EXHIBIT 4.2
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
May 29, 2002, among Irvine Sensors Corporation, a Delaware corporation (the
"Company"), and the purchasers identified on the signature pages hereto (each a
"Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchasers, and the Purchasers, severally and not jointly, desire to
purchase from the Company, up to $1,400,000 of the Company's common stock, $0.01
par value per share and certain Warrants (as defined below), as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate
of such Purchaser.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law
or other governmental action to close.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the date of the Closing.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, $0.01 par
value per share, and any securities into which such common stock may
hereafter be reclassified.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at
any time Common
Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible
into or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
"Company Counsel" means Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, counsel
to the Company.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit A hereto executed and delivered
contemporaneously with this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Material Adverse Effect" shall have the meaning ascribed to such
term in Section 3.1(b).
"Parent Warrants" means the Common Stock purchase warrants, in the
form of Exhibit D, issuable to the Purchasers at Closing, which
warrants shall have an exercise price equal to the greater of (i) $2.10
(subject to stock splits and the like), and (ii) the closing price of
the Common Stock on the Trading Market on the Trading Day immediately
prior to the Closing Date.
"Per Share Purchase Price" means $2.00 per share of Common Stock,
subject to adjustment for reverse and forward stock splits and the
like.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchasers' Counsel" means Xxxxxxx &Weinstein LLP with offices
located at 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
"Registration Statement" means a registration statement meeting
the requirements set forth in the Registration Rights Agreement and
covering the resale by the Purchasers of the Shares and the Warrant
Shares underlying the Parent Warrants.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company
and the Purchasers, in the form of Exhibit B hereto.
"Rule 144," means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rules may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
"Securities" means the Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued or issuable to
the Purchasers pursuant to this Agreement.
"Strategic Transaction" means a transaction or relationship in
which the Company issues shares of Common Stock to a Person which is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company
receives material benefits in addition to the investment of funds, but
shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities.
"Subsidiary" means any subsidiary of the Company that is
disclosed in the Company's Annual Report to the Company's stockholders
on Form 10-K for the fiscal year ended September 30, 2001.
"Subsidiary Warrants" means the common stock purchase warrants of
iNetWorks Corporation, a subsidiary of the Company, in the form of
Exhibit E, issuable to the Purchasers at Closing.
"Trading Day" means (i) a day on which the Common Stock is traded
on a Trading Market, or (ii) if the Common Stock is not listed on a
Trading Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or
(iii) if the Common Stock is not quoted on the OTC Bulletin Board, a
day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any
similar organization or agency succeeding its functions of reporting
prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then
Trading Day shall mean a Business Day.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: American Stock Exchange, the New York Stock Exchange, the
Nasdaq National Market or the Nasdaq SmallCap Market.
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"Transaction Documents" means this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Warrants and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.
"Warrants" means the Parent Warrants and the Subsidiary Warrants.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly with the other Purchasers,
purchase from the Company, (a) a number of Shares equal to the subscription
amount set forth below such Purchaser's address on the signature pages to this
Agreement divided by the Per Share Purchase Price for such subscription amount,
and (b) the Warrants as determined in accordance with Section 2.2(a). The
aggregate subscription amount of all the Purchasers shall not be $1,400,000. The
Closing shall take place at the offices of the Escrow Agent on the date hereof
or at such other location or time as the parties may agree.
2.2 Closing Deliveries.
(a) At the Closing, the Company shall deliver or cause to be
delivered to the Escrow Agent on behalf of each Purchaser the
following:
(i) this Agreement duly executed by the Company.
(ii) a certificate evidencing a number of Shares equal to
the subscription amount indicated below such Purchaser's name on
the signature page of this Agreement divided by the Per Share
Purchase Price, registered in the name of such Purchaser;
(iii) a legal opinion from counsel reasonably acceptable to
the Purchasers, in the form of Exhibit C hereto, addressed to the
Purchasers;
(iv) the Registration Rights Agreement duly executed by the
Company;
(v) the Escrow Agreement duly executed by the Company; and
(vi) a Parent Warrant, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right
to acquire up to the number of shares of Common Stock equal to
30% of the Shares to be issued to such Purchaser at the Closing;
(vii) a Subsidiary Warrant, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right
to acquire up to a number of
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shares of common stock of iNetWorks Corporation equal to (in
number and not value) 10% of the number of Shares to be issued
to such Purchaser at the Closing.
