Note may be prepaid by the Company at any
time without penalty. The issuance of Redemption Notes shall be made without charge to the holders
of the Non-Funded Shares receiving such Redemption Notes for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with the issuance thereof, and the Corporation
shall pay the fees and expenses of each holder of Non-Funded Shares in connection with the issuance
of Redemption Notes, including reasonable attorney’s fees and expense. Subject to the terms of any
then existing senior debt or credit facility, the terms and documentation relating to each
Redemption Note shall provide that the debt obligation evidenced thereby shall at all times be pari
passu with the most senior debt or credit facility of the Corporation outstanding at any time
during the term of the Redemption Note. Each Redemption Note shall also contain customary terms and
conditions, including, without limitation, a cross-acceleration provision with respect to any
amount of Indebtedness of the Company or any of its Subsidiaries and appropriate negative
covenants, including, without limitation, negative covenants prohibiting the Corporation, without
the consent of the holders of a majority of aggregate principal amount of all of the Redemption
Notes outstanding, from taking, or permitting any of its Subsidiaries to take, any of the actions
specified in Sections 3(b)(i) — xvi.
c. Reissuance of Certificate. If fewer than the total number of shares of Series C
Preferred represented by any certificate are redeemed in any installment, a new certificate
representing the number of unredeemed shares of Series C Preferred (other than any Non-Funded
Shares) will be issued to the holder thereof without cost to such holder promptly after surrender
of the certificate representing the redeemed shares of Series C Preferred.
d. Redeemed or Otherwise_Acquired Shares. All rights pertaining to shares of the
Series C Preferred that are redeemed or otherwise acquired by the Corporation and, subject to
Section 5(b), all rights pertaining to shares that are deemed to be Non-Funded Shares,
shall cease, and such shares shall not thereafter be (i) reissued, sold or transferred, (ii)
entitled to any dividends accruing after the date of redemption or acquisition or (iii) deemed to
be issued and outstanding for any purpose whatsoever. The shares of Series C Preferred not redeemed
(other than any Non-Funded Shares) shall remain issued and outstanding and entitled to all the
rights and preferences provided herein.
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(6) Events of Noncompliance.
a. Definition. An “Event of Noncompliance” shall be deemed to have
occurred if:
(i) the Corporation shall fail to make any redemption payment required under Section 5
or the equivalent provisions of the other series of Pari Passu Preferred (whether or not
such payment is legally permissible or is prohibited by any agreement to which the
Corporation is subject);
(ii) (v) the Corporation breaches any of its covenants or agreements contained in
the Preferred Stock Purchase Agreement, which breach has, or is more likely than not to
have, an adverse effect of $100,000 or more in the aggregate on the holders of the Pari
Passu Preferred, (x) such breach does not result directly from action by the Corporation at
express the direction of the Board (including in such direction a majority of the Investor
Directors), (y) the Corporation fails to cure such breach within 30 days of written notice
thereof from any holder of the Pari Passu Preferred and (z) the holders of at least a
majority of the outstanding shares of Pari Passu Preferred after such 30-day period send a
notice of such Event of Noncompliance to the Corporation;
(iii) (x) any representation or warranty made by the Corporation under the
Preferred Stock Purchase Agreement shall have been untrue or incorrect in any material
respect when made, the result of which has, or is more likely than not to have, an adverse
effect of $100,000 or more on (A) the condition (financial or otherwise), operating results,
business, assets, operations, employee relations or client relations of the Corporation,
taken as a whole (other than to the extent resulting from a change in accounting methods
required by GAAP) or (B) the holders of the Pari Passu Preferred, (y) the Corporation fails
to cure such breach within 30 days of written notice thereof from any holder of the Pari
Passu Preferred and (z) the holders of at least a majority of the outstanding shares of Pari
Passu Preferred send a notice of such Event of Noncompliance to the Corporation;
(iv) the Corporation shall commence or enter into any bankruptcy,
receivership, liquidation or assignment for the benefit of any creditors;
(v) the Corporation shall default under one or more indentures, agreements or
other instruments under which any Indebtedness aggregating at least $100,000 of the
Corporation or any of its Subsidiaries is or may be issued, and such default shall continue
for a period of time sufficient to permit the acceleration of the maturity of any
Indebtedness of the Corporation or any of its Subsidiaries outstanding thereunder (which
default has not been cured or waived), other than a default which directly results from
action by the Corporation at the express direction of the Board (including in such direction
a majority of the Investor Directors); or
(vi) a judgment in excess of $500,000 is rendered against the Corporation and, within 60
days after entry thereof, such judgment is not discharged or execution thereof stayed pending
appeal, or within 60 days after the expiration of such stay, such judgment
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is not discharged.
b. Consequences of Events of Noncompliance.
(i) Additional Directors. Upon the occurrence of an Event of Noncompliance and for so
long as such Event of Noncompliance continues, the holders of Pari Passu Preferred and Conversion
Common Shares shall be entitled to appoint such number of additional Investor Directors to the
Board (selected by the holders of a majority of the Pari Passu Preferred and Conversion Common
Shares) such that the holders of Pari Passu Preferred and Conversion Common Shares have appointed a
majority of the Board. Upon notice from the holders of a majority of the outstanding Pari Passu
Preferred and Conversion Common Shares, voting as a single class on a Common Equivalent Basis, then
outstanding that they intend to exercise their rights under this
Section 6(b)(i), the
Corporation shall immediately take whatever action is necessary so as to effectuate this Section
6(b)(i), including, without limitation, increasing the size of the Board and electing such
additional Investor Directors.
(ii) Increased Dividend Rate. Upon the occurrence of an Event of Noncompliance
and for so long as such Event of Noncompliance continues, the dividend rate on the Series C
Preferred set forth in Section 2(a) shall be increased from 5% to 7% per annum.
(iii)
Redemption of Pari Passu Preferred. Upon the occurrence of an Event of
Noncompliance and for so long as such Event of Noncompliance continues, the holders of a majority
of the shares of Pari Passu Preferred then outstanding may require by notice given to the
Corporation that all of the shares of Pari Passu Preferred be immediately (and in no event later
than five business days after such request) redeemed by the Corporation at a price per share of
Pari Passu Preferred equal to the their respective Liquidation Values plus a rate of return on such
amount (after taking into account all dividends paid by the Corporation pursuant to Section 2fa))
equal to 7% per annum, compounded annually.
(iv) Inadequate Funds. If the funds of the Corporation legally available for
redemption of Pari Passu Preferred pursuant to Section 6(b)(Viii) are insufficient to
redeem all shares of Pari Passu Preferred, the provisions of Sections 5(b) and (c) shall
apply to the same extent as if such provisions were set forth in their entirety in this Section
6(b)(iv).
(v) Reissuance of Certificate. If fewer than the total number of shares of
Series C Preferred or Conversion Common Shares represented by any certificate are redeemed in any
installment pursuant to Section 6(b)(iv), a new certificate representing the number of
unredeemed shares of such Series C Preferred or Conversion Common Shares, as the case may be, will
be issued to the holder thereof without cost to such holder promptly after surrender of the
certificate representing the redeemed shares of Series C Preferred or Conversion Common Shares, as
the case may be.
c. No Limitation of Rights. If any Event of Noncompliance exists, each
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holder of Series C Preferred shall also have any other rights that such holder is entitled to under
any contract or agreement at any time and any other rights that such holder may have pursuant to
applicable law.
d. Survival of Representations and Warranties. For the purposes of
determining an Event of Noncompliance, the representations and warranties referred to in
Section 6(a)(iii) shall have the respective survival periods set forth in the
Preferred Stock Purchase Agreement.
(7) Conversion.
a. Conversion Procedure.
(i) At any time and from time to time, a holder of Series C Preferred shall have
the right to convert all or any portion of its shares of Series C Preferred into the number
of shares of Common computed by dividing (x) the aggregate Series C Liquidation Value of the
shares of Series C Preferred to be converted by (y) the Series C Conversion Price then in
effect.
(ii) All shares of Series C Preferred shall automatically convert into Common
(pursuant to the computation set forth in Section 7(a)(i)) upon (A) the affirmative
written consent of the holders of at least a majority of the outstanding shares of Pari Passu
Preferred or (B) receipt by the Corporation of total gross offering proceeds of at least
$50,000,000 from the sale of shares of Common pursuant to the Corporation’s firm commitment
underwritten Public Offering of the Common, at a gross price per share not less than $16 (as
adjusted to reflect stock splits, stock dividends, stock combinations, recapitalizations and
like occurrences) (a “Qualified IPO”).
(iii) Each conversion of Series C Preferred shall be deemed to have been effected
as of the close of business on the earlier of (A) the date specified in the affirmative
written consent of the holders of at least a majority of the outstanding shares of Series C
Preferred or (B) the date immediately prior to the closing date of a Qualified IPO (any such
date referred to in clause (A) or (B) being referred to as
a “Conversion Date”). At the time
any such conversion has been effected, the rights of the holder of the shares of Series C
Preferred converted as a holder of Series C Preferred shall cease and the Person or Persons
in whose name or names any certificate or certificates for shares of Common are to be issued
upon such conversion shall be deemed to have become the holder or holders of record of the
shares of Common represented thereby.
(iv) As soon as possible after a conversion has been effected (but in any event
within five (5) business days in the case of subparagraph (A) below), the Corporation shall
deliver to the converting holder:
(A) certificates representing the number of shares of Common issuable by reason of such
conversion in such name or names and such denomination or denominations as the converting
holder has specified; and
(B) a certificate representing any shares of Series C Preferred
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which were represented by the certificate or certificates delivered to the Corporation in
connection with such conversion but which were not converted.
(v) The issuance of certificates for shares of Common upon conversion of Series C
Preferred shall be made without charge to the holders of such Series C Preferred or Common for any
issuance tax in respect thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Common. Upon conversion of each share of Series C
Preferred, the Corporation shall take all such actions as are necessary in order to insure that the
Common issuable with respect to such conversion shall be validly issued, fully paid and
nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the
issuance thereof.
(vi) The Corporation shall not close its books against the transfer of Series C Preferred
or of Common issued or issuable upon conversion of Series C Preferred in any manner that interferes
with the timely conversion of Series C Preferred. The Corporation shall assist and cooperate with
any holder of shares of Series C Preferred required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of shares hereunder (including,
without limitation, making any filings required to be made by the Corporation).
(vii) The Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common, solely for the purpose of issuance upon the conversion of shares of
the Series C Preferred, such number of shares of Common as are issuable upon the conversion of all
outstanding Series C Preferred. All shares of Common which are so issuable shall, when issued, be
duly and validly issued, fully paid and nonassessable and free from all taxes, liens, charges and
encumbrances. The Corporation shall take all such actions as may be necessary to insure that all
such shares of Common may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which shares of Common
may be listed (except for official notice of issuance which shall be delivered immediately by the
Corporation upon each such issuance). The Corporation shall not take any action that would cause
the number of authorized but unissued shares of Common to be less than the number of such shares
required to be reserved hereunder for issuance upon conversion of the Series C Preferred.
(viii) If any fractional interest in a share of Common would, except for the provisions of
this subparagraph, be delivered upon any conversion of the Series C Preferred, the Corporation, in
lieu of delivering the fractional share therefor, may pay an amount to the holder thereof equal to
the fair market value per share of Common as of the date of conversion as determined in good faith
by the Board, including a majority of the Investor Directors, multiplied by such fractional
interest; provided, however, that in the case of a Qualified IPO the fair market value per share of
Common shall be the gross price per share of Common in such Qualified IPO. The determination as to
whether or not to make any cash payment in lieu of the issuance of fractional shares shall be based
upon the total number of shares of Series C Preferred being converted at any one time by the holder
thereof, not upon each share of Series C Preferred being converted.
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(ix) All certificates representing shares of Series C Preferred which are required
to be surrendered for conversion in accordance with the provisions hereof shall, from and
after the Conversion Date, be deemed to have been retired and cancelled, and the shares of
Series C Preferred converted pursuant to this Section 7 represented thereby shall;
from and after the Conversion Date, be deemed to have been converted into Common for all
purposes, notwithstanding any failure of the holder or holders thereof to surrender such
certificates on or prior to the Conversion Date. The Corporation from time to time may take
such appropriate corporate action as may be necessary to reduce the authorized number of
shares of the Series C Preferred Stock accordingly.
| b. | Conversion Price. |
(i) The initial Series C Conversion Price shall be $3.00 per share of Common
(subject to adjustment in the event of stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences). In order to prevent dilution of the conversion
rights granted under this Section 7, the Series C Conversion Price shall be subject
to adjustment from time to time pursuant to this Section 7(b).
(ii) If and whenever on or after the Series C Original Issuance Date the
Corporation issues or sells or, in accordance with this Section 7, is deemed to have
issued or sold, any shares of its Common for a consideration per share less than the Series
C Conversion Price in effect immediately prior to the time of such issuance, then
immediately upon such issuance or sale or deemed issuance or sale the Series C Conversion
Price shall be reduced to the conversion price determined by dividing (A) the sum of (1) the
product derived by multiplying the Series C Conversion Price in effect immediately prior to
such issuance or sale by the number of shares of Common Deemed Outstanding immediately prior
to such issuance or sale, plus (2) the consideration, if any, received by the Corporation
upon such issuance or sale, by (B) the number of shares of Common Deemed Outstanding
immediately after such issue or sale.
(iii) Notwithstanding the foregoing, there shall be no adjustment in the Series C
Conversion Price as a result of any issuance or sale (or deemed issuance or sale) of:
(A) shares of Common issued upon conversion of the Pari Passu
Preferred;
(B) shares of Common issued upon the exercise of the Warrants;
(C) shares of Common issued upon the exercise of Options or other
Convertible Securities outstanding as of the First Closing Date;
(D) securities issued pursuant to a Board-approved (including at least
one of the Investor Directors) bona fide acquisition of an entity by merger,
purchase of substantially all of the assets or other reorganization;
(E) shares of Common issued to Catalyst pursuant to the
Options granted under the Catalyst Letter Agreements;
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(F) shares of Common or other securities issued as a dividend or
distribution on, or in connection with a split of or recapitalization of,
any of the capital stock of the Corporation;
(G) up to an aggregate of 250,000 shares of Common reserved for
issuance per year pursuant to the Option Plan (subject to adjustment in the
event of stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences) and shares of Common reserved for
issuance pursuant to the Option Plan in lieu of the repayment of certain
salary deferrals as approved by a majority of the Board (including at least
one of the Investor Directors), which foregoing shares may be subject to
Options or restricted stock awards granted under the Option Plan; provided
that any Options that expire or terminate unexercised or any restricted
stock awards that are repurchased by the Corporation pursuant to the terms
of such award shall not be counted toward the maximum number set forth in
this subparagraph (G) unless and until such shares are subject to new
restricted stock awards (or new Options) pursuant to the terms of the Option
Plan;
(H) shares of Common issued or issuable (including options to
acquire such shares of Common) to suppliers or third-party service providers
in connection with the provision of goods or services pursuant to
transactions in the ordinary course of business and approved by a majority
of the Board, including at least one of the Investor Directors;
(I) shares of Common issued or issuable in connection with
bona-fide sponsored research, collaboration, technology license,
development, OEM, marketing or other similar agreements or strategic
partnerships or joint ventures entered into in the ordinary course of
business and approved by a majority of the Board, including at least one of
the Investor Directors (and by at least a majority of the shares of Pari
Passu Preferred and Conversion Common Shares, voting as a single class on a
Common Equivalent Basis, then outstanding, if required pursuant to
Section 3(c));
(J) securities issued in connection with a Qualified IPO;
or
(K) Permitted Issuances;
provided that the aggregate number of shares of Common issued or issuable pursuant to
clauses (H) and (I) above shall not exceed 100,000 in any twelve-month period;
c. Effect on Conversion Price of Certain Events. For purposes of determining
the Series C Conversion Price under Section 7, the following shall be applicable:
(i)
Issuance of Options. If the Corporation in any manner grants, issues or
sells any Options (other than any Options permitted by Section 7(b)(iii)) and the price
per
share for which Common is issuable upon the exercise of such Options, or upon
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conversion or exchange of any Convertible Securities issuable upon exercise of such Options,
is less than the Series C Conversion Price in effect immediately prior to the time of the granting,
issuance or sale of such Options, then the total maximum number of shares of Common issuable upon
the exercise of such Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Corporation at the time of the granting, issuance or sale
of such Options for such price per share. For purposes of this paragraph, the “price per share for
which Common is issuable” shall be determined by dividing (A) the sum of (1) the total
amount, if any, received or receivable by the Corporation as consideration for the granting,
issuance or sale of such Options, plus (2) the minimum aggregate amount of additional
consideration payable to the Corporation upon exercise of all such Options, plus (3) in the
case of such Options which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total maximum
number of shares of Common issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Conversion Price shall be made when Convertible Securities are actually issued
upon the exercise of such Options or when Common is actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in any manner issues
or sells any Convertible Securities and the price per share for which Common is issuable upon
conversion or exchange thereof is less than the Series C Conversion Price in effect immediately
prior to the time of such issuance or sale, then the maximum number of shares of Common issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this paragraph, the “price per
share for which Common is issuable” shall be determined by dividing (A) the sum of (1) the
total amount received or receivable by the Corporation as consideration for the issue or sale of
such Convertible Securities, plus (2) the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total
maximum number of shares of Common issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Series C Conversion Price shall be made when Common is
actually issued upon the conversion or exchange of such Convertible Securities, and if any such
issuance or sale of such Convertible Securities is made upon exercise of any Options for which
adjustments of the Series C Conversion Price had been or are to be made pursuant to other
provisions of this Section 7, no further adjustment of the conversion price shall be made
by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase price provided
for in any Options, the additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities or the rate at which any Convertible Securities are convertible into
or exchangeable for Common changes at any
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time, the Series C Conversion Price in effect at the time of such change shall be immediately
adjusted to the Series C Conversion Price that would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time initially granted,
issued or sold; provided, that, if such adjustment of the Series C Conversion Price would result in
an increase in the Series C Conversion Price then in effect, the Corporation will promptly give all
holders of Series C Preferred written notice of such increase. For purposes of this Section
7(c)(iii), if the terms of any Option or Convertible Security that was outstanding as of the
Series C Original Issuance Date are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the date of such change;
provided, that, no such change shall at any time cause the Series C Conversion Price hereunder to
be increased.
(iv)
Treatment of Expired Options and Unexercised Convertible Securities. Upon
the expiration of any Option or the termination of any right to convert or exchange any Convertible
Security without the exercise of any such Option or right, the Series C Conversion Price then in
effect hereunder shall be adjusted immediately to the Series C Conversion Price that would have
been in effect at the time of such expiration or termination had such Option or Convertible
Security, to the extent outstanding immediately prior to such expiration or termination, never been
issued; provided, that, if such expiration or termination would result in an increase in the Series
C Conversion Price then in effect, the Corporation will promptly give all holders of Series C
Preferred written notice of such increase. For purposes of this Section 7(c)(iv), the
expiration or termination of any Option or Convertible Security that was outstanding as of the
Series C Original Issuance Date shall not cause the Series C Conversion Price hereunder to be
adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible
Security caused it to be deemed to have been issued after the Series C Original Issuance Date.
(v) Calculation of Consideration Received. If any Common, Option or Convertible
Security is issued or sold or deemed to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Corporation therefor (net of
discounts, commissions and related expenses). If any Common, Option or Convertible Security is
issued or sold for a consideration other than cash, the amount of the consideration other than cash
received by the Corporation shall be the fair market value of such consideration as determined in
good faith by the Board. If any Common, Option or Convertible Security is issued to the owners of
the non-surviving entity in connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor shall be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is attributable to such
Common, Option or Convertible Security, as the case may be. The fair value of any consideration
other than cash and securities shall be the fair market value as determined in good faith by the
Board.
(vi) Integrated Transactions. In case any Option is issued in connection with
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the issuance or sale of other securities of the Corporation, together comprising one
integrated transaction in which no specific exercise price is allocated to such Option by
the parties thereto, the Option shall be deemed to have been issued at an exercise price of
$0.01.
(vii) Treasury Shares. The number of shares of Common outstanding at any
given time shall not include shares owned or held by or for the account of the Corporation,
and the disposition of any shares so owned or held shall be considered an issuance or sale
of such shares.
(viii) Record Date. If the Corporation takes a record of the holders of
Common for the purpose of entitling them (A) to receive a dividend or other distribution
payable in Common, Options or in Convertible Securities or (B) to subscribe for or purchase
Common, Options or Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common deemed to have been issued or sold upon
the declaration of such dividend or upon the making of such other distribution or the date
of the granting of such right of subscription or purchase, as the case may be.
(ix) Subdivisions or Combinations of Common. If the Corporation at any
time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or
more classes of its outstanding shares of Common into a greater number of shares, the
Series C Conversion Price in effect immediately prior to such subdivision shall be reduced
proportionately, and if the Corporation at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common into a smaller number of
shares, the Series C Conversion Price in effect immediately prior to such combination shall
be increased proportionately.
(x)
Recapitalization, Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of
all or substantially all of the Corporation’s assets or other transaction, in each case which is
effected in such a manner that the holders of Common are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common,
is referred to herein as an “Organic Change.” Prior to the consummation of any Organic Change, the
Corporation shall make appropriate provisions (in form and substance reasonably satisfactory to the
holders of a majority of the Series C Preferred then outstanding) to insure that each of the
holders of Series C Preferred shall thereafter have the right to acquire and receive, in lieu of or
in addition to (as the case may be) the shares of Common immediately theretofore acquirable and
receivable upon the conversion of such holder’s Series C Preferred, such shares of stock,
securities or assets as such holder would have received in connection with such Organic Change if
such holder had converted its Series C Preferred immediately prior to such Organic Change. In each
such case, the Corporation shall also make appropriate provisions (in form and substance reasonably
satisfactory to the holders of a majority of the Series C Preferred then outstanding) to insure
that the provisions of this Section 7(c) shall thereafter be applicable to the securities
issued in exchange for the Series C Preferred (including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is other than the Corporation and
the value for the
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Common reflected by the terms of such consolidation, merger or sale is less than the
Series C Conversion Price in effect immediately prior to such consolidation, merger or
sale, an immediate adjustment of the Series C Conversion Price to the value for the
Common so reflected and a corresponding immediate adjustment in the number of shares
of Common acquirable and receivable upon conversion of Series C Preferred). The
Corporation shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Corporation) resulting from
consolidation or merger or the entity purchasing such assets assumes by written
instrument (in form and substance satisfactory to the holders of a majority of the Series
C Preferred then outstanding) the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions, such holder
may be entitled to acquire.
(xi) Certain Other Events. If any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly
provided for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Board shall make an appropriate adjustment in the Series C
Conversion Price so as to protect the rights of the holders of Series C
Preferred; provided, that, no such adjustment shall increase the Series C
Conversion Price as otherwise determined pursuant to this Section 7 or
decrease the number of shares of Common issuable upon conversion of each share of
Series C Preferred.
d. Notices.
(i) Immediately upon any adjustment of the Series C Conversion Price,
the Corporation shall give written notice thereof to all holders of Series C
Preferred, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Corporation shall give written notice to all holders of
Series C Preferred at least 10 days prior to the date on which the Corporation
closes its books or takes a record (A) with respect to any dividend or
distribution upon Common, (B) with respect to any pro rata subscription offer to
holders of Common or (C) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the holders of
Series C Preferred at least 10 days prior to the date on which any Organic
Change shall take place.
(8) General.
a. Prior to the effective date of the Corporation’s initial Public Offering,
the Corporation shall keep at its principal office (or the office of its agent) a register
for the registration of Common and Series C Preferred. Upon the surrender of any
certificate representing Common or Series C Preferred at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and deliver (at
the Corporation’s expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares represented by the surrendered
certificate. Each such new certificate shall be registered in such name and shall
represent such number of shares as is requested by the holder of the surrendered
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certificate and shall be substantially identical in form to the surrendered certificate, and
dividends shall accrue on the Common or Series C Preferred represented by such new certificate from
the date to which dividends have been fully paid on such Common or Series C Preferred represented
by the surrendered certificate.
b. Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of any certificate evidencing shares of Common or Series C
Preferred, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu of such
certificate a new certificate of like kind representing the number of shares of such class represented by
such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate, and dividends shall accrue on the Common or Series C Preferred
represented by such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
c. Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified mail, return
receipt requested and postage prepaid, by reputable overnight courier service, charges prepaid or by
personal delivery, and shall be deemed to have been given (i) three (3) business days after
being sent by registered or certified mail, (ii) one business day after being deposited with such an
overnight courier service, and (iii) upon delivery, if by personal delivery, if mailed or
delivered (A) to the Corporation, at its principal executive offices, or (B) to any stockholder, at such
holder’s address as it appears in the stock records of the Corporation (unless otherwise
indicated by any such holder).
d. Any of the rights, powers or preferences of the holders of Series C
Preferred and Conversion Common Shares set forth herein may be waived or otherwise defeased
by the affirmative written consent of the holders of at least a majority of the shares of
Series C Preferred and Conversion Common Shares then outstanding, voting as a single class on a
Common Equivalent Basis.
(9) Definitions. In this Certificate of Incorporation, the following terms
have the meanings specified or referred to in this Section 9.
“Acquisition” is defined in Section 3(b)(xi).
“Affiliate” means, with respect to any particular Person, any other Person that
directly or indirectly controls, is controlled by or is under common control with such
particular Person. For the purpose of this definition, “control” means the possession,
directly or indirectly, of the power to direct the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
“Appraised Value” means the value determined by an independent appraiser experienced in
valuing such type of consideration jointly selected by the Corporation and the holders of a
majority of the Conversion Common Shares. If the Corporation and the
-17-
holders of a majority of the Conversion Common Shares are unable to agree upon such an
appraiser, the Corporation shall select from a list of five such appraisers supplied by
the holders of a majority of the Conversion Common Shares. The determination of such
appraiser shall be final and binding upon the parties, and the fees and expenses of such
appraiser shall be borne by the Corporation.
“Board” means the Board of Directors of the Corporation.
“Budget” shall mean, with respect to a given fiscal year, the annual business plan
and budget as approved by the Board in accordance with the By-laws, as such business plan
and budget may be amended from time to time by the Board in accordance with the By-laws.
“By-laws” means the By-laws of the Corporation.
“Catalyst” means Catalyst Capital Investments LLC, a Delaware limited liability
company.
“Catalyst Letter Agreements” means, collectively, (a) that certain letter agreement
dated as of May 31, 2006 between Catalyst and the Corporation regarding the introduction
of prospective suppliers and (b) that certain letter agreement dated as of May 31, 2006
between Catalyst and the Corporation regarding the introduction of prospective customers.
“Change in Ownership” means any sale, transfer or issuance or series of sales,
transfers and/or issuances of Common or Pari Passu Preferred by the Corporation or any
holders thereof which results in any Person or group of Persons (as the term “group” is
used under the Securities Exchange Act of 1934, as amended), other than the holders of
Common and Pari Passu Preferred at such time, owning capital stock of the Corporation
possessing the voting power (under ordinary circumstances) to elect a majority of the
Board.
“Common” means the Corporation’s Common Stock, $.0001 par value per share.
“Common Deemed Outstanding” means, at any given time, the number of shares of Common
actually outstanding at such time, plus the number of shares of Common deemed to be
outstanding pursuant to Sections 7(c)(i) and 7(c)(ii) whether or not the
Options or Convertible Securities are actually convertible or exercisable at such time.
“Common Equivalent Basis” means, as of the date of such determination, (i) in
respect of the Series C Preferred, the number of shares of Common that each holder of
Series C Preferred would be entitled to receive upon conversion of its Series C Preferred
into Common and (ii) in respect of the Pari Passu Preferred, the number of shares of
Common that each holder of Pari Passu Preferred would be entitled to receive upon
conversion of its Pari Passu Preferred into Common.
“Conversion Common Shares” means (i) the Common issued or issuable upon
conversion of any shares of Pari Passu Preferred and (ii) any Common issued or
issuable
-18-
with respect to the securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger, consolidation or
other reincorporation. As to any particular Conversion Common Shares, such shares shall cease to be
Conversion Common Shares when they have been (x) effectively registered under the Securities Act of
1933, as amended, and disposed of in accordance with the registration statement covering them, (y)
distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act of 1933, as then in effect, or any comparable statement under any similar federal
statute then in force or (z) repurchased by the Corporation.
“Conversion Date” is defined in Section 7(a)(iii).
“Convertible Securities” means any stock or securities directly or indirectly
convertible into or exchangeable for Common.
“Corporation” means XStream Systems, Inc., a Delaware corporation.
“Event of
Noncompliance” is defined in Section 6(a).
“First Closing Date” means March 14, 2007.
