M-Wave, Inc. Shares of Series B Convertible Preferred Stock SUBSCRIPTION AGREEMENT
M-Wave,
Inc.
Shares
of Series B Convertible Preferred Stock
December
29, 2006
M.A.G.
Capital, LLC
Mercator
Momentum Fund, LP
Mercator
Momentum Fund III, LP
Monarch
Pointe Fund, Ltd.
000
Xxxxx
Xxxxxx Xxxxxx, Xxxxx 0000
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
Ladies
and Gentlemen:
M-Wave,
Inc., a Delaware corporation (the "Company"),
hereby
confirms its agreement with Mercator Momentum Fund, LP ("MMF"),
Mercator Momentum Fund III, LP ("MMF
III"),
and
Monarch Pointe Fund, Ltd. ("Monarch"
and,
together with MMF and MMF III, the "Purchasers"),
and
M.A.G. Capital, LLC ("MAG")
as set
forth below.
1. The
Securities.
Subject
to the terms and conditions herein contained, the Company proposes to issue
and
sell to the Purchasers an aggregate of: (a) 5,000 shares (the "Shares")
of its
Series B Convertible Preferred Stock (the "Series
B Stock"),
which
shall be convertible into shares (the "Conversion
Shares")
of the
Company's Common Stock (the "Common
Stock")
in
accordance with the formula set forth in the Certificate of Designations
further
described below. The rights, preferences and privileges of the Series B
Stock are as set forth in the Certificate of Designations of Series B
Preferred Stock as filed with the Secretary of State of the State of Delaware
(the "Certificate
of Designations")
in the
form attached hereto as Exhibit
A.
The
numbers of Conversion Shares that any Purchaser may acquire at any time are
subject to limitation in the Certificate of Designations, so that the aggregate
number of shares of Common Stock of which such Purchaser and all persons
affiliated with such Purchaser have beneficial ownership (calculated pursuant
to
Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does not at
any
time exceed 9.99% of the Company's then outstanding Common Stock. The Purchasers
also agree that the number of Conversion Shares that the Purchasers may acquire
at any time, together with any other shares of Common Stock held by the
Purchasers, in the aggregate, shall not exceed 19.99% of the Company's then
outstanding Common Stock without the approval of the stockholders of the
Company
if such approval is required by the rules and regulations of the Nasdaq Capital
Market. The Company shall not record on its stock ledger or permit its transfer
agent to record the conversion of any shares of Series B Stock into Conversion
Shares in violation of the foregoing limitation and any such attempt to so
convert the Series B Stock shall be void
The
Shares are sometimes herein referred to as the "Securities."
This
Agreement, the Certificate of Designations and the Registration Rights
Agreement, in the form attached hereto as Exhibit
B
(the
"Registration
Rights Agreement")
are
sometimes herein collectively referred to as the "Transaction
Documents."
-1-
The
Securities will be offered and sold to the Purchasers without such offers
and
sales being registered under the Securities Act of 1933, as amended (together
with the rules and regulations of the Securities and Exchange Commission
(the
"SEC")
promulgated thereunder, the "Securities
Act"),
in
reliance on exemptions therefrom.
Each
Purchaser acknowledges that notwithstanding the terms of the Registration
Rights
Agreement, the Company may issue the Conversion Shares in unregistered
form; provided, however, that the immediately preceding clause shall not
affect
the obligations of the Company under this Agreement and under Section 2 and
Section 3 of the Registration Rights Agreement to file the Registration
Statement and to use its best efforts to cause the Registration Statement
to
become effective with the SEC within the applicable periods described herein
or
in the Registration Rights Agreement.
In
connection with the sale of the Securities, the Company has made available
(including electronically via the SEC's XXXXX system) to Purchasers its periodic
and current reports, forms, schedules, proxy statements and other documents
(including exhibits and all other information incorporated by reference)
filed
with the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange
Act").
These
reports, forms, schedules, statements, documents, filings and amendments,
are
collectively referred to as the "Disclosure
Documents."
All
references in this Agreement to financial statements and schedules and other
information which is "contained," "included" or "stated" in the Disclosure
Documents (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules, documents, exhibits
and
other information which is incorporated by reference in the Disclosure
Documents.
2. Representations
and Warranties of the Company.
Except
as set forth in the Disclosure Documents and on the Disclosure Schedule
contained in Schedules A through D attached hereto and made a part hereof
(the "Disclosure
Schedule"),
the
Company represents and warrants to and agrees with Purchasers as follows:
(a) The
Disclosure Documents as of their respective dates did not and will not as
of the
Closing Date (after giving effect to any updated disclosures therein), contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Disclosure Documents and
the
documents incorporated or deemed to be incorporated by reference therein,
at the
time they were filed or hereafter are filed with the SEC, complied and will
comply, at the time of filing, in all material respects with the requirements
of
the Securities Act and/or the Exchange Act, as the case may be, as
applicable.
(b) Schedule
A attached hereto sets forth a complete list of the subsidiaries of the Company
(the "Subsidiaries"). Except as set forth in the Disclosure Documents or
on
Schedule
A,
each of
the Company and its Subsidiaries has been duly incorporated and each of the
Company and the Subsidiaries is validly existing in good standing as a
corporation under the laws of its jurisdiction of incorporation, with the
requisite corporate power and authority to own its properties and conduct
its
business as now conducted as described in the Disclosure Documents and is
duly
qualified to do business as a foreign corporation in good standing in all
other
jurisdictions where the ownership or leasing of its properties or the conduct
of
its business requires such qualification, except where the failure to be
so
qualified would not, individually or in the aggregate, have a material adverse
effect on the business, condition (financial or other), properties, prospects
or
results of operations of the Company and the Subsidiaries, taken as a whole
(any
such event, a "Material
Adverse Effect");
as of
the Closing Date, the Company will have the authorized, issued and outstanding
capitalization set forth in on Schedule
B
attached
hereto (the "Company
Capitalization");
except
as set forth in the Disclosure Documents or on Schedule
A,
the
Company does not have any subsidiaries or own directly or indirectly any
of the
capital stock or other equity or long-term debt securities of or have any
equity
interest in any other person; all of the outstanding shares of capital stock
of
the Company and the Subsidiaries have been duly authorized and validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive or similar rights and are owned free and clear of all liens,
encumbrances, equities, and restrictions on transferability (other than those
imposed by the Securities Act and the state securities or "Blue Sky" laws)
or
voting; except as set forth in the Disclosure Documents, all of the outstanding
shares of capital stock of the Subsidiaries are owned, directly or indirectly,
by the Company; except as set forth in the Disclosure Documents, no options,
warrants or other rights to purchase from the Company or any Subsidiary,
agreements or other obligations of the Company or any Subsidiary to issue
or
other rights to convert any obligation into, or exchange any securities for,
shares of capital stock of or ownership interests in the Company or any
Subsidiary are outstanding; and except as set forth in the Disclosure Documents
or on Schedule
C,
there
is no agreement, understanding or arrangement among the Company or any
Subsidiary and each of their respective stockholders or any other person
relating to the ownership or disposition of any capital stock of the Company
or
any Subsidiary or the election of directors of the Company or any Subsidiary
or
the governance of the Company's or any Subsidiary's affairs, and, if any,
such
agreements, understandings and arrangements will not be breached or violated
as
a result of the execution and delivery of, or the consummation of the
transactions contemplated by, the Transaction Documents.