(b) At the Closing, each Purchaser shall deliver or cause to be
delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) the subscription amount indicated below such
Purchaser's address for notice on the signature page of this
Agreement, in United States dollars and in immediately available
funds, by wire transfer to the account of the Escrow Agent;
(iii) the Escrow Agreement duly executed by such Purchaser;
and
(iv) the Registration Rights Agreement duly executed by
such Purchaser.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set
forth under the corresponding section of the Disclosure Schedules attached
hereto and the SEC Reports and except as otherwise would not have a Material
Adverse Effect, the Company hereby makes the following representations and
warranties to each Purchaser:
(a) Subsidiaries. Except as disclosed in Schedule 3.1(a), the
Company has no direct or indirect subsidiaries. The Company owns,
directly or indirectly, all of the capital stock of each Subsidiary
free and clear of any lien, charge, security interest, encumbrance,
right of first refusal or other restriction (collectively, "Liens"),
and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and
free of preemptive and similar rights. If the Company has no
subsidiaries, then references in the Transaction Documents to the
Subsidiaries will be disregarded.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation of any of the provisions of
its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction
in which the nature of the business conducted or property owned by it
makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, would not,
individually or in the aggregate, have or reasonably be expected to
result in (i) adversely affect the legality, validity or enforceability
of any Transaction Document, (ii)
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have or result in a material adverse effect on the results of operations,
assets, prospects, business or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (iii) adversely impair
the Company's ability to perform in any material respect on a timely basis
its obligations under any Transaction Document (any of (i), (ii) or (iii),
a "Material Adverse Effect").
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith. Each
Transaction Document has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with
or violate any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities
laws and regulations), or by which any property or asset of the Company or
a Subsidiary is bound or affected; except in the case of each of clauses
(ii) and (iii), such as would not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than the filing with the Commission of the Registration
Statement, the application(s) to each Trading Market for the listing of the
Shares and Warrant Shares underlying the Parent Warrant for trading thereon
in the time and manner required thereby, and applicable Blue Sky filings
(collectively, the "Required Approvals").
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(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and
clear of all Liens. The Company has reserved from its duly authorized
capital stock the maximum number of shares of Common Stock (and common
stock of iNetWorks Corporation) issuable pursuant to this Agreement and the
Warrants.
(g) Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock of the Company is set forth in
Schedule 3.1(g) of the Disclosure Schedules. No securities of the Company
are entitled to preemptive or similar rights, and no Person has any right
of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the Securities,
there are no outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of
Common Stock, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. The issue and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
two years preceding the date hereof (or such shorter period as the Company
was required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC Reports" and, together with the
Schedules to this Agreement, the "Disclosure Materials") on a timely basis
or has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. The Company
has delivered to the Purchasers a copy of all SEC Reports filed within the
10 days preceding the date hereof. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in
the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"), except
as may be otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the financial position
of the Company and its consolidated subsidiaries
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as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in
a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or required to be disclosed
in filings made with the Commission, (iii) the Company has not altered its
method of accounting or the identity of its auditors, (iv) the Company has
not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock, and (v) the Company has
not issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans. The Company does
not have pending before the Commission any request for confidential
treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could, if there
were an unfavorable decision, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has
been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company,
there is not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
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properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality
and safety and employment and labor matters, except in each case as would
not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect ("Material Permits"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries.
Any real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases of which the Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights that are necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have could, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). Neither the Company nor
any Subsidiary has received a written notice that the Intellectual Property
Rights used by the Company or any Subsidiary violates or infringes upon the
rights of any Person. Except as set forth in the SEC Reports, to the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any
of the Intellectual Property Rights.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged. Neither the Company nor
any Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage
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expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, none of the officers or directors of the Company and,
to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner in excess of $60,000.
(r) Internal Accounting Controls. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(s) Solvency. Based on the financial condition of the Company as of
the Closing Date, (i) the Company's fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company's existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses
of the cash, would be sufficient to pay all amounts on or in respect of its
debt when such amounts are required to be paid. The Company does not intend
to incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be payable on or in respect
of its debt).
(t) Certain Fees. No brokerage or finder's fees or commissions are or
will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by this Agreement. The
Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
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(u) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the rules
and regulations of the Trading Market and no shareholder approval is
required for the Company to fulfill its obligations under the Transaction
Documents, including issuing and delivering to the Purchasers the maximum
number of Securities contemplated by this Agreement and the maximum number
of Warrant Shares issuable upon exercise in full of the Warrants based on
their present exercise price.
(v) Listing and Maintenance Requirements. The Company has not, in the
two years preceding the date hereof, received notice (written or oral) from
any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing
or maintenance requirements of such Trading Market. The Company is, and has
no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements of the
Trading Market.
(w) Investment Company. The Company is not, and is not an Affiliate
of, an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(x) Registration Rights. The Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration rights)
to have any securities of the Company registered with the Commission or any
other governmental authority that have not been satisfied.
(y) Form S-3 Eligibility. The Company is eligible to register for
resale of its Common Stock for resale by the Purchasers under Form S-3
promulgated under the Securities Act.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement has been duly authorized by all necessary corporate action on the
part of such Purchaser. Each of this Agreement and the Registration Rights
Agreement has been duly executed by such Purchaser, and when delivered by
such Purchaser in accordance with terms hereof, will constitutes the valid
and legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms.
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(b) Investment Intent. Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes only and not with a
view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Purchaser's right at all times
to sell or otherwise dispose of all or any part of such Securities in
compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such
Purchaser to hold Securities for any period of time. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
Such Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is an "accredited investor"
as defined in Rule 501(a) under the Securities Act. The Purchaser is not
required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(d) Experience of such Purchaser. Such Purchaser, either alone or
together with its representatives, 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, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine
or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.