“Fundamental Change” means (i) any sale or transfer of more than 50% of the assets of the
Corporation and its Subsidiaries on a consolidated basis (measured either by book value in
accordance with generally accepted accounting principles consistently applied or by fair value
determined in the reasonable good faith judgment of the Board) in any transaction or series of
transactions (other than sales in the ordinary course of business and other than to a wholly owned
Subsidiary of the Corporation) and (ii) any merger or consolidation to which the Corporation is a
party, except for a merger in which the Corporation is the surviving corporation, the terms of the
Pari Passu Preferred are not changed, the Pari Passu Preferred is not exchanged for cash,
securities or other property, and after giving effect to such merger, the holders of the
Corporation’s outstanding capital stock immediately prior to the merger shall continue to own the
Corporation’s outstanding capital stock possessing the voting power (under ordinary circumstances)
to elect a majority of the Board.
“GAAP” means United States generally accepted accounting principles, consistently
applied (except for any change required by GAAP).
“Indebtedness” means, with respect to any Person at any date, without duplication: (i) all
obligations of such Person for borrowed money or in respect of loans or advances; (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
(iii) all obligations in respect of letters of credit, whether or not drawn, and bankers’
acceptances issued for the account of such Person; (iv) all interest rate or currency caps,
collars, swaps or other similar protection agreements of such Person (valued on a market quotation
basis); (v) any indebtedness for the deferred purchase price of property or services with respect
to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade
payables and other current liabilities incurred in the ordinary course of business consistent with
past practice
-19-
which are not more than 120 days past due, unless the same are being contested in good
faith by actions approved by the Board of Directors (including at least one of the Investor
Directors) and with respect to which the Corporation has set aside adequate reserves
therefor in accordance with GAAP); (vi) any commitment by which a Person assures a
creditor against loss (including, without limitation, contingent reimbursement obligations
with respect to letters of credit); (vii) any obligations under leases that are required to be
capitalized in accordance with GAAP; (viii) any indebtedness secured by a Lien on a
Person’s assets; or (ix) any guarantee or other contingent obligation (including, without
limitation, obligations to repurchase, reimburse or keep well) in respect of the items set
forth in the foregoing clauses (i) through (viii).
“Intellectual Property Rights” means all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade names,
URL’s, logos and corporate names and registrations and applications for registration
thereof, together with all of the goodwill associated therewith, (iii) copyrights
(registered or unregistered) and copyrightable works and registrations and applications
for registration thereof, (iv) mask works and registrations and applications for
registration thereof, (v) computer software, data, data bases and documentation thereof,
(vi) trade secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether
or not reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications, designs,
plans, proposals, technical data, copyrightable works, financial and marketing plans and
customer and supplier lists and information), (vii) other intellectual property rights and
(viii) copies and tangible embodiments thereof (in whatever form or medium).
“Investor Director” shall mean any director of the Board designated by the
Investors pursuant to the terms of the Shareholders Agreement.
“Investors” has the meaning set forth in the Shareholders Agreement.
“Liens” means any mortgage, pledge, security interest, encumbrance, lien, claim or
charge of any kind (including, without limitation, any conditional sale or other title
retention agreement or lease in the nature thereof), any sale of receivables with recourse
against the Corporation or any Affiliate, any filing or agreement to file a financing
statement as debtor under the Uniform Commercial Code or any similar statute other than to
reflect ownership by a third party of property leased to the Corporation under a lease
which is not in the nature of a conditional sale or title retention agreement, or any
subordination arrangement in favor of another Person (other than any subordination arising
in the ordinary course of business).
“Liquidation Value” means, (i) in respect of the Series A Preferred, the Series A
Liquidation Value, (ii) in respect of the Series B Preferred, the Series B Liquidation
Value and (iii) in respect of the Series C Preferred, the Series C Liquidation Value.
“Non-Funded Shares” is defined in Section 5(b).
-20-
“Option Plan” means the Corporation’s 2004 Stock Option Incentive Plan.
“Options” means any agreements, rights, warrants or options to subscribe for or purchase
Common or Convertible Securities.
“Organic
Change” is defined in Section 7(c)(x).
“Pari Passu Preferred Stock” means shares of Series A Preferred, Series B Preferred and
Series C Preferred.
“Permitted Issuances” means the issuance and sale of the Pari Passu Preferred expressly
contemplated by the Preferred Stock Purchase Agreement.
“Permitted Liens” means (i) liens with respect to taxes not yet due and payable or which are
being contested in good faith by appropriate proceedings and for which appropriate reserves have
been established in accordance with GAAP, (ii) mechanics’, materialmen’s or contractors’ liens or
encumbrances or any similar lien or restriction and (iii) easements, rights-of-way, restrictions
and other similar charges and encumbrances not interfering with the ordinary conduct of the
business of the Corporation.
“Person” means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization, a
governmental entity or any department, agency or political subdivision thereof or any other entity.
“Preferred Stock Purchase Agreement” means the Series A Preferred Stock Purchase
Agreement dated as of March 14, 2007, as amended, by and among the Corporation and the
purchasers of the securities named therein (as the same may be amended, modified, restated or
replaced).
“Public Offering” means any offering by the Corporation of its capital stock or equity
securities to the public pursuant to an effective registration statement under the Securities Act
of 1933, as then in effect, or any comparable statement under any similar federal statute then in
force.
“Qualified IPO” is defined in Section 7(a)(ii).
“Redemption Date” means 45 days after the date of any Redemption Notice.
“Redemption Notice” means a written notice by one or more holders of the Series C Preferred to
the Corporation stating their intention to exercise the Redemption Right and the number of each
such holder’s shares of Series C Preferred to be redeemed.
“Redemption Note” is defined in Section 5(b).
“Redemption Right” is defined in Section 5(a).
-21-
“Registration Rights Agreement” means the Registration Rights Agreement dated as of March 14,
2007, as amended, by and among the Corporation and the investors named therein (as the same may be
amended, modified, restated or replaced).
“Series A Liquidation Value” means $3.7999696 per share, subject to equitable adjustments to
reflect stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences.
“Series A Preferred” means the Series A Redeemable Convertible Preferred Stock of the
Corporation, $.0001 par value per share.
“Series B Liquidation Value” means $3.00 per share, subject to equitable adjustments to
reflect stock splits, stock dividends, stock combinations, recapitalizations and like occurrences.
“Series C Conversion Price” is defined in Section 7(b).
“Series C Junior Securities” means any of the Corporation’s equity securities (whether or not
currently authorized or outstanding) which by its terms is junior to the Series C Preferred, but
shall not include any shares of Series A Preferred or Series B Preferred.
“Series C Original Issuance Date” means, with respect to any share of Series C Preferred, the
date of the issuance of such share of Series C Preferred pursuant to the Preferred Stock Purchase
Agreement.
“Series B Preferred” means the Series B Redeemable Convertible Preferred Stock of the
Corporation, $.0001 par value per share.
“Series B Warrants” means the warrants to purchase Common issued by the Corporation
pursuant to the Warrant Agreement dated as of December 19, 2007.
“Series C Liquidation Value” means $3.00 per share, subject to equitable adjustments to
reflect stock splits, stock dividends, stock combinations, recapitalizations and like occurrences.
“Series C Preferred” means the Series C Redeemable Convertible Preferred Stock of the
Corporation, $.0001 par value per share.
“Series C Warrants” means the warrants to purchase Common to be issued by the Corporation
pursuant to the Warrant Agreement dated as of December 19, 2007.
“Significant Event” is defined in Section 4(a).
“Shareholders Agreement” means the Amended and Restated Securityholders Agreement dated as of
December 19, 2007 by and among the Corporation and the
securityholders of the Corporation named
therein (as the same may be amended, modified, restated or replaced).
-22-
“Subsidiary” means, with respect to any Person, any corporation, limited liability company,
partnership, association or other business entity of which (i) if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more of the other Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if such Person or
Persons shall be allocated a majority of the gains or losses of such limited liability company,
partnership, association or other business entity or shall be or control (or have the power to
control) a managing director, manager or general partner of such limited liability company,
partnership, association or other business entity.
“Warrants” means the Series B Warrants and the Series C Warrants.
-23-
EXHIBIT H
Form of Legal Opinion of Blank Rome LLP
Form of Legal Opinion of Blank Rome LLP
Phone:
|
(000) 0000000 | |||
Fax:
|
(000) 0000000 | |||
Email:
|
xxx.xxxxxxxxx.xxx |
December 20, 2007
Second Closing Investors
c/o Xxxxxxx Xxxxx, Esq.
Xxxxxx Xxxxxx LLP
Xxx Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
c/o Xxxxxxx Xxxxx, Esq.
Xxxxxx Xxxxxx LLP
Xxx Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
| Re: | First Amendment to the Series A Preferred Stock Agreement dated as of December 19, 2007 (the “Amendment”), by and between the Second Closing Investors (as defined in the Amendment) (the “Purchasers”) and XStream Systems, Inc. |
Ladies and Gentlemen:
We have acted as special counsel to XStream Systems, Inc., a Delaware corporation, located at
00000
000xx
Xxxxxxx, Xxxxx 000, Xxxxxxxxx, XX 00000 (the
“Company”) in connection with
the transactions contemplated by the Amendment. This opinion is being rendered pursuant to Section
3.2(h)(xi) of the Amendment. Capitalized terms used herein but not otherwise defined herein have
the respective meanings ascribed to such terms in the Amendment.
in rendering the opinions set forth below, we have relied with your approval, as to factual
and other matters that affect our opinions, solely on our examination of executed copies of the
documents listed on: (1) Exhibit “A” and identified as the Transaction Documents (the
“Transaction Documents”); (2) Exhibit “B” and identified as the Authority
Documents (the “Authority Documents”); and (3) Exhibit “C” and identified as the
Certificate of the Company.
We also have examined and, to the extent we have deemed proper, relied upon certain
certificates, originals or copies certified to our satisfaction, of public officials and the
Company, and such other documents we deemed necessary to make the opinions set forth below. We
make no representations as to the sufficiency of our investigation for your purposes except as set
forth herein.
We have assumed and relied, as to matters of fact and mixed questions of law and fact upon
the truth and completeness of all factual matters set forth in the certificates of government
officials and the officer’s certificate attached hereto and of the representations and warranties
of the Company set forth in the Transaction Documents. We have not made or undertaken to make any
investigation as to factual matters or as to the accuracy or completeness of any representation,
warranty, data or any other information, whether written or oral, that may have been made by or on
behalf of the parties to the Transaction Documents or otherwise, and we assume, in giving this
opinion, that none of such information, if any, contains any untrue
0000
Xxxxx Xxxxxxx Xxxxxxx Xxxxx 000 Xxxx Xxxxx, XX 00000
xxx.XxxxxXxxx.xxx
Delaware • Florida • New Jersey • New York • Ohio • Pennsylvania • Washington DC • Hong Kong
Second Closing Investors
December 20, 2007
Page 2
December 20, 2007
Page 2
statement of a material fact or omits to state a material fact necessary to make the statements
made, in light of the circumstances in which they are made, not misleading.
Furthermore, in rendering the opinions below, we have assumed, to the extent relevant to any
of our opinions expressed herein, the following matters to be true:
(a) The execution, delivery, and performance of the Transaction Documents
by all parties thereto (other than the Company) and the consummation by such parties of the
transactions contemplated by the Transaction Documents do not and will not conflict with or
violate and will not cause or result in a violation or breach of: (i) any statute, regulation
or rule by which any such party is bound or to which any such party is subject, or (ii) any
contracts, instruments, agreements, injunctions, orders or decrees by which any such party is bound;
(b) All factual matters contained in the Transaction Documents are true and
correct and are not inconsistent with the opinions set forth in this letter;
(c) No authorization, approval or consent of, or filing or registration with, any
governmental or regulatory body is required by any party to the Transaction Documents (other
than the Company) in connection with the execution, delivery or performance, or validity or
enforceability of the Transaction Documents;
(d) There is proper consideration for the Company’s execution of the
Transaction Documents;
(e) The legal capacity of each natural person; the legal existence of all parties
to the Transaction Documents (other than the Company); the power and authority of each party
to execute, deliver and perform each document executed and delivered and to do each other act
done or to be done by such party; and the due authorization, execution and delivery by each
party of each document executed and delivered or to be executed and delivered by such party;
(f) The validity, binding effect and enforceability as to each party, other than the
Company, of each Transaction Document executed and delivered or to be executed and delivered and
of each other act done or to be done by such party;
(g) There have been no undisclosed modifications of any provision of any document reviewed
by us in connection with the rendering of these opinions and no undisclosed prior waiver of any
right or remedy contained in any of the documents;
(h) The genuineness of each signature, the completeness of each document submitted to us,
the authenticity of each document reviewed by us as an original, the conformity
to the original of each document reviewed by us as a copy and the authenticity of the original
of each document received by us as a copy;
Second Closing Investors
December 20, 2007
Page 3
December 20, 2007
Page 3
(i) Each Purchaser has acted in good faith, without notice of adverse claims, and has
complied with all laws applicable to it that affect the transaction contemplated by the
Transaction Documents;
(j) The transactions contemplated by the Transaction Documents comply with all tests of
good faith, fairness and conscionability required by law;
(k) Routine procedural matters such as service of process or qualification to do
business in the relevant jurisdictions will be satisfied by the parties seeking to enforce
any agreements in connection with the transaction;
(l) No
action, discretionary or otherwise, will be taken by or on behalf of a
Purchaser or the Company in the future that might result in a violation of any statute,
regulation or rule;
(m) There are no other agreements or understandings among the parties to the
Transaction Documents that would modify the terms of the Transaction Documents or the
respective rights or obligations of the parties to those documents;
(n) With respect to the transactions contemplated by the Transaction Documents, there
has been no mutual mistake of fact and there exists no fraud or duress; and
(o) All documents incorporated by reference into, or referred to in the Transaction
Documents, which are not themselves Transaction Documents, are enforceable against the
parties thereto in accordance with their terms.
Whenever in this letter our opinion, with respect to the existence or absence of facts, is
intended to be based on our knowledge or attention, it is intended to signify that during
the course of our representation of the Company, no information has come to the attention of
those attorneys in this law firm who have represented the Company in connection with the
transactions described in this opinion letter which gave those attorneys actual knowledge of
the existence or absence of those facts. Except to the extent expressly set forth in this
letter, as noted above, we have not undertaken any independent investigation to determine
the existence or absence of any facts material to our opinion, and no inference as to our
knowledge of the existence or absence of those facts should be drawn from our representation
of the Company.
Subject to the foregoing and the exclusions, assumptions and qualifications
contained below, we are of the opinion that:
1. Based solely on the Good Standing Certificate (as defined in Exhibit “B”), the
Company is a corporation, validly existing and in good standing under the laws of the State of
Second Closing Investors
December 20, 2007
Page 4
December 20, 2007
Page 4
Delaware. Based solely on the Authority Certificate (as defined in Exhibit “B”), the Company is
qualified as a foreign corporation in the State of Florida.
2. The Company has all requisite corporate power and authority to execute and
deliver the Transaction Documents, and to close the transactions contemplated thereby. All
corporate action required to be taken by the Company to authorize the execution and delivery
of the Transaction Documents and the closing of the transactions contemplated thereby, have
been duly and properly taken.
3. Each of the Transaction Documents constitutes the valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
4. The execution and delivery of the Transaction Documents by the Company, and
the closing of the transactions contemplated thereby do not conflict with, or result in any
violation of or default under, or give rise to a right of termination, cancellation or
acceleration of any obligation under, (i) any provision of the certificate of incorporation or bylaws of the
Company, as amended, or (ii) any statute, regulation or rule of the State of Delaware or
the State of Florida, which is applicable in our experience to transactions of the kind contemplated
by the Transaction Documents, or, to our knowledge, any injunction, order or decree of any
executive, legislative, judicial, administrative or regulatory body of the State of Delaware or the
State of Florida (collectively, a “Governmental Authority”) that is binding upon the Company.
5. The shares of Series B Preferred Stock and the Series B Warrants underlying the
Series B Units, when issued in accordance with the provisions of the Amendment and upon
receipt of all consideration specified in the Amendment, will be validly issued, fully paid
and nonassessable.
6. The shares of common stock issuable upon exercise of the Series B Warrants,
when issued in accordance with the provisions of the Series B Warrant Agreement and upon
receipt of all consideration specified in the Series B Warrant Agreement, will be validly
issued, fully paid and nonassessable.
The opinions expressed herein are subject in all respects to the following limitations and
qualifications:
(i) We express no opinion whatsoever as to the effect of bankruptcy, reorganization,
insolvency, fraudulent conveyance, fraudulent transfer, moratorium and other similar laws or
equitable principles affecting creditors’ rights and remedies generally or general principles of
equity (including, without limitation, concepts of conscionability, materiality, reasonableness,
good faith and fair dealing) on the enforceability of the Transaction Documents regardless of
whether considered in a proceeding at law or in equity.
Second Closing Investors
December 20, 2007
Page 5
December 20, 2007
Page 5
(ii) This opinion letter is limited to the laws of the States of Delaware and Florida. We
give no opinion with respect to any provision specifying that the law of a particular state is to
apply, and we assume that the Transaction Documents are governed by the laws of the States of
Delaware or Florida.
Notwithstanding anything in this; opinion letter to the contrary, we express no opinion
whatsoever regarding the following:
1. the compliance or noncompliance of any real estate, personal property or
business operations of the Company with federal, state or local laws, statutes, ordinances,
rules or regulations;
2. the acceleration of the obligations (or other exercise of rights or remedies)
upon the occurrence of a technical or non-material breach or violation;
3. the availability of equitable remedies, including, without limitation,
specific performance, appointment of a receiver and injunctive relief;
4. the effect of applicable laws and court decisions which may hereafter be
enacted, promulgated or made and which may limit or render unenforceable certain fights and
remedies under the Transaction Documents;
5. the validity or enforceability of any indemnity from Company to the
extent it would protect an indemnitee from the gross negligence or willful misconduct of such
indemnitee, its predecessor in interest or its agent or from any other acts or conduct of the
indemnitee to the extent applicable law imposes responsibility or liability on the indemnitee
for
its acts or conduct;
6. as to the validity, enforceability or effectiveness of the following
contractual provisions to the extent included in the Transaction Documents: (a) provisions
which
authorize self-help, (b) provisions which purport to establish evidentiary standards, (c)
provisions which purport to render ineffective any waiver or modification not in writing, (d)
provisions related to the waiver of rights or remedies (including, without limitation, waivers
of
notices and hearing, waivers of defenses, waivers of jury trials, waivers of rights of
marshaling,
waivers of exemptions and stays of execution, waivers of statutes of limitations and waivers
of
duties which may be imposed upon a Purchaser) or the delay or omission of enforcement thereof,
(e) provisions purporting to waive any objection to the laying of venue or any claim that an
action or proceeding has been brought in an inconvenient forum, (f) agreements by the Company
to submit to the jurisdiction of a particular court or appoint an agent for the acceptance of
service
of process, (g) provisions which permit any purchaser of a participation interest to setoff or
apply
any deposit, property or indebtedness with respect to any participation interest, (h) the
effect of
Second Closing Investors
December 20, 2007
Page 6
December 20, 2007
Page 6
the law of any jurisdiction (other than the States of Delaware and Florida) wherein a Purchaser may
be located or wherein the enforcement of any Transaction Document may be sought, (i) provisions
stating that all rights or remedies of any party are cumulative and may be enforced in addition to
any other right or remedy and that the election of a particular remedy does not preclude recourse
to one or more remedies, (j) disclaimers, (k) indemnification and contribution provisions, (1)
releases of claims, (m) liability limitations, (n) liquidated damages which do not bear a
sufficient relationship to actual damages and could be determined to constitute a penalty, (o)
choice of law provisions, (p) provisions appointing the Purchasers as attorney-in-fact for the
Company, (q) provisions imposing penalties, forfeitures, legal costs, late payment charges or an
increase in interest rate upon delinquency in payment (except for such legal fees, late payment
charges or default interest rate provisions permissible under Delaware law) or the occurrence of a
default, or increasing the Company’ obligations based upon capital adequacy requirements, (r)
provisions allowing the institution of judicial or nonjudicial proceedings or the exercise of any
other rights, without notice to the person or entity against whom enforcement is sought, (s)
provisions implying that a person or entity may act in any manner that is not commercially
reasonable where discretion is reserved, (t) provisions relating to the waiver of subrogation
rights, (u) provisions relating to payment of costs of indemnity, court costs, attorneys’ fees and
expenses which may be chargeable or recoverable in any judicial proceedings in excess of those
which are actually incurred and would be reasonable, or relating to interest or interest rates
after judgment is obtained in excess of the maximum rate permitted by applicable law, (v)
provisions purporting to deny a Purchaser’s responsibility or insulate a Purchaser from liability
for environmental conditions or activities or breaches of environmental laws, rules or regulations
to the extent such responsibility or obligation may be imposed upon the Purchasers under applicable
law, (w) provisions which may be limited by the application of constitutional or public policy
principles, standards of unconscionability, or requirements of commercial reasonableness and good
faith; or (q) rights which purport to grant a private right of sale in lieu of judicial foreclosure
or waive the Company’ right of redemption;
7. the compliance with, or any governmental or regulatory filing, approval,
authorization, license or consent required by or under any (a) federal or state environmental
law,
(b) federal or state antitrust law, (c) federal or state securities law, (d) federal or state
taxation
law, (e) federal or state worker health or safety, zoning or permitting or land use matter,
(f)
federal or state patent, trademark or copyright law (including, but not limited to, any
filings and
registrations of any patent, trademark or copyright with any governmental authority), or (g)
federal or state labor or employment law (including, but not limited to, pension and employee
benefit law, rule or regulation); or
8. the availability of specific performance, appointment of a receiver,
injunctive relief or other equitable remedies with respect to any of the covenants or remedies
set
forth in the Transaction
Documents.
Second Closing Investors
December 20, 2007
Page 7
December 20, 2007
Page 7
The opinions expressed in this opinion letter are given solely for the benefit of Purchasers,
and its successors, in connection with the transactions contemplated by the Transaction Documents.
The opinions expressed in this opinion letter may not be relied upon, in whole or in part, by the
Purchasers, or its successors, for any other purpose or relied upon by any other person or entity
for any purpose, in each case, without the prior written consent of a partner of this firm.
We give only the opinions that are set forth herein and no opinions should be implied. The
opinions expressed in this opinion letter are rendered as of the date hereof. We express no
opinion as to circumstances or events that may occur subsequent to such date. We disclaim any
obligation to advise you of any changes that thereafter may be brought to our attention.
| Very truly yours, |
||||
| /s/ Blank Rome LLP | ||||
| BLANK ROME LLP | ||||
EXHIBIT “A”
TRANSACTION DOCUMENTS
1. First Amendment to the Series A Preferred Stock Purchase Agreement dated as of
December 19, 2007 by and between the Company and the Purchasers.
2. Series B Warrant Agreement, dated December 19, 2007 of the Company
3. Series C Warrant Agreement dated December 19, 2007 of the Company
4. First Amendment to the Registration Rights Agreement dated December 19, 2007
5. Amended and Restated Securityholders Agreement dated December 19, 2007
EXHIBIT “B”
AUTHORITY DOCUMENTS
1. Certificate of Incorporation of XStream Systems, Inc. filed in the State of
Delaware on May 27, 2004 as amended on January 4, 2005, and as further amended on
December 18, 2007;
2. Amended Certificate of Designation of Series A Redeemable Convertible
Preferred Stock of the Company.
3. Certificate of Designation of Series B Redeemable Convertible Preferred Stock of
the Company.
4. Certificate of Designation of Series C Redeemable Convertible Preferred Stock of
the Company.
5. Good standing certificate for XStream Systems, Inc. issued by the State of
Delaware dated November 1, 2007 (the “Good Standing Certificate”).
6. Active Status certificate for XStream Systems, Inc. issued by the State of Florida
dated November 1, 2007 (the “Authority Certificate”).
EXHIBIT “C”
CERTIFICATE
The undersigned hereby certifies to Blank Rome LLP that:
1. We are familiar with all of the terms and provisions of the Transaction Documents (as
defined in the opinion to which this Certificate is attached) and the other documents
executed and
delivered in connection therewith. All capitalized terms used herein and not otherwise
defined herein
have the respective meanings ascribed to them in the Transaction Documents and in the
opinion to which
this Certificate is attached.
2. As to the matters set forth below, the undersigned either have personal knowledge or
have obtained information from officers and employees of the Company, in whom the
undersigned have
confidence and whose duties require them to have personal knowledge hereof.
3. The representations and warranties contained in the Transaction Documents made by the
Company are true and correct on and as of the date hereof and you may rely on such
representations and
warranties as if they were made directly to you.
4. The Company has paid all taxes and fees required to be paid to and have made all
filings
required to be filed with the Secretary of State of the States of Delaware and Florida.
No action has been
taken to discontinue the business of, or to dissolve, any of the Company.
5. The Transaction Documents have been executed by properly elected, qualified and acting
officers of the Company.
6. The Company has provided Blank Rome LLP true, correct and complete copies of the
agreements and other instruments listed on Exhibit A and Exhibit B to the opinion to
which this
Certificate is attached. All such agreements and instruments in the form submitted to
Blank Rome are in
full force and effect as of the date hereof, and no such agreement or instrument has been
repealed or
(except as disclosed to Blank Rome) amended.
7. There are no injunctions, orders or decrees of any Governmental Authority binding upon
the Company.
8. There is no action, suit, proceeding or investigation pending or, to our knowledge,
threatened against the Company that prevent the right of the Company to enter into the
Transaction
Documents, or to consummate the transactions contemplated thereby.
9. The undersigned has read and is familiar with the opinion (in the form to which this
Certificate is attached) to be rendered by Blank Rome LLP in connection with the
Transaction
Documents. The undersigned believes that the factual assumptions identified in the
opinion are true and
accurate. There are no additional facts that are not stated in the opinion which would
materially affect
the validity of the assumptions and conclusions set forth in the opinion or upon which
the opinion is
based. The undersigned is executing this Certificate to induce Blank Rome LLP to render
that opinion
and understands that Blank Rome LLP will rely upon the foregoing as well as other
certificates and
documents in rendering that opinion. The undersigned knows of no reason why the opinion
should not be
issued.
[Signature Page Follows]
| XSTREAM SYSTEMS, INC. |
||||
| By: | /s/ Xxxxxx X. Xxxx | |||
| Name: | Xxxxxx X. Xxxx | |||
| Title: | Chairman and CEO | |||
Dated: December 19, 2007
[Signature
Page to Backup Certificate to Blank Rome Opinion]
EXHIBIT I
Series B Warrant Agreement
EXECUTION COPY
SERIES B WARRANT AGREEMENT
Dated as of December 19, 2007
1. ISSUANCE |
1 | |||
2. DEFINITIONS AND INTERPRETATION |
1 | |||
3. EXERCISE OF WARRANT |
7 | |||
3.1 Exercise |
7 | |||
3.2 Manner of Exercise |
7 | |||
3.3 Payment of Charges |
8 | |||
3.4 Fractional Shares |
8 | |||
4. TRANSFER, DIVISION AND COMBINATION |
8 | |||
4.1 Transfer |
8 | |||
4.2 Division and Combination |
9 | |||
4.3 Expenses |
9 | |||
4.4 Maintenance of Books |
9 | |||
5. EXERCISE PRICE; ANTIDILUTION PROVISIONS |
9 | |||
5.1 Exercise Price |
9 | |||
5.2 Adjustments; Exceptions |
9 | |||
5.3 Effect on Exercise Price of Certain Events |
11 | |||
5.4 Notices |
15 | |||
6. NO IMPAIRMENT |
15 | |||
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY |
15 | |||
8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS |
16 | |||
8.1 Notices of Corporate Actions |
16 | |||
8.2 Taking of Record |
16 | |||
8.3 Closing of Transfer Books |
16 | |||
9. TRANSFER RESTRICTIONS; LEGENDS |
17 | |||
9.1 Restrictions on Transfer and Entry into Shareholders Agreement and
Registration Rights Agreement |
17 | |||
9.2 Legends |
17 | |||
10. LOSS OR MUTILATION |
19 | |||
11. OFFICE OF THE COMPANY |
19 | |||
12. FINANCIAL AND BUSINESS INFORMATION |
19 | |||
13. REPRESENTATIONS AND WARRANTIES |
21 | |||
13. 1 Holders |
21 | |||
13.2 Company |
21 |
14. MISCELLANEOUS |
22 | |||
14.1 Nonwaiver |
22 | |||
14.2 Notice Generally |
22 | |||
14.3 Indemnification |
22 | |||
14.4 Limitation of Liability; No Stockholder Rights |
22 | |||
14.5 Remedies |
23 | |||
14.6 Successors and Assigns |
23 | |||
14.7 Amendment |
23 | |||
14.8 Severability |
23 | |||
14.9 Governing Law; Jurisdiction |
23 |
SERIES B WARRANT AGREEMENT
XStream Systems, Inc.
THIS SERIES B WARRANT
AGREEMENT (this “Agreement”) is entered into as of this 19th
day of December, 2007, between XStream Systems, Inc., a Delaware corporation (the “Company”), and
the Holders from time to time of the Warrants created hereunder (such terms, and certain other
capitalized terms used herein being hereinafter defined).