-2-
(c) The
Company has the requisite corporate power and authority to execute, deliver
and
perform its obligations under the Transaction Documents. Each of the Transaction
Documents has been duly and validly authorized by the Company and, when executed
and delivered by the Company, will constitute a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its
terms except as the enforcement thereof may be limited by (A) bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally or (B) general principles of equity and the discretion of the
court before which any proceeding therefore may be brought (regardless of
whether such enforcement is considered in a proceeding at law or in equity)
(collectively, the "Enforceability
Exceptions").
(d) The
Shares have been duly authorized and, when issued upon payment thereof in
accordance with this Agreement, will have been validly issued, fully paid
and
non-assessable. The Conversion Shares issuable have been duly authorized
and
validly reserved for issuance, and when issued upon conversion of the Shares
in
accordance with the terms of the Certificate of Designations, will have been
validly issued, fully paid and non-assessable. The Common Stock of the Company
conforms to the description thereof contained in the Disclosure Documents.
The
stockholders of the Company have no preemptive or similar rights with respect
to
the Common Stock.
-3-
(e) No
consent, approval, authorization, license, qualification, exemption or order
of
any court or governmental agency or body or third party is required for the
performance of the Transaction Documents by the Company or for the consummation
by the Company of any of the transactions contemplated thereby, or the
application of the proceeds of the issuance of the Securities as described
in
this Agreement, except for such consents, approvals, authorizations, licenses,
qualifications, exemptions or orders (i) as have been obtained on or prior
to the Closing Date, (ii) as are not required to be obtained on or prior to
the Closing Date that will be obtained when required, or (iii) the failure
to obtain which would not, individually or in the aggregate, have a Material
Adverse Effect.
(f) Except
as
set forth on Schedule
D,
none of
the Company or the Subsidiaries is (i) in material violation of its
certificate of incorporation or bylaws (or similar organizational document),
(ii) in breach or violation of any statute, judgment, decree, order, rule
or regulation applicable to it or any of its properties or assets, which
breach
or violation would, individually or in the aggregate, have a Material Adverse
Effect, or (iii) except as described in the Disclosure Documents, in
default (nor has any event occurred which with notice or passage of time,
or
both, would constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate or agreement or instrument to which
it
is a party or to which it is subject, which default would, individually or
in
the aggregate, have a Material Adverse Effect.
(g) The
execution, delivery and performance by the Company of the Transaction Documents
and the consummation by the Company of the transactions contemplated thereby
and
the fulfillment of the terms thereof will not (a) violate, conflict with or
constitute or result in a breach of or a default under (or an event that,
with
notice or lapse of time, or both, would constitute a breach of or a default
under) any of (i) the terms or provisions of any contract, indenture,
mortgage, deed of trust, loan agreement, note, lease, license, franchise
agreement, permit, certificate or agreement or instrument to which any of
the
Company or the Subsidiaries is a party or to which any of their respective
properties or assets are subject, (ii) the Certificate of Designations or
bylaws of any of the Company or the Subsidiaries (or similar organizational
document) or (iii) any statute, judgment, decree, order, rule or regulation
of any court or governmental agency or other body applicable to the Company
or
the Subsidiaries or any of their respective properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the
properties or assets now owned or hereafter acquired by the Company or any
of
the Subsidiaries; which violation, conflict, breach, default or lien would,
individually or in the aggregate, have a Material Adverse Effect.
(h) The
audited consolidated financial statements included in the Disclosure Documents
present fairly the consolidated financial position, results of operations,
cash
flows and changes in shareholders' equity of the entities, at the dates and
for
the periods to which they relate and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis; the
interim un-audited consolidated financial statements included in the Disclosure
Documents present fairly the consolidated financial position, results of
operations and cash flows of the entities, at the dates and for the periods
to
which they relate subject to year-end audit adjustments and have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis with the audited consolidated financial statements included
therein; the selected financial and statistical data included in the Disclosure
Documents present fairly the information shown therein and have been prepared
and compiled on a basis consistent with the audited financial statements
included therein, except as otherwise stated therein; and each of the auditors
previously engaged by the Company or to be engaged in the future by the Company
is an independent certified public accountant as required by the Securities
Act.
-4-
(i) Except
as
described in the Disclosure Documents, there is not pending or, to the knowledge
of the Company, threatened any action, suit, proceeding, inquiry or
investigation, governmental or otherwise, to which any of the Company or
the
Subsidiaries is a party, or to which their respective properties or assets
are
subject, before or brought by any court, arbitrator or governmental agency
or
body, that, if determined adversely to the Company or any such Subsidiary,
would, individually or in the aggregate, have a Material Adverse Effect or
that
seeks to restrain, enjoin, prevent the consummation of or otherwise challenge
the issuance or sale of the Securities to be sold hereunder or the application
of the proceeds therefrom or the other transactions described in the Disclosure
Documents.