(f) Access to Information. Such Purchaser acknowledges that it has
reviewed the Disclosure Materials and has 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
Subsidiaries and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to
enable it to evaluate its investment; and (iii) the opportunity to obtain
such additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect
such Purchaser's right to rely on the truth, accuracy and completeness of
the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
-12-
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement, to the Company
or to an Affiliate of a Purchaser, the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing
to be bound by the terms of this Agreement and shall have the rights of a
Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by
this Section 4.1(b), of the following legend on any the Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION
OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
(c) Certificates evidencing Securities shall not contain any legend
(including the legend set forth in Section 4.1(b)), (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii)
following any sale of such Securities pursuant to Rule 144, or (iii) if
such Securities are eligible for sale under Rule 144(k), or (iv) if such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff
of the Commission). The Company shall cause its counsel to issue the legal
opinion to the Company's transfer agent on the Effective Date or promptly
thereafter. If all or any portion of a Warrant is exercised at a time when
there is an effective registration statement to cover the resale of the
Warrant Shares, such Warrant Shares shall be issued free of all legends.
The
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Company agrees that following the Effective Date or at such time as such
legend is no longer required under this Section 4.1(c), it will, no later
than three Trading Days following the delivery by a Purchaser to the
Company or the Company's transfer agent of a certificate representing
Securities issued with a restrictive legend, deliver or cause to be
delivered to such Purchaser a certificate representing such Securities that
is free from all restrictive and other legends. The Company may not make
any notation on its records or give instructions to any transfer agent of
the Company that enlarge the restrictions on transfer set forth in this
Section.
(d) If the Company fails to deliver or cause to be delivered to any
Purchaser a certificate representing any Securities without legend as set
forth above by the seventh (7th) Trading Day after the date on which
delivery of such certificate is required by any Transaction Document
(except that, in the case of shares issued upon exercise of the Warrant,
the ninth (9th) Trading Day from the date such warrant is duly exercised by
the holder thereof (including providing notice of such exercise to Company
Counsel)), the Company shall pay to such Purchaser, in cash, as liquidated
damages and not as a penalty, $50 for each $5,000 of Securities so
delivered (based upon the original purchase price of the Securities) for
each day after such seventh (7th) (or ninth (9th), as the case may be)
Trading Day until such certificate is delivered. Nothing herein shall limit
such Purchaser's right to pursue actual damages for the Company's failure
to deliver certificates representing any Securities as required by the
Transaction Documents, and such Purchaser shall have the right to pursue
all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
4.2 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the request
of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. As long as any Purchaser owns Securities, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.3 Securities Laws Disclosure; Publicity. The Company may, following the
Closing Date, issue a press release or file a Current Report on Form 8-K, in
each case reasonably acceptable to the Purchasers disclosing the transactions
contemplated hereby and (ii) make such other filings and notices in the manner
and time required by the Commission. The Company and the Purchasers shall
consult with each other in issuing any press releases with respect to the
transactions contemplated hereby, and neither party shall issue any such press
release or otherwise make any such public statement without the prior consent of
the other, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public
-14-
statement or communication. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure.
4.4 Indemnification of Purchasers. The Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a "Purchaser Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation (collectively, "Losses") that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any
misrepresentation, breach or inaccuracy of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Documents; or (b) any cause of action, suit or claim brought or made
against such Purchaser Party and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any of the other
Transaction Documents. The Company will reimburse such Purchaser for its
reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred.
4.5 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.6 Use of Proceeds. The Company's present intent is to use a significant
portion of the proceeds from the sale of the Securities hereunder for working
capital purposes and not for the satisfaction of any portion of the Company's
debt (other than payment of trade payables in the ordinary course of the
Company's business and prior practices), to redeem any Company equity or
equity-equivalent securities or to use all or a significant portion of the
proceeds to settle any outstanding litigation.
4.7 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock a number of shares at least equal to the number of
shares required to fulfill its obligations in full under the Transaction
Documents.
(b) The Company shall: (i) in the time and manner required by each
Principal Market, prepare and file with such Principal Market an additional
shares listing application covering a number of shares of Common Stock at
least equal to the number of shares of Common Stock required to fulfill its
obligations in full under the Transaction Documents, (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing
on each Principal Market as soon as possible thereafter, (iii) provide
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to the Purchasers evidence of such listing, and (iv) maintain the listing
of such Common Stock on each such Principal Market or another Principal
Market.
ARTICLE V.
MISCELLANEOUS
5.1 Fees and Expenses. The Company agrees to pay $15,000 to Purchasers'
Counsel as reimbursement for the Purchasers legal, escrow and other fees and
expenses incurred in connection with the investigation and negotiation of the
transaction and the preparation and negotiation of the Transaction Documents.
Except as otherwise set forth in this Agreement, each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all stamp and other taxes and duties levied in connection with the
sale of the Securities.
5.2 Entire Agreement. The Transaction Documents, together with the Exhibits
and Schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as set forth on the
signature pages hereto or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
-16-
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns.