WHEREAS, the Company has agreed to issue the Warrants on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto hereby agree as follows:
1. ISSUANCE
The Company shall issue and deliver a certificate or certificates
(the “Warrant Certificates”)
evidencing warrants to purchase an aggregate of 7,250,000 shares of Common Stock at the per share
exercise price specified in Section 5 (the “Warrants”) on the terms and conditions set forth in
this Agreement. Each Warrant Certificate shall be substantially in the form of Exhibit A hereto.
Each Warrant Certificate shall be dated the date of issuance. An officer shall sign each Warrant
Certificate by manual or facsimile signature. All Warrants shall at all times be identical as to
terms and conditions and date, except as to the number of shares of Common Stock for which they may
be exercised.
2. DEFINITIONS AND INTERPRETATION
(a) As used in this Agreement, the following terms have the respective meanings set
forth below:
“Agreed Rate” shall mean the base rate on corporate loans posted by at least 75% of the thirty
largest banks in the United States, as reported in the Money Rates section of The Wall Street
Journal.
“Agreement” shall have the meaning set forth in the Preamble to this Agreement.
“Board” shall mean the board of directors of the Company.
“Book Value” per share of Common Stock as of a date specified herein shall mean the
consolidated book value of the Company and its Subsidiaries as of such date divided by the number
of shares of Common Stock Outstanding on such date. Such book value shall be determined in
accordance with GAAP.
“Business Day” shall mean any day that is not a Saturday, Sunday or other day on which
commercial banks in New York City or the State of Florida are authorized or required by
law to close.
“Catalyst Letter Agreements” means, collectively, (i) that certain letter
agreement dated as of May 31, 2006 between Catalyst Capital Investments LLC and the Company
regarding the introduction of prospective suppliers and (ii) that certain letter agreement
dated as of May 31, 2006 between Catalyst Capital Investments LLC and the Company regarding
the introduction of prospective customers.
“Commission” shall mean the Securities and Exchange Commission or any other federal
agency then administering the Securities Act and other federal securities laws.
“Common Deemed Outstanding” means, at any given time, the number of shares of Common
actually outstanding at such time, plus the number of shares of Common deemed to be
outstanding pursuant to Sections 5.3(a) and 5.3(b) whether or not the Options or Convertible
Securities are actually convertible or exercisable at such time.
“Common Equivalent Basis” means, as of the date of such determination, the number of
shares of Common Stock that each holder of Preferred Stock would be entitled to receive upon
conversion of such holder’s Preferred Stock into Common Stock.
“Common Stock” shall mean (except where the context otherwise indicates) the Common Stock
of the Company, par value $.0001 per share, as constituted on the Original Issue Date, and any
capital stock into which such Common Stock may thereafter be changed, and shall also include
(i) capital stock of the Company of any other class (regardless of how denominated) issued to
the holders of shares of any Common Stock upon any reclassification thereof which is also not
preferred as to dividends or liquidation over any other class of stock of the Company and
which is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation received by or distributed to the holders of Common Stock of the Company
under the circumstances contemplated by Section 5.3(j).
“Company” shall have the meaning set forth in the Preamble to this Agreement.
“Company Default” means (a) the breach of any warranty or the inaccuracy at the time when
made of any representation made by the Company herein or (b) the failure by the Company to
comply with any covenant of the Company contained herein.
“Conversion Common Shares” means (i) the Common Stock issued or issuable upon conversion
of the Preferred Stock and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation or other
reincorporation. As to any particular Conversion Common Shares, such shares shall cease to be
Conversion Common Shares when they have been (x) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them, (y)
distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under
the Securities
2
Act or any comparable rule under any similar federal statute then in force or (z) repurchased by
the Company.
“Convertible Securities” means any stock or securities directly or indirectly convertible
into or exchangeable for Common Stock.
“Current Market Price” shall mean as of any specified date the average of the daily market
prices of the Common Stock of the Company for the twenty (20) consecutive Business Days immediately
preceding such date. The “daily market price” for each such Business Day shall be: (i) if the
Common Stock is then listed on a national securities exchange, the last sale price, regular way, on
such day on the principal stock exchange on which such Common Stock is then listed or admitted to
trading, or, if no such sale takes place on such day, the average of the closing bid and asked
prices for the Common Stock on such day as reported on such stock exchange or (ii) if the Common
Stock is not then listed or admitted to trading on any national securities exchange but is traded
over-the-counter, the average of the closing bid and asked prices for the Common Stock as reported
on NASDAQ or the Electronic Bulletin Board or in the National Daily Quotation Sheets, as
applicable.
“Designated Office” shall have the meaning set forth in Section 11.
“Exchange Act” shall mean the Securities Exchange Act of 1934.
“Exercise Date” shall have the meaning set forth in Section 3.2(a).
“Exercise Notice” shall have the meaning set forth in Section 3.2(a).
“Exercise Period” shall mean the period during which the Warrants are
exercisable pursuant to Section 3.2.
“Exercise Price” shall have the meaning specified in Section 5.1.
“Expiration Date” shall mean the tenth anniversary of the Original Issue Date.
“GAAP” shall mean generally accepted accounting principles in the United States of America as
from time to time in effect.
“Holder” shall mean the Person in whose name a Warrant is registered on the books of the
Company maintained for such purpose.
“Investor Director” shall mean any member of the Board designated by the Investors (as defined
in the Shareholders Agreement) pursuant to the terms of the Shareholders Agreement.
“Lien” shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference,
priority or other security agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of, or
3
agreement to give, any financing statement perfecting a security interest under the Uniform
Commercial Code or comparable law of any jurisdiction).
“Majority Warrant Holders”, with respect to a given determination, shall mean the Holders of
Warrants exercisable for more than fifty percent (50%) of the aggregate number of shares of Warrant
Stock issuable upon the exercise of all Warrants outstanding and unexercised at the time of such
determination.
“Material Adverse Effect” means an adverse effect of $100,000 or more on the condition
(financial or otherwise), operating results, business, prospects, assets, operations, employee
relations or customer or supplier relations of the Company and its Subsidiaries, taken as a whole;
provided, however, that no change, circumstance, effect, event or fact shall be deemed to be a
Material Adverse Effect to the extent that it is caused by the execution or public announcement of
the Preferred Stock Purchase Agreement or the transactions contemplated hereby.
“NASDAQ” shall mean the NASDAQ quotation system, or any successor reporting system.
“Opinion of Counsel” means a written opinion of counsel (who may be an employee of a Holder)
experienced in Securities Act matters, chosen by the Majority Warrant Holders and reasonably
acceptable to the Company.
“Option Plan” means the Company’s 2004 Stock Option Incentive Plan.
“Options” means any agreements, rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities.
“Organic Change” shall have the meaning set forth in Section 5.3
(j).
“Original Issue Date” shall mean the date on which the Original Warrants were issued, as set
forth on the cover page of this Agreement.
“Original Warrants” shall mean the Warrants originally issued by the Company on the Original
Issue Date to the Second Closing Investors (as defined in the Preferred Stock Purchase Agreement).
“Outstanding” shall mean, when used with reference to Common Stock, at any date as of which
the number of shares thereof is to be determined, all issued shares of Common Stock, except shares
then owned or held by or for the account of the Company or any Subsidiary thereof, and shall
include all shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
“Permitted Issuances” means the issuance and sale of the Preferred Stock expressly
contemplated by the Preferred Stock Purchase Agreement.
“Person” shall mean any individual, sole proprietorship, partnership, limited liability
company, joint venture, trust, incorporated organization, association, corporation,
4
institution, public benefit corporation, entity or government (whether federal, state, county,
city, municipal or otherwise, including any instrumentality, division, agency, body or department
thereof).
“Preferred Stock” means the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock.
“Preferred Stock Certificates of Designation” shall mean the Certificates of Designation,
as amended, filed with the Delaware Secretary of State setting forth the rights, powers,
preferences and privileges of the Preferred Stock.
“Preferred Stock Purchase Agreement” means the Series A Preferred Stock Purchase Agreement
dated as of March 14, 2007, as amended, by and among the Company and the Persons named therein (as
the same may be amended, modified, restated or replaced).
“Qualified IPO” shall mean the receipt by the Company of total gross offering proceeds of at
least $50,000,000 from the sale to the public of shares of Common Stock at a gross price per share
not less than $16 (as adjusted to reflect stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences) pursuant to a firm commitment underwritten offering under
an effective registration statement under the Securities Act, or any comparable statement under any
similar federal statute then in force.
“Registration Rights Agreement” shall mean the Registration Rights Agreement, dated as of
March 14, 2007, as amended, by and among the Company and the Persons named therein (as the same may
be amended, modified, restated or replaced).
“Securities Act” shall mean the Securities Act of 1933.
“Series A Preferred Stock” means the Series A Redeemable Convertible Preferred Stock,
$.0001 par value per share of the Company.
“Series B Preferred Stock” means the Series B Redeemable Convertible Preferred Stock,
$.0001 par value per share of the Company.
“Series C Preferred Stock” means the Series C Redeemable Convertible Preferred Stock,
$.0001 par value per share of the Company.
“Series C Warrants” means the warrants to purchase Common Stock of the Company issuable
pursuant to the Series C Warrant Agreement dated as of December 19, 2007.
“Shareholders Agreement” means the Amended and Restated Securityholders Agreement, dated as of
December 19, 2007, by and among the Company and the Persons named therein (as the same may be
amended, modified, restated or replaced).
“Subsidiary” means any corporation or association (a) more than 50% (by number of votes) of
the voting stock of which is at the time owned by the Company, by one or
more Subsidiaries, or by the Company and one or more Subsidiaries, (b) any other business
entity in which the Company, one or more Subsidiaries, or the Company and one or more
5
Subsidiaries own more than a 50% interest either in the profits or capital of such business entity
or (c) whose net earnings, or portions thereof, are consolidated with the net earnings of the
Company and are recorded on the books of the Company for financial reporting purposes in accordance
with GAAP.
“Transfer” shall mean any transfer, sale, assignment, option, pledge,
hypothecation or other direct or indirect disposal of or encumbrance of any Warrant or of any
interest therein, either by operation of law or otherwise.
“Warrant Certificates” shall have the meaning set forth in Section 1.
“Warrant Price” shall be an amount equal to the number of shares of Warrant Stock being
purchased multiplied by the Exercise Price.
“Warrants” shall have the meaning set forth in Section 1.
“Warrant Stock” shall mean the shares of Common Stock issued, issuable or both (as the context
may require) upon the exercise of Warrants.
(b) For purposes of this Agreement:
(i) The words “include,” “includes” and “including” shall be deemed to be
followed by the words “without limitation;” the word “or” is not exclusive; and the words
“herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole.
(ii) Unless the context otherwise requires, references herein: (1) to Sections
mean the Sections of this Agreement; (2) to an agreement, instrument or other document means
such agreement, instrument or other document as amended, supplemented and modified from time
to time to the extent permitted by the provisions thereof and by this Agreement; and (3) to
a statute means such statute as amended from time to time and includes any successor
legislation thereto and any regulations promulgated thereunder.
(iii) Headings of Sections are inserted for convenience of reference only and
shall not be deemed a part of or to affect the meaning or interpretation of this Agreement.
(iv) Relative to the determination of any period of time, “from” means “from and
including,” “to” means “to but excluding” and “through” means “through and including.”
(v) Words used in the singular include the plural and words in the plural
include the singular.
(vi) Each of the parties to this Agreement has had the benefit of counsel in the
negotiation, preparation and execution of this Agreement. This Agreement shall be construed
without regard to any presumption or rule requiring construction or interpretation against
the party drafting an instrument or causing any instrument to be drafted.
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3. EXERCISE OF WARRANT
3.1 Exercise.
Each Warrant shall initially entitle the Holder thereof to purchase shares of Common Stock at
a per share exercise price equal to the Exercise Price (subject to adjustment as provided in
Section 5), in each case as provided herein and all on the terms and conditions and pursuant to the
provisions hereinafter set forth.
3.2 Manner of Exercise.
(a) From and after the Original Issue Date and until 5:00 P.M., New York, New York time, on
the Expiration Date, a Holder of a Warrant may from time to time exercise such Warrant, on any
Business Day, for all or any part of the number of shares of Common Stock purchasable
thereunder. In order to exercise a Warrant, in whole or in part, the Holder shall (i) deliver to
the Company at the Designated Office a written notice of the Holder’s election to exercise such
Warrant (an “Exercise Notice”), which Exercise Notice shall be irrevocable (except as otherwise
provided in Section 3.2(e)) and specify the number of shares of Common Stock being purchased,
together with the Warrant, (ii) pay to the Company the Warrant Price (the date on which both
such delivery and payment shall have first taken place being hereinafter sometimes referred to
as the “Exercise Date”) and (iii) if such Holder has not already done so, become a party to each
of the Shareholders Agreement and the Registration Rights Agreement by completing and executing
a signature page thereof. Such Exercise Notice shall be in the form of the subscription form
appearing as Annex A to Exhibit A, duly executed by the Holder or its duly authorized
agent or attorney.
(b) Upon receipt of such Exercise Notice, Warrant and payment and any other materials
required to be provided under Section 3.2(a), the Company shall, as promptly as practicable, and
in any event within five (5) Business Days thereafter, execute (or cause to be executed) and
deliver (or cause to be delivered) to the Holder a certificate or certificates representing the
aggregate number of full shares of Common Stock issuable upon such exercise, together with
either any fraction of a share or cash in lieu of any fraction of a share, as hereafter provided
in Section 3.4. The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as the exercising Holder shall reasonably
request in the Exercise Notice and shall be registered in the name of the Holder or the name of
its nominee. A Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the 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 Exercise Date.
(c) Payment of the Warrant Price may be made by check payable to the order of the Company
or, at the option of the Holder, by wire transfer of funds to an account designated by the
Company for such purpose.
(d) If a Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing the shares of Common Stock being
issued, deliver to the Holder a new Warrant evidencing the rights of the Holder to
7
purchase the number of unexercised shares called for by such Warrant. Such new Warrant shall
in all other respects be identical with the original Warrant and subject to the terms of
this Agreement.
(e) Notwithstanding the foregoing provisions of this Section 3.2, a Holder (i) may
expressly condition the effectiveness of any exercise of a Warrant upon the simultaneous closing
of the sale, in an offering registered under the Securities Act or pursuant to the exercise of
any drag-along or co-sale rights under the Shareholders Agreement, of the shares of Common Stock
as to which the conditional exercise is being made and (ii) may revoke any such conditional
exercise in the event that the closing of such sale shall not occur. In the event that such
simultaneous exercise and sale shall occur, the Company shall cooperate with such Holder and any
third parties involved in such sale to facilitate the issuance and sale of the shares of Common
Stock involved.
3.3 Payment of Charges.
All shares of Common Stock issuable upon the exercise of a Warrant pursuant to the terms
hereof shall be validly issued, fully paid and nonassessable, issued without violation of any
preemptive rights and free and clear of all Liens (other than, to the extent permitted by Section
9, any created by actions of the Holder). The Company shall pay all expenses in connection with the
issue or delivery thereof, unless such charge is imposed by law upon the Holder, in which case such
charge shall be paid by the Holder and the Company shall reimburse the Holder therefor.
3.4 Fractional Shares.
The Company shall not be required to issue a fractional share of Common Stock upon exercise of
any Warrant. As to any fraction of a share that the Holder of one or more Warrants, the rights
under which are exercised in the same transaction, would otherwise be entitled to purchase upon
such exercise, the Company shall, at its option, issue upon exercise either (i) the fractional
share of Common Stock to which the Holder of one or more Warrants would otherwise be entitled or
(ii) a cash adjustment in respect of such final fraction in an amount equal to the same fraction of
(A) the Current Market Price of one share of Common Stock on the Exercise Date, if the Common Stock
is then publicly traded or (B) the Book Value per share of Common Stock based on the most recent
available consolidated balance sheet of the Company, if the Common Stock is not then publicly
traded.
4. TRANSFER, DIVISION AND COMBINATION
4.1 Transfer.
Subject to compliance with Section 9 and the Shareholders Agreement, each transfer of a
Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of a Warrant at the Designated Office,
together with a written assignment of such Warrant in the form of Annex B to Exhibit A, duly
executed by the Holder or its agent or attorney. Upon such surrender and delivery, (i) the Company
shall, subject to Section 9, execute and deliver a new Warrant or
8
Warrants in the name of the assignee or assignees and in the denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of
the original Warrant not so assigned and the original Warrant shall promptly be cancelled and (ii)
if not already a party to the Shareholders Agreement and the Registration Rights Agreement, each
assignee shall become a party to each of the Shareholders Agreement and the Registration Rights
Agreement by completing and executing a joinder agreement thereto. A Warrant, if properly assigned
in compliance with Section 9 and the Shareholders Agreement, may be exercised by the new Holder
for the purchase of shares of Common Stock without having a new Warrant issued.
4.2 Division and Combination.
Subject to compliance with the applicable provisions of this Agreement, a Warrant may be
divided or combined with other Warrants upon presentation thereof at the Designated Office,
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 the
applicable provisions of this Agreement and the Shareholders Agreement 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.
4.3 Expenses.
The Company shall prepare, issue and deliver at its own expense any new Warrant or
Warrants required to be issued under this Section 4.
4.4 Maintenance of Books.
The Company agrees to maintain, at the Designated Office, books for the registration
and transfer of the Warrants.
5. EXERCISE PRICE; ANTIDILUTION PROVISIONS
5.1 Exercise Price.
The initial exercise price shall be $3.00 per share of Common Stock (subject to adjustment
from time to time as provided in this Section 5) (as so adjusted, the “Exercise Price”).
5.2 Adjustments; Exceptions.
(a) If and whenever on or after the Original Issue Date the Company issues or sells or, in
accordance with this Section 5, is deemed to have issued or sold, any shares of its Common Stock
for a consideration per share less than the Exercise Price in effect immediately prior to the time
of such issuance, then immediately upon such issuance or sale or deemed issuance or sale the
Exercise Price shall be reduced to the exercise price determined by dividing (i) the sum of
(1) the product derived by multiplying the Exercise Price in effect immediately prior to
such issuance or sale by the number of shares of
9
Common Deemed Outstanding immediately prior to such issuance or sale, plus (2) the consideration,
if any, received by the Company upon such issuance or sale, by (ii) the number of shares of Common
Deemed Outstanding immediately after such issue or sale.
(b) Notwithstanding the foregoing, there shall be no adjustment in the Exercise
Price as a result of any issuance or sale (or deemed issuance or sale) of:
(i) shares of Common Stock issued upon conversion of the Preferred Stock;
(ii) shares of Common Stock issued upon the exercise of the Warrants or the Series C
Warrants;
(iii) shares of Common Stock issued upon the exercise of Options or other
Convertible Securities outstanding as of March 14, 2007;
(iv) securities issued pursuant to a Board-approved (including at least one of the
Investor Directors) bona fide acquisition of an entity by merger, purchase of
substantially all of the assets or other reorganization;
(v) shares of Common Stock issued to Catalyst Capital Investments LLC, a Delaware
limited liability company pursuant to the Options granted under the Catalyst Letter
Agreements;
(vi) shares of Common Stock or other securities issued as a dividend or distribution
on, or in connection with a split of or recapitalization of, any of the capital
stock of the Company;
(vii) up to an aggregate of 250,000 shares of Common Stock reserved
for issuance per year pursuant to the Option Plan (subject to adjustment in the
event of stock splits, stock dividends, stock combinations, recapitalizations and
like occurrences) and shares of Common Stock reserved for issuance pursuant to the
Option Plan in lieu of the repayment of certain salary deferrals as approved by a
majority of the Board (including at least one of the Investor Directors), which
foregoing shares may be subject to Options or restricted stock awards granted under
the Option Plan; provided that any Options that expire or terminate unexercised or
any restricted stock awards that are repurchased by the Company pursuant to the
terms of such award shall not be counted toward the maximum number set forth in
this subparagraph (vii) unless and until such shares are subject to new restricted
stock awards (or new Options) pursuant to the terms of the Option Plan;
(viii) shares of Common Stock issued or issuable (including
options to acquire such shares of Common Stock) to suppliers or third-party
service providers in connection with the provision of goods or services
pursuant to transactions in the ordinary course of business and approved by a
majority of the Board, including at least one of the Investor Directors;
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(ix) shares of Common Stock issued or issuable in connection with
bona-fide sponsored research, collaboration, technology license, development, OEM,
marketing or other similar agreements or strategic partnerships or joint ventures
entered into in the ordinary course of business and approved by a majority of the
Board, including at least one of the Investor Directors (and by at least a majority
of the shares of Preferred Stock and Conversion Common Shares, voting as a single
class on a Common Equivalent Basis, then outstanding, if required pursuant to
Section 3(c) of the Preferred Stock Certificates of Designation);
(x) securities issued in connection with a Qualified IPO; or
(xi) Permitted Issuances;
provided that the aggregate number of shares of Common issued or issuable pursuant to
clauses (viii) and (ix) above shall not exceed 100,000 in any twelve-month period.
5.3 Effect on Exercise Price of Certain Events.
For purposes of determining any adjustments to the Exercise Price under this Section 5,
the following shall be applicable:
(a) Issuance of Options. If the Company in any manner grants, issues or sells any
Options (other than any Options permitted by Section 5.2(b)) and the price per share for which
Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Options, is less than the Exercise
Price in effect immediately prior to the time of the granting, issuance or sale of such Options,
then the total maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the granting, issuance or sale of such
Options for such price per share. For purposes of this paragraph, the “price per share for which
Common Stock is issuable” shall be determined by dividing (i) the sum of (1) the total amount,
if any, received or receivable by the Company as consideration for the granting, issuance or
sale of such Options, plus (2) the minimum aggregate amount of additional consideration payable
to the Company upon exercise of all such Options, plus (3) in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the issuance or sale of such Convertible Securities and the
conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further adjustment of the
Exercise Price shall be made when Convertible Securities are actually issued upon the exercise
of such Options or when Common Stock actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
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(b) Issuance of Convertible Securities. If the Company in any manner issues or sells
any Convertible Securities and the price per share for which Common Stock is issuable upon
conversion or exchange thereof is less than the Exercise Price in effect immediately prior to the
time of such issuance or sale, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this paragraph, the “price per share for
which Common Stock is issuable” shall be determined by dividing (i) the sum of (1) the total amount
received or receivable by the Company as consideration for the issue or sale of such Convertible
Securities, plus (2) the minimum aggregate amount of additional consideration, if any, payable to
the Company upon the conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Exercise Price shall be made when Common Stock is actually issued upon
the conversion or exchange of such Convertible Securities, and if any such issuance or sale of such
Convertible Securities is made upon exercise of any Options for which adjustments of the Exercise
Price had been or are to be made pursuant to other provisions of this Section 5, no further
adjustment of the Exercise Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock changes at any time, the Exercise Price in effect
at the time of such change shall be immediately adjusted to the Exercise Price that would have been
in effect at such time had such Options or Convertible Securities still outstanding provided for
such changed purchase price, additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold; provided, that, if such adjustment of the Exercise
Price would result in an increase in the Exercise Price then in effect, the Company will promptly
give all Holders written notice of such increase. For purposes of this Section 5.3.(c), if the
terms of any Option or Convertible Security that was outstanding as of the Original Issue Date are
changed in the manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such change; provided, that, no such
change shall at any time cause the Exercise Price hereunder to be increased.
(d) Treatment of Expired Options and Unexercised Convertible Securities.Upon the
expiration of any Option or the termination of any right to convert or exchange any Convertible
Security without the exercise of any such Option or right, the Exercise Price then in effect
hereunder shall be adjusted immediately to the Exercise Price that would have been in effect at the
time of such expiration or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been issued; provided, that,
if such expiration or termination would result in an increase in the Exercise Price then in effect,
the Company will promptly give all Holders of Warrants written notice of such increase. For
purposes of this Section 5.3(d), the expiration or
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termination of any Option or Convertible Security that was outstanding as of the Original Issue
Date shall not cause the Exercise Price hereunder to be adjusted unless, and only to the extent
that, a change in the terms of such Option or Convertible Security caused it to be deemed to have
been issued after the Original Issue Date.
(e) Calculation of Consideration Received. If any Common Stock, Option or Convertible
Security is issued or sold or deemed to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company therefor (net of
discounts, commissions and related expenses). If any Common Stock, Option or Convertible Security
is issued or sold for a consideration other than cash, the amount of the consideration other than
cash received by the Company shall be the fair market value of such consideration as determined in
good faith by the Board. If any Common Stock, Option or Convertible Security is issued to the
owners of the non-surviving entity in connection with any merger in which the Company is the
surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as is attributable to such
Common Stock, Option or Convertible Security, as the case may be. The fair value of any
consideration other than cash and securities shall be the fair market value as determined in good
faith by the Board.
(f) Integrated Transactions. In case any Option is issued in connection with the
issuance or sale of other securities of the Company, together comprising one integrated transaction
in which no specific exercise price is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued at an exercise price of $0.01.
(g) Treasury Shares. The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of the Company, and the
disposition of any shares so owned or held shall be considered an issuance or sale of such shares.
(h) Record Date. If the Company takes a record of the holders of Common Stock for the purpose
of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options
or in Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the declaration of such
dividend or upon the making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(i) Subdivisions or Combinations of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in
effect immediately prior to such subdivision shall be reduced proportionately, and if the Company
at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately
prior to such combination shall be increased proportionately.
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(j)
Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company’s assets or other transaction, in each case which is effected in
such a manner that the holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in exchange for Common
Stock, is referred to herein as an “Organic Change.” Prior to the consummation of any Organic
Change, the Company shall make appropriate provisions (in form and substance reasonably
satisfactory to the Majority Warrant Holders) to insure that each of the Holders shall thereafter
have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable upon the exercise of such
Holder’s Warrant, such shares of stock, securities or assets as such Holder would have received in
connection with such Organic Change if such Holder had exercised its Warrant immediately prior to
such Organic Change. In each such case, the Company shall also make appropriate provisions (in form
and substance reasonably satisfactory to the Majority Warrant Holders) to insure that the
provisions of this Section 5 shall thereafter be applicable to the securities issued upon exercise
of the Warrants (including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Company and the value for the Common Stock
reflected by the terms of such consolidation, merger or sale is less than the Exercise Price in
effect immediately prior to such consolidation, merger or sale, an immediate adjustment of the
Exercise Price to the value for the Common Stock so reflected and a corresponding immediate
adjustment in the number of shares of Common Stock acquirable and receivable upon the exercise of
the Warrants). The Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes by written instrument (in form
and substance satisfactory to the Majority Warrant Holders) the obligation to deliver to each such
Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
(k) Certain Other Events. If any event occurs of the type contemplated by the
provisions of this Section 5 but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Board shall make an appropriate adjustment in the Exercise Price so as
to protect the rights of the Holders of Warrants; provided that no such adjustment shall increase
the Exercise Price as otherwise determined pursuant to this Section 5 or decrease the number of
shares of Common Stock issuable upon exercise of each Warrant.
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5.4 Notices.
Immediately upon any adjustment of the Exercise Price, the Company shall give written notice
thereof to all Holders, setting forth in reasonable detail and certifying the calculation of such
adjustment.
6. NO IMPAIRMENT
The Company shall not by any action, including amending its charter documents or through any
reorganization, reclassification, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other similar voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Agreement, 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 the Holder of any Warrant against impairment. Without limiting
the generality of the foregoing, the Company shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of the Warrants, free and clear of all Liens (other than,
to the extent permitted by Section 9, any created by actions of the Holder), and shall use its
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 Agreement.
| 7. | RESERVATION AND AUTHORIZATION OF COMMON STOCK: REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY |
From and after the Original Issue Date, the Company shall at all times reserve and keep
available for issuance upon the exercise of the Warrants such number of its authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding
Warrants. All shares of Common Stock issuable pursuant to the terms hereof, when issued upon
exercise of Warrants with payment therefor in accordance with the terms hereof, shall be duly and
validly issued and fully paid and nonassessable, not subject to preemptive rights and shall be free
and clear of all Liens (other than, to the extent permitted by Section 9, any created by actions of
the Holder). Before taking any action that would result in an adjustment in the number of shares of
Common Stock for which the Warrants are exercisable, 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 over such action. If any shares of Common Stock
required to be reserved for issuance upon exercise of Warrants require registration or
qualification with any governmental authority under any federal or state law (other than under the
Securities Act or any state securities law) before such shares may be so issued, the Company will
in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to
be duly registered.