(j) The
Company and the Subsidiaries own or possess adequate licenses or other rights
to
use all patents, trademarks, service marks, trade names, copyrights and know-how
that are necessary to conduct their businesses as described in the Disclosure
Documents. None of the Company or the Subsidiaries has received any written
notice of infringement of (or knows of any such infringement of) asserted
rights
of others with respect to any patents, trademarks, service marks, trade names,
copyrights or know-how that, if such assertion of infringement or conflict
were
sustained, would, individually or in the aggregate, have a Material Adverse
Effect.
(k) Each
of
the Company and the Subsidiaries possesses all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and other governmental
authorities, all self-regulatory organizations and all courts and other
tribunals presently required or necessary to own or lease, as the case may
be,
and to operate its respective properties and to carry on its respective
businesses as now or proposed to be conducted as set forth in the Disclosure
Documents ("Permits"),
except
where the failure to obtain such Permits would not, individually or in the
aggregate, have a Material Adverse Effect and none of the Company or the
Subsidiaries has received any notice of any proceeding relating to revocation
or
modification of any such Permit, except as described in the Disclosure Documents
and except where such revocation or modification would not, individually
or in
the aggregate, have a Material Adverse Effect.
(l) Subsequent
to the respective dates as of which information is given in the Disclosure
Documents and except as described therein, (i) the Company and the
Subsidiaries have not incurred any material liabilities or obligations, direct
or contingent, or entered into any material transactions not in the ordinary
course of business or (ii) the Company and the Subsidiaries have not
purchased any of their respective outstanding capital stock, or declared,
paid
or otherwise made any dividend or distribution of any kind on any of their
respective capital stock or otherwise (other than, with respect to any of
such
Subsidiaries, the purchase of capital stock by the Company), (iii) there
has not been any material increase in the long-term indebtedness of the Company
or any of the Subsidiaries, (iv) there has not occurred any event or
condition, individually or in the aggregate, that has a Material Adverse
Effect,
and (v) the Company and the Subsidiaries have not sustained any material
loss or interference with respect to their respective businesses or properties
from fire, flood, hurricane, earthquake, accident or other calamity, whether
or
not covered by insurance, or from any labor dispute or any legal or governmental
proceeding.
-5-
(m) There
are
no material legal or governmental proceedings nor are there any material
contracts or other documents required by the Securities Act to be described
in a
prospectus that are not described in the Disclosure Documents. Except as
described in the Disclosure Documents, none of the Company or the Subsidiaries
is in default under any of the contracts described in the Disclosure Documents,
has received a notice or claim of any such default or has knowledge of any
breach of such contracts by the other party or parties thereto, except for
such
defaults or breaches as would not, individually or in the aggregate, have
a
Material Adverse Effect.
(n) Each
of
the Company and the Subsidiaries has good and marketable title to all real
property described in the Disclosure Documents as being owned by it and good
and
marketable title to the leasehold estate in the real property described therein
as being leased by it, free and clear of all liens, charges, encumbrances
or
restrictions, except, in each case, as described in the Disclosure Documents
or
such as would not, individually or in the aggregate, have a Material Adverse
Effect. All material leases, contracts and agreements to which the Company
or
any of the Subsidiaries is a party or by which any of them is bound are valid
and enforceable against the Company or any such Subsidiary, are, to the
knowledge of the Company, valid and enforceable against the other party or
parties thereto and are in full force and effect.
(o) Each
of
the Company and the Subsidiaries has filed all necessary federal, state and
foreign income and franchise tax returns, except where the failure to so
file
such returns would not, individually or in the aggregate, have a Material
Adverse Effect, and has paid all taxes shown as due thereon; and other than
tax
deficiencies which the Company or any Subsidiary is contesting in good faith
and
for which adequate reserves have been provided in accordance with generally
accepted accounting principles, there is no tax deficiency that has been
asserted against the Company or any Subsidiary that would, individually or
in
the aggregate, have a Material Adverse Effect.
(p) None
of
the Company or the Subsidiaries is, or immediately after the Closing Date
will
be, required to register as an "investment company" or a company "controlled
by"
an "investment company" within the meaning of the Investment Company Act
of
1940, as amended (the "Investment
Company Act").
(q) None
of
the Company or the Subsidiaries or, to the knowledge of any of such entities'
directors, officers, employees, agents or controlling persons, has taken,
directly or indirectly, any action designed, or that might reasonably be
expected, to cause or result in the stabilization or manipulation of the
price
of the Common Stock.
-6-
(r) None
of
the Company, the Subsidiaries or any of their respective Affiliates (as defined
in Rule 501(b) of Regulation D under the Securities Act) directly, or
through any agent, engaged in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities
Act) in connection with the offering of the Securities or engaged in any
other
conduct that would cause such offering to be constitute a public offering
within
the meaning of Section 4(2) of the Securities Act. Assuming the accuracy of
the representations and warranties of the Purchasers in Section 6 hereof,
it is not necessary in connection with the offer, sale and delivery of the
Securities to the Purchasers in the manner contemplated by this Agreement
to
register any of the Securities under the Securities Act.
(s) There
is
no strike, labor dispute, slowdown or work stoppage with the employees of
the
Company or any of the Subsidiaries which is pending or, to the knowledge
of the
Company or any of the Subsidiaries, threatened.
(t) Each
of
the Company and the Subsidiaries carries general liability insurance coverage
comparable to other companies of its size and similar business.
(u) Each
of
the Company and the Subsidiaries maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are recorded
as necessary to permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its material assets is
permitted only in accordance with management's authorization and (D) the
values and amounts reported for its material assets are compared with its
existing assets at reasonable intervals.
(v) The
Company does not know of any claims for services, either in the nature of
a
finder's fee or financial advisory fee, with respect to the offering of the
Shares and the transactions contemplated by the Transaction
Documents.
(w) The
Common Stock is traded on the NASDAQ Capital Market. Except as described
in the
Disclosure Documents, the Company currently is not in violation of, and subject
to approval of the Company's shareholders, the consummation of the transactions
contemplated by the Transaction Documents will not violate, any rule of the
NASDAQ Capital Market.