Neither the Company nor any Purchaser may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Company (with
respect to any Purchaser) or the Purchasers (with respect to the Company).
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.6 and 4.7.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York, Borough of Manhattan. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, Borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto (including its affiliates,
agents, officers, directors and employees) hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of a Transaction Document, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive until the second anniversary of the Closing and
the delivery and exercise of the Securities, as applicable.
5.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any
-17-
signature is delivered by facsimile transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile
signature page were an original thereof.
5.11 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 and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.14 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.15 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
-18-
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.
*******************************
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
COMPANY:
Address for Notice: IRVINE SENSORS CORPORATION
------------------
0000 Xxxxxxx Xxxxxx
Xxxxx Xxxx, XX 00000
Tel: (000) 000-0000 By: /s/ Xxxx X. Xxxxxx, Xx.
Fax: (000) 000-0000 ------------------------------------
Attn: Xxxx Xxxxxx Name: Xxxx X. Xxxxxx, Xx.
Title: Sr. Vice President and Chief
Financial Officer
With copy to:
------------
XXXXXXX, PHLEGER & XXXXXXXX LLP
00 Xxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Tel:(000) 000-0000
Fax:(000) 000-0000
Attn:Xxxxx X. Xxxxxxxx, Esq.
PURCHASERS:
XXXXXXXXXXX X.X. Address for Notice:
------------------
000 Xxxx Xxxxxx Xxxx.
Xxxxx 000
By: /s/ Xxxxxxx Xxxxxxxxxxx Xxxxxxx, XX X0X 0X0 Xxxxxx
_________________________ Attn: Fund Manager
Name: Xxxxxxx Xxxxxxxxxxx Subscription Amount:$900,000
Title: President
Address for Notice:
------------------
ALPHA CAPITAL AG Xxxxxxxxxxx 00
Xxxxxxxxxx 0000
Xxxxx, Xxxxxxxxxxxxx
By: /s/ Xxxxxx Xxxxxxxx Fax: 000-000 000 0000
________________________ Subscription Amount: $500,000
Name: Xxxxxx Xxxxxxxx
Title: Director
With notice to:
--------------
XXXXXXX XXXXXXXXX LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
-20-
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of May __, 2002,
by and among Irvine Sensors Corporation, a corporation incorporated under the
laws of Delaware (the "Company"), the purchasers signatory hereto (each an
"Purchaser" and together the "Purchasers"), and Xxxxxxx Xxxxxxxxx LLP, with an
address at 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, XX 00000 (the "Escrow Agent").
Capitalized terms used but not defined herein shall have the meanings set forth
in the Securities Purchase Agreement referred to in the first recital.
W I T N E S S E T H:
WHEREAS, the Purchasers will be purchasing from the Company, in the
aggregate, up to US$1,400,000 of the common stock, $0.01 par value per share, of
the Company, Series A Warrants and Series B Warrants as set forth in the
Securities Purchase Agreement (the "Purchase Agreement") dated the date hereof
between the Purchasers and the Company, which will be issued as per the terms
contained herein and in the Purchase Agreement; and
WHEREAS, it is intended that the purchase of the securities be
consummated in accordance with the requirements set forth by Sections 4(2)
and/or 4(6) and/or Regulation D promulgated under the Securities Act of 1933, as
amended; and
WHEREAS, the Company and the Purchasers have requested that the Escrow
Agent hold the Purchase Price with respect to the Closing in escrow until the
Escrow Agent has received the Release Notice in the form attached hereto from
the Company and each Purchaser;
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW
1.1 The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of
up to US$1,400,000, in the aggregate, of the Shares and Warrants at the Closing
as contemplated by the Purchase Agreement.
1.2 Closing.
(a) Upon the Escrow Agent's receipt of the aggregate subscription
amounts, as set forth on the signature pages to the Purchase Agreement (the
"Subscription
A-1
Amount") for the Closing into its master escrow account, together with
executed counterparts of this Agreement, the Purchase Agreement, the
Warrants and the Registration Rights Agreement, it shall telephonically
advise the Company, or the Company's designated attorney or agent, of the
amount of funds it has received into its master escrow account.
(b) Wire transfers to the Escrow Agent shall be made as follows:
Chase Manhattan Bank, NA
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000 XXX
ABA Routing Number: 000000000
Account Number: 987074342668
Name of Account: Xxxxxxx Xxxxxxxxx LLP Master Escrow Account
Remark: IRSN
(c) The Company, upon receipt of said notice, shall deliver to the
Escrow Agent the certificates representing the certificates evidencing the
Securities to be issued to each Purchaser at the Closing together with:
(i) the original executed Registration Rights Agreement
substantially in the form of Exhibit B to the Purchase Agreement;
(ii) the original executed opinions of Xxxxxxx, Phleger &
Xxxxxxxx LLP in the form of Exhibit C to the Purchase Agreement;
(iii) an original counterpart of this Escrow Agreement;
(iv) a warrant, registered in the name of BiCoastal Consulting
pursuant to which the holder shall have the right to acquire up to
the number of shares of Common Stock equal to 200,000 shares of
Common Stock, otherwise identical to the Series A Warrant ("Class A
Placement Warrant"); and
(v) a warrant, registered in the name of the BiCoastal
Consulting pursuant to which the holder shall have the right to
acquire up to the number of shares of Common Stock equal to 200,000
shares of common stock of iNetWorks Corporation, otherwise identical
to the Series B Warrant ("Class B Placement Warrant");
(d) In the event that the foregoing items are not in the Escrow
Agent's possession within five (5) Trading Days of the Escrow Agent
notifying the Company that the Escrow Agent has custody of the Subscription
Amount, then each Purchaser shall have the right to demand the return of
their portion of the Subscription Amount.