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8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS
8.1 Notices of Corporate Actions.
In the event of: (a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled to receive any
dividend or distribution, (other than cash dividends payable upon shares of preferred stock of the
Company), or any right to subscribe for, purchase or otherwise acquire any shares of capital stock
of any class or any other securities, (b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer or other disposition of all or
substantially all the assets of the Company to another Person, (c) any voluntary or involuntary
dissolution, liquidation or winding-up of the Company, (d) any amendment of the Certificate of
Incorporation of the Company or (e) any registration or public offering of Common Stock, the
Company shall mail to each Holder of a Warrant in accordance with the provisions of Section 14.2 a
notice specifying (i) in the case of a dividend or distribution, the date or expected date on which
any such record is to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right, (ii) in the case of a reorganization,
reclassification, recapitalization, consolidation, merger, transfer, disposition, dissolution,
liquidation or winding-up, the date or expected date on which any such reorganization,
reclassification, recapitalization, consolidation, merger, transfer, disposition, dissolution,
liquidation or winding-up is to take place, the time, if any such time is to be fixed, as of which
the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock
for the shares of stock, securities or assets deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer, disposition, dissolution,
liquidation or winding-up and a description in reasonable detail of the transaction and (iii) in
case of an amendment of the Certificate of Incorporation or any registration or public offering of
Common Stock, the expected date of such event and a description in reasonable detail of the event.
Such notice shall be mailed to the extent practicable at least thirty (30), but not more than
ninety (90) days prior to the date therein specified, in the event that the Company at any time
sends any other notice to the holders of its Common Stock, it shall concurrently send a copy of
such notice to each Holder of a Warrant.
8.2 Taking of Record.
In the case of all dividends or other distributions by the Company to the holders of its
Common Stock with respect to which any provision of any Section hereof refers to the taking of a
record of such holders, the Company will in each such case take such a record and will take such
record as of the close of business on a Business Day.
8.3 Closing of Transfer Books.
The Company shall not at any time, except upon dissolution, liquidation or winding up of
the Company, close its stock transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.
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9. TRANSFER RESTRICTIONS; LEGENDS
9.1 Restrictions on Transfer and Entry into Shareholders Agreement and Registration Rights Agreement.
Concurrently with the execution and delivery of this Agreement, each Holder of an Original
Warrant is entering into and becoming a party to each of the Shareholders Agreement and the
Registration Rights Agreement, if not already a party thereto, by completing and executing a
signature page thereof. The Company shall not be obligated to register any transfer of Warrants and
no such purported transfer shall be effective unless and until the transferee has executed and
delivered a joinder agreement pursuant to which such assignee becomes a party to the Shareholders
Agreement and the Registration Rights Agreement.
9.2 Legends.
(a) Each Warrant Certificate shall be stamped or otherwise imprinted with a legend in
substantially the following form:
(i) “NEITHER THE WARRANTS REPRESENTED BY THIS
CERTIFICATE NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE BEEN
REGISTERED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR
ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY BE TRANSFERRED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH DISPOSITION IS PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND ANY APPLICABLE STATE SECURITIES LAWS, OR IS MADE IN A TRANSACTION EXEMPT FROM
SUCH REGISTRATION REQUIREMENTS.”
(ii) “THE WARRANTS REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE PROVISIONS OF A WARRANT AGREEMENT, DATED AS OF DECEMBER 19, 2007,
A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.”
(iii) “THE TRANSFER, SALE, ASSIGNMENT, PLEDGE OR
OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY
AND SUBJECT TO THE TERMS AND CONDITIONS SPECIFIED IN THAT CERTAIN AMENDED AND
RESTATED SECURITYHOLDERS AGREEMENT, DATED AS OF DECEMBER 19, 2007, AS AMENDED
AND MODIFIED FROM TIME TO TIME, AMONG XSTREAM SYSTEMS, INC. (THE “COMPANY”) AND CERTAIN
SECURITYHOLDERS, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH
SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
17
TRANSFER. A COPY OF SUCH AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT SHALL BE
FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE.”
(b) Each certificate for shares of Warrant Stock shall be stamped or otherwise
imprinted with a legend in substantially the following form:
(i) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH DISPOSITION IS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
ANY APPLICABLE STATE SECURITIES LAWS, OR IS MADE IN A TRANSACTION EXEMPT FROM SUCH
REGISTRATION REQUIREMENTS.”
(ii) “THE TRANSFER, SALE, ASSIGNMENT, PLEDGE OR
OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY
AND SUBJECT TO THE TERMS AND CONDITIONS SPECIFIED IN THAT CERTAIN AMENDED AND
RESTATED SECURITYHOLDERS AGREEMENT, DATED AS OF DECEMBER 19, 2007, AS AMENDED AND
MODIFIED FROM TIME TO TIME, AMONG XSTREAM SYSTEMS, INC. (THE “COMPANY”) AND CERTAIN
SECURITYHOLDERS, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH
SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER.
A COPY OF SUCH AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT SHALL BE FURNISHED BY
THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.”
(c) In addition, Warrant Certificates and any certificates for shares of Warrant
Stock shall bear any legends required by applicable state law. When any Warrants or shares of
Warrant Stock have been registered under the Securities Act, and such Warrants or shares of
Warrant Stock have been sold pursuant to such registration or pursuant to Rule 144 under the
Securities Act or are eligible to be sold pursuant to paragraph (k) of such Rule, the Holder
of
such Warrants or shares of Warrant Stock shall be entitled to exchange, as the case may be,
the
Warrant Certificate representing such Warrants for a Warrant Certificate, or a certificate
representing such shares of Warrant Stock for a new certificate, in each case not bearing the
legend required by clause (a)(i) or (b)(i), as the case may be, of this Section 9. If any
Warrants
or shares of Warrant Stock cease to be subject to this Agreement or the Shareholders
Agreement,
as the case may be, the Holder of such Warrants or Warrant Stock shall be entitled to
exchange,
as the case may be, the Warrant Certificate representing such Warrants for a Warrant
Certificate,
or a certificate representing such shares of Warrant Stock for a new certificate, in each case
not
18
bearing the legend required by clauses (a)(ii), (a)(iii) or (b)(ii), as the case may be, of
this Section
9. Each Holder agrees that, in addition to complying with the restrictions on transfer set forth
elsewhere in this Agreement, such Holder will not directly or indirectly Transfer any Warrants
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge of any Warrants) in
violation of the Securities Act, applicable state securities or “blue sky” laws or any rules or
regulations thereunder, and such Holder will not Transfer any Warrants unless the conditions set
forth in the legend required by clause (a)(i) of this Section 9. are satisfied.
10. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the
ownership of and the loss, theft, destruction or mutilation of a Warrant Certificate and an
indemnity reasonably satisfactory to it (it being understood that the written indemnification
agreement of or affidavit of loss of a Holder of an Original Warrant shall be a sufficient
indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided,
however, in the case of mutilation, no indemnity shall be required if a Warrant Certificate
in identifiable form is surrendered to the Company for cancellation.
11. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall maintain an office or
agency, which may be the principal executive offices of the Company (the “Designated Office”),
where the Warrants may be presented for exercise, registration of transfer, division or combination
as provided in this Agreement. Such Designated Office shall initially be the office of the Company
at 00000 000xx Xxxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxxxx 00000. The Company may from time
to time change the Designated Office to another office of the Company or its agent within the
United States by notice given to all registered holders of Warrants at least ten (10) Business Days
prior to the effective date of such change.
12. FINANCIAL AND BUSINESS INFORMATION
(a) Until the applicable Exercise Date with respect to a Warrant, the Company shall deliver
to the Holder of such Warrant one copy of each of the following items:
(i) as soon as available but in any event within 30 days after the end
of each monthly accounting period in each fiscal year (other than the third monthly
accounting period in each fiscal quarter), unaudited statements of income and cash
flows of the Company for such monthly period and for the period from the beginning
of the fiscal year to the end of such month, and an unaudited balance sheet of the
Company as of the end of such monthly period, setting forth in each case comparisons
to the Company’s annual budget and to the corresponding period in the preceding
fiscal year, and all such statements shall be prepared in accordance with GAAP,
subject to the absence of footnote disclosures and to normal year-end adjustments,
and shall be certified by the Company’s Chief Financial Officer;
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(ii) as soon as available but in any event within 45 days after the end
of each fiscal quarter in each fiscal year (other than the fourth fiscal quarter of
each year), unaudited statements of income and cash flows of the Company for such
fiscal quarter and for the period from the beginning of the fiscal year to the end
of such fiscal quarter, and an unaudited balance sheet of the Company as of the end
of such fiscal quarter, setting forth in each case comparisons to the Company’s
annual budget and to the corresponding period in the preceding fiscal year, and all
such statements shall be prepared in accordance with GAAP, subject to the absence of
footnote disclosures and to normal year-end adjustments, and shall be certified by
the Company’s Chief Financial Officer;
(iii) as soon as available but in any event within 90 days after the end
of each fiscal year, audited statements of income and cash flows of the Company for
such fiscal year, and an audited balance sheet of the Company as of the end of such
fiscal year prepared in accordance with GAAP, and accompanied by, with respect to
the consolidated portions of such statements, an opinion of an independent
accounting firm of recognized regional standing selected by the Board and reasonably
acceptable to a majority of the Investors, together with comparisons to the
Company’s annual budget and to the preceding fiscal year;
(iv) accompanying the financial statements referred to in
subparagraphs (ii) and (iii), an officer’s certificate stating that there is no
event in existence that, with notice or the passage of time or both, might become an
Event of Noncompliance or, if any such event exists, specifying the nature and
period of existence thereof and what actions the Company has taken or has proposed
to take with respect thereto;
(v) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of the
Company’s operations or financial affairs given to the Company by its independent
accountants (and not otherwise contained in other materials provided hereunder); and
(vi) within 10 days after transmission thereof, copies of all financial
statements, proxy statements, reports and any other general written communications
that the Company sends to its shareholders and copies of all press releases and
other statements made available generally by the Company to the public concerning
material developments in the Company’s business and not otherwise posted on the
Company’s external website;
provided that any Holder shall be entitled to provide notice to the Company that it elects not to
receive copies of the financial statements and other documentation referred to in this Section
12(a); and provided further that the Company shall be entitled to satisfy its obligations under
this Section 12(a) through electronic delivery of the financial statements and other documentation
referred to in this Section 12(a) or by making such information available through a
password-protected website.
20
(b) Each of the financial statements referred to in subparagraphs (i), (iii) and (iv) shall
fairly present in all material respects the financial condition of the Company as of the dates and
for the periods stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments (none of which would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect).
13. REPRESENTATIONS AND WARRANTIES
13.1 Holders.
Each Holder, by its acceptance of a Warrant, represents that (i) it is an “accredited
investor,” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities
Act, (ii) it is acquiring such Warrant for its own account, not as a nominee or agent, with the
present intention of holding it for purposes of investment, and that it has no present intention of
selling it in a public distribution in violation of the federal securities laws or any applicable
state securities laws, provided, that nothing contained herein shall prevent such Holder from
transferring such Warrant in compliance with the provisions of Section 9, and (iii) it understands
that the Warrant has not been registered under the Securities Act, or applicable state securities
laws, and is being issued in reliance on exemptions from such registration requirements and that,
as a result, the Warrant may not be re-offered or resold except in compliance with Section 9.
13.2 Company.
The Company has full legal right, power and authority to enter into and perform this Agreement
and to issue the Warrants and to perform all its obligations relating thereto. The execution and
delivery of this Agreement, the issuance of the Warrants by the Company and the consummation of the
transactions contemplated hereby and thereby have all been duly authorized by the Board of
Directors of the Company and, where required, the stockholders of the Company. No consent, waiver
or authorization of, or filing with any other Person is required in connection with any of the
foregoing or with the validity or enforceability against the Company of this Agreement or the
Warrants. This Agreement has been duly executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company, enforceable in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors’ rights generally and subject to genera] principles of equity. The execution, delivery
and performance of this Agreement and the Warrants and the consummation of the transactions
contemplated hereby and thereby do not and will not, with or without the passage of time or the
giving of notice or both, (i) violate any provision of the Company’s Certificate of Incorporation
or By-laws or (ii) violate any requirement of law or any material agreement to which the Company is
a party. The Warrants have been duly executed and delivered by the Company, have been duly
authorized and validly issued free and clear of all liens, encumbrances, equities and claims, are
fully paid and non-assessable, and constitutes the legal, valid and binding obligations of the
Company, enforceable in accordance with their terms, except as may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors’ rights generally and subject to
general principles of equity.
21
14. MISCELLANEOUS
14.1 Nonwaiver.
No course of dealing or any delay or failure to exercise any right hereunder on the part of
the Company or the Holders shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of such Person.
14.2 Notice Generally.
Any notice, demand, request, consent, approval, declaration, delivery or communication
hereunder to be made pursuant to the provisions of this Agreement shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
(i) if to any Holder of Warrants, at its last known address appearing
on the books of the Company maintained for such purpose;
(ii) if to the Company, at its Designated Office;
or at such other address as may be substituted by notice given as herein provided. The giving
of any notice required hereunder may be waived in writing by the party entitled to receive
such notice. Every notice, demand, request, consent, approval, declaration, delivery or other
communication hereunder shall be deemed to have been duly given or served on the date on
which personally delivered, with receipt acknowledged, or three (3) Business Days after the
same shall have been deposited in the United States mail, or one (1) Business Day after the
same shall have been delivered to Federal Express or another overnight courier service.
14.3 Indemnification.
If the Company fails to make, when due, any payments provided for in this Agreement,
the Company shall pay to the applicable Holder (a) interest at the Agreed Rate on any amounts
due and owing to such Holder and (b) such further amounts as shall be sufficient to cover any
costs and expenses including reasonable attorneys’ fees and expenses incurred by such Holder in
collecting any amounts due hereunder. The Company shall indemnify, save and hold harmless the
Holders from and against any and all liability, loss, cost, damage, reasonable
attorneys’ and accountants’ fees and expenses, court costs and all other
out-of-pocket expenses incurred in connection with or arising from a Company Default. This
indemnification provision shall be in addition to the rights of such Holder or Holders to bring
an action against the Company for breach of contract based on such Company Default.
14.4 Limitation of Liability; No Stockholder Rights.
No provision hereof, in the absence of affirmative action by the Holder to purchase shares
of Common Stock, and no enumeration herein of the rights or privileges of the Holders, shall
give rise to any liability or right of any such Holder to pay the Exercise Price for any Warrant
Stock or any liability or rights as a stockholder of the Company, in each case other
22
than pursuant to an exercise of a Warrant and in each case whether such liability is
asserted by the Company or by creditors of the Company.
14.5 Remedies.
Each Holder of Warrants, in addition to being entitled to exercise its rights granted by law,
including recovery of damages, shall be entitled to specific performance of its rights provided
under this Agreement. 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 Agreement, and hereby
agrees, in an action for specific performance, to waive the defense that a remedy at law would be
adequate.
14.6 Successors and Assigns.
Subject to the provisions of Sections 4.1 and 9, this Agreement and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of the Company and the
permitted successors and assigns of the Holders. The provisions of this Agreement are intended to
be for the benefit of all Holders from time to time of Warrants, and shall be enforceable by any
such Holder and, as provided in Section 4.1, such Holder’s permitted assigns.
14.7 Amendment.
This Agreement and the Warrants may be modified or amended or the provisions hereof waived
with the written consent of the Company and the Majority Warrant Holders, provided, however, that
no such modification or amendment that would treat any Holder in a discriminatory manner may be
made without the prior written consent of such Holder.
14.8 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 or invalid under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
14.9 Governing Law; Jurisdiction.
In all respects, including all matters of construction, validity and
performance, this Agreement and the Warrants and the obligations arising hereunder and thereunder
shall be governed by, and construed and enforced in accordance with, the laws of the State of
Florida applicable to contracts made and performed in such state, except with respect to the
validity of this Agreement and the Warrants, the issuance of Warrant Stock upon exercise of the
Warrants and the rights and duties of the Company with respect to registration of transfer, which
shall be governed by the laws of the State of Delaware. The Company and each Warrant Holder hereby
consents and agrees that the United States District Court for the Southern District of Florida or
any court of the State of Florida
23
located in St. Lucie County, Florida, shall have, except as set forth below, exclusive
jurisdiction to hear and determine any claims or disputes between the Company and a Holder of
Warrants pertaining to this Agreement or the Warrants or to any matter arising out of or relating
to this Agreement or the Warrants, provided, that it is acknowledged that any appeals from those
courts may have to be heard by a court located outside of St. Lucie County, Florida.
24
IN WITNESS WHEREOF, each of the Company and the Holders have caused this Agreement to
be duly executed on its behalf by a duly authorized officer or representative.
| XSTREAM SYSTEMS, INC. |
|||
| By: | |||
| Name: | |||
| Title: | |||
Signature Page to Warrant Agreement
EXHIBIT A — FORM OF WARRANT
XSTREAM SYSTEMS, INC.
Series B Warrant to Purchase Shares of
Common Stock, par value $.0001 per Share
Common Stock, par value $.0001 per Share
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR ANY OF THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE BEEN REGISTERED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR
ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY BE TRANSFERRED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH DISPOSITION IS PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS, OR IS MADE IN A TRANSACTION EXEMPT FROM SUCH REGISTRATION REQUIREMENTS.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A WARRANT AGREEMENT,
DATED AS OF DECEMBER 19, 2007, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THE TRANSFER, SALE, ASSIGNMENT, PLEDGE OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE TERMS AND CONDITIONS SPECIFIED IN THAT CERTAIN
AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT, DATED AS OF DECEMBER 19, 2007, AS AMENDED AND
MODIFIED FROM TIME TO TIME, AMONG XSTREAM SYSTEMS, INC. (THE “COMPANY”) AND CERTAIN
SECURITYHOLDERS, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL
SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH AMENDED AND
RESTATED SECURITYHOLDERS AGREEMENT SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST AND WITHOUT CHARGE.
No.
December [•], 2007
December [•], 2007
This Series B Warrant Certificate entitles [ ], and its permitted assigns,
to purchase from XStream Systems, Inc., a Delaware corporation (the “Company”)., [___] shares
of duly authorized, validly issued, fully paid and nonassessable shares of common stock, par value
$0.0001 per share (the “Common Stock”), of the Company at the purchase price per share of $3.00
(subject to adjustment as provided in Section 5 of the hereinafter defined Warrant Agreement (as so
adjusted, the “Exercise Price”)), at any time or from time to time prior to 5:00 P.M., New York,
New York time, on the tenth anniversary of the date hereof (such date, the “Expiration Date”), all
subject to the terms and conditions set forth in the Warrant Agreement,
dated as of December 19, 2007 (as may be amended, modified or restated from time to time,
the “Warrant Agreement”), by and among the Company and the holders from time to time of the
Warrants (the “Holders”). The warrants represented by this Warrant Certificate are “Warrants” as
defined and provided in the Warrant Agreement and are entitled to the rights and obligations
therein provided. The Warrants may be exercised in whole or in part in the manner provided in the
Warrant Agreement. The Warrant Agreement is hereby incorporated by reference in and made a part of
this Warrant Certificate and is hereby referred to for a description of the rights, limitation of
rights, obligations, duties and immunities of the Company and the Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed and
delivered on its behalf by its duly authorized officers.
| XSTREAM SYSTEMS, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
ANNEX A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned:
[check one]
| o | hereby irrevocably exercises this Warrant with respect to, and hereby purchases, | ||
| o | in accordance with Section 3(e) of the Warrant Agreement, hereby exercises this Warrant with respect to, and hereby purchases, conditioned upon the simultaneous closing of the sale, in an offering registered under the Securities Act or pursuant to the exercise of any drag-along or co-sale rights under the Shareholders Agreement, of the shares as to which this Warrant is being exercised and with the right to revoke such exercise in the event that the closing of such sale shall not occur, |
[ ] shares of Common Stock as provided in the Warrant Agreement and herewith makes
payment of $[ ] therefor, all at the price and on the terms and conditions specified in the
Warrant Agreement, and requests that certificates for the shares of Common Stock hereby purchased
(and any securities or other property issuable upon such exercise) be issued in the
name of and delivered to (the “Proposed Stockholder”) whose address is
, and, if such shares of Common Stock hereby exercised do not equal the full number of shares of Common Stock for which this Warrant Certificate is exercisable,
that a new Warrant Certificate of like tenor and date for the balance of such shares be delivered
to the undersigned.
In connection with the exercise of this Warrant, the undersigned has provided the Company
with:
(i) if (x) the Shareholders Agreement (as defined in the Warrant Agreement) is
in effect and will remain in effect after the issuance of the shares and (y) the Proposed
Stockholder is not already a party to the Shareholders Agreement, a joinder agreement
pursuant to which the Proposed Stockholder shall become a party to the Shareholders
Agreement and
(ii) if (x) the Registration Rights Agreement (as defined in the Warrant Agreement) is
in effect and the shares issuable upon this exercise constitute “Registrable Securities” (as
defined in the Registration Rights Agreement) and (y) the Proposed Stockholder is not already
a party to the Registration Rights Agreement, a joinder agreement pursuant to which the Proposed
Stockholder shall become a party to the
Registration Rights Agreement;
provided that the foregoing clauses (i) and (ii) shall not apply to any exercise in
connection with the exercise of any drag-along or co-sale rights under the Shareholders Agreement.
(Name)
(Signature)
(Street Address)
(City) (State) (Zip Code)
| NOTICE: | Except as otherwise contemplated by Section 4.1 of the Warrant Agreement, the signature on this subscription must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. |
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of the enclosed Warrant
Certificate hereby sells, assigns and transfers unto the Assignee named below all of the rights
of the undersigned under this Warrant Certificate, with respect to the right to purchase the
number of shares of Common Stock of the Company indicated below, and if such shares shall not
include all of the shares of Common Stock purchasable upon the exercise of Warrants represented
by the enclosed Warrant Certificate, the Company shall issue and deliver a new Warrant
Certificate to the undersigned of like tenor for such remaining shares not transferred
hereunder:
Name and Address of Assignee Number of Shares
and does hereby irrevocably constitute and appoint attorney-in-fact to
register such transfer onto the books of XStream Systems, Inc. maintained for the purpose, with
full power of substitution in the premises.
If the Assignee is not already a party to the Shareholders Agreement and the Registration
Rights Agreement (as those terms are defined in the Warrant Agreement), the undersigned
registered owner of the enclosed Warrant Certificate has provided the Company with a fully
executed joinder agreement pursuant to which the Assignee has become a party to the Shareholders
Agreement and the Registration Rights Agreement.
Dated:
|
Print Name: | |
| Signature: | ||
| Witness: |
| NOTICE: | The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. |
EXHIBIT J
Series C Warrant Agreement
Series C Warrant Agreement
EXECUTION COPY
SERIES C WARRANT AGREEMENT
Dated as of December 19, 2007
1. ISSUANCE |
1 | |||
2 DEFINITIONS AND INTERPRETATION |
1 | |||
3 EXERCISE OF WARRANT |
7 | |||
3.1 Exercise |
7 | |||
3.2 Manner of Exercise |
7 | |||
3.3 Payment of Charges |
8 | |||
3.4 Fractional Shares |
8 | |||
4 TRANSFER, DIVISION AND COMBINATION |
8 | |||
4.1 Transfer |
8 | |||
4.2 Division and Combination |
9 | |||
4.3 Expenses |
9 | |||
4.4 Maintenance of Books |
9 | |||
5. EXERCISE PRICE; ANTIDILUTION PROVISIONS |
9 | |||
5.1 Exercise Price |
9 | |||
5.2 Adjustments; Exceptions |
9 | |||
5.3 Effect on Exercise Price of Certain Events |
11 | |||
5.4 Notices |
15 | |||
6. NO IMPAIRMENT |
15 | |||
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH
OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY |
15 | |||
8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS |
16 | |||
8.1 Notices of Corporate Actions |
16 | |||
8.2 Taking of Record |
16 | |||
8.3 Closing of Transfer Books |
16 | |||
9. TRANSFER RESTRICTIONS; LEGENDS |
17 | |||
9.1 Restrictions on Transfer and Entry into
Shareholders Agreement and Registration Rights Agreement |
17 | |||
9.2 Legends |
17 | |||
10. LOSS OR MUTILATION |
19 | |||
11. OFFICE OF THE COMPANY |
19 | |||
12. FINANCIAL AND BUSINESS INFORMATION |
19 | |||
13. REPRESENTATIONS AND WARRANTIES |
21 | |||
13.1 Holders |
21 | |||
13.2 Company |
21 |
14. MISCELLANEOUS |
22 | |||
14.1 Nonwaiver |
22 | |||
14.2 Notice Generally |
22 | |||
14.3 Indemnification |
22 | |||
14.4 Limitation of Liability; No Stockholder Rights |
22 | |||
14.5 Remedies |
23 | |||
14.6 Successors and Assigns |
23 | |||
14.7 Amendment |
23 | |||
14.8 Severability |
23 | |||
14.9 Governing Law; Jurisdiction |
23 |
SERIES C WARRANT AGREEMENT
XStream Systems, Inc.
THIS SERIES C WARRANT AGREEMENT (this “Agreement”) is entered into as of this 19th
day of December, 2007, between XStream Systems, Inc., a Delaware corporation (the “Company”), and
the Holders from time to time of the Warrants created hereunder (such terms, and certain other
capitalized terms used herein being hereinafter defined).
WHEREAS, the Company has agreed to issue the Warrants on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto hereby agree as follows:
1. ISSUANCE
The Company shall issue and deliver a certificate or certificates (the “Warrant Certificates”)
evidencing warrants to purchase an aggregate of 5,000,000 shares of Common Stock at the per share
exercise price specified in Section 5 (the “Warrants”) on the terms and conditions set forth in
this Agreement. Each Warrant Certificate shall be substantially in the form of Exhibit A hereto.
Each Warrant Certificate shall be dated the date of issuance. An officer shall sign each Warrant
Certificate by manual or facsimile signature. All Warrants shall at all times be identical as to
terms and conditions and date, except as to the number of shares of Common Stock for which they may
be exercised.
2. DEFINITIONS AND INTERPRETATION
(a) As used in this Agreement, the following terms have the respective meanings
set forth below;
“Agreed Rate” shall mean the base rate on corporate loans posted by at least 75% of the thirty
largest banks in the United States, as reported in the Money Rates section of The Wall Street Journal.
“Agreement” shall have the meaning set forth in the Preamble to this Agreement.
“Board” shall mean the board of directors of the Company.
“Book Value” per share of Common Stock as of a date specified herein shall mean the
consolidated book value of the Company and its Subsidiaries as of such date divided by the number
of shares of Common Stock Outstanding on such date. Such book value shall be determined in
accordance with GAAP.
“Business Day” shall mean any day that is not a Saturday, Sunday or other day on which
commercial banks in New York City or the State of Florida are authorized or required by law to
close.
“Catalyst Letter Agreements” means, collectively, (i) that certain letter agreement dated as
of May 31, 2006 between Catalyst Capital Investments LLC and the Company regarding the
introduction of prospective suppliers and (ii) that certain letter agreement dated as of May 31,
2006 between Catalyst Capital Investments LLC and the Company regarding the introduction of
prospective customers,
“Commission” shall mean the Securities and Exchange Commission or any other federal agency
then administering the Securities Act and other federal securities laws.
“Common Deemed Outstanding” means, at any given time, the number of shares of Common actually
outstanding at such time, plus the number of shares of Common deemed to be outstanding pursuant to
Sections 5.3(a) and 5.3(b) whether or not the Options or Convertible Securities are actually
convertible or exercisable at such time.
“Common Equivalent Basis” means, as of the date of such determination, the number of shares
of Common Stock that each holder of Preferred Stock would be entitled to receive upon conversion
of such holder’s Preferred Stock into Common Stock.
“Common Stock” shall mean (except where the context otherwise indicates) the Common Stock of
the Company, par value $.0001 per share, as constituted on the Original Issue Date, and any
capital stock into which such Common Stock may thereafter be changed, and shall also include (i)
capital stock of the Company of any other class (regardless of how denominated) issued to the
holders of shares of any Common Stock upon any reclassification thereof which is also not
preferred as to dividends or liquidation over any other class of stock of the Company and which is
not subject to redemption and (ii) shares of common stock of any successor or acquiring
corporation received by or distributed to the holders of Common Stock of the Company under the
circumstances contemplated by Section 5.3(j).
“Company” shall have the meaning set forth in the Preamble to this Agreement.
“Company Default” means (a) the breach of any warranty or the inaccuracy at the time when
made of any representation made by the Company herein or (b) the failure by the Company to comply
with any covenant of the Company contained herein.
“Conversion Common Shares” means (i) the Common Stock issued or issuable upon conversion of
the Preferred Stock and (ii) any Common Stock issued or issuable with respect to the securities
referred to in clause (i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other reincorporation. As to any
particular Conversion Common Shares, such shares shall cease to be Conversion Common Shares when
they have been (x) effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (y) distributed to the public through a broker,
dealer or market maker pursuant to Rule 144 under the Securities
2
Act or any comparable rule under any similar federal statute then in force or (z) repurchased by
the Company.
“Convertible Securities” means any stock or securities directly or indirectly convertible
into or exchangeable for Common Stock.