(x) The
Company is eligible to use SB-2 for the resale of the Conversion Shares by
Purchasers or their transferees. The Company has no reason to believe that
it is
not capable of satisfying the registration or qualification requirements
(or an
exemption therefrom) necessary to permit the resale of the Conversion Shares
under the securities or "blue sky" laws of any jurisdiction within the United
States.
3. Purchase,
Sale and Delivery of the Shares.
(a) On
the
basis of the representations, warranties, agreements and covenants herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the Purchasers, and Purchasers agree to purchase
from the Company on the Closing Date (as defined below), 5,000 Shares of
Series B Stock; provided,
however, that the Purchasers shall have no obligation to consummate the
transactions contemplated to occur on the Closing Date unless all of the
following conditions have been met as of the Closing Date: (i) no Event of
Default shall have occurred and remain uncured, (ii) there shall have been
no breach by the Company of any covenant under this Agreement, (iii) the
Company shall be current in all of its public filings, (iv) the Purchasers
shall have received an opinion from the Company's counsel with respect to
the
authorization of the securities to be issued to the Purchasers and other
customary matters, and (v) the Company shall not, after the date of this
Agreement have consummated or entered into any agreement to effect a transaction
that would be regarded as a liquidation, dissolution or winding up of the
affairs of the Company under the Certificate of Designations.
-7-
(b) One
or
more certificates in definitive form for the Shares that the Purchasers have
agreed to purchase, shall be delivered by or on behalf of the Company, against
delivery of $500,000, each of the Purchasers and the Company shall deliver
the
Registration Rights Agreement, duly executed by such party. Such delivery
of and
payment for the Shares shall be made at the offices of M.A.G., LLC, 000 Xxxxx
Xxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000, at not later than
5:00
p.m. (Los Angeles Time) on December
29, 2006 (the "Closing"),
or at
such date as the Purchasers and the Company may agree upon, such time and
date
of delivery against payment being herein referred to as the "Closing
Date."
(c) The
proceeds shall be held in a reserve account at the bank currently utilized
by
the Company and shall be released therefrom only upon a resolution by a majority
of the Company's independent directors (as defined in the NASD Manual) that
the
release of such proceeds (or a portion thereof) is necessary or appropriate
under the Company's budget (as approved by the Finance Committee of the
Company's Board of Directors).
4. Certain
Covenants of the Company.
The
Company covenants and agrees with each Purchaser as follows:
(a) None
of
the Company or any of its Affiliates will sell, offer for sale or solicit
offers
to buy or otherwise negotiate in respect of any "security" (as defined in
the
Securities Act) which could be integrated with the sale of the Securities
in a
manner which would require the registration under the Securities Act of the
Securities.
(b) The
Company will not become, at any time prior to the expiration of three years
after the Closing Date, an open-end investment company, unit investment trust,
closed-end investment company or face-amount certificate company that is
or is
required to be registered under the Investment Company Act.
(c) None
of
the proceeds of the Series B Stock will be used to reduce or retire any
insider note or convertible debt held by an officer or director of the
Company.
(d) Subject
to Section 9 of this Agreement, the Conversion Shares will be traded on the
NASDAQ Capital Market, or such market on which the Company's shares are
subsequently listed or traded, immediately following the later of (i) their
issuance or (ii) declaration of effectiveness of the Registration Statement
by the SEC.
(e) The
Company will use commercially reasonable efforts to do and perform all things
required to be done and performed by it under this Agreement and the other
Transaction Documents and to satisfy all conditions precedent on its part
to the
obligations of the Purchasers to purchase and accept delivery of the
Securities.
-8-
(f) The
Purchasers shall have a right of first refusal on any financing in which
the
Company is the issuer of debt or equity securities between the date of this
Agreement and the date of effectiveness of the Registration
Statement.
(g) For
so
long as any shares of Series B Stock are outstanding, the Company shall not
issue any debt or equity securities with rights or preferences superior to
those
of the Series B Stock with respect to the distribution of assets on any
liquidation, dissolution or winding up of the Company.
(h) Additional
Covenants:
(i) Not
less
than five business days after the Closing Date, the Company shall prepare
and
submit to the Purchasers a detailed budget showing all anticipated expenses
for
the six-month period commencing January 1, 2007. In addition, by noon pacific
time of each Monday of each week during which the Series B Stock is outstanding,
the Company shall submit to the Purchasers a reconciliation of actual expenses
to budgeted expenses for the prior week and the Company shall cause its officers
to make themselves reasonably available to the Purchasers to discuss such
reconciliation.
(ii) Except
with the prior written consent of the Purchasers, the Company shall not and
shall not permit any of its subsidiaries to voluntarily incur any obligation
or
enter into any contract, agreement or other arrangement that requires a payment
by the Company or any of its subsidiaries in excess of, or a series of payments,
which in the aggregate exceed, $5,000.
In
addition to any other remedy provided under law, if the Company breaches
any of
the covenants in this Section 4(h), then the Purchasers shall be entitled
to
cause the Company to repurchase the Series B Stock for cash in immediately
payable funds in an amount equal to the original purchase price therefor
plus
all accrued but unpaid dividends thereon. If the Purchasers so elect to cause
the Company to repurchase Series B Stock pursuant to the previous sentence,
then
the Purchasers shall give a written notice to the Company of such election
and
the Company shall, within three business days of receipt of such notice,
make
the payment specified in the previous sentence.
5. Conditions
of the Purchasers' Obligations.
The
obligation of each Purchaser to purchase and pay for the Securities is subject
to the following conditions unless waived in writing by the
Purchaser:
(a) The
representations and warranties of the Company contained in this Agreement
shall
be true and correct in all material respects (other than representations
and
warranties with a Material Adverse Effect qualifier, which shall be true
and
correct as written) on and as of the Closing Date; the Company shall have
complied in all material respects with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior
to the
Closing Date.
-9-
(b) None
of
the issuance and sale of the Securities pursuant to this Agreement or any
of the
transactions contemplated by any of the other Transaction Documents shall
be
enjoined (temporarily or permanently) and no restraining order or other
injunctive order shall have been issued in respect thereof; and there shall
not
have been any legal action, order, decree or other administrative proceeding
instituted or, to the Company's knowledge, threatened against the Company
or
against any Purchaser relating to the issuance of the Securities or any
Purchaser's activities in connection therewith or any other transactions
contemplated by this Agreement, the other Transaction Documents or the
Disclosure Documents.