(e) Once the Escrow Agent receives a Release Notice in the form
attached hereto as Exhibit X executed by the Company and each Purchaser, it
shall wire 90% of
A-2
the Subscription Amount per the written instructions of the Company, net of
(i) US$15,000 to Xxxxxxx Xxxxxxxxx LLP for Purchasers' legal,
administrative and escrow costs, and the remaining 10% of the Subscription
Agreement per the written instructions of the Company and BiCoastal
Consulting.
(f) Once the funds (as set forth above) have been sent per the
Company's instructions, the Escrow Agent shall then arrange to have the
Shares, the Warrants, the Purchase Agreement, the Registration Rights
Agreement, the Escrow Agreement, the opinion of counsel, the Class A
Placement Warrants and the Class B Placement Warrants delivered to the
appropriate parties.
ARTICLE 2
MISCELLANEOUS
2.1 No waiver or any breach of any covenant or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof, or of
any other covenant or provision herein contained. No extension of time for
performance of any obligation or act shall be deemed an extension of the time
for performance of any other obligation or act.
2.2 All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent as set forth in the Purchase Agreement.
2.3 This Escrow Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and permitted assigns of the parties hereto.
2.4 This Escrow Agreement is the final expression of, and contains the
entire agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto. This Escrow
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein.
2.5 Whenever required by the context of this Escrow Agreement, the singular
shall include the plural and masculine shall include the feminine. This Escrow
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Escrow Agreement.
2.6 The parties hereto expressly agree that this Escrow Agreement shall be
governed by, interpreted under and construed and enforced in accordance with the
laws of the State of New York. Any action to enforce, arising out of, or
relating in any way to, any provisions of this Escrow Agreement shall only be
brought in a state or Federal court sitting in New York City.
2.7 The Escrow Agent's duties hereunder may be altered, amended, modified
or revoked only by a writing signed by the Company, each Purchaser and the
Escrow Agent.
A-3
2.8 The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while
acting in good faith, and any act done or omitted by the Escrow Agent pursuant
to the advice of the Escrow Agent's attorneys-at-law shall be conclusive
evidence of such good faith.
2.9 The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
2.10 The Escrow Agent shall not be liable in any respect on account of the
identity, authorization or rights of the parties executing or delivering or
purporting to execute or deliver the Purchase Agreement or any documents or
papers deposited or called for thereunder.
2.11 The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor which shall be paid by the Escrow Agreement. The Escrow
Agent has acted as legal counsel for the Purchasers, and may continue to act as
legal counsel for the Purchasers, from time to time, notwithstanding its duties
as the Escrow Agent hereunder. The Company consents to the Escrow Agent in such
capacity as legal counsel for the Purchasers and waives any claim that such
representation represents a conflict of interest on the part of the Escrow
Agent. The Company understands that the Purchasers and the Escrow Agent are
relying explicitly on the foregoing provision in entering into this Escrow
Agreement.
2.12 The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Purchasers. In the event of any such resignation, the Purchasers and the
Company shall appoint a successor Escrow Agent.
2.13 If the Escrow Agent reasonably requires other or further instruments
in connection with this Escrow Agreement or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
2.14 It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the documents or the
escrow funds held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed in the Escrow Agent's
A-4
sole discretion (1) to retain in the Escrow Agent's possession without liability
to anyone all or any part of said documents or the escrow funds until such
disputes shall have been settled either by mutual written agreement of the
parties concerned by a final order, decree or judgment or a court of competent
jurisdiction after the time for appeal has expired and no appeal has been
perfected, but the Escrow Agent shall be under no duty whatsoever to institute
or defend any such proceedings or (2) to deliver the escrow funds and any other
property and documents held by the Escrow Agent hereunder to a state or Federal
court having competent subject matter jurisdiction and located in the City of
New York in accordance with the applicable procedure therefor.
2.15 The Company and each Purchaser agree jointly and severally to
indemnify and hold harmless the Escrow Agent and its partners, employees, agents
and representatives from any and all claims, liabilities, costs or expenses in
any way arising from or relating to the duties or performance of the Escrow
Agent hereunder or the transactions contemplated hereby or by the Purchase
Agreement other than any such claim, liability, cost or expense to the extent
the same shall have been determined by final, unappealable judgment of a court
of competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Escrow Agent.
************************
A-5
[SIGNATURE PAGE TO ESCROW AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of this __ day of May , 2002.