“Current Market Price” shall mean as of any specified date the average of the daily market
prices of the Common Stock of the Company for the twenty (20) consecutive Business Days immediately
preceding such date. The “daily market price” for each such Business Day shall be: (i) if the
Common Stock is then listed on a national securities exchange, the last sale price, regular way, on
such day on the principal stock exchange on which such Common Stock is then listed or admitted to
trading, or, if no such sale takes place on such day, the average of the closing bid and asked
prices for the Common Stock on such day as reported on such stock exchange or (ii) if the Common
Stock is not then listed or admitted to trading on any national securities exchange but is traded
over-the-counter, the average of the closing bid and asked prices for the Common Stock as reported
on NASDAQ or the Electronic Bulletin Board or in the National Daily Quotation Sheets, as
applicable.
“Designated Office” shall have the meaning set forth in Section 11.
“Exchange Act” shall mean the Securities Exchange Act of 1934.
“Exercise Date” shall have the meaning set forth in Section 3.2(a).
“Exercise Notice” shall have the meaning set forth in Section 3.2(a).
“Exercise Period” shall mean the period during which the Warrants are exercisable
pursuant to Section 3.2.
“Exercise Price” shall have the meaning specified in Section 5.1.
“Expiration Date” shall mean the tenth anniversary of the Original Issue Date.
“GAAP” shall mean generally accepted accounting principles in the United States of America as
from time to time in effect.
“Holder” shall mean the Person in whose name a Warrant is registered on the books of the
Company maintained for such purpose.
“Investor Director” shall mean any member of the Board designated by the Investors (as defined
in the Shareholders Agreement) pursuant to the terms of the Shareholders Agreement.
“Lien” shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference,
priority or other security agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of, or
3
agreement to give, any financing statement perfecting a security interest under the Uniform
Commercial Code or comparable law of any jurisdiction).
“Majority Warrant Holders”, with respect to a given determination, shall mean the Holders
of Warrants exercisable for more than fifty percent (50%) of the aggregate number of shares of
Warrant Stock issuable upon the exercise of all Warrants outstanding and unexercised at the time
of such determination.
“Material Adverse Effect” means an adverse effect of $100,000 or more on the condition
(financial or otherwise), operating results, business, prospects, assets, operations, employee
relations or customer or supplier relations of the Company and its Subsidiaries, taken as a
whole; provided, however, that no change, circumstance, effect, event or fact shall be deemed
to be a Material Adverse Effect to the extent that it is caused by the execution or public
announcement of the Preferred Stock Purchase Agreement or the transactions contemplated hereby.
“NASDAQ” shall mean the NASDAQ quotation system, or any successor reporting system.
“Opinion of Counsel” means a written opinion of counsel (who may be an employee of a
Holder) experienced in Securities Act matters, chosen by the Majority Warrant Holders and
reasonably acceptable to the Company.
“Option Plan” means the Company’s 2004 Stock Option Incentive Plan.
“Options” means any agreements, rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities.
“Organic Change” shall have the meaning set forth in Section 5.3(j).
“Original Issue Date” shall mean, with respect to a given Original Warrant, the date on
which such Original Warrant was issued hereunder.
“Original Warrants” shall mean the Warrants originally issued by the Company to the Equity
Participation Investors (as defined in the Preferred Stock Purchase Agreement) pursuant to
Section 3.5 of the Preferred Stock Purchase Agreement.
“Outstanding” shall mean, when used with reference to Common Stock, at any date as of which
the number of shares thereof is to be determined, all issued shares of Common Stock, except
shares then owned or held by or for the account of the Company or any Subsidiary thereof, and
shall include all shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock.
“Permitted Issuances” means the issuance and sale of the Preferred Stock expressly
contemplated by the Preferred Stock Purchase Agreement.
“Person” shall mean any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, incorporated organization, association, corporation,
4
institution, public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division, agency, body or
department thereof).
“Preferred Stock” means the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock.
“Preferred Stock Certificates of Designation” shall mean the Certificates of
Designation, as amended, filed with the Delaware Secretary of State setting forth the
rights, powers, preferences and privileges of the Preferred Stock.
“Preferred Stock Purchase Agreement” means the Series A Preferred Stock Purchase Agreement
dated as of March 14, 2007, as amended, by and among the Company and the Persons named therein
(as the same may be amended, modified, restated or replaced).
“Qualified IPO” shall mean the receipt by the Company of total gross offering proceeds of
at least $50,000,000 from the sale to the public of shares of Common Stock at a gross price per
share not less than $16 (as adjusted to reflect stock splits, stock dividends, stock
combinations, recapitalizations and like occurrences) pursuant to a firm commitment underwritten
offering under an effective registration statement under the Securities Act, or any comparable
statement under any similar federal statute then in force.
“Registration Rights Agreement” shall mean the Registration Rights Agreement, dated as of
March 14, 2007, as amended, by and among the Company and the Persons named therein (as the same
may be amended, modified, restated or replaced).
“Securities Act” shall mean the Securities Act of 1933.
“Series A Preferred Stock” means the Series A Redeemable Convertible Preferred Stock,
$.0001 par value per share of the Company.
“Series B Preferred Stock” means the Series B Redeemable Convertible Preferred Stock,
$.0001 par value per share of the Company.
“Series B Warrants” means the warrants to purchase Common Stock of the Company issuable
pursuant to the Series B Warrant Agreement dated as of December 19, 2007.
“Series C Preferred Stock” means the Series C Redeemable Convertible Preferred Stock,
$.0001 par value per share of the Company.
“Shareholders Agreement” means the Amended and Restated Securityholders Agreement, dated as
of December 19, 2007, by and among the Company and the Persons named therein (as the same may be
amended, modified, restated or replaced).
“Subsidiary” means any corporation or association (a) more than 50% (by number of votes) of
the voting stock of which is at the time owned by the Company, by one or more Subsidiaries, or by
the Company and one or more Subsidiaries, (b) any other business entity in which the Company, one
or more Subsidiaries, or the Company and one or more
5
Subsidiaries own more than a 50% interest either in the profits or capital of such business entity
or (c) whose net earnings, or portions thereof, are consolidated with the net earnings of the
Company and are recorded on the books of the Company for financial reporting purposes in accordance
with GAAP.
“Transfer” shall mean any transfer, sale, assignment, option, pledge,
hypothecation or other direct or indirect disposal of or encumbrance of any Warrant or of any
interest therein, either by operation of law or otherwise.
“Warrant Certificates” shall have the meaning set forth in Section 1.
“Warrant Price” shall be an amount equal to the number of shares of Warrant Stock being
purchased multiplied by the Exercise Price.
“Warrants” shall have the meaning set forth in Section 1.
“Warrant Stock” shall mean the shares of Common Stock issued, issuable or both (as the context
may require) upon the exercise of Warrants.
(b) For purposes of this Agreement:
(i) The words “include,” “includes” and “including” shall be deemed to be
followed by the words “without limitation;” the word “or” is not exclusive; and the words
“herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole.
(ii) Unless the context otherwise requires, references herein: (1) to Sections
mean the Sections of this Agreement; (2) to an agreement, instrument or other document
means such agreement, instrument or other document as amended, supplemented and modified
from time to time to the extent permitted by the provisions thereof and by this Agreement;
and (3) to a statute means such statute as amended from time to time and includes any
successor legislation thereto and any regulations promulgated thereunder.
(iii) Headings of Sections are inserted for convenience of reference only and
shall not be deemed a part of or to affect the meaning or interpretation of this Agreement.
(iv) Relative to the determination of any period of time, “from” means “from and
including,” “to” means “to but excluding” and “through” means “through and including.”
(v) Words used in the singular include the plural and words in the plural
include the singular.
(vi) Each of the parties to this Agreement has had the benefit of counsel in the
negotiation, preparation and execution of this Agreement. This Agreement shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party drafting an instrument or causing any instrument to be
drafted.
6
3. EXERCISE OF WARRANT
3.1 Exercise.
Each Warrant shall initially entitle the Holder thereof to purchase shares of Common Stock at
a per share exercise price equal to the Exercise Price (subject to adjustment as provided in
Section 5), in each case as provided herein and all on the terms and conditions and pursuant to the
provisions hereinafter set forth.
3.2 Manner of Exercise.
(a) From and after the Original Issue Date and until 5:00 P.M., New York, New York time,
on the Expiration Date, a Holder of a Warrant may from time to time exercise such Warrant, on
any Business Day, for all or any part of the number of shares of Common Stock purchasable
thereunder. In order to exercise a Warrant, in whole or in part, the Holder shall (i) deliver
to the Company at the Designated Office a written notice of the Holder’s election to exercise
such Warrant (an “Exercise Notice”), which Exercise Notice shall be irrevocable (except as
otherwise provided in Section 3.2(e)) and specify the number of shares of Common Stock being
purchased, together with the Warrant, (ii) pay to the Company the Warrant Price (the date on
which both such delivery and payment shall have first taken place being hereinafter sometimes
referred to as the “Exercise Date”) and (iii) if such Holder has not already done so, become a
party to each of the Shareholders Agreement and the Registration Rights Agreement by completing
and executing a signature page thereof Such Exercise Notice shall be in the form of the
subscription form appearing as Annex A to Exhibit A, duly executed by the
Holder or its duly authorized agent or attorney.
(b) Upon receipt of such Exercise Notice, Warrant and payment and any other materials
required to be provided under Section 3.2(a), the Company shall, as promptly as practicable,
and in any event within five (5) Business Days thereafter, execute (or cause to be executed)
and deliver (or cause to be delivered) to the Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such exercise, together with
either any fraction of a share or cash in lieu of any fraction of a share, as hereafter provided
in Section 3.4. The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as the exercising Holder shall reasonably
request in the Exercise Notice and shall be registered in the name of the Holder or the name of
its nominee. A Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the 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 Exercise Date.
(c) Payment of the Warrant Price may be made by check payable to the order of the Company
or, at the option of the Holder, by wire transfer of funds to an account designated by the
Company for such purpose.
(d) If a Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing the shares of Common Stock being
issued, deliver to the Holder a new Warrant evidencing the rights of the Holder to
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purchase the number of unexercised shares called for by such Warrant. Such new Warrant
shall in all other respects be identical with the original Warrant and subject to the terms of
this Agreement.
(e) Notwithstanding the foregoing provisions of this Section 3.2, a Holder (i)
may expressly condition the effectiveness of any exercise of a Warrant upon the
simultaneous closing of the sale, in an offering registered under the Securities
Act or pursuant to the exercise of any drag-along or co-sale rights under the
Shareholders Agreement, of the shares of Common Stock as to which the conditional
exercise is being made and (ii) may revoke any such conditional exercise in the
event that the closing of such sale shall not occur. In the event that such
simultaneous exercise and sale shall occur, the Company shall cooperate with such
Holder and any third parties involved in such sale to facilitate the issuance and
sale of the shares of Common Stock involved.
3.3 Payment of Charges.
All shares of Common Stock issuable upon the exercise of a Warrant pursuant to
the terms hereof shall be validly issued, fully paid and nonassessable, issued without
violation of any preemptive rights and free and clear of all Liens (other than, to the
extent permitted by Section 9, any created by actions of the Holder). The Company
shall pay all expenses in connection with the issue or delivery thereof, unless such
charge is imposed by law upon the Holder, in which case such charge shall be paid by
the Holder and the Company shall reimburse the Holder therefor.
3.4 Fractional Shares.
The Company shall not be required to issue a fractional share of Common Stock
upon exercise of any Warrant. As to any fraction of a share that the Holder of one or
more Warrants, the rights under which are exercised in the same transaction, would
otherwise be entitled to purchase upon such exercise, the Company shall, at its
option, issue upon exercise either (i) the fractional share of Common Stock to which
the Holder of one or more Warrants would otherwise be entitled or (ii) a cash
adjustment in respect of such final fraction in an amount equal to the same fraction
of (A) the Current Market Price of one share of Common Stock on the Exercise Date, if
the Common Stock is then publicly traded or (B) the Book Value per share of Common
Stock based on the most recent available consolidated balance sheet of the Company, if
the Common Stock is not then publicly traded.
4. TRANSFER, DIVISION AND
COMBINATION
4.1 Transfer.
Subject to compliance with Section 9 and the Shareholders Agreement, each
transfer of a Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of a Warrant at the Designated Office, together with a written assignment of
such Warrant in the form of Annex B to Exhibit A, duly executed by the Holder or its
agent or attorney. Upon such surrender and delivery, (i) the Company shall, subject to
Section 9, execute and deliver a new Warrant or
8
Warrants in the name of the assignee or assignees and in the denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of
the original Warrant not so assigned and the original Warrant shall promptly be cancelled and (ii)
if not already a party to the Shareholders Agreement and the Registration Rights Agreement, each
assignee shall become a party to each of the Shareholders Agreement and the Registration Rights
Agreement by completing and executing a joinder agreement thereto. A Warrant, if properly assigned
in compliance with Section 9 and the Shareholders Agreement, may be exercised by the new Holder for
the purchase of shares of Common Stock without having a new Warrant issued.
4.2 Division and Combination.
Subject to compliance with the applicable provisions of this Agreement, a Warrant may be
divided or combined with other Warrants upon presentation thereof at the Designated Office,
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 the applicable
provisions of this Agreement and the Shareholders Agreement 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.
4.3 Expenses.
The Company shall prepare, issue and deliver at its own expense any new Warrant or
Warrants required to be issued under this Section 4.
4.4 Maintenance of Books.
The Company agrees to maintain, at the Designated Office, books for the registration
and transfer of the Warrants.
5. EXERCISE PRICE; ANTIDILUTION PROVISIONS
5.1 Exercise Price.
The initial exercise price shall be $3.00 per share of Common Stock (subject to adjustment
from time to time as provided in this Section 5) (as so adjusted, the “Exercise Price”).
5.2 Adjustments; Exceptions.
(a) If and whenever on or after the Original Issue Date the Company issues or sells or, in
accordance with this Section 5, is deemed to have issued or sold, any shares of its Common Stock
for a consideration per share less than the Exercise Price in effect immediately prior to the time
of such issuance, then immediately upon such issuance or sale or deemed issuance or sale the
Exercise Price shall be reduced to the exercise price determined by dividing (i) the
sum of (1) the product derived by multiplying the Exercise Price in effect immediately prior
to such issuance or sale by the number of shares of
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Common Deemed Outstanding immediately prior to such issuance or sale, plus (2) the consideration, if
any, received by the Company upon such issuance or sale, by (ii) the number of shares of
Common Deemed Outstanding immediately after such issue or sale.
(b) Notwithstanding the foregoing, there shall be no adjustment in the Exercise Price as a result of any issuance or sale (or deemed issuance or
sale) of:
(i) shares of Common Stock issued upon conversion of the Preferred
Stock;
(ii) shares of Common Stock issued upon the exercise of the Warrants
or the Series B Warrants;
(iii) shares of Common Stock issued upon the exercise of Options or
other Convertible Securities outstanding as of March 14, 2007;
(iv) securities issued pursuant to a Board-approved (including at least
one of the Investor Directors) bona fide acquisition of an entity by
merger, purchase of substantially all of the assets or other
reorganization;
(v) shares of Common Stock issued to Catalyst Capital Investments
LLC, a Delaware limited liability company pursuant to the Options
granted under the Catalyst Letter Agreements;
(vi) shares of Common Stock or other securities issued as a dividend or distribution on, or in
connection with a split of or recapitalization of, any of the capital stock of the Company;
(vii) up to an aggregate of 250,000 shares of Common Stock
reserved for issuance per year pursuant to the Option Plan (subject to
adjustment in the event of stock splits, stock dividends, stock
combinations, recapitalizations and like occurrences) and shares of Common
Stock reserved for issuance pursuant to the Option Plan in lieu of the
repayment of certain salary deferrals as approved by a majority of the
Board (including at least one of the Investor Directors), which foregoing
shares may be subject to Options or restricted stock awards granted under
the Option Plan; provided that any Options that expire or terminate
unexercised or any restricted stock awards that are repurchased by the
Company pursuant to the terms of such award shall not be counted toward the
maximum number set forth in this subparagraph (vii) unless and until such
shares are subject to new restricted stock awards (or new Options) pursuant
to the terms of the Option Plan;
(viii) shares of Common Stock issued or issuable (including
options to acquire such shares of Common Stock) to suppliers or third-party
service providers in connection with the provision of goods or services
pursuant to transactions in the ordinary course of business and approved by
a majority of the Board, including at least one of the Investor Directors;
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(ix) shares of Common Stock issued or issuable in connection with
bona-fide sponsored research, collaboration, technology license, development,
OEM, marketing or other similar agreements or strategic partnerships or joint
ventures entered into in the ordinary course of business and approved by a majority
of the Board, including at least one of the Investor Directors (and by at least a
majority of the shares of Preferred Stock and Conversion Common Shares, voting as a
single class on a Common Equivalent Basis, then outstanding, if required pursuant to
Section 3(c) of the Preferred Stock Certificates of Designation);
(x) securities issued in connection with a Qualified IPO; or
(xi) Permitted Issuances;
provided that the aggregate number of shares of Common issued or issuable pursuant to
clauses (viii) and (ix) above shall not exceed 100,000 in any twelve-month period.
5.3 Effect on Exercise Price of Certain Events.
For purposes of determining any adjustments to the Exercise Price under this Section 5,
the following shall be applicable:
(a) Issuance of Options. If the Company in any manner grants, issues or sells any
Options (other than any Options permitted by Section 5,2(b)) and the price per share for which
Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Options, is less than the Exercise
Price in effect immediately prior to the time of the granting, issuance or sale of such Options,
then the total maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the granting, issuance or sale of such
Options for such price per share. For purposes of this paragraph, the “price per share for which
Common Stock is issuable” shall be determined by dividing (i) the sum of (1) the total amount,
if any, received or receivable by the Company as consideration for the granting, issuance or
sale of such Options, plus (2) the minimum aggregate amount of additional consideration payable
to the Company upon exercise of all such Options, plus (3) in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the issuance or sale of such Convertible Securities and the
conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further adjustment of the
Exercise Price shall be made when Convertible Securities are actually issued upon the exercise
of such Options or when Common Stock actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
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(b) Issuance of Convertible Securities. If the Company in any manner issues or
sells any Convertible Securities and the price per share for which Common Stock is issuable upon
conversion or exchange thereof is less than the Exercise Price in effect immediately prior to
the time of such issuance or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and
to have been issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this paragraph, the “price
per share for which Common Stock is issuable” shall be determined by dividing (i) the sum of (1)
the total amount received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus (2) the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment of the Exercise Price shall be made when Common
Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if
any such issuance or sale of such Convertible Securities is made upon exercise of any Options
for which adjustments of the Exercise Price had been or are to be made pursuant to other
provisions of this Section 5, no further adjustment of the Exercise Price shall be made by
reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon the conversion
or exchange of any Convertible Securities or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock changes at any time, the Exercise Price in
effect at the time of such change shall be immediately adjusted to the Exercise Price that would
have been in effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold; provided, that, if such adjustment
of the Exercise Price would result in an increase in the Exercise Price then in effect, the
Company will promptly give all Holders written notice of such increase. For purposes of this
Section 5.3(c), if the terms of any Option or Convertible Security that was outstanding as of
the Original Issue Date are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of
such change; provided, that, no such change shall at any time cause the Exercise Price hereunder
to be increased.
(d) Treatment of Expired Options and Unexercised Convertible Securities. Upon the
expiration of any Option or the termination of any right to convert or exchange any Convertible
Security without the exercise of any such Option or right, the Exercise Price then in effect
hereunder shall be adjusted immediately to the Exercise Price that would have been in effect at the
time of such expiration or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been issued; provided, that,
if such expiration or termination would result in an increase in the Exercise Price then in effect,
the Company will promptly give all Holders of Warrants written notice of such increase. For
purposes of this Section 5.3(d), the expiration or
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termination of any Option or Convertible Security that was outstanding as of the Original Issue
Date shall not cause the Exercise Price hereunder to be adjusted unless, and only to the extent
that, a change in the terms of such Option or Convertible Security caused it to be deemed to have
been issued after the Original Issue Date.
(e) Calculation of Consideration Received. If any Common Stock, Option or Convertible
Security is issued or sold or deemed to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company therefor (net of
discounts, commissions and related expenses). If any Common Stock, Option or Convertible Security
is issued or sold for a consideration other than cash, the amount of the consideration other than
cash received by the Company shall be the fair market value of such consideration as determined in
good faith by the Board. If any Common Stock, Option or Convertible Security is issued to the
owners of the non-surviving entity in connection with any merger in which the Company is the
surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as is attributable to such
Common Stock, Option or Convertible Security, as the case may be. The fair value of any
consideration other than cash and securities shall be the fair market value as determined in good
faith by the Board.
(f) Integrated Transactions. In case any Option is issued in connection with the issuance or
sale of other securities of the Company, together comprising one integrated transaction in which no
specific exercise price is allocated to such Option by the parties thereto, the Option shall be
deemed to have been issued at an exercise price of $0.01.
(g) Treasury Shares. The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of the Company, and the
disposition of any shares so owned or held shall be considered an issuance or sale of such shares.
(h) Record Date. If the Company takes a record of the holders of Common Stock for the
purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock,
Options or in Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the declaration of such
dividend or upon the making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(i) Subdivisions or Combinations of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in
effect immediately prior to such subdivision shall be reduced proportionately, and if the Company
at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately
prior to such combination shall be increased proportionately.
13
(j) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company’s assets or other transaction, in each case which is effected in
such a manner that the holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in exchange for Common
Stock, is referred to herein as an “Organic Change” Prior to the consummation of any Organic
Change, the Company shall make appropriate provisions (in form and substance reasonably
satisfactory to the Majority Warrant Holders) to insure that each of the Holders shall thereafter
have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable upon the exercise of such
Holder’s Warrant, such shares of stock, securities or assets as such Holder would have received in
connection with such Organic Change if such Holder had exercised its Warrant immediately prior to
such Organic Change. In each such case, the Company shall also make appropriate provisions (in form
and substance reasonably satisfactory to the Majority Warrant Holders) to insure that the
provisions of this Section 5 shall thereafter be applicable to the securities issued upon exercise
of the Warrants (including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Company and the value for the Common Stock
reflected by the terms of such consolidation, merger or sale is less than the Exercise Price in
effect immediately prior to such consolidation, merger or sale, an immediate adjustment of the
Exercise Price to the value for the Common Stock so reflected and a corresponding immediate
adjustment in the number of shares of Common Stock acquirable and receivable upon the exercise of
the Warrants). The Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes by written instrument (in form
and substance satisfactory to the Majority Warrant Holders) the obligation to deliver to each such
Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
(k) Certain Other Events. If any event occurs of the type contemplated by the
provisions of this Section 5 but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Board shall make an appropriate adjustment in the Exercise Price so as
to protect the rights of the Holders of Warrants; provided that no such adjustment shall increase
the Exercise Price as otherwise determined pursuant to this Section 5 or decrease the number of
shares of Common Stock issuable upon exercise of each Warrant.
14
5.4 Notices.
Immediately upon any adjustment of the Exercise Price, the Company shall give written notice
thereof to all Holders, setting forth in reasonable detail and certifying the calculation of such
adjustment.
6. NO IMPAIRMENT
The Company shall not by any action, including amending its charter documents or through any
reorganization, reclassification, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other similar voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Agreement, 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 the Holder of any Warrant against impairment. Without limiting
the generality of the foregoing, the Company shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of the Warrants, free and clear of all Liens (other than,
to the extent permitted by Section 9, any created by actions of the Holder), and shall use its
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 Agreement.
| 7. | RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY |
From and after the Original Issue Date, the Company shall at all times reserve and keep
available for issuance upon the exercise of the Warrants such number of its authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding
Warrants. All shares of Common Stock issuable pursuant to the terms hereof, when issued upon
exercise of Warrants with payment therefor in accordance with the terms hereof, shall be duly and
validly issued and fully paid and nonassessable, not subject to preemptive rights and shall be free
and clear of all Liens (other than, to the extent permitted by Section 9, any created by actions of
the Holder). Before taking any action that would result in an adjustment in the number of shares of
Common Stock for which the Warrants are exercisable, 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 over such action. If any shares of Common Stock
required to be reserved for issuance upon exercise of Warrants require registration or
qualification with any governmental authority under any federal or state law (other than under the
Securities Act or any state securities law) before such shares may be so issued, the Company will
in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to
be duly registered.
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8. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS
8.1 Notices of Corporate Actions.
In the event of: (a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled to receive any
dividend or distribution, (other than cash dividends payable upon shares of preferred stock of the
Company), or any right to subscribe for, purchase or otherwise acquire any shares of capital stock
of any class or any other securities, (b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer or other disposition of all or
substantially all the assets of the Company to another Person, (c) any voluntary or involuntary
dissolution, liquidation or winding-up of the Company, (d) any amendment of the Certificate of
Incorporation of the Company or (e) any registration or public offering of Common Stock, the
Company shall mail to each Holder of a Warrant in accordance with the provisions of Section 14.2 a
notice specifying (i) in the case of a dividend or distribution, the date or expected date on which
any such record is to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right, (ii) in the case of a reorganization,
reclassification, recapitalization, consolidation, merger, transfer, disposition, dissolution,
liquidation or winding-up, the date or expected date on which any such reorganization,
reclassification, recapitalization, consolidation, merger, transfer, disposition, dissolution,
liquidation or winding-up is to take place, the time, if any such time is to be fixed, as of which
the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock
for the shares of stock, securities or assets deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer, disposition, dissolution,
liquidation or winding-up and a description in reasonable detail of the transaction and (iii) in
case of an amendment of the Certificate of Incorporation or any registration or public offering of
Common Stock, the expected date of such event and a description in reasonable detail of the event.
Such notice shall be mailed to the extent practicable at least thirty (30), but not more than
ninety (90) days prior to the date therein specified. In the event that the Company at any time
sends any other notice to the holders of its Common Stock, it shall concurrently send a copy of
such notice to each Holder of a Warrant.
8.2 Taking of Record.
In the case of all dividends or other distributions by the Company to the holders of its
Common Stock with respect to which any provision of any Section hereof refers to the taking of a
record of such holders, the Company will in each such case take such a record and will take such
record as of the close of business on a Business Day.
8.3 Closing of Transfer Books.
The Company shall not at any time, except upon dissolution, liquidation or winding up of
the Company, close its stock transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.
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9. TRANSFER RESTRICTIONS; LEGENDS
9.1 Restrictions on Transfer and Entry into Shareholders Agreement and Registration
Rights Agreement.
Concurrently with the execution and delivery of this Agreement, each Holder of an Original
Warrant is entering into and becoming a party to each of the Shareholders Agreement and the
Registration Rights Agreement, if not already a party thereto, by completing and executing a
signature page thereof. The Company shall not be obligated to register any transfer of Warrants and
no such purported transfer shall be effective unless and until the transferee has executed and
delivered a joinder agreement pursuant to which such assignee becomes a party to the Shareholders
Agreement and the Registration Rights Agreement.
9.2 Legends.
(a) Each Warrant Certificate shall be stamped or otherwise imprinted with a legend in
substantially the following form:
(i) “NEITHER THE WARRANTS REPRESENTED BY THIS
CERTIFICATE NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE BEEN
REGISTERED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR
ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY BE TRANSFERRED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH DISPOSITION IS PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND ANY APPLICABLE STATE SECURITIES LAWS, OR IS MADE IN A TRANSACTION EXEMPT FROM
SUCH REGISTRATION REQUIREMENTS.”
(ii) “THE WARRANTS REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE PROVISIONS OF A WARRANT AGREEMENT, DATED AS OF DECEMBER 19, 2007,
A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.”
(iii) “THE TRANSFER, SALE, ASSIGNMENT, PLEDGE OR
OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO
THE TERMS AND CONDITIONS SPECIFIED IN THAT CERTAIN AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT,
DATED AS OF DECEMBER 19, 2007, AS AMENDED AND MODIFIED FROM TIME TO TIME, AMONG XSTREAM SYSTEMS,
INC. (THE “COMPANY”) AND CERTAIN SECURITYHOLDERS, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE
TRANSFER OF SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
17
TRANSFER. A COPY OF SUCH AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT SHALL BE
FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE.”
(b) Each certificate for shares of Warrant Stock shall be stamped or otherwise imprinted with
a legend in substantially the following form:
(i) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH DISPOSITION IS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
ANY APPLICABLE STATE SECURITIES LAWS, OR IS MADE IN A TRANSACTION EXEMPT FROM SUCH
REGISTRATION REQUIREMENTS.”
(ii) “THE TRANSFER, SALE, ASSIGNMENT, PLEDGE OR
OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY
AND SUBJECT TO THE TERMS AND CONDITIONS SPECIFIED IN THAT CERTAIN AMENDED AND
RESTATED SECURITYHOLDERS AGREEMENT, DATED AS OF DECEMBER 19, 2007, AS AMENDED AND
MODIFIED FROM TIME TO TIME, AMONG XSTREAM SYSTEMS, INC. (THE “COMPANY”) AND CERTAIN
SECURITYHOLDERS, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH
SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER.
A COPY OF SUCH AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT SHALL BE FURNISHED BY
THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.”