(c) The
Purchasers shall have received an opinion of legal counsel to the Company,
with
respect to the authorization of the Shares and other customary matters in
the
form attached hereto as Exhibit C.
6. Representations
and Warranties of the Purchasers.
(a) Each
Purchaser represents and warrants to the Company that the Securities to be
acquired by it hereunder (including the Conversion Shares that it may acquire
upon conversion thereof) are being acquired for its own account for investment
and with no intention of distributing or reselling such Securities (including
the Conversion Shares that it may acquire upon conversion thereof) or any
part
thereof or interest therein in any transaction which would be in violation
of
the securities laws of the United States of America or any State. Nothing
in
this Agreement, however, shall prejudice or otherwise limit a Purchaser's
right
to sell or otherwise dispose of all or any part of such Conversion Shares
under
an effective registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from such
registration. By executing this Agreement, each Purchaser further represents
that it does not have any contract, undertaking, agreement or arrangement
with
any person to sell, transfer or grant participation to any Person with respect
to any of the Securities.
(b) Each
Purchaser understands that the Securities (including the Conversion Shares
that
it may acquire upon conversion thereof) have not been registered under the
Securities Act and may not be offered, resold, pledged or otherwise transferred
except (a) pursuant to an exemption from registration under the Securities
Act (and, if requested by the Company, based upon an opinion of counsel
acceptable to the Company) or pursuant to an effective registration statement
under the Securities Act and (b) in accordance with all applicable
securities laws of the states of the United States and other
jurisdictions.
Each
Purchaser agrees to the imprinting, so long as appropriate, of the following
legend on the Securities (including the Conversion Shares that it may acquire
upon conversion thereof):
The
shares of stock evidenced by this certificate have not been registered under
the
U.S. Securities Act of 1933, as amended, and may not be offered, sold, pledged
or otherwise transferred ("transferred") in the absence of such registration
or
an applicable exemption therefrom. In the absence of such registration, such
shares may not be transferred unless, if the Company requests, the Company
has
received a written opinion from counsel in form and substance satisfactory
to
the Company stating that such transfer is being made in compliance with all
applicable federal and state securities laws.
-10-
Further
with regard to the Series B Stock, the following legend shall be included:
Additional
restrictions on transfer pursuant to agreements exist and are available upon
request from the Company.
The
legend set forth above may be removed if and when the Conversion Shares are
disposed of pursuant to an effective registration statement under the Securities
Act or in the opinion of counsel to the Company experienced in the area of
United States Federal securities laws such legends are no longer required
under
applicable requirements of the Securities Act. The Shares and the Conversion
Shares shall also bear any other legends required by applicable Federal or
state
securities laws, which legends may be removed when in the opinion of counsel
to
the Company experienced in the applicable securities laws, the same are no
longer required under the applicable requirements of such securities laws.
The
Company agrees that it will provide each Purchaser, upon request, with a
substitute certificate, not bearing such legend at such time as such legend
is
no longer applicable. Each Purchaser agrees that, in connection with any
transfer of the Conversion Shares by it pursuant to an effective registration
statement under the Securities Act, it will comply with all prospectus delivery
requirements of the Securities Act. The Company makes no representation,
warranty or agreement as to the availability of any exemption from registration
under the Securities Act with respect to any resale of the Shares or the
Conversion Shares.
(c) Each
Purchaser is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D under the Securities Act. Neither Purchaser learned of the
opportunity to acquire Shares or any other security issuable by the Company
through any form of general advertising or public solicitation.
(d) Each
Purchaser represents and warrants to the Company that it has such knowledge,
sophistication and experience in business and financial matters so as to
be
capable of evaluating the merits and risks of the prospective investment
in the
Securities, having been represented by counsel, and has so evaluated the
merits
and risks of such investment and is able to bear the economic risk of such
investment and, at the present time, is able to afford a complete loss of
such
investment.
(e) Each
Purchaser represents and warrants to the Company that (i) the purchase of
the Securities to be purchased by it has been duly and properly authorized
and
this Agreement has been duly executed and delivered by it or on its behalf
and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights
generally and to general principles of equity; (ii) the purchase of the
Securities to be purchased by it does not conflict with or violate its charter,
by-laws or any law, regulation or court order applicable to it; and
(iii) the purchase of the Securities to be purchased by it does not impose
any penalty or other onerous condition on the Purchaser under or pursuant
to any
applicable law or governmental regulation.
(f) Each
Purchaser represents and warrants to the Company that neither it nor any
of its
directors, officers, employees, agents, partners, members, or controlling
persons has taken, or will take, directly or indirectly, any actions designed,
or that might reasonably be expected to cause or result in, the destabilization
or manipulation of the price of the Common Stock.
-11-
(g) Each
Purchaser acknowledges it or its representatives have reviewed the Disclosure
Documents and further acknowledges that it or its representatives have been
afforded (i) the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and
the
merits and risks of investing in the Securities; (ii) access to information
about the Company and the Company's financial condition, results of operations,
business, properties, management and prospects sufficient to enable it to
evaluate its investment in the Securities; and (iii) the opportunity to
obtain such additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
and completeness of the information contained in the Disclosure
Documents.
(h) Each
Purchaser represents and warrants to the Company that it has based its
investment decision solely upon the information contained in the Disclosure
Documents and such other information as may have been provided to it or its
representatives by the Company in response to its inquiries, and has not
based
its investment decision on any research or other report regarding the Company
prepared by any third party ("Third
Party Reports").
Each
Purchaser understands and acknowledges that (i) the Company does not
endorse any Third Party Reports and (ii) its actual results may differ
materially from those projected in any Third Party Report.
(i) Each
Purchaser understands and acknowledges that (i) any forward-looking
information included in the Disclosure Documents is subject to risks and
uncertainties, including those risks and uncertainties set forth in the
Disclosure Documents; and (ii) the Company's actual results may differ
materially from those projected by the Company or its management in such
forward-looking information.
(j) Each
Purchaser understands and acknowledges that (i) the Securities are offered
and sold without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act and
(ii) the availability of such exemption depends in part on, and that the
Company and its counsel will rely upon, the accuracy and truthfulness of
the
foregoing representations and Purchaser hereby consents to such
reliance.