IRVINE SENSORS CORPORATION
By:______________________________________
Name:
Title:
Company Wiring Instructions:
---------------------------
U.S. Bank of California
0000 Xxxxxxx Xxxxx
Xxxxxxx Xxxxx, XX 00000
ABA Routing # 000000000
Acct Name: Irvine Sensors Corporation
Account # 0 000 0000 0000
Bank Contact: Xxxxxxx Xxxxxxx, Vice-President, (000) 000-0000
or Xxxxx Xxxxxxxx, (000) 000-0000
INVESTORS:
XXXXXXXXXXX X.X.
By: _____________________________________
Name:
Title:
ALPHA CAPITAL AG
By: _____________________________________
Name:
Title:
ESCROW AGENT:
XXXXXXX XXXXXXXXX LLP
By:______________________________________
Name:
Title:
A-6
Exhibit X to
Escrow Agreement
RELEASE NOTICE
The UNDERSIGNED, pursuant to the Escrow Agreement, dated as of May __,
2002 among Irvine Sensors Corporation, the Purchasers signatory thereto and
Xxxxxxx Xxxxxxxxx LLP, as Escrow Agent (the "Escrow Agreement"; capitalized
terms used herein and not defined shall have the meaning ascribed to such terms
in the Escrow Agreement), hereby notify the Escrow Agent that each of the
conditions precedent to the purchase and sale of the Shares set forth in the
Securities Purchase Agreement have been satisfied. The Company and the
undersigned Purchaser hereby confirm that all of their respective
representations and warranties contained in the Purchase Agreement remain true
and correct and authorize the release by the Escrow Agent of the funds and
documents to be released at the Closing as described in the Escrow Agreement.
This Release Notice shall not be effective until executed by the Company and the
Purchaser.
This Release Notice may be signed in one or more counterparts, each of
which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have caused this Release Notice to
be duly executed and delivered as of this __ day of May, 2002.
IRVINE SENSORS CORPORATION
By: ____________________________________
Name:
Title:
INVESTORS:
XXXXXXXXXXX X.X.
By: ____________________________________
Name:
Title:
ALPHA CAPITAL AG
By: ___________________________________
Name:
Title:
A-7
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of May __, 2002, by and among Irvine Sensors Corporation, a
Delaware corporation (the "Company"), and the investors signatory hereto (each a
"Purchaser" and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:
"Effectiveness Date" means, with respect to the initial Registration
Statement required to be filed hereunder, the earlier of (a) 180th day
following the Closing Date and (b) the fifth Trading Day following the
date on which the Company is notified by the Commission that such
Registration Statement will not be reviewed or is no longer subject to
further review and comments.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Filing Date" means, with respect to the initial Registration
Statement required to be filed hereunder, the 30th day following the
Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A
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promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Registration Statement,
and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or
deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means the Shares, together with any
securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the
foregoing.
"Registration Statement" means the initial registration statement
required to be filed hereunder, including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and
all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Shares" solely for the purpose of this Agreement means the Shares
(as defined in the Purchase Agreement) together with the Warrant Shares
issuable upon exercise of the Parent Warrant and the shares of Common
Stock issuable upon exercise of the Parent Placement Warrant (as defined
in the Escrow Agreement).
"Special Counsel" means Purchaser Counsel who will be reimbursed by
the Company pursuant to Section 4.
2. Registration.
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a Registration Statement covering the resale of
all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. Each Registration Statement required hereunder
shall be on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case
such registration shall be on another appropriate form in accordance
herewith). Each Registration Statement required hereunder shall contain
(except if otherwise directed by the Holders) the "Plan of Distribution"
attached hereto as Annex A. The Company shall cause such Registration
Statement to become effective and remain effective as provided herein. The
Company shall use its best efforts to cause each Registration Statement to
be
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declared effective under the Securities Act as promptly as possible after
the filing thereof, but in any event prior to its Effectiveness Date, and
shall use its best efforts to keep each Registration Statement
continuously effective under the Securities Act until the date which is
two years after the date that such Registration Statement is declared
effective by the Commission or such earlier date when all Registrable
Securities covered by such Registration Statement have been sold or may be
sold without volume restrictions pursuant to Rule 144(k) as determined by
the counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company's transfer agent and the
affected Holders (the "Effectiveness Period").