(c) In addition, Warrant Certificates and any certificates for shares of Warrant Stock shall
bear any legends required by applicable state law. When any Warrants or shares of Warrant Stock
have been registered under the Securities Act, and such Warrants or shares of Warrant Stock have
been sold pursuant to such registration or pursuant to Rule 144 under the Securities Act or are
eligible to be sold pursuant to paragraph (k) of such Rule, the Holder of such Warrants or shares
of Warrant Stock shall be entitled to exchange, as the case may be, the Warrant Certificate
representing such Warrants for a Warrant Certificate, or a certificate representing such shares of
Warrant Stock for a new certificate, in each case not bearing the legend required by clause (a)(i)
or (b)(i), as the case may be, of this Section 9. If any Warrants or shares of Warrant Stock cease
to be subject to this Agreement or the Shareholders Agreement, as the case may be, the Holder of
such Warrants or Warrant Stock shall be entitled to exchange,
as the case may be, the Warrant Certificate representing such Warrants for a Warrant
Certificate, or a certificate representing such shares of Warrant Stock for a new certificate, in
each case not
18
bearing the legend required by clauses (a)(ii), (a)(iii) or (b)(ii), as the case may be, of
this Section 9. Each Holder agrees that, in addition to complying with the restrictions on transfer
set forth elsewhere in this Agreement, such Holder will not directly or indirectly Transfer any
Warrants (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of any
Warrants) in violation of the Securities Act, applicable state securities or “blue sky” laws or any
rules or regulations thereunder, and such Holder will not Transfer any Warrants unless the
conditions set forth in the legend required by clause (a)(i) of this Section 9. are satisfied.
10. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the
ownership of and the loss, theft, destruction or mutilation of a Warrant Certificate and an
indemnity reasonably satisfactory to it (it being understood that the written indemnification
agreement of or affidavit of loss of a Holder of an Original Warrant shall be a sufficient
indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided,
however, in the case of mutilation, no indemnity shall be required if a Warrant Certificate in
identifiable form is surrendered to the Company for cancellation.
11. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall maintain an office or
agency, which may be the principal executive offices of the Company (the “Designated Office”),
where the Warrants may be presented for exercise, registration of transfer, division or combination
as provided in this Agreement. Such Designated Office shall initially be the office of the Company
at 00000 000xx Xxxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxxxx 00000. The Company may from time
to time change the Designated Office to another office of the Company or its agent within the
United States by notice given to all registered holders of Warrants at least ten (10) Business Days
prior to the effective date of such change.
12. FINANCIAL AND BUSINESS INFORMATION
(a) Until the applicable Exercise Date with respect to a Warrant, the Company shall
deliver to the Holder of such Warrant one copy of each of the following items:
(i) as soon as available but in any event within 30 days after the end
of each monthly accounting period in each fiscal year (other than the third
monthly accounting period in each fiscal quarter), unaudited statements of income
and cash flows of the Company for such monthly period and for the period from
the beginning of the fiscal year to the end of such month, and an unaudited
balance sheet of the Company as of the end of such monthly period, setting forth
in each case comparisons to the Company’s annual budget and to the
corresponding period in the preceding fiscal year, and all such statements shall be
prepared in accordance with GAAP, subject to the absence of footnote disclosures
and to normal year-end adjustments, and shall be certified by the Company’s
Chief Financial Officer;
19
(ii) as soon as available but in any event within 45 days after the end
of each fiscal quarter in each fiscal year (other than the fourth fiscal quarter of
each year), unaudited statements of income and cash flows of the Company for
such fiscal quarter and for the period from the beginning of the fiscal year to
the end of such fiscal quarter, and an unaudited balance sheet of the Company as
of the end of such fiscal quarter, setting forth in each case comparisons to the
Company’s annual budget and to the corresponding period in the preceding fiscal
year, and all such statements shall be prepared in accordance with GAAP, subject
to the absence of footnote disclosures and to normal year-end adjustments, and
shall be certified by the Company’s Chief Financial Officer;
(iii) as soon as available but in any event within 90 days after the end
of each fiscal year, audited statements of income and cash flows of the Company
for such fiscal year, and an audited balance sheet of the Company as of the end
of such fiscal year prepared in accordance with GAAP, and accompanied by, with
respect to the consolidated portions of such statements, an opinion of an
independent accounting firm of recognized regional standing selected by the
Board and reasonably acceptable to a majority of the Investors, together with
comparisons to the Company’s annual budget and to the preceding fiscal year;
(iv) accompanying the financial statements referred to in
subparagraphs (ii) and (iii), an officer’s certificate stating that there is no
event in existence that, with notice or the passage of time or both, might
become an Event of Noncompliance or, if any such event exists, specifying the
nature and period of existence thereof and what actions the Company has taken
or has proposed to take with respect thereto;
(v) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of the
Company’s operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials
provided hereunder); and
(vi) within 10 days after transmission thereof, copies of all financial
statements, proxy statements, reports and any other general written
communications that the Company sends to its shareholders and copies of all
press releases and other statements made available generally by the Company to
the public concerning material developments in the Company’s business and not
otherwise posted on the Company’s external website;
provided that any Holder shall be entitled to provide notice to the Company that it elects
not to receive copies of the financial statements and other documentation referred to in
this Section 12(a); and provided further that the Company shall be entitled to satisfy its
obligations under this Section 12(a) through electronic delivery of the financial
statements and other documentation referred to in this Section 12(a) or by making such
information available through a password-protected website.
20
(b) Each of the financial statements referred to in subparagraphs (i), (iii) and (iv) shall
fairly present in all material respects the financial condition of the Company as of the dates and
for the periods stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments (none of which would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect).
13. REPRESENTATIONS AND WARRANTIES
13.1 Holders.
Each Holder, by its acceptance of a Warrant, represents that (i) it is an “accredited
investor,” as that term is defined in Rule 501 (a) of Regulation D promulgated under the Securities
Act, (ii) it is acquiring such Warrant for its own account, not as a nominee or agent, with the
present intention of holding it for purposes of investment, and that it has no present intention of
selling it in a public distribution in violation of the federal securities laws or any applicable
state securities laws, provided, that nothing contained herein shall prevent such Holder from
transferring such Warrant in compliance with the provisions of Section 9, and (iii) it understands
that the Warrant has not been registered under the Securities Act, or applicable state securities
laws, and is being issued in reliance on exemptions from such registration requirements and that,
as a result, the Warrant may not be re-offered or resold except in compliance with Section 9.
13.2 Company.
The Company has full legal right, power and authority to enter into and perform this Agreement
and to issue the Warrants and to perform ail its obligations relating thereto. The execution and
delivery of this Agreement, the issuance of the Warrants by the Company and the consummation of the
transactions contemplated hereby and thereby have all been duly authorized by the Board of
Directors of the Company and, where required, the stockholders of the Company. No consent, waiver
or authorization of, or filing with any other Person is required in connection with any of the
foregoing or with the validity or enforceability against the Company of this Agreement or the
Warrants. This Agreement has been duly executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company, enforceable in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors’ rights generally and subject to general principles of equity. The execution, delivery
and performance of this Agreement and the Warrants and the consummation of the transactions
contemplated hereby and thereby do not and will not, with or without the passage of time or the
giving of notice or both, (i) violate any provision of the Company’s Certificate of Incorporation
or By-laws or (ii) violate any requirement of law or any material agreement to which the Company is
a party. The Warrants have been duly executed and delivered by the Company, have been duly
authorized and validly issued free and clear of all liens, encumbrances, equities and claims, are
fully paid and nonassessable, and constitutes the legal, valid and binding obligations of the
Company, enforceable in accordance with their terms, except as may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors’ rights generally and subject to
general principles of equity.
21
14. MISCELLANEOUS
14.1 Nonwaiver.
No course of dealing or any delay or failure to exercise any right hereunder on the part of
the Company or the Holders shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of such Person.
14.2 Notice Generally.
Any notice, demand, request, consent, approval, declaration, delivery or communication
hereunder to be made pursuant to the provisions of this Agreement shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged or sent by registered
or certified mail, return receipt requested, postage prepaid, addressed as follows:
(i) if to any Holder of Warrants, at its last known address appearing
on the books of the Company maintained for such purpose;
(ii) if to the Company, at its Designated Office;
or at such other address as may be substituted by notice given as herein provided. The giving of
any notice required hereunder may be waived in writing by the party entitled to receive such
notice. Every notice, demand, request, consent, approval, declaration, delivery or other
communication hereunder shall be deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall
have been deposited in the United States mail, or one (1) Business Day after the same shall have
been delivered to Federal Express or another overnight courier service.
14.3 Indemnification.
If the Company fails to make, when due, any payments provided for in this Agreement, the
Company shall pay to the applicable Holder (a) interest at the Agreed Rate on any amounts due and
owing to such Holder and (b) such further amounts as shall be sufficient to cover any costs and
expenses including reasonable attorneys’ fees and expenses incurred by such Holder in collecting
any amounts due hereunder. The Company shall indemnify, save and hold harmless the Holders from and
against any and all liability, loss, cost, damage, reasonable attorneys’ and accountants’ fees and
expenses, court costs and all other out-of-pocket expenses incurred in connection with or arising
from a Company Default. This indemnification provision shall be in addition to the rights of such
Holder or Holders to bring an action against the Company for breach of contract based on such
Company Default.
14.4 Limitation of Liability; No Stockholder Rights.
No provision hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no enumeration herein of the rights or privileges of the Holders, shall give
rise to any liability or right of any such Holder to pay the Exercise Price for any Warrant Stock
or any liability or rights as a stockholder of the Company, in each case other
22
than pursuant to an exercise of a Warrant and in each case whether such liability is asserted by
the Company or by creditors of the Company.
14.5 Remedies.
Each Holder of Warrants, in addition to being entitled to exercise its rights granted by law,
including recovery of damages, shall be entitled to specific performance of its rights provided
under this Agreement. 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 Agreement, and hereby
agrees, in an action for specific performance, to waive the defense that a remedy at law would be
adequate.
14.6 Successors and Assigns.
Subject to the provisions of Sections 4.1 and 9, this Agreement and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of the Company and the
permitted successors and assigns of the Holders. The provisions of this Agreement are intended to
be for the benefit of all Holders from time to time of Warrants, and shall be enforceable by any
such Holder and, as provided in Section 4.1, such Holder’s permitted assigns.
14.7 Amendment.
This Agreement and the Warrants may be modified or amended or the provisions hereof waived
with the written consent of the Company and the Majority Warrant Holders, provided, however, that
no such modification or amendment that would treat any Holder in a discriminatory manner may be
made without the prior written consent of such Holder.
14.8 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 or invalid under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
14.9 Governing Law; Jurisdiction.
In all respects, including all matters of construction, validity and
performance, this Agreement and the Warrants and the obligations arising hereunder and thereunder
shall be governed by, and construed and enforced in accordance with,
the laws of the State of
Florida applicable to contracts made and performed in such state, except with respect to the
validity of this Agreement and the Warrants, the issuance of Warrant Stock upon exercise of the
Warrants and the rights and duties of the Company with respect to registration of transfer, which
shall be governed by the laws of the State of Delaware. The Company and each Warrant Holder hereby
consents and agrees that the United States District Court for the Southern District of Florida or
any court of the State of Florida
23
located in St. Lucie County, Florida, shall have, except as set forth below, exclusive
jurisdiction to hear and determine any claims or disputes between the Company and a Holder of
Warrants pertaining to this Agreement or the Warrants or to any matter arising out of or relating
to this Agreement or the Warrants, provided, that it is acknowledged that any appeals from those
courts may have to be heard by a court located outside of St. Lucie County, Florida.
24
IN WITNESS WHEREOF, each of the Company and the Holders have caused this Agreement to
be duly executed on its behalf by a duly authorized officer or representative.
| XSTREAM SYSTEMS, INC. | ||||
By: |
||||
| Title: | ||||
Signature Page to Warrant Agreement
EXHIBIT A — FORM OF WARRANT
XSTREAM SYSTEMS, INC.
Series C Warrant to Purchase Shares of
Common Stock, par value $.0001 per Share
Common Stock, par value $.0001 per Share
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR ANY OF THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE BEEN REGISTERED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR
ANY OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY BE TRANSFERRED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH DISPOSITION IS PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS, OR IS MADE IN A TRANSACTION EXEMPT FROM SUCH REGISTRATION REQUIREMENTS.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A WARRANT AGREEMENT,
DATED AS OF DECEMBER 19, 2007, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THE TRANSFER, SALE, ASSIGNMENT, PLEDGE OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE TERMS AND CONDITIONS SPECIFIED IN THAT CERTAIN
AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT, DATED AS OF DECEMBER 19, 2007, AS AMENDED AND
MODIFIED FROM TIME TO TIME, AMONG XSTREAM SYSTEMS, INC. (THE “COMPANY”) AND CERTAIN
SECURITYHOLDERS, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL
SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH AMENDED AND
RESTATED SECURITYHOLDERS AGREEMENT SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST AND WITHOUT CHARGE.
No.
[•], 200_
[•], 200_
This Series C Warrant Certificate entitles [ ], and its permitted assigns,
to purchase from XStream Systems, Inc., a Delaware corporation (the “Company”), [ ] shares
of duly authorized, validly issued, fully paid and nonassessable shares of common stock, par value
$0.0001 per share (the “Common Slock”), of the Company at the purchase price per share of $3.00
(subject to adjustment as provided in Section 5 of the hereinafter defined Warrant Agreement (as so
adjusted, the “Exercise Price”)), at any time or from time to time prior to 5:00 P.M., New York,
New York time, on the tenth anniversary of the date hereof (such
date, the “Expiration Date”), all
subject to the terms and conditions set forth in the Warrant Agreement,
dated as of December 19, 2007 (as may be amended, modified or restated from time to time, the
“Warrant Agreement”), by and among the Company and the holders from time to time of the
Warrants (the “Holders”). The warrants represented by this Warrant Certificate are
“Warrants” as defined and provided in the Warrant Agreement and are entitled to the rights
and obligations therein provided. The Warrants may be exercised in whole or in part in the
manner provided in the Warrant Agreement. The Warrant Agreement is hereby incorporated by
reference in and made a part of this Warrant Certificate and is hereby referred to for a
description of the rights, limitation of rights, obligations, ditties and immunities of
the Company and the Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed
and delivered on its behalf by its duly authorized officers.
| XSTREAM SYSTEMS, INC. | ||||||
| By: | ||||||
| Title: | ||||||
ANNEX A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned:
[check one]
| o | hereby irrevocably exercises this Warrant with respect to, and hereby purchases, | |||
| o | in accordance with Section 3(e) of the Warrant Agreement, hereby exercises this Warrant with respect to, and hereby purchases, conditioned upon the simultaneous closing of the sale, in an offering registered under the Securities Act or pursuant to the exercise of any drag-along or co-sale rights under the Shareholders Agreement, of the shares as to which this Warrant is being exercised and with the right to revoke such exercise in the event that the closing of such sale shall not occur, |
[ ] shares of Common Stock as provided in the Warrant Agreement and herewith makes
payment of $[ ] therefor, all at the price and on the terms and conditions specified in the
Warrant Agreement, and requests that certificates for the shares of Common Stock hereby purchased
(and any securities or other property issuable upon such exercise) be issued in the
name of and delivered to (the “Proposed Stockholder”) whose address is
, and, if such shares of Common Stock hereby exercised do not
equal the full number of shares of Common Stock for which this Warrant Certificate is exercisable,
that a new Warrant Certificate of like tenor and date for the balance of such shares be delivered
to the undersigned.
In connection with the exercise of this Warrant, the undersigned has provided the Company
with:
(i) if (x) (he Shareholders Agreement (as defined in the Warrant Agreement) is
in effect and will remain in effect after the issuance of the shares and (y) the Proposed
Stockholder is not already a party to the Shareholders Agreement, a joinder agreement
pursuant to which the Proposed Stockholder shall become a party to the Shareholders
Agreement and
(ii) if (x) the Registration Rights Agreement (as defined in the Warrant
Agreement) is in effect and the shares issuable upon this exercise constitute “Registrable
Securities” (as defined in the Registration Rights Agreement) and (y) the Proposed
Stockholder is not already a party to the Registration Rights Agreement, a joinder
agreement pursuant to which the Proposed Stockholder shall become a party to the
Registration Rights Agreement;
provided that the foregoing clauses (i) and (ii) shall not apply to any exercise in connection with
the exercise of any drag-along or co-sale rights under the Shareholders Agreement.
| (Name) | ||||||||
| (Signature) | ||||||||
| (Street Address) | ||||||||
| (City) | (State) | (Zip Code) | ||||||
NOTICE:
|
Except as otherwise contemplated by Section 4.1 of the Warrant Agreement, the signature on this subscription must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. |
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of the enclosed Warrant Certificate
hereby sells, assigns and transfers unto the Assignee named below all of the rights of the
undersigned under this Warrant Certificate, with respect to the right to purchase the number of
shares of Common Stock of the Company indicated below, and if such shares shall not include all of
the shares of Common Stock purchasable upon the exercise of Warrants represented by the enclosed
Warrant Certificate, the Company shall issue and deliver a new Warrant Certificate to the
undersigned of like tenor for such remaining shares not transferred hereunder:
Name and Address of Assignee |
Number of Shares | |
and does hereby irrevocably constitute and appoint attorney-in-fact to
register such transfer onto the books of XStream Systems, Inc. maintained for the purpose, with
full power of substitution in the premises.
If the Assignee is not already a party to the Shareholders Agreement and the Registration
Rights Agreement (as those terms are defined in the Warrant Agreement), the undersigned registered
owner of the enclosed Warrant Certificate has provided the Company with a fully executed joinder
agreement pursuant to which the Assignee has become a party to the Shareholders Agreement and the
Registration Rights Agreement.
Dated:
|
Print Name: | |||||||||
| Signature: | ||||||||||
| Witness: | ||||||||||
NOTICE:
|
The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. |
EXHIBIT K
Amended and Restated Securityholders Agreement
Amended and Restated Securityholders Agreement
EXECUTION COPY
AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
Dated as of December 19, 2007
Among
XStream Systems, Inc.
and
Each of the Securityholders Named Herein
Table of Contents
| Page | ||||
ARTICLE I DEFINITIONS |
2 | |||
1.1 Certain Defined Terms |
2 | |||
ARTICLE II TRANSFERS |
7 | |||
2.1 General Prohibition on Transfers |
7 | |||
2.2 Holdback |
7 | |||
2.3 Transferees Required to Execute this Agreement |
8 | |||
ARTICLE III RIGHT OF FIRST REFUSAL AND CO-SALE RIGHT ON PROPOSED
TRANSFERS OF SECURITIES |
8 | |||
3.1 Right of First Refusal |
8 | |||
3.2 Procedure |
8 | |||
3.3 Over-Allotment Option |
9 | |||
3.4 Co-Sale Rights |
9 | |||
3.5 Transfer of Securities upon Failure to Exercise Right of First Refusal or Co-Sale Right |
10 | |||
ARTICLE IV DRAG-ALONG OBLIGATIONS |
11 | |||
4.1 Drag-Along Obligations of Securityholders |
11 | |||
4.2 Indemnification in Approved Sale |
11 | |||
ARTICLE V PREEMPTIVE RIGHTS |
12 | |||
5.1 Preemptive Rights |
12 | |||
ARTICLE VI BOARD OF DIRECTORS AND VOTING AGREEMENT |
14 | |||
6.1 Size and Composition of Board |
14 | |||
6.2 Committees of the Board |
15 | |||
6.3 Covenants of the Corporation |
15 | |||
6.4 Third Party Beneficiary |
15 | |||
6.5 Voting Agreement |
15 | |||
6.6 Expenses |
15 | |||
ARTICLE VII GENERAL PROVISIONS |
15 | |||
7.1 Termination |
15 | |||
7.2 Restrictions on Other Agreements |
16 | |||
7.3 Specific Enforcement |
16 | |||
7.4 Legend |
16 | |||
7.5 Confidentiality |
17 | |||
7.6 Notices |
17 | |||
7.7 Entire Agreement |
18 | |||
i
Table of Contents
(continued)
(continued)
| Page | ||||
7.8 Governing Law |
18 | |||
7.9 Successors and Assigns |
18 | |||
7.10 Further Assurances |
18 | |||
7.11 Amendments and Waivers |
18 | |||
7.12 Addition of Securityholders |
19 | |||
7.13 Severability |
19 | |||
7.14 Counterparts |
19 | |||
7.15 Interpretation |
19 | |||
7.16 Delivery by Facsimile |
19 | |||
7.17 Failure to Deliver Securities |
19 | |||
ii
AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
THIS AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT (this
“Agreement”) is dated as of December 19, 2007 by and among XStream Systems, Inc., a Delaware corporation (the “Corporation”),
each of the Persons set forth on Exhibit A attached hereto and each other holder of
Securities (as hereinafter defined) that may hereafter become bound by the terms of this Agreement
(each a “Securityholder” and collectively, the “Securityholders”).
RECITALS
WHEREAS, pursuant to a Series A Preferred Stock Purchase Agreement dated as of March 14, 2007
(the “Original Purchase Agreement”) among the Company and certain of the Securityholders
(collectively, the “First Round Investors”), the First Round Investors have purchased shares of the
Company’s Series A Redeemable Convertible Preferred Stock, $.0001 par value per share (the “Series
A Preferred Stock”);
WHEREAS, pursuant to a First Amendment dated as of December 19, 2007 to the Original Purchase
Agreement (the “First Amendment”) among the Corporation and certain of the Securityholders
(collectively, the “Second Round Investors”), (i) the Second Round Investors have purchased shares
of the Corporation’s Series B Redeemable Convertible Preferred Stock, $.0001 par value per share
(the “Series B Preferred Stock”), together with warrants (the “Series B Warrants”) to purchase
shares of the Corporation’s Common Stock, $.0001 par value per share (the “Common Stock”) and (ii)
certain of the Second Round investors have the option to purchase shares of the Corporation’s
Series C Redeemable Convertible Preferred Stock, $.0001 par value per share (the “Series C
Preferred Stock”), together with warrants (the “Series C Warrants”) to purchase shares of the
Corporation’s Common Stock;
WHEREAS, the First Round Investors, certain other shareholders of the
Corporation and the Corporation are parties to a Shareholders Agreement dated as of March 14, 2007
(the “Original Shareholders Agreement”), which they desire to amend and restate, among other
things, to allow the Second Round Investors who are not already parties to the Original
Shareholders Agreement to become parties, to include the Series B Preferred Stock and the Series B
Warrants and to make provision for the Series C Preferred Stock and the Series C Warrants, if such
stock and warrants are issued;
WHEREAS, the Securityholders, collectively, are the holders of (i) a portion of the issued and
outstanding shares of the Corporation’s Common Stock, (ii) all of the issued and outstanding shares
of the Series A Preferred Stock and (iii) all of the issued and outstanding shares of the Series B
Preferred Stock and Series B Warrants, with each respective Securityholder owning the Securities
set forth on Exhibit A attached hereto;
WHEREAS, the Corporation and the Securityholders desire, among other things, to restrict the
transferability and ownership of the Securities and to provide for continuity and harmony in the
management and operation of the Corporation, and therefore desire to set forth
their agreements regarding the management of the Corporation and the ownership of the
Securities; and
WHEREAS, the execution and delivery of this Agreement is a condition to the obligations of the
Second Round Investors under the First Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
DEFINITIONS
1.1
Certain Defined Terms. As used in this Agreement, the following terms shall
have the respective meanings set forth below (capitalized terms used but not defined herein shall
have the meanings set forth in the Certificate of Incorporation):
“Affiliate” shall mean, with respect to any particular Person, any other Person that,
directly or indirectly controls, is controlled by or is under common control with such
particular Person. For the purpose of this definition, “control” means the possession,
directly or indirectly, of the power to direct the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
“Agreement” shall mean this Amended and Restated Securityholders Agreement.
“Approved Sale” shall have the meaning specified in Section 4.1(a).
“Board” shall mean the Board of Directors of the Corporation.
“Certificate of Incorporation” shall mean the Corporation’s Certificate of
Incorporation, as may be further amended or restated from time to
time.
“Change of Control Event” shall mean with respect to the Corporation, either in a
single transaction or a series of transactions, (i) any sale or other disposition of the
capital stock of the Corporation, or the merger or consolidation of the Corporation
resulting, directly or indirectly, in greater than fifty percent (50%) of the issued and
outstanding capital stock of the Corporation being owned, in the aggregate, by any Person
or Persons other than the Shareholders or any of their Permitted Transferees or (ii) the
sale or other disposition of all or substantially all the assets of the Corporation;
provided, however, a merger or consolidation of the Company with or into a wholly-owned
subsidiary that does not change the beneficial ownership (as such term is defined in Rule
13d-3 and Rule 13d-5 promulgated under the Securities Exchange Act of 1934, as amended) of
the outstanding equity securities of the Corporation shall not be deemed a Change of
Control Event.
“Common Stock” shall have the meaning specified in the second recital of this
Agreement.
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“Confidential Information” shall have the meaning specified in Section 7.5(b).
“Conversion Common Shares” shall mean:
(i) any shares of Common Stock issued or issuable upon conversion of any shares
of Preferred Stock and
(ii) any shares of Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation or other
reincorporation.
“Corporation” shall have the meaning specified in the first paragraph of this Agreement.
“Co-Sale Election Notice” shall have the meaning specified in Section 3.4(b).
“Co-Sale Period” shall have the meaning specified in Section 3.4(b).
“Co-Sale
Pro Rata Share” shall have the meaning specified in Section 3.4(e).
“Co-Sale Right” shall have the meaning specified in Section 3.4(a).
“First Amendment” shall have the meaning specified in the second recital of this Agreement.
“First Round Investor” shall have the meaning specified in the first recital of this Agreement
and includes any Permitted Transferees.
“Fully-Diluted Basis” shall mean assuming the exercise, conversion or exchange of all (i)
options, warrants or other securities or rights to subscribe to or exercisable for the purchase of
Shares, whether or not immediately exercisable, or (ii) other securities that are convertible into
or exchangeable for, with or without payment of additional consideration in cash or property,
Shares, whether or not immediately exercisable.
“Initial Public Offering” means the Corporation’s initial public offering of Common
Stock pursuant to a registration statement declared effective under the Securities Act.
“Investors” means the First Round Investors and the Second Round Investors.
“Investor Director” shall have the meaning specified in Section 6.1(b).
“Joinder” shall mean a joinder agreement, in the form of Exhibit B hereto, which shall be
executed and delivered to the Corporation by each Person who becomes a Securityholder after the
date hereof.
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“Management Shareholder” shall mean each of Xxxxx Xxxx, Xxxxxxx Xxxx and Xxxxxx Xxxxxxxxx.
“Non-Selling Shareholder” shall have the meaning specified in Section 3.2(a).
“Offer Period” shall have the meaning specified in Section 3.4(a).
“Option Plan” shall mean the Corporation’s 2004 Stock Option Incentive Plan.
“Original Purchase Agreement” shall have the meaning specified in the first recital of
this Agreement.
“Over-Allotment Election Notice” shall have the meaning specified in Section 3.2(b).
“Over-Allotment Notice” shall have the meaning specified in Section 3.2(b).
“Over-Allotment Option” shall have the meaning specified in Section 3.3.
“Over-Allotment Option Securities” shall have the meaning specified in Section 3.3.
“Permitted Issuances” means the issuance and sale of the Preferred Stock expressly
contemplated by the Purchase Agreement.
“Permitted Transferee” shall mean:
(i) in the case of a Securityholder that is an entity, any Affiliate of such
Securityholder,
(ii) in the case of a Securityholder who is a natural person, (x) the spouse or
descendant (whether by blood, adoption or marriage) of such Securityholder or (y) a trust,
partnership or other entity at least 90% of the equity and voting power of which is held by
such natural person or the individuals with respect to such natural person specified in
clause (x) and
(iii) in the case of an Investor that is an entity, any Person holding an equity
interest (including a partnership interest or limited liability company interest) in
such Investor.
“Person” shall mean an individual, a partnership, a corporation, a limited liability company,
an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a
governmental entity or any department, agency or political subdivision thereof or any other entity.
“Preemptive Right Holder” shall have the meaning specified in Section 5.1(a).
“Preemptive Right Notice” shall have the meaning specified in Section 5.1(a).
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“Preferred Shareholder” shall mean a holder of shares of Preferred Stock or Conversion
Common Shares.
“Preferred Stock” means Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock.
“Pro Rata Share” shall mean, with respect to any Non-Selling Securityholder, the fraction
obtained by dividing the total number of Securities (computed on a Common Stock equivalent basis)
then held by such Non-Selling Securityholder by the total number of Securities (computed on a
Common Stock equivalent basis) held by all Non-Selling
Securityholders then outstanding.
“Purchase Agreement” means the Original Purchase Agreement, as amended by the First Amendment.
“Right of First Refusal” shall have the meaning specified in Section 3.1.
“Right of First Refusal Election Notice” shall have the meaning specified in Section
3.2(a).