7. Covenants
of Purchasers.
Purchasers,
on behalf of themselves and their affiliates and the permitted assignee of
any
Conversion Shares hereby covenant and agree not to, directly or indirectly,
offer to "short sell", contract to "short sell" or otherwise "short sell"
any
securities of the Company, including, without limitation, shares of Common
Stock
that will be received as a result of the conversion of the Series B
Stock.
8. Termination.
(a) This
Agreement may be terminated in the sole discretion of the Company by notice
to
each Purchaser if at the Closing Date:
-12-
(i) the
representations and warranties made by any Purchaser in Section 6 are not
true
and correct in all material respects; or
(ii) as
to the
Company, the sale of the Securities hereunder (i) is prohibited or enjoined
by any applicable law or governmental regulation or (ii) subjects the
Company to any penalty, or in its reasonable judgment, other onerous condition
under or pursuant to any applicable law or government regulation that would
materially reduce the benefits to the Company of the sale of the Securities
to
such Purchaser, so long as such regulation, law or onerous condition was
not in
effect in such form at the date of this Agreement.
(b) This
Agreement may be terminated by any Purchaser by notice to the Company given
in
the event that (i) the Company shall have failed, refused or been unable to
satisfy all material conditions on its part to be performed or satisfied
hereunder on or prior to the Closing Date or (ii) if after the date of this
Agreement but prior to the Closing Date, trading in securities of the Company
on
the NASDAQ Capital Market shall have been suspended and the Company ceases
to be
publicly traded.
(c) This
Agreement may be terminated by mutual written consent of all
parties.
9. Registration.
The
Company shall use its best efforts to prepare and file with the SEC on or
prior
to the Filing Deadline (as defined below) a Registration Statement covering
the
resale of the maximum number of Conversion Shares issuable upon conversion
of
the Shares (collectively, the "Registrable
Securities"),
for an
offering to be made on a continuous basis pursuant to Rule 415 (the "Registration
Statement")
based
on the Conversion Price set forth in the Certificate of Designations. The
term
"Filing Deadline" means (i) in the event that within 45 days after the Closing
Date the Company enters into any agreement (a "Merger
Agreement")
to
effect a merger, reorganization, consolidation, recapitalization, sale of
substantial assets or similar transaction, the date that is 45 days after
the
Company enters into such Merger Agreement, or (ii) in the event that the
Company
does not enter into a Merger Agreement within 45 days after the Closing Date,
the date that is 60 days after the Closing Date. The Company shall use its
best
efforts to ensure that the Registration Statement is declared effective by
the
SEC (i) in the event that the Company enters into a Merger Agreement within
45
days after the Closing Date, not later than 150 days after the date the Company
enters into such Merger Agreement and (ii) in the event that the Company
does
not enter into a Merger Agreement within 45 days after the Closing Date,
within
60 days of the date the Registration Statement is filed with the SEC.
10. Event
of Default.
An
"Event
of Default"
means
the Company's failure to: (i) file the Registration Statement with the SEC
on or prior to the Filing Deadline (as defined in Section 9 hereof), (ii)
maintain trading of the Company's Common Stock on the NASDAQ Small Cap Market
or
other publicly traded market, or (iii) deliver to Purchasers, or
Purchasers' broker, as directed, Common Stock that Purchasers have converted
within three (3) business days of such conversions.
11. Notices.
All
communications hereunder shall be in writing and shall be hand delivered,
mailed
by first-class mail, couriered by next-day air courier or by facsimile and
confirmed in writing (i) if to the Company, at the addresses set forth
below, or (ii) if to a Purchaser or MAG, to the address set forth for such
party on the signature page hereto, with a copy to Xxxxxx & Xxxxxxx, LLP,
000 Xxxx Xxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, Attention: Xxxxxx
X’Xxxxx, Esq.
-13-
If
to the
Company:
M-Wave,
Inc.
00000
Xxxxxxxx Xxxxxx, 0xx
Xxxxx
Xxxxxxxx
Xxxx, Xxxxxxxx 00000
Attention:
Xxxx Xxxxxxxxx
Telephone:
000-000-0000
Facsimile:
000-000-0000
with
a
copy to:
Ellenoff
Xxxxxxxx & Schole LLP
000
Xxxxxxxxx Xxxxxx, Xxxxx 00
Xxx
Xxxx,
Xxx Xxxx 00000
Attn:
Xxxxx X. Xxxxxxxx
Telephone:
000-000-0000
Facsimile:
000-000-0000
All
such
notices and communications shall be deemed to have been duly given:
(i) when delivered by hand, if personally delivered; (ii) five
business days after being deposited in the mail, postage prepaid, if mailed
certified mail, return receipt requested; (iii) one business day after
being timely delivered to a next-day air courier guaranteeing overnight
delivery; (iv) the date of transmission if sent via facsimile to the
facsimile number as set forth in this Section or the signature page hereof
prior
to 6:00 p.m. (Pacific time) on a business day, or (v) the business day
following the date of transmission if sent via facsimile at a facsimile number
set forth in this Section or on the signature page hereof after 6:00 p.m.
(Pacific time) or on a date that is not a business day. Change of a party's
address or facsimile number may be designated hereunder by giving notice
to all
of the other parties hereto in accordance with this Section.
12. Survival
Clause.
The
respective representations, warranties, agreements and covenants of the Company
and the Purchasers set forth in this Agreement shall survive until the first
anniversary of the Closing.
13. [Reserved]
14. Enforcement.
If any
action at law or in equity is necessary to enforce or interpret the terms
of
this Agreement or the Certificate of Designations, the prevailing party or
parties shall be entitled to receive from the other party or parties reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which the prevailing party or parties may be
entitled.
-14-
15. Successors.
This
Agreement shall inure to the benefit of and be binding upon Purchasers, MAG
and
the Company and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or
claim
under or in respect of this Agreement, or any provisions herein contained;
this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit
of
no other person. Neither the Company nor any Purchaser may assign this Agreement
or any rights or obligation hereunder without the prior written consent of
the
other party.
16. No
Waiver; Modifications in Writing.