(b) If: (i) a Registration Statement is not filed on or prior to its
Filing Date (if the Company files a Registration Statement without
affording Special Counsel to the Holder the opportunity to review and
comment on the same as required by Section 3(a), the Company shall not be
deemed to have satisfied this clause (i)), or (ii) the Company fails to
file with the Commission a request for acceleration in accordance with
Rule 461 promulgated under the Securities Act, within five Trading Days of
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that a Registration Statement will not be
"reviewed," or not subject to further review, or (iii) prior to the date
when such Registration Statement is first declared effective by the
Commission, the Company fails to file a pre-effective amendment and
otherwise respond in writing to comments made by the Commission in respect
of such Registration Statement within ten Trading Days after the receipt
of comments by or notice from the Commission that such amendment is
required in order for a Registration Statement to be declared effective,
or (iv) a Registration Statement filed or required to be filed hereunder
is not declared effective by the Commission within 180 days from the
Closing Date, or (v) after a Registration Statement is first declared
effective by the Commission, it ceases for any reason to remain
continuously effective as to all Registrable Securities for which it is
required to be effective, or the Holders are not permitted to utilize the
Prospectus therein to resell such Registrable Securities, for in any such
cases an aggregate of ten Trading Days (which need not be consecutive
Trading Days) (any such failure or breach being referred to as an "Event,"
and for purposes of clause (i) or (iv) the date on which such Event
occurs, or for purposes of clause (ii) the date on which such five Trading
Day period is exceeded, or for purposes of clauses (iii) the date which
such ten Trading Day period is exceeded, or for purposes of clause (v) the
date on which such ten Trading Day period is exceeded being referred to as
"Event Date"), then in additional to any other rights the Holders may have
hereunder or applicable law: (x) on each such Event Date the Company shall
pay to each Holder an amount in cash, as liquidated damages and not as a
penalty, equal to 1% of the aggregate purchase price paid by such Holder
pursuant to the Purchase Agreement; and (y) on each monthly anniversary of
each such Event Date (if the applicable Event shall not have been cured by
such date) until the applicable Event is cured, the Company shall pay to
each Holder an amount in cash, as liquidated damages and not as a penalty,
equal to 1% of the aggregate purchase price paid by such Holder pursuant
to the Purchase Agreement; provided, however, that each of the periods
specified above shall be extended for any period of time in which the
Company is unable to act with respect to the above items solely due to the
failure of the Holder or Special Counsel for the Holders to provide the
individuals that exercise voting and/or investment
B-3
power over the Securities and to provide the Holders' beneficial ownership
of the Common Stock or Special Counsel's failure to provide comments to the
Company, if any (and if Special Counsel has no comments, notice of such),
on any documents to be filed; and, provided, further, that in no event
shall the aggregate amount of damages payable by the Company pursuant to
this Section 2(b) exceed 18% of the aggregate purchase price paid by the
Holders pursuant to the Purchase Agreement and amounts payable as to any
month shall be reduced as to such Holder pro-rata for shares otherwise
saleable during such month pursuant to Rule 144. If the Company fails to
pay any liquidated damages pursuant to this Section in full within seven
days after the date payable, the Company will pay interest thereon at a
rate of 18% per annum (or such lesser maximum amount that is permitted to
be paid by applicable law) to the Holder, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Not less than five Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or
supplement thereto, the Company shall, (i) furnish to Special Counsel for
the Holders copies of all such documents proposed to be filed (including
documents incorporated or deemed incorporated by reference) which documents
will be subject to the review of such Holders and their Special Counsel,
and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be
necessary, in the reasonable opinion of respective counsel to conduct a
reasonable investigation within the meaning of the Securities Act. The
Company shall not file a Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority of
the Registrable Securities and their Special Counsel shall reasonably
object.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep a
Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file
with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented
by any required Prospectus supplement, and as so supplemented or amended to
be filed pursuant to Rule 424; (iii) respond as promptly as reasonably
possible, and in any event within ten days, to any comments received from
the Commission with respect to a Registration Statement or any amendment
thereto and, as promptly as reasonably possible provide the Special Counsel
to the Holders true and complete copies of all correspondence from and to
the Commission relating to such Registration Statement; and (iv) comply in
all material respects with the provisions of the Securities Act and the
Exchange Act with respect to
B-4
the disposition of all Registrable Securities covered by a Registration
Statement during the applicable period in accordance with the intended
methods of disposition by the Holders thereof set forth in such
Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) Notify the Holders of Registrable Securities to be sold and their
Special Counsel as promptly as reasonably possible (and, in the case of
(i)(A) below, not less than three Trading Days prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later
than one Trading Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed; (B) when the Commission notifies the
Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement
(the Company shall provide true and complete copies thereof and all written
responses thereto to theSpecial counsel for the Holders); and (C) with
respect to a Registration Statement or any post-effective amendment, when
the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements
to a Registration Statement or Prospectus or for additional information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that
makes the financial statements included in a Registration Statement
ineligible for inclusion therein or any statement made in such Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to such Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.
(e) Furnish to each Holder and their Special Counsel, without charge,
at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all
documents incorporated or deemed to be incorporated therein by reference,
and all exhibits to the extent requested by such Person (including those
previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
B-5
(f) Promptly deliver to each Holder and their Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement
thereto as such Persons may reasonably request. The Company hereby
consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders in connection with the offering
and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.
(g) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling
Holders and their Special Counsel in connection with the registration
or qualification (or exemption from such registration or qualification)
of such Registrable Securities for offer and sale under the securities
or Blue Sky laws of such jurisdictions within the United States as any
Holder requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions
of the Registrable Securities covered by a Registration Statement;
provided, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or
subject the Company to any material tax in any such jurisdiction where
it is not then so subject.
(h) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be
delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase
Agreement, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as
any such Holders may request.