“Sale of the Corporation” shall mean either:
(i) the sale, lease, Transfer, conveyance or other disposition, in one
transaction or a series of related or unrelated transactions, of all or substantially all
of the assets of the Corporation and its wholly-owned Subsidiaries, taken as a whole, or
(ii) a transaction or series of related or unrelated transactions (including by
way of merger, consolidation, recapitalization, reorganization or sale or issuance of
shares) the result of which is that the holders of capital stock of the Corporation
immediately prior to such transaction are (after giving effect to such transaction) no
longer (or their respective Affiliates or their Permitted Transferees, are no longer), in
the aggregate, the “beneficial owners” (as such term is defined in Rule 13d-3 and Rule
13d-5 promulgated under the Securities Exchange Act of 1934, as amended) directly or
indirectly, through one or more intermediaries, of more than 50% of the voting power of the
outstanding voting securities of the Corporation (or any successor thereto resulting from
any such transaction(s)).
“Second Round Investor” shall have the meaning specified in the second recital of this
Agreement and includes any Permitted Transferees.
“Securities” means shares of Common Stock, shares of Preferred Stock, Series B Warrants or
Series C Warrants, or one or more of the foregoing.
“Securities Act” means the Securities Act of 1933, as amended.
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“Securityholder” means a holder of one or more Securities that is a party to this Agreement.
“Selling Securityholder” shall have the meaning specified in Section 3.1.
“Series A Preferred Stock” shall have the meaning specified in the first recital of this
Agreement.
“Series B Preferred Stock” shall have the meaning specified in the second recital of this
Agreement.
“Series C Preferred Stock” shall have the meaning specified in the second recital of
this Agreement.
“Shareholder” means a holder of shares of Common Stock, Preferred Stock or both, that is a
party to this Agreement.
“Shares” shall mean and include shares of Common Stock, shares of Preferred Stock, including
any Conversion Common Shares, and all other securities of the Corporation which may be convertible
into, exchangeable for, exercisable for or issued in exchange for or in respect of shares of Common
Stock or Preferred Stock, including any Conversion Common Shares (it being understood that for
purposes of determining any vote or consent of holders of Shares, the respective number of Shares
held by a Shareholder shall be determined on a Fully-Diluted Basis).
“Subsidiary” means, with respect to any Person, any corporation, limited liability company,
partnership, association or other business entity of which:
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or
(ii) if a limited liability company, partnership, association or other business
entity, a majority of the partnership or other similar ownership interest thereof is at the
time owned or controlled, directly or indirectly, by any Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if such Person or
Persons shall be allocated a majority of the gains or losses of such limited liability company,
partnership, association or other business entity or shall be or control (or have the power to
control) a managing director, manager or general partner of such limited liability company,
partnership, association or other business entity.
“Transfer” shall mean any sale, transfer, assignment, pledge, mortgage, exchange,
hypothecation, gift, grant of a security interest or other direct or indirect
6
disposition or encumbrance of an interest (whether with or without consideration, whether
voluntarily or involuntarily or by operation of law or will or the laws of descent and
distribution). The terms “Transferee,” “Transferor,” “Transferred,” and other forms
of the word “Transfer” shall have the correlative meanings.
“Transfer Notice” shall have the meaning specified in Section 3.2(a).
ARTICLE II
TRANSFERS
TRANSFERS
2.1 General Prohibition on Transfers.
(a) No Securityholder shall, directly or indirectly, Transfer any of such
Securityholder’s Securities except (i) in accordance with the terms and conditions of this
Agreement or (ii) to any Permitted Transferee. Any Transfer made or attempted in violation
of this Agreement shall be null and void.
(b) Notwithstanding anything to the contrary contained in this Agreement, no Management
Shareholder shall Transfer any of such Management Shareholder’s Securities other than to a
Permitted Transferee until March 14, 2012.
(c) Each Securityholder agrees not to, directly or indirectly, Transfer any of such
Securityholder’s Securities to any Person whose activities, products or services directly
compete with the activities, products or services of the Corporation as reasonably
determined in good faith by the Board as of the date of such proposed Transfer; provided
that the foregoing limitation shall not apply to Transfers registered under the Securities
Act or Rule 144 promulgated thereunder. The Corporation may impose stop transfer
instructions with its transfer agent in order to enforce the foregoing limitation.
2.2 Holdback. Each Securityholder agrees not to effect any public sale or
distribution (including sales pursuant to Rule 144 promulgated under the Securities Act (as
such rule may be amended from time to time) of Securities, or any securities, options or
rights convertible into or exchangeable or exercisable for Securities, or to lend, offer,
pledge, contract to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any Securities, or any securities, options or rights
convertible into or exchangeable or exercisable for Securities, or enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the economic
consequences associated with ownership of the Securities, during the period beginning on the
effective date of the registration statement relating to the Initial Public Offering and
ending on the date specified by the Corporation and the underwriters managing such offering
(such period not to exceed 180 days), except as part of such offering and unless the
underwriters managing such offering otherwise agree. Each Securityholder agrees to execute
the standard lock-up agreement of the underwriters managing such offering reflecting the
foregoing. In order to enforce the foregoing, the Corporation may impose stop-transfer
instructions with respect to the Securities of each Securityholder until the end of such
period.
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2.3 Transferees Required to Execute this Agreement. With respect to any Transfer
of Securities by a Securityholder to any Transferee (including a Permitted Transferee), such
Transferee shall, as a condition precedent to such Transfer, (a) execute and deliver to the
Corporation a Joinder, pursuant to which such Transferee shall agree to be bound by the provisions
of this Agreement to the same extent as the Transferor, and (b) execute any other documents or
agreements reasonably requested by the Board.
ARTICLE III
RIGHT OF FIRST REFUSAL AND CO-SALE RIGHT
ON PROPOSED TRANSFERS OF SECURITIES
RIGHT OF FIRST REFUSAL AND CO-SALE RIGHT
ON PROPOSED TRANSFERS OF SECURITIES
3.1 Right of First Refusal. Each Securityholder hereby grants to (a) each Preferred
Shareholder and (b) the Corporation a right of first refusal (a “Right of First Refusal”) to
purchase any or all Securities which such Securityholder (the “Selling Securityholder”) may, from
time to time, propose to Transfer (other than with respect to a Transfer to a Permitted
Transferee).
3.2
Procedure. (a) In the event a Selling Securityholder wishes to make a Transfer of
Securities (other than with respect to a Transfer to a Permitted Transferee), the Selling
Securityholder shall deliver written notice (the “Transfer Notice”) to the Corporation specifying,
in reasonable detail, (i) its bona fide intention to Transfer such Securities, (ii) the type of
Securities to be Transferred, (iii) the number of such Securities to be Transferred, (iv) the
proposed price per security therefor and material terms and conditions upon which the proposed
Transfer is to be made, (v) the identity of each of the proposed Transferees and (vi) all other
information reasonably necessary or requested by the Corporation to fully describe and confirm the
bona fide nature of the proposed Transfer. As soon as practicable after the receipt of the Transfer
Notice, the Corporation shall distribute such Transfer Notice to each Preferred Shareholder (or, in
the case of a Selling Securityholder that is a Preferred Shareholder, to each other Preferred
Shareholder) (the “Non-Selling Securityholders”). Each Non-Selling Securityholder shall have 15
days from the date of the receipt of the Transfer Notice to exercise its Right of First Refusal to
purchase such Non-Selling Securityholder’s respective Pro Rata Share (but not less than such
Non-Selling Securityholder’s Pro Rata Share) of the Securities subject to the Transfer Notice (for
the price and upon the terms specified therein). If any Non-Selling Securityholder elects to
purchase its respective Pro Rata Share, such Non-Selling Securityholder shall notify the
Corporation and the Selling Securityholder within the 15-day period referenced above by written
notice (the “Right of First Refusal Election Notice”).
(b) If, after the expiration of the 15-day period referenced above, any Non-Selling
Securityholder has not exercised its Right of First Refusal to purchase its respective Pro Rata
Share, the Corporation shall, within 5 days of the expiration of such 15-day period, provide the
other Non-Selling Securityholders with written notice (the “Over-Allotment Notice”) indicating the
aggregate amount of Securities as to which all Non-Selling Securityholders shall not have exercised
their Rights of First Refusal. Each Non-Selling Securityholder who shall have elected to purchase
its full Pro Rata Share of the Securities proposed to be Transferred by the Selling Securityholder
shall have 10 days upon receipt of the Over-Allotment Notice to give notice (the “Over-Allotment
Election Notice”) to the Corporation and the Selling Securityholder whether it elects to exercise
its Over-Allotment Option granted in Section 3.3.
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(c) If, after expiration of the additional 10-day period referenced in Section 3.2(b),
the Non-Selling Securityholders in the aggregate have elected not to purchase all of the Securities
subject to the Transfer Notice, then the Corporation shall have 10 days from the expiration of such
additional 10-day period to purchase any or all of the Securities subject to the Transfer Notice
and not purchased by the Non-Selling Securityholders by delivering written notice to the Selling
Securityholder.
(d) If the Corporation or any Non-Selling Securityholder shall have failed to deliver to the
Selling Securityholder or the Corporation written notice with respect to its Right of First Refusal
within the time periods described in this Section 3.2, it shall be deemed to have waived the rights
described herein.
(e) Settlement for the Securities to be purchased by either the Corporation or any Non-Selling
Securityholder pursuant to this Section 3.2 shall be made in cash within 50 days from the
Corporation’s deemed date of receipt of the Transfer Notice; provided, however, that if the terms
of payment for the Securities specified in the Transfer Notice were for other than cash against
delivery, each of the Corporation and the Non-Selling Securityholders may pay to the Selling
Securityholder the fair market value of such consideration (as determined in good faith by the
Board) in cash.
3.3 Over-Allotment Option. In the event that the Non-Selling Securityholders in the
aggregate do not purchase all of the Securities offered by the Selling Securityholder pursuant to
the Right of First Refusal described in this Article III, then any Non-Selling
Securityholder that shall have exercised its Right of First Refusal to purchase its full Pro Rata
Share of such Securities shall also have the right (the “Over-Allotment Option”) to purchase up to
all of its respective pro rata share among such Non-Selling Securityholders (or such other
proportion as may be agreed to by all of the Non-Selling Securityholders that have exercised their
Rights of First Refusal) of the remaining Securities (the “Over-Allotment Option Securities”)
offered in accordance with this Section 3.3, in addition to such Securities it has already elected
to purchase, as provided in Section 3.2(b).
3.4 Co-Sale Rights, (a) If, after the expiration of the 40-day period beginning on the
Corporation’s deemed receipt of the Transfer Notice (the “Offer Period”), the Corporation and the
Non-Selling Securityholders have not elected to purchase, in aggregate, all of the Securities
subject to the Transfer Notice, then each of the Non-Selling Securityholders shall have a co-sale
right (a “Co-Sale Right”) to sell, upon the terms and conditions contained in the applicable
Transfer Notice and in accordance with the procedures set forth in this Section 3.4 (it
being understood that, if more than one class or type of Securities is to be sold, the relative
prices of such Securities shall be determined as provided in Section 3.4(d)), to the
proposed Transferee up to that number of Securities of the same class or type proposed to be
Transferred equal to its Co-Sale Pro Rata Share (as defined below); provided, however, that if the
Selling Securityholder is Transferring Common Stock, each of the Non-Selling Securityholders may
sell shares of Preferred Stock (the number of which shall be determined on an as-converted basis)
to the proposed Transferee; provided further that notwithstanding the immediately preceding
proviso, in the event that a Non-Selling Securityholder that wishes to exercise its Co-Sale right
holds Securities of the same class or type proposed to be Transferred by the Selling
Securityholder,
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such Non-Selling Securityholder must sell such Securities to the proposed Transferee prior to
selling Securities of any other class or type to the proposed Transferee.
(b) Each Non-Selling Securityholder shall have 15 days from the expiration of the Offer Period
(the “Co-Sale Period”) to exercise its Co-Sale Right as provided in this Section 3.4 by
delivering written notice (the “Co-Sale Election Notice”) to the Selling Securityholder, with a
copy to the Corporation. The Co-Sale Election Notice shall specify the number of Securities that
such Non-Selling Securityholder elects to sell (up to such Co-Sale Pro Rata Share). A Non-Selling
Securityholder’s failure to deliver a Co-Sale Election Notice with respect to such Securities
within such 15-day period shall be deemed a waiver of its Co-Sale Right with respect to the
proposed Transfer.
(c) If a prospective Transferee refuses to purchase Securities from a Non-Selling
Securityholder exercising its Co-Sale Right hereunder, the Selling Securityholder shall not sell
any Securities to such prospective Transferee unless and until, simultaneously with such sale, the
Selling Securityholder shall purchase such Securities from the Non-Selling Securityholder for the
same consideration (or cash equal to the fair market value thereof as determined in good faith by a
majority of the Board) and on the same terms and conditions as the proposed Transfer described in
the Transfer Notice.
(d) In the event that a Non-Selling Securityholder has delivered a Co-Sale Election Notice
with respect to Securities that are of a class or type other than the class or type being sold by
the Selling Securityholder to the proposed Transferee, the price per share to be paid by the
proposed Transferee for such Non-Selling Securityholder’s Securities shall be determined in good
faith by a majority of the Board and shall be equal on a relative basis to the price per share
being paid by the proposed Transferee for the Selling Securityholder’s Securities, taking into
account the relative rights and privileges of the respective classes of Securities.
(e) Each Non-Selling Securityholder’s “Co-Sale
Pro Rata Share” with respect to any proposed
Transfer is that number of Securities equal to the product obtained
by multiplying (i) the
aggregate number of shares of Common Stock (calculated on a Fully-Diluted Basis) subject to the
Transfer Notice by (ii) a fraction, (x) the numerator of which is the number of shares of Common
Stock (calculated on a Fully-Diluted Basis) then held by such Non-Selling Securityholder and (y)
the denominator of which is the total number of shares of Common Stock then outstanding (calculated
on a Fully-Diluted Basis).
3.5 Transfer of Securities upon Failure to Exercise Right of First Refusal or
Co-Sale Right. The Selling Securityholder may, during the 60-day period following the
expiration of the Co-Sale Period, conclude a Transfer of any or all of the Securities covered by
the Transfer Notice and not otherwise subject to the Right of First Refusal or Co-Sale Right, on
terms and conditions the same or the same in all material respects as those described in the
Transfer Notice; provided, however, that if the Selling Securityholder fails to consummate the
proposed Transfer described in the Transfer Notice during the 60-day period following the
expiration of the Co-Sale Period, or if a proposed Transfer is to be consummated on terms that are
not the same in all material respects as those disclosed in the Transfer Notice or with a proposed
Transferee other than that identified in the Transfer Notice, then the Selling
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Securityholder shall be required to comply anew with the requirements of this Article III
prior to consummating the proposed Transfer.
ARTICLE IV
DRAG-ALONG OBLIGATIONS
DRAG-ALONG OBLIGATIONS
4.1 Drag-Along Obligations of Securityholders. (a) For so long as the Investors own
(or would own after giving effect to all of the transactions contemplated by the Purchase
Agreement) at least 20% of the outstanding Securities (on a Fully-Diluted Basis), if the Board
(including a majority of the Investor Directors (as defined in Section 6.1(b)) and a
majority of the holders of outstanding shares of Common Stock and Preferred Stock (voting on a
Common Stock equivalent basis) approve a Sale of the Corporation (an “Approved Sale”), then each
Securityholder covenants and agrees to vote for, consent to and raise no objections against such
Approved Sale. If the Approved Sale is structured as a (x) merger or consolidation, each
Securityholder covenants and agrees to waive any dissenters’ rights, appraisal rights or similar
rights in connection with such merger or consolidation, (y) sale of Securities, each
Securityholder covenants and agrees to sell all of his, her or its Securities and rights to
acquire Securities on the terms and conditions so approved or (z) sale of all or substantially
all of the assets of the Corporation, each Securityholder covenants and agrees to approve any
subsequent liquidation of the Corporation in connection therewith. In addition, each
Securityholder covenants and agrees to take all necessary or desirable actions in connection with
the consummation of the Approved Sale as requested by the Board.
(b) Conditions to Drag-Along Obligations. The obligations of the
Securityholders described in Section 4.1 (a) with respect to an Approved Sale are subject
to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale,
each Securityholder shall receive the same portion of the aggregate consideration that such
Securityholder would have received if such aggregate consideration had been distributed by the
Corporation in complete liquidation pursuant to the rights and preferences set forth in the
Corporation’s Certificate of Incorporation as in effect immediately prior to such Approved Sale
(giving effect to applicable orders of priority); and (ii) upon the consummation of any such
Approved Sale, all of the Securityholders of a particular class of Securities shall receive (or
shall have the option to receive) the same form of consideration.
4.2
Indemnification in Approved Sale. (a) In connection with any Approved Sale, the
Securityholders shall be obligated to join on a pro rata basis (based on each such
Securityholder’s share of the aggregate proceeds paid with respect to its equity interest in the
Corporation) in any indemnification obligation agreed to in connection with such Approved Sale
(other than any such obligations that relate specifically to a particular Securityholder such as
indemnification with respect to representations and warranties given by a Securityholder
regarding such Securityholder’s title to and ownership of Securities); provided, that: (x) no
such Securityholder shall be obligated in connection with such Approved Sale to indemnify the
prospective Transferee or its Affiliates with respect to an amount in excess of the net cash
proceeds paid to such Securityholder in connection with such Approved Sale; (y) any escrow of
proceeds of any such transaction shall be withheld on a pro rata basis among all Securityholders;
and (z) each such Securityholder shall pay its pro rata share of the expenses incurred by the
Securityholders in connection with such Approved Sale.
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(b) Notwithstanding anything contained in this Agreement, in no event will any Securityholder
be required to make any representations or warranties in connection with an Approved Sale that are
joint and several with any other Securityholder(s) or that pertain to
matters other than title to the Common Stock or other securities held by such
Securityholder, such Securityholder’s capacity, authority or power to consummate or
participate in the transaction in question and other matters peculiar to such
Securityholder and customary for the type of transaction being consummated.
ARTICLE V
PREEMPTIVE RIGHTS
PREEMPTIVE RIGHTS
5.1 Preemptive Rights. (a) If the Corporation proposes to issue or sell
any New Securities (as defined in this Section 5.1) after the date hereof, the
Corporation shall notify in writing each Preferred Shareholder (each a “Preemptive Right
Holder”) of such proposed transaction (the “Preemptive Right Notice”). The Preemptive
Right Notice shall describe the proposed issuance or sale, identify the proposed buyer and
contain an offer to sell to each Preemptive Right Holder, at the same price and for the
same consideration (subject to the last sentence of this paragraph) to be paid by the
proposed buyer, additional New Securities of the same class and type being offered to the
proposed buyer in an amount equal to the product obtained by multiplying (i) the
number of New Securities being offered to the proposed buyer
by (ii) a fraction,
(x) the numerator of which is the number of shares of Preferred Stock and Conversion
Common Shares held by such Preemptive Right Holder (calculated on a Fully-Diluted Basis)
and (y) the denominator of which is the total number of shares of Preferred Stock and
Conversion Common Shares then outstanding (on a Fully-Diluted Basis). If the purchase
price for the New Securities to be paid by the proposed buyer is in some form other than
cash, then a Preemptive Right Holder may pay for the additional New Securities it is
entitled to purchase hereunder in cash (with the fair market value of any non-cash
consideration to be paid by such buyer to be determined in good faith by the Board). A
Preemptive Right Holder shall have 15 days from the receipt of a Preemptive Right Notice
to accept the offer contained in such Preemptive Right Notice, and any purchase of New
Securities by a Preemptive Right Holder shall be made within 30 days of receipt of the
Preemptive Right Notice by such Preemptive Right Holder.
(b) If any Preemptive Right Holder fails to accept the offer contained in the
Preemptive Right Notice within 15 days after the receipt thereof, the Corporation shall be
entitled to sell such New Securities free of any right on the part of such Preemptive
Right Holder under this Section 5.1 during the 180 days following such 15-day
period at a price not less than, and on other terms and conditions not more favorable
than, that offered to such Secondary Preemptive Right Holder. Any New Securities offered
or sold by the Corporation after such
180-day period must be reoffered to all Preemptive Right Holders, in accordance with the
terms of this Section 5.1.
(c) Except as set forth in the immediately following sentence, “New Securities” shall
mean any shares of capital stock of the Corporation, including Common Stock and preferred
stock (including Preferred Stock), whether or not now authorized, and rights, options or
warrants to purchase shares of Common Stock or preferred stock (including Preferred Stock)
and securities of any type whatsoever that are, or may by their terms become, convertible into or
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exchangeable for shares of Common Stock or preferred stock. Notwithstanding the foregoing, “New
Securities” shall not include the following:
(i) shares of Common Stock issued upon the conversion of the
Preferred Stock;
(ii) the Warrants or any shares of Common Stock issued upon exercise of
the Warrants;
(iii) shares of Common Stock issued upon the exercise of Options or other
Convertible Securities outstanding as of March 14, 2007;
(iv) securities issued pursuant to a Board-approved (including at least
one of the Investor Directors) acquisition of an entity by merger, purchase of
substantially all of the assets or other reorganization;
(v) shares of Common Stock issued to Catalyst pursuant to the Options
granted under the Catalyst Letter Agreements;
(vi) shares of Common Stock issued as a dividend or distribution on, or in
connection with a split of or recapitalization of, any of the capital stock of the
Corporation;
(vii) up to an aggregate of 250,000 shares of Common Stock reserved for
issuance per year pursuant to the Option Plan (subject to adjustment in the event of
stock splits, stock dividends, stock combinations, recapitalizations and like
occurrences) and shares of Common Stock reserved for issuance pursuant to the Option
Plan in lieu of the repayment of certain salary deferrals as approved by a majority
of the Board (including at least one of the Investor Directors), which foregoing
shares may be subject to Options or restricted stock awards granted under the Option
Plan; provided that any Options that expire or terminate unexercised or any
restricted stock awards that are repurchased by the Corporation pursuant to the
terms of such award shall not be counted toward the maximum number set forth in this
subparagraph (vii) unless and until such shares are subject to new restricted stock
awards (or new Options) pursuant to the terms of the Option Plan;
(viii) shares of Common Stock issued or issuable (including pursuant to
Options) to suppliers or third-party service providers in connection with the
provision of goods or services pursuant to transactions in the ordinary course of
business and approved by a majority of the Board, including a majority of the
Investor Directors;
(ix) shares of Common Stock issued or issuable in connection with
bona-fide sponsored research, collaboration, technology license, development, OEM,
marketing or other similar agreements or strategic partnerships or joint ventures
entered into in the ordinary course of business and approved by a
13
majority of the Board, including a majority of the Investor Directors (and by at
least a majority of the shares of Preferred Stock and Conversion Common Shares,
voting as a single class on a Fully-Diluted Basis, then outstanding, if required
pursuant to the Certificate of Incorporation;
(x) securities issued in connection with a Qualified IPO; or
(xi) Permitted Issuances;
provided that the aggregate number of shares of Common Stock issued or issuable pursuant to clauses
(viii) and (ix) above shall not exceed 100,000 in any twelve-month period.
ARTICLE VI
BOARD OF DIRECTORS AND VOTING AGREEMENT
BOARD OF DIRECTORS AND VOTING AGREEMENT
6.1 Size and Composition of Board. From and after the date of this
Agreement and until the termination hereof in accordance with Section 7.1, each
Securityholder shall vote all of its shares of Preferred Stock and Common Stock and any other
voting securities of the Corporation over which such Securityholder has voting control and shall
take all other necessary or desirable actions within its control (whether in its capacity as a
shareholder, director, member of a committee of the Board or otherwise, and including, without
limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and
execution of written consents in lieu of meetings), and the Corporation shall take all necessary or
desirable actions within its control (including, without limitation, calling special Board and
shareholder meetings), so that:
(a) the authorized number of directors on the Board shall be established at, and shall remain
during the term of this Agreement fixed at, seven (7) directors, except for any increases in the
size of the Board provided for upon the occurrence of certain events set forth in the Certificate
of Incorporation;
(b) for so long as any shares of Preferred Stock or Conversion Common Shares remain
outstanding, two (2) persons nominated by the holders of a majority of shares of Common Stock (on a
Fully-Diluted Basis) held by the Preferred Shareholders shall be elected to the Board (any director
nominated or designated pursuant to this Section 6.1(b) or 6.1(c), an “Investor
Director”);
(c) if any Investor Director ceases to serve as a member of the Board during his or her term
of office, whether due to such director’s death, resignation or removal (subject to Section
6.1(d)), then the resulting vacancy shall be filled by a representative designated by the
holders of a majority of shares of Preferred Stock and Conversion Common Shares (voting on a Common
Stock equivalent basis) held by the Preferred Shareholders; and
(d) no Investor Director shall be removed from the Board without the written consent of the
holders of a majority of shares of Preferred Stock and Conversion Common Shares (voting on a Common
Stock equivalent basis) held by the Preferred Shareholders.
14
6.2 Committees of the Board.
(a) The Board shall establish and maintain a compensation committee which shall recommend to
the Board for approval the compensation of the senior management of the Corporation and each
Subsidiary of the Corporation (including any stock option grants, bonus levels and all other
decisions relating to the administration of any stock option or bonus agreement or program). The
compensation committee shall be composed of three members, one of whom shall be an Investor
Director.
(b) If the Board establishes and maintains an audit committee, such audit committee shall have
delegated to it all power of the Board to carry out the customary duties of an audit committee. Any
such audit committee shall be composed of three members, one of whom shall be an Investor Director.
6.3 Covenants of the Corporation. The Corporation agrees to use its best efforts to
ensure that the rights granted hereunder are effective and that the parties hereto enjoy the
benefits thereof. Such actions include the use of the Corporation’s best efforts to cause the
nomination and election of the directors as provided above. The Corporation shall not, by any
voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be
performed hereunder by the Corporation, but will at all times in good faith assist in the carrying
out of all of the provisions of this Agreement and in the taking of all such actions as may be
necessary, appropriate or reasonably requested in order to protect the rights of the parties
hereunder against impairment.
6.4 Third Party Beneficiary. Each Securityholder agrees that the Corporation shall be
a third party beneficiary under this Agreement and that, as such, the Corporation shall be
empowered to demand, through legal action or otherwise, the strict adherence by each Securityholder
to the terms hereof and the enforcement of this Agreement. In addition, the Corporation shall be
entitled to recover damages from any Securityholder who breaches this Agreement.
6.5 Voting Agreement. Section 6.1 of this Agreement is intended to constitute a voting
agreement in accordance with Section 218(c) of the General Corporation Law of the State of
Delaware.
6.6 Expenses. The Corporation will reimburse each director for his or her reasonable
out-of-pocket expenses incurred in attending any meeting of the Board or any committee of the
Board.
ARTICLE VII
GENERAL PROVISIONS
GENERAL PROVISIONS
7.1 Termination. This Agreement shall terminate, and all rights
and obligations hereunder shall cease (other than the provisions of Article IV, the final
sentence of this Section 7.1, and
Sections 7.5 7.6, 7.7, 7.8 and 7.13 through 7.17), upon the occurrence of any of the following
events:
15
(a) The liquidation or dissolution of the Corporation, whether voluntary or involuntary,
unless incidental to a reorganization of the Corporation or the distribution of its assets to
a parent company;
(b) The adjudication of the Corporation as bankrupt, the execution by it of an assignment for
the benefit of creditors or the appointment of a receiver for the Corporation or a material portion
of its assets, if such appointment is not vacated within 90 days after the effective date of such
appointment;
(c) The written consent of (i) the Corporation and (ii) the holders of a majority of the
shares of Common Stock (on a Fully-Diluted Basis) held by the Securityholders party hereto,
including a majority of the Conversion Common Shares, voting separately as a single class on a
Fully-Diluted Basis;
(d) A Change of Control Event; or
(e) A Qualified IPO (as defined in the Certificate of Incorporation).
Upon the expiration or termination of this Agreement, the restrictive legend set forth in
Section 7.4 shall promptly be removed from all certificates representing Securities.
7.2 Restrictions on Other Agreements. No Securityholder shall enter into any
shareholder agreement or other arrangements of any kind with any Person with respect to the
Securities on terms inconsistent with the provisions of this Agreement (whether or not such
agreements and arrangements are with other Securityholders), including agreements or arrangements
with respect to the acquisition, disposition or voting of Securities.
7.3 Specific Enforcement. Each Securityholder expressly agrees that the other
Securityholders will be irreparably damaged if this Agreement is not specifically enforced. Upon a
breach or threatened breach of the terms, covenants or conditions of this Agreement by any
Securityholder, each of the other Securityholders shall, in addition to all other remedies, be
entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree
for specific performance, in accordance with the provisions hereof.