No
failure or delay on the part of the Company, MAG or any Purchaser in exercising
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right,
power
or remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the Company, MAG or any Purchaser
at
law or in equity or otherwise. No waiver of or consent to any departure by
the
Company, MAG or any Purchaser from any provision of this Agreement shall
be
effective unless signed in writing by the party entitled to the benefit thereof,
provided that
notice of any such waiver shall be given to each party hereto as set forth
below. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless
signed
in writing by or on behalf of each of the Company, MAG and the Purchasers.
Any
amendment, supplement or modification of or to any provision of this Agreement,
any waiver of any provision of this Agreement, and any consent to any departure
by the Company, MAG or any Purchaser from the terms of any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required
by
this Agreement, no notice to or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances.
17. Entire
Agreement.
This
Agreement, together with the other Transaction Documents, constitutes the
entire
agreement among the parties hereto and supersedes all prior agreements,
understandings and arrangements, oral or written, among the parties hereto
with
respect to the subject matter hereof and thereof. Disclosure by the Company
in
any Schedule to this Agreement shall be deemed applicable to all applicable
provisions hereof.
18. Severability.
If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired
thereby.
19. APPLICABLE
LAW.
THE
VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS
SET
FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF
THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO PROVISIONS RELATING TO
CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY. THE PARTIES HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL COURTS
LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
-15-
20. Counterparts.
This
Agreement may be executed in two or more counterparts and may be delivered
by
facsimile transmission, each of which shall be deemed an original, but all
of
which together shall constitute one and the same instrument.
21. If
the
foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below for that purpose, whereupon
this
Agreement shall constitute a binding agreement among the Company, the Purchasers
and MAG.
Very
truly yours,
M-Wave,
Inc.
|
By:
|
/s/
Xxxxxx X. Xxxxx
|
|
|
Name:
Xxxxxx X. Xxxxx
|
||
|
Title:
President and COO
|
-16-
ACCEPTED
AND AGREED:
|
Mercator
Momentum Fund, LP
|
Mercator
Momentum Fund III, LP
|
|||
|
By:
|
M.A.G.
Capital, LLC
|
By:
|
M.A.G.
Capital, LLC
|
|
|
Its:
|
General
Partner
|
Its:
|
General
Partner
|
|
|
By:
|
By:
|
|||
|
Its:
|
Its:
|
|||
|
M.A.G.
Capital, LLC
|
Monarch
Pointe Fund, Ltd.
|
|||
|
By:
|
By:
|
|||
|
Its:
|
Its:
|
|||
|
Addresses
for Notice:
|
||||
|
M.A.G.
Capital, LLC
|
||||
|
000
Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000
|
||||
|
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
|
||||
|
Attention:
Xxxxx Xxxxxxxxx
|
||||
|
Facsimile:
(000) 000-0000
|
||||
|
with
copy to:
|
||||
|
Xxxxxx
X’Xxxxx, Esq.
|
||||
|
Xxxxxx
& Xxxxxxx LLP
|
||||
|
000
Xxxx Xxxxx Xxxxxx, 00xx
Xxxxx
|
||||
|
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
|
||||
|
Facsimile:
(000) 000-0000
|
||||
-17-
Schedule
A
Direct
and Indirect Subsidiaries of M-Wave, Inc.
M-Wave
DBS, Inc., an Illinois corporation (not in good standing)
-1-
Schedule
B
Company
Capitalization
[See
the
Balance Sheet of the Company set forth in the Form 10-QSB for the period
ended
September 30, 2006 included in the Disclosure Documents.]
-1-
Schedule
C
Agreements
regarding ownership or disposition of capital stock
None
-1-
Schedule
D
Violations/Breaches
None
-1-
Exhibit
A
Certificate
of Designations of
Series
B
Convertible Preferred Stock
of
M-Wave,
Inc.
-1-
Exhibit
B
Registration
Rights Agreement
-1-
Exhibit
C
Form
of
Legal Opinion
(Delivered
to Purchasers at the Closing)
This
opinion is furnished to you pursuant to the Subscription Agreement by and
among
the purchasers signatory thereto (the “Purchasers”),
M.A.G. Capital, LLC (“MAG”)
and
M-Wave, Inc., a Delaware corporation (the “Company”),
dated
as of December 29, 2006, (the “Subscription
Agreement”).
This
opinion is rendered at the request of the Company. Except as otherwise defined
herein, capitalized terms used in this opinion are defined as set forth in
the
Subscription Agreement.
In
rendering this opinion, we have examined originals or copies of the
following:
(i) the
documents listed on Exhibit
A
hereto
with respect to the formation, status and/or authority of the Company (the
“Authority
Documents”);
(ii) the
Transaction Documents executed by the Company; and
(iii) the
certificate of an officer of the Company attached to this opinion as
Exhibit
B
(the
“Certificate”).
As
to
matters of fact, as opposed to matters of law, relevant to this opinion,
we have
relied without independent investigation on, and assumed the accuracy and
completeness of the Certificate and the certificates of public officials
listed
on Exhibit
A.
We have
not made an investigation as to, and have not independently verified, the
facts
underlying the matters covered by the Certificate. For purposes of this opinion,
we have not undertaken any search of court dockets or records in any
jurisdiction.
As
used
in this opinion, the expression “to our knowledge” refers to the current actual
knowledge of the attorneys of this firm who have worked on matters for the
Company solely in connection with the Transaction Documents and the transactions
contemplated thereby, and without any independent investigation of any
underlying facts or situations.
In
rendering this opinion we have made the following assumptions, each without
any
investigation or independent verification:
(a) For
all
parties other than the Company, we have assumed (i) the authenticity and
completeness of all documents, certificates and instruments submitted to
us as
originals, (ii) the conformity with the originals of all documents, certificates
and instruments submitted to us as copies, (iii) the legal capacity to sign
of
all individuals executing such documents, (iv) the due authorization, execution
and delivery of the Transaction Documents and the Authority Documents, as
applicable, executed by each such party and the validity and enforceability
thereof against such party, (v) that each such party is validly existing,
qualified and in good standing in each jurisdiction where qualification is
required and has full power, authority and legal right to execute and deliver
the Transaction Documents, as applicable, to which it is a signatory and
to
carry out the transactions contemplated to be performed by it thereunder,
(vi)
that each such party has complied with any order, rule, regulation or law
which
may be applicable to such party with regard to any aspect of the transactions
contemplated by the Transaction Documents, and that the
observance and performance of the provisions contained therein by such other
parties will not conflict with or result in a breach of any requirements
of law
applicable to such party, and (vii) that each of the Transaction Documents
constitutes a legal, valid, binding and enforceable obligation of such party,
and such party will observe and perform the conditions, covenants, obligations
and other liabilities applicable to such party and arising with respect to
each
document to which such party is a signatory.