7.4 Legend. Each certificate or instrument representing any of the Securities shall
bear a legend in substantially the following form:
“THE TRANSFER, SALE, ASSIGNMENT, PLEDGE OR OTHER DISPOSITION OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE TERMS AND
CONDITIONS SPECIFIED IN THAT CERTAIN AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT,
DATED AS OF DECEMBER 19, 2007, AS AMENDED AND MODIFIED FROM TIME TO TIME, AMONG
XSTREAM SYSTEMS, INC. (THE “COMPANY”) AND CERTAIN SECURITYHOLDERS, AND THE COMPANY
RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS
HAVE BEEN FULFILLED WITH RESPECT TO SUCH
16
TRANSFER. A COPY OF SUCH AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT SHALL BE
FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE.”
7.5 Confidentiality, (a) Each Securityholder agrees to keep all Confidential
Information (as defined below) confidential and not use or disclose such information to others
during the term of this Agreement and at all times thereafter, except (i) to such
Securityholder’s attorneys, accountants or financial advisors, provided that, prior to any such
disclosure, such Securityholder has delivered written notice to such attorneys, accountants and
financial advisors that the information is subject to prohibitions upon use or disclosure
pursuant to the terms of this Agreement, and provides the Company concurrently with a copy of
each such notice or (ii) as required by law. In the event any Securityholder is no longer a
securityholder of the Company, such securityholder shall neither take nor retain, without prior
written authorization from the Company, any other Confidential Information, or copies thereof,
of any kind belonging to the Company. Without limiting other possible rights or remedies to the
Company for such Securityholder’s breach of this covenant, each Securityholder acknowledges and
agrees that injunctive or other equitable relief shall be available to the Company to enforce
this covenant, without having to post a bond, cash or otherwise.
(b) “Confidential Information” means and shall include any and all of the following: (i)
the parties to this Agreement; (ii) the respective ownership or other economic interest that
each Securityholder has with respect to the Company; and (iii) all trade secrets, know-how, and
all information concerning the business and affairs of the Company and its Subsidiaries
(including historical financial statements, financial projections and budgets, historical and
projected sales, capital spending budgets and client data and information), however documented,
that has been or may hereafter be provided or shown to a Securityholder by the Company or by the
directors, officers, employees, agents, consultants, advisors or other representatives,
including legal counsel, accountants and financial advisors, of the Company. Confidential
Information does not include information which (i) is in the public domain; (ii) is received by
a Securityholder outside of the Securityholder’s relationship with the Company or any of its
Subsidiaries from a party not directly or indirectly under an obligation of confidentiality to
the Company or its Subsidiaries; (iii) later becomes public, unless such information is made
public by the Securityholder in breach of this Agreement or by any other party directly or
indirectly under an obligation of confidentiality to the Company or its Subsidiaries; or (iv)
which a Securityholder is required to disclose by or to any court of competent jurisdiction or
any other governmental or quasi-governmental agency, authority or instrumentality of competent
jurisdiction; provided, that such Securityholder shall, prior to any such disclosure,
immediately notify the Company or the Securityholder to which the information required to be
disclosed relates of such requirement in order to allow the Company or such affected
Securityholder a reasonable opportunity to seek protective measures of such Confidential
Information.
7.6 Notices. Any notices required or permitted to be sent hereunder to a
Securityholder shall be delivered personally, transmitted by fax, mailed via certified mail
(return receipt requested) or delivered by overnight courier service to the address set forth on the
stock
17
record books of the Corporation, or such other address as shall be given by notice delivered
hereunder, and shall be deemed to have been given upon delivery if delivered personally, upon
receipt of confirmation of transmission if transmitted by fax, three business days after mailing if
mailed, or one business day after delivery to the courier if delivered by overnight courier
service. Any notices to the Corporation shall be sent to the following:
XStream Systems, Inc.
|
With a copy to: | |
10305 102nd Terrace
|
Blank Rome LLP | |
Suite 101
|
0000 Xxxxx Xxxxxxx Xxxxxxx — Xxxxx 000 | |
Xxxxxxxxx, XX 00000
|
Xxxx Xxxxx, Xxxxxxx 00000 | |
Attention: Chief Executive Officer
|
Attention: Xxxxx X. Xxxxxxx | |
Facsimile: (000) 000-0000
|
Facsimile: (000) 000-0000 |
7.7 Entire Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and understandings between or among the parties hereto (whether
written or oral), including that certain Stockholders Agreement, dated as of October 7,
2004, among the Company, the Investors named therein and Xxxxx Xxxx, and the Original
Shareholders Agreement.
7.8 Governing Law. This Agreement shall be governed by the laws of the State
of Delaware without regard to the choice of law provisions of such State or any other
State.
7.9 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, executors, legal
representatives, successors and Permitted Transferees.
7.10 Further Assurances. The parties hereto agree, upon the reasonable
request of the Board, to execute any further documents or instruments necessary or
desirable to carry out the purposes or intent of this Agreement.
7.11 Amendments and Waivers. The provisions of this Agreement may be amended
or waived at any time only by the written agreement of (i) the Corporation and (ii) the
holders of a majority of the shares of Common Stock (on a Fully-Diluted Basis) held by the
Securityholders party hereto, including a majority of the Conversion Common Shares, acting
separately as a single class on a Fully-Diluted Basis, provided that if a proposed waiver
or amendment would treat any Securityholder in respect of such Securityholder’s Securities
differently from the other Securityholders holding the same Securities, then the consent
of such Securityholder shall be required to effect any such waiver or amendment. Any
waiver, permit, consent or approval of any kind or character on the part of any such
holders of any provision or condition of this Agreement must be made in writing and shall
be effective only to the extent specifically set forth in writing. The failure of any
party hereto to enforce at any time any provision of this Agreement shall not be construed
to be a waiver of such provision, nor in any way to affect the validity of this Agreement
or any part hereof or the right of any party hereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be
held to constitute a waiver of any other or subsequent breach.
18
7.12 Addition of Securityholders. As requested by the Corporation, this Agreement
shall be binding upon additional securityholders upon the acquisition by them of capital stock of
the Corporation, and upon execution of a Joinder by the additional Securityholder and the
Corporation, as if all such signatories were original signatories to this Agreement, as
Securityholders.
7.13 Severability. If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render illegal, invalid or unenforceable any other
provision of this Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
7.14 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
7.15 Interpretation. For purposes of this Agreement, (i) the words “include,”
“includes” and “including” shall be deemed to be followed by the words “without limitation,” (ii)
the word “or” is not exclusive and (iii) the words “herein,” “hereof,” “hereby,” “hereto” and
“hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references
herein: (i) to an agreement, instrument or other document means such agreement, instrument or other
document as amended, supplemented and modified from time to time to the extent permitted by the
provisions thereof and by this Agreement; and (ii) to a statute means such statute as amended from
time to time and includes any successor legislation thereto and any regulations promulgated
thereunder. Titles to Articles and headings of Sections are inserted for convenience of reference
only and shall not be deemed a part of or to affect the meaning or interpretation of this
Agreement. This Agreement shall be construed without regard to any presumption or rule requiring
construction or interpretation against the party drafting an instrument or causing any instrument
to be drafted.
7.16 Delivery by Facsimile. This Agreement, to the extent signed and delivered by
means of a facsimile machine, shall be treated in all manner and respects as an original agreement
or instrument and shall be considered to have the same binding legal effect as if it were the
original signed version thereof delivered in person. At the request of any party, each other party
shall reexecute original forms thereof and deliver them to all other parties. No party shall raise
the use of a facsimile machine to deliver a signature or the fact that any signature or agreement
or instrument was transmitted or communicated through the use of a facsimile machine as a defense
to the formation or enforceability of a contract and each such party forever waives any such
defense.
7.17 Failure to Deliver Securities. If any Securityholder who has become obligated to
sell Securities hereunder shall fail to deliver such Securities to the Corporation in accordance
with the terms of this Agreement, the Corporation may, at its option, send to such Securityholder
by registered mail, return receipt requested, the consideration for such Securities as is herein
specified. Thereupon, the Corporation shall (i) cancel on its books the certificate or certificates
in the name of the Corporation representing such Securities and (ii) issue, in lieu
thereof, a new certificate or certificates in the name of the Corporation representing such
19
Securities, and thereupon all of such Securityholder’s rights in and to such Securities
shall terminate, subject to any previously asserted and outstanding claim by such Securityholder.
* * * * *
20
IN WITNESS WHEREOF, this Agreement has been executed as of the date and year first above
written.
| XSTREAM SYSTEMS, INC. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
Signature Page to Shareholders Agreement
| INVESTOR: | ||||
Signature Page to Shareholders Agreement
EXHIBIT A
SECURITYHOLDERS OF THE CORPORATION
| Series A | Series B | Series C | Series B | Series C | ||||||||||||||||||||
| Shareholder | Common Stock | Preferred Stock | Preferred Stock | Preferred Stock | Warrants* | Warrants* | ||||||||||||||||||
Mayo Family Revocable Trust Dated 7-13-2000 |
276,416 | — | ||||||||||||||||||||||
The Mayo Children’s 2000 Irrevocable Trust
Dated 7-13-2000 |
100,000 | — | ||||||||||||||||||||||
Xxxxxxx Xxxx |
195,000 | — | ||||||||||||||||||||||
Xxxxxx Xxxxxxxxx |
195,000 | — | ||||||||||||||||||||||
Xxxx X. Xxxxxxxx |
11,750 | — | ||||||||||||||||||||||
Xxxx M, Xxxxxxxx |
1,340 | — | ||||||||||||||||||||||
Xxxxxx X. Xxxx |
42,664 | — | ||||||||||||||||||||||
Xxxxx X. Xxxxxxxxx |
11,950 | — | ||||||||||||||||||||||
Xxxxx Xxxxx |
3,300 | — | ||||||||||||||||||||||
Xxxxxx Xxxxxx |
9,167 | — | ||||||||||||||||||||||
Xxxxxx X. Xxxxxx |
13,638 | — | ||||||||||||||||||||||
Xxxxxx Xxxxxx |
153 | — | ||||||||||||||||||||||
Xxxxxx Xxxxxxx |
100 | |||||||||||||||||||||||
| * | Each warrant initially represents the right to acquire one share of Common Stock. |
1
| Series A | Series B | Series C | Series B | Series C | ||||||||||||||||||||
| Shareholder | Common Stock | Preferred Stock | Preferred Stock | Preferred Stock | Warrants* | Warrants* | ||||||||||||||||||
Xxxxxx Xxxxxxxx |
100 | — | ||||||||||||||||||||||
Xxxxxxx X. XxXxxxxx |
20,000 | — | ||||||||||||||||||||||
Xxxxxx Xxxxxxx Active Asset Account, Xxxxx |
6,579 | — | ||||||||||||||||||||||
O’Brien Trustee |
||||||||||||||||||||||||
Xxxxxx Xxxxxxx |
180 | — | ||||||||||||||||||||||
Xxxxxx Ireland |
57,648 | — | ||||||||||||||||||||||
Xxxxxxx Xxxxxx |
42,664 | — | ||||||||||||||||||||||
Xxxxxx & Xxxxxx Xxxxxxxx |
38,577 | |||||||||||||||||||||||
Xxxxx X. Xxxxxx |
500 | |||||||||||||||||||||||
Xxx Xxxxx |
21,332 | |||||||||||||||||||||||
Xxxxxx X. Xxxxxxx |
6,579 | — | ||||||||||||||||||||||
The KCHL Revocable Trust DTD, 8-24-95 |
10,666 | — | ||||||||||||||||||||||
The Decendent’s Trust of the Xxxxxxxxx
Revocable Trust DTD, 2-22-83 |
31,998 | — | ||||||||||||||||||||||
The Survivor’s Trust of the Xxxxxxxxx
Revocable Trust DTD, 2-22-83 |
42,664 | — | ||||||||||||||||||||||
Xxxxx W & Xxxxxxxxx Xxxxx |
13,158 | |||||||||||||||||||||||
Xxxxxxx Xxxxxxxx, MD |
42,664 | |||||||||||||||||||||||
Xxxxxx X. Xxxxxx |
100 | — | ||||||||||||||||||||||
Xxxx Xxxxxxxx and Xxx Xxxxxxxx, Joint
Tenants with Right of Survivorship |
42,664 | — | ||||||||||||||||||||||
Xxxx Xxxxxxxx, Jr. |
19,737 | — | ||||||||||||||||||||||
2
| Series A | Series B | Series C | Series B | Series C | ||||||||||||||||||||
| Shareholder | Common Stock | Preferred Stock | Preferred Stock | Preferred Stock | Warrants* | Warrants* | ||||||||||||||||||
Xxxx Xxxx |
10,666 | |||||||||||||||||||||||
Xxxxx Xxxxxxxx |
10,666 | — | ||||||||||||||||||||||
Xxxx Xxxxx |
50 | — | ||||||||||||||||||||||
Xxxxx Xxxxxxxx |
10,666 | — | ||||||||||||||||||||||
Xxxx X. Xxxxxxxx |
21,332 | — | ||||||||||||||||||||||
Xxxx Xxxxxx Xxxxxxxx |
10,666 | — | ||||||||||||||||||||||
Xxxxx X. Xxxx |
21,332 | — | ||||||||||||||||||||||
Wilshire Investors, LLC |
42,664 | — | ||||||||||||||||||||||
Xxx Xxxx |
800 | |||||||||||||||||||||||
Xxxxx X. Xxxxx |
10,666 | |||||||||||||||||||||||
Xxxxxxx Xxxxxx |
10,666 | — | ||||||||||||||||||||||
State University of New Jersey, Rutgers |
73,500 | — | ||||||||||||||||||||||
The Xxxxxxx X. Xxxxxx and Xxxxx Xxxx Xxxxxx Living Trust DTD, 10-11-05 |
5,000 | — | ||||||||||||||||||||||
Nikitas and Xxxxxxx Xxxxxxxxxx, Joint Tenants with Right of Survivorship |
13,158 | — | ||||||||||||||||||||||
Xxxxxx X. Xxxxxx |
6,579 | — | ||||||||||||||||||||||
Xxxxxx, Xxxx, Xxxxxxxx, Xxxxxx & Xxxxxxx LLP 401(k) Plan — FBO Xxxxx X.
Xxxx |
21,332 | — | ||||||||||||||||||||||
Xxxxxxx Xxxxxx Investment LLC |
31,998 | — | ||||||||||||||||||||||
Xxxx Xxxxxxx |
72 | |||||||||||||||||||||||
3
| Series A | Series B | Series C | Series B | Series C | ||||||||||||||||||||
| Shareholder | Common Stock | Preferred Stock | Preferred Stock | Preferred Stock | Warrants* | Warrants* | ||||||||||||||||||
Xxxxxx Family Investments LLC |
— | 263,160 | ||||||||||||||||||||||
Summit Investors of Vero, Ltd. |
— | 65,790 | ||||||||||||||||||||||
Xxxxxxx X. Xxxxx Revocable Trust |
— | 65,790 | ||||||||||||||||||||||
Xxxxxxx Xxxxxx |
— | 65,790 | ||||||||||||||||||||||
Xxxxxxx Xxxxxxxx |
— | 52,632 | ||||||||||||||||||||||
Xxxxxx Xxxxxxxxx |
— | 52,632 | ||||||||||||||||||||||
Xxxxxx Xxxxxxx |
— | 32,895 | ||||||||||||||||||||||
Xxxxxx Xxxxxx |
— | 32,895 | ||||||||||||||||||||||
52 River Course Associates LLC |
— | 32,895 | ||||||||||||||||||||||
Xxxxxx Xxxxxxx |
— | 26,316 | ||||||||||||||||||||||
Xxxxx Xxxxxxx |
— | 13,158 | ||||||||||||||||||||||
Xxxxxx Xxxxxxxxxx |
— | 13,158 | ||||||||||||||||||||||
Xxxxxx Xxxxxxxxxx |
— | 13,158 | ||||||||||||||||||||||
Xxxxxx Xxxxxxxx |
— | 13,158 | ||||||||||||||||||||||
Xxxx Xxxxxx |
— | 13,158 | ||||||||||||||||||||||
Xxxxxxx Family Partners |
— | 13,158 | ||||||||||||||||||||||
Xxxxxxx Xxxxx |
— | 13,158 | ||||||||||||||||||||||
Xxxxxx Xxxxx |
— | 13,158 | ||||||||||||||||||||||
Xxxx Xxxxxxxxx |
— | 13,158 | ||||||||||||||||||||||
Xxxxxxxx X. Xxxxxxxx |
— | 13,158 | ||||||||||||||||||||||
4
| Series A | Series B | Series C | Series B | Series C | ||||||||||||||||||||
| Shareholder | Common Stock | Preferred Stock | Preferred Stock | Preferred Stock | Warrants* | Warrants* | ||||||||||||||||||
Xxxxxx Xxxxxxxxx |
— | 6,579 | ||||||||||||||||||||||
Xxxxx Xxxxx |
— | 6,579 | ||||||||||||||||||||||
Xxxxx Xxxxxxxx |
— | 6,579 | ||||||||||||||||||||||
Xxxx Xxxxxxx |
— | 6,579 | ||||||||||||||||||||||
Xxxxx X. Xxxxxxx Xx. |
— | 6,579 | ||||||||||||||||||||||
The Xxxxxxx Xxxx & Xxxx Xxxx Revocable Trust |
— | 6,579 | ||||||||||||||||||||||
Feldrnan Partners |
— | 6,579 | ||||||||||||||||||||||
Xxxxxx Xxxxxxx |
— | 6,579 | ||||||||||||||||||||||
Xxxxxx X. Xxxxxxxxxxx |
6,579 | 13,498 | ||||||||||||||||||||||
Xxxxxx X. Xxxxx III, Revocable Trust |
6,579 | 26,867 | ||||||||||||||||||||||
Xxxxxx X. Xxxx |
79,654 | 13,450 | ||||||||||||||||||||||
Xxxxxxx Xxxxxxxx |
— | 13,342 | ||||||||||||||||||||||
C.B. (Xxxx) Xxxxxx, Jr. |
49,243 | 13,313 | ||||||||||||||||||||||
Xxxxx and Xxxxxx Xxxx |
— | 6,624 | ||||||||||||||||||||||
5
EXHIBIT B
FORM OF JOINDER
The undersigned hereby acknowledges receipt of a copy of that certain Amended and Restated
Securityholders Agreement, dated as of December 19, 2007, among XStream Systems, Inc. (the
“Corporation”) and each Person-set forth on Exhibit A thereto and each other holder of
Securities (as defined therein) that may hereafter become bound by the terms thereof (as amended
from time to time, the “Securityholders Agreement”), and hereby certifies to the other parties
thereto that it has read and fully understands the Securityholders Agreement, that it has had an
opportunity to review and discuss the terms and conditions of the Securityholders Agreement with
its legal counsel and other advisors, and that it agrees to be bound by the terms and conditions of
the Securityholders Agreement as if it were an original signatory thereto. Capitalized terms used
but not defined herein shall have the meanings ascribed to them in the Securityholders Agreement.
IN WITNESS WHEREOF, the parties have caused this Joinder to be executed on this
day of .
| SECURITYHOLDER: | ||||
| Address for Notices: | ||||
EXHIBIT L
Amendment to Registration Rights Agreement
Amendment to Registration Rights Agreement
EXECUTION COPY
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this “Amendment”) is entered into as of this
19th day of December, 2007 by and among XStream Systems, Inc., a Delaware corporation
(the “Company”), and the Persons named on Schedule I attached hereto as Investors (individually an
“Investor” and collectively the “Investors”).
RECITALS
WHEREAS, pursuant to a Series A Preferred Stock Purchase Agreement dated as of March 14, 2007 (the
“Original Purchase Agreement”) among the Company and certain of the Investors (collectively, the
“First Round Investors”), the First Round Investors have purchased shares of the Company’s Series A
Redeemable Convertible Preferred Stock, $.0001 par value per share (the “Series A Preferred
Stock”);
WHEREAS, pursuant to a First Amendment dated as of December 19, 2007 to the Original Purchase
Agreement (the “First Amendment”) among the Company and certain of the Investors (collectively, the
“Second Round Investors”), (i) the Second Round Investors have purchased shares of the Company’s
Series B Redeemable Convertible Preferred Stock, $.0001 par value per share (the “Series B
Preferred Stock”), together with warrants (the “Series B Warrants”) to purchase shares of the
Company’s Common Stock, $.0001 par value per share (the “Common Stock”) and (ii) certain of the
Second Round investors have the option to purchase shares of the Company’s Series C Redeemable
Convertible Preferred Stock, $.0001 par value per share (the “Series C Preferred Stock”), together
with warrants (the “Series C Warrants”) to purchase shares of the Company’s Common Stock;
WHEREAS, the First Round Investors and the Company are parties to a Registration Rights Agreement
dated as of March 14, 2007 (the “Registration Rights Agreement”), which they desire to amend, among
other things, to allow the Second Round Investors who are not already parties to the Registration
Rights Agreement to become parties, to include the Series B Preferred Stock and the Series B
Warrants as “Registrable Securities” and to include the Series C Preferred Stock and the Series C
Warrants as “Registrable Securities,” if such stock and warrants are issued;
WHEREAS, the execution and delivery of this Amendment is a condition to the obligations of the
Second Round Investors under the First Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendments to the Registration Rights Agreement.
(a) Section 10 of the Registration Rights Agreement shall be amended as follows:
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(i) to delete the existing definition of the term “Additional Preferred Stock.”
(ii) to amend the existing definitions of the terms “Preferred Stock,” “Purchase Agreement,”
“Registrable Securities” and “Shareholders Agreement” to read in their entirety as follows:
“Preferred Stock” means the Company’s (i) Series A Redeemable Convertible Preferred Stock, $.0001
par value per share, (ii) Series B Redeemable Convertible Preferred Stock, $.0001 par value per
share and (iii) Series C Redeemable Convertible Preferred Stock, $.0001 par value per share.
“Purchase Agreement” means the Series A Preferred Stock Purchase Agreement dated as of March 14,
2007, as amended, among the Company and certain of the Investors (as the same may be amended,
modified, restated or replaced).
“Registrable Securities” means (i) any Common Stock issued or issuable upon the conversion or
redemption of the Preferred Stock or any Warrants, (ii) any Common Stock issued or issuable
directly or indirectly with respect to the securities referred to in clause (i) by way of stock
dividend, stock conversion or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization and (iii) any other shares of
Common Stock held by Persons holding securities described in clause (i). As to any particular
Registrable Securities, such securities shall cease to be Registrable Securities (x) when they have
been distributed to the public pursuant to an offering registered under the Securities Act, (y)
when they have been sold to the public through a broker, dealer or market maker in compliance with
Rule 144 under the Securities Act (or any similar rule then in force) or (z) when they may be sold
without registration in compliance with Rule 144(k) under the Securities Act (or any similar rule
then in force). For purposes of this Agreement, a Person shall be deemed to be the holder of
Registrable Securities, and the Registrable Securities shall be deemed to be outstanding and in
existence, whenever such Person has the right to acquire such Registrable Securities upon
conversion of Preferred Stock, exercise of Warrants or conversion or exercise of any other
securities held by such Person, whether or not such acquisition has actually been effected, and
such Person shall be entitled to exercise the rights of a holder of such Registrable Securities
hereunder.
“Shareholders Agreement” means the Amended and Restated Securityholders Agreement dated as of
December 19, 2007 by and among the Corporation and the securityholders of the Company named therein
(as the same may be amended, modified, restated or replaced).
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(iii) to add the definition of the term “Warrants” as follows:
“Warrants” means the warrants to purchase Common Stock of the Company issued by the Company
pursuant to the Series B Warrant Agreement dated as of December 19, 2007 and the warrants to
purchase Common Stock of the Company to be issued by the Company pursuant to the Series C Warrant
Agreement dated as of December 19, 2007.
(b) Section 11 (m) of the Registration Rights Agreement shall be amended to read in its entirety as
follows:
(m) Assignment of Registration Rights. The rights to cause the Company to register
Registrable Securities pursuant to Sections 1 and 2 may be assigned (but only with
all related obligations) by a holder to a transferee or assignee of such Registrable Securities
that (i) is a Permitted Transferee (as defined in the Shareholders Agreement) of such holder or
(ii) after such assignment or transfer, holds at least 6,575 shares of Registrable Securities (as
adjusted to reflect stock splits, stock dividends, stock combinations, recapitalizations and like
occurrences); provided that (A) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such transferee or assignee and
the Registrable Securities with respect to which such rights are being assigned and (B) such
transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of
this Agreement. For the purposes of determining the number of shares of Registrable Securities held
by a transferee or assignee, the holdings of a transferee or assignee (1) that is a subsidiary,
parent, partner, limited partner, retired partner, member, retired member or stockholder of a
holder, (2) that is an Affiliate of the holder, (3) who is a holder’s immediately family member or
(4) that is a trust for the benefit of an individual holder or such holder’s immediate family
member, shall be aggregate together and with those of the assigning holder; provided that
all transferees and assignees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Sections 1 and 2. Notwithstanding the foregoing,
any transferee of a Warrant shall be entitled to, and shall become, a party to this Agreement as a
condition to the transfer of such Warrant and shall be considered an “Investor” and a holder of
Registrable Securities with the rights and obligations provided in this Agreement.
(c) Section 11 (j) of the Registration Rights Agreement shall be amended to read in its entirety as
follows:
All notices or other communications required or permitted hereunder shall be in writing and shall
be deemed given or delivered (a) when delivered personally, (b) if transmitted by facsimile when
confirmation of transmission is received, (c) if sent by registered or certified mail, postage
prepaid, return receipt requested, three business days after mailing or (d) if sent by reputable
overnight
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courier service, one business day after delivery to such service; and shall be addressed as
follows:
If to the Company, to:
XStream Systems, Inc.
00000 000xx Xxxxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
00000 000xx Xxxxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
with a copy to:
Blank Rome LLP
0000 Xxxxx Xxxxxxx Xxxxxxx — Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
0000 Xxxxx Xxxxxxx Xxxxxxx — Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
If to an Investor, at such Investor’s address set forth on Schedule I.
Any party may change the name and address of the designee to whom notice shall be sent by giving
written notice of such change other parties hereto.
(d) Schedule I to the Registration Rights Agreement shall be amended to read in its entirety as set
forth on Schedule I to this Amendment and such Persons shall be parties to the Registration Rights
Agreement.
2. Reference to and Effect on Registration Rights Agreement; Reaffirmation.
(a) Upon the effectiveness of this Amendment, each reference in the Registration Rights
Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” “hereby” or words of like import
shall mean and be a reference to the Registration Rights Agreement as amended hereby, and each
reference to the Registration Rights Agreement in any other document, instrument or agreement
executed and/or delivered in connection with the Registration Rights Agreement shall mean and be a
reference to the Registration Rights Agreement as amended hereby.
(b) Except as specifically amended hereby, the Registration Rights Agreement shall remain in full
force and effect and is hereby ratified and confirmed. The execution, delivery and effectiveness of
this Amendment shall not constitute a waiver of any provision contained in the Registration Rights
Agreement, except as specifically set forth herein.
3. Execution in Counterparts. This Amendment may be executed in one or more counterparts,
each of which shall be considered an original instrument, but all of which shall be considered one
and the same agreement, and shall become binding when one or more
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counterparts have been signed by and delivered to each of the parties hereto. Delivery of an
executed counterpart of a signature page to this Amendment, whether manually executed or a
facsimile of a manually executed signature page, shall be as effective as delivery of a manually
executed counterpart of this Amendment.
4. Governing Law. This Amendment and the appendices, exhibits and schedules hereto shall
be governed by, and construed in accordance with, the laws of the State of Florida, without giving
effect to any choice of law or conflict of law rules or provisions (whether of the State of Florida
or any other jurisdiction) that would cause the application of the laws of any jurisdiction other
than the State of Florida. In furtherance of the foregoing, the internal law of the State of
Florida shall control the interpretation and construction of this Amendment (and all schedules and
exhibits hereto), even though under that jurisdiction’s choice of law or conflict of law analysis,
the substantive law of some other jurisdiction would ordinarily apply.
5. Interpretation.
(a) Capitalized terms used herein without definition shall have the respective definitions assigned
to those terms in the Registration Rights Agreement.
(b) For purposes of this Amendment, (i) the words “include,” “includes” and “including” mean
“including without limitation,” (ii) the word “or” is not exclusive and (iii) the words “herein,”
“hereof,” “hereby,” “hereto” and “hereunder” refer to this Amendment as a whole.
(c) Unless the context otherwise requires, references herein to Sections, Exhibits and Schedules
mean the Sections of, and the Exhibits and Schedules attached to, this Amendment. Headings of
Sections are inserted for convenience of reference only and shall not be deemed a part of or to
affect the meaning or interpretation of this Amendment. The Schedules and Exhibits referred to
herein shall be construed with and as an integral part of this Amendment to the same extent as if
they were set forth verbatim herein.
(d) Each of the parties to this Amendment has had the benefit of counsel in connection with its
review and negotiation of this Amendment. Consequently, the parties confirm that this Amendment
shall not be construed on the basis of any presumption or rule requiring construction or
interpretation against the party drafting an agreement or instrument or causing any agreement or
instrument to be drafted.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and
year first above written.
| XSTREAM SYSTEMS, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
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| INVESTOR: | ||||
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