-1-
(b) We
have
assumed that there are no oral modifications or written agreements or
understandings which limit, modify or otherwise alter the terms, provisions,
or
conditions of, or relate to, the transactions contemplated by the Transaction
Documents.
(c) We
have
assumed the truth and accuracy of the representations and warranties of the
Purchasers and MAG in the Transaction Documents.
Statements
in this opinion as to validity, binding effect and enforceability are subject
to
(i) limitations as to enforceability imposed by bankruptcy, reorganization,
moratorium, insolvency, fraudulent transfer and other laws of general
application (statutory or otherwise) relating to or affecting the enforceability
of creditors’ rights, (ii) general principles of equity including, principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity), (iii) the invalidity
or unenforceability, under certain circumstances, of provisions to the effect
that rights or remedies are not exclusive, that every right or remedy is
cumulative and may be exercised in addition to, or with, any other right
or
remedy or that the election of some particular remedy or remedies does not
preclude recourse to one or another remedy, (iv) limitations that may exist
under federal and state laws or the public policy underlying such laws with
respect to rights to indemnity, and (v) limitations that may exist in equity
with respect to waiver of rights or defenses.
Our
opinions are limited to the laws of the State of New York, Delaware corporate
law and the federal law of the United States and we do not express any opinion
as to the laws of any other state or jurisdiction or what effect, if any,
laws
of other jurisdiction may have upon our opinions expressed herein under
conflicts of law principles or otherwise. We express no opinion as to any
county, municipal, city, town or village ordinance, rule, regulation or
administrative decision.
Our
opinions set forth below are subject to the following
qualifications:
A. We
express no opinion as
to the
enforceability of (i) the choice of California law under the Transaction
Documents in an action in a Federal Court or state court outside of the State
of
New York and (ii) any consent to subject matter jurisdiction of any Federal
court.
B. We
express no opinion as to the requirements of, effects of, or any entity’s
compliance with laws or regulations related to (i) environmental or hazardous
substance laws, rules or regulations, (ii) land use or zoning laws, ordinances,
regulations or restrictions, (iii) antitrust and unfair competition laws,
(iv)
fiduciary duty laws, (v) pension and employee benefit laws, (vi) labor laws,
(vii) building codes, (viii) landlord/tenant laws, (ix) the Americans With
Disabilities Act, and (x) tax laws, or any related regulations, except as
specifically set forth herein.
-2-
C. In
addition to the exceptions and limitations above, we advise you that certain
provisions of the Transaction Documents may be further limited or rendered
unenforceable by applicable law, rules, regulations,
court
decisions and constitutional requirements in and of the State of New York,
California or the United States; provided that the qualification expressed
in
this sentence will not render the Transaction Documents invalid as a whole
or
make the remedies afforded by the Transaction Documents inadequate for the
practical realization of the rights or benefits provided by the Transaction
Documents, except for the economic consequences of any judicial, administrative
or other procedural delay which may be imposed by, relate to, or result from
such laws, rules, regulations, decisions or constitutional
requirements.
Based
upon and subject to the foregoing, we are of the opinion that:
(i) Based
solely on the Authority Documents, the Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with corporate power to own its properties and to conduct its
business.
(ii) The
Company has the corporate power to execute, deliver and perform the Transaction
Documents, including the Exhibits, thereto. The Transaction Documents have
been
duly authorized by all requisite corporate action by the Company and constitute
the valid and binding obligations of the Company, enforceable in accordance
with
their terms.
(a) As
of the
date hereof, in accordance with its Certificate of Incorporation on file
with
the Secretary of State of the State of Delaware, the authorized capital stock
of
the Company consists of 1,000,000 shares of Preferred Stock and 200,000,000
shares of Common.
(b) The
shares of the Company's Series B Stock have been duly authorized and, upon
issuance, delivery, and payment therefor as described in the Subscription
Agreement, will be validly issued, fully paid and non-assessable.
(c) The
shares of the Company’s Common Stock initially issuable upon conversion of the
shares of Series B Stock sold have been duly authorized and reserved for
issuance and, upon issuance and delivery upon conversion of the Series B
Stock
as described in the Certificate of Designations, will be validly issued,
fully
paid and non-assessable.
-3-
(iii) The
Company's execution and delivery of the Transaction Documents and the issue
and
sale of the Series B Stock, on the terms and conditions set forth in the
Subscription Agreement, will not violate any law of the United States or
the
General Corporation Law of the State of Delaware, or, to our knowledge, any
rule
or regulation of any governmental authority or regulatory body of the United
States or the State of Delaware or any provision of the Company's Certificate
of
Incorporation or Bylaws.
(iv) To
our
knowledge, no consent, approval, order or authorization of, and no notice
to or
filing with, any governmental agency or body or any court is required to
be
obtained or made by the Company for the issuance and sale of the Series B
Stock
pursuant to the Transaction Documents, except such as have been obtained
or made
and such as may be required under applicable federal and/or state securities
laws.
(v) On
the
assumption that the representations of the Purchasers and MAG in the
Subscription Agreement are correct and complete, the offer and sale of the
Series B Stock pursuant to the terms of the Subscription Agreement are exempt
from the registration requirements of Section 5 of the Securities Act of
1933,
as amended, and under such securities laws as they presently exist, the issuance
of the Company's Common Stock upon conversion of the Series B Stock by the
Purchasers and MAG would also be exempt from such registration
requirements.
This
opinion is furnished to the Purchasers and MAG for their benefit in connection
with the transactions described above and may not be relied upon by any other
person or for any other purpose without our prior written consent.
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