(i) Upon the occurrence of any event contemplated by Section
3(c)(v), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to a Registration
Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered,
neither such Registration Statement nor such Prospectus will contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(j) Comply with all applicable rules and regulations of the
Commission.
(k) The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common
Stock beneficially owned by such Holder and, if requested by the
Commission, the controlling person thereof.
4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be
borne by the Company whether or not any Registrable Securities are sold
pursuant to a Registration Statement. The fees and expenses
B-6
referred to in the foregoing sentence shall include, without limitation,
(i) all registration and filing fees (including, without limitation, fees
and expenses (A) with respect to filings required to be made with the
Trading Market on which the Common Stock is then listed for trading, and
(B) in compliance with applicable state securities or Blue Sky laws), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in a Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and
expenses of all other Persons retained by the Company in connection with
the consummation of the transactions contemplated by this Agreement. In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit and the fees and expenses incurred
in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. Other than the fees set forth in
the Purchase Agreement, the Holders shall bear each of their own expenses,
including any underwriter discounts or fees and any accounting fees or
expenses or legal fees, including fees of Special Counsel.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents and employees of
each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, agents and employees of each
such controlling Person, to the fullest extent permitted by applicable
law, from and against any and all losses, claims, damages, liabilities,
costs (including, without limitation, reasonable costs of preparation
and reasonable attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in a Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating
to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case
of any Prospectus or form of prospectus or supplement thereto, in light
of the circumstances under which they were made) not misleading, except
to the extent, but only to the extent, that (1) such untrue statements
or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder
or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such
Holder expressly for use in a Registration Statement, such Prospectus
or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Holder has approved Annex A hereto for
this purpose) or (2) in the case of an occurrence of an event of the
type specified in Section 3(c)(ii)-(v), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such
Holder in
B-7
writing that the Prospectus is outdated or defective and prior to the
receipt by such Holder of the Advice contemplated in Section 6(d). The
Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection
with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange
Act), and the directors, officers, agents or employees of such controlling
Persons, to the fullest extent permitted by applicable law, from and
against all Losses, as incurred, arising solely out of or based solely
upon: (x) such Holder's failure to comply with the prospectus delivery
requirements of the Securities Act or (y) any untrue statement of a
material fact contained in any Registration Statement, any Prospectus, or
any form of prospectus, or in any amendment or supplement thereto, or
arising solely out of or based solely upon any omission of a material fact
required to be stated therein or necessary to make the statements therein
not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in
writing by such Holder to the Company specifically for inclusion in such
Registration Statement or such Prospectus or to the extent that (1) such
untrue statements or omissions are based solely upon information regarding
such Holder furnished in writing to the Company by such Holder expressly
for use therein, or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such
Holder expressly for use in a Registration Statement (it being understood
that the Holder has approved Annex A hereto for this purpose), such
Prospectus or such form of Prospectus or in any amendment or supplement
thereto or (2) in the case of an occurrence of an event of the type
specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or
defective Prospectus after the Company has notified such Holder in writing
that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(d). In no event shall
the liability of any selling Holder hereunder be greater in amount than the
dollar amount of the net proceeds received by such Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing,
and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give such
notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent
that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
B-8
An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified
Party or Parties unless: (1) the Indemnifying Party has agreed in writing
to pay such fees and expenses; (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding;
or (3) the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying Party,
and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the
defense thereof and such counsel shall be at the expense of the
Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect
any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on
claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating
or preparing to defend such Proceeding in a manner not inconsistent with
this Section) shall be paid to the Indemnified Party, as incurred, within
ten Trading Days of written notice thereof to the Indemnifying Party
(regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions
that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or
B-9
payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in Section 5(c), any reasonable
attorneys' or other reasonable fees or expenses incurred by such party in
connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 5(d),
no Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the proceeds actually received by such Holder
from the sale of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to
the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would
not provide adequate compensation for any losses incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect
of such breach, it shall waive the defense that a remedy at law would be
adequate.
(b) Compliance. Each Holder covenants and agrees that it will comply
with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities
pursuant to a Registration Statement.
(c) Discontinued Disposition. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company
of the occurrence of any event of the kind described in Section 3(c), such
Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until such Holder's receipt of
the copies of the supplemented Prospectus and/or amended Registration
Statement or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement. The
B-10
Company may provide appropriate stop orders to enforce the provisions
of this paragraph.
(d) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of
others under the Securities Act of any of its equity securities, other
than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with stock option
or other employee benefit plans, then the Company shall send to each
Holder written notice of such determination and, if within fifteen days
after receipt of such notice, any such Holder shall so request in
writing, the Company shall include in such registration statement all
or any part of such Registrable Securities such holder requests to be
registered, subject to customary underwriter cutbacks applicable to all
holders of registration rights.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified
or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing
and signed by the Company and the Holders of the then outstanding
Registrable Securities.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number specified in this Section prior
to 6:30 p.m. (New York City time) on a Trading Day, (ii) the Trading
Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this
Agreement later than 6:30 p.m. (New York City time) on any date and
earlier than 11:59 p.m. (New York City time) on such date, (iii) the
Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for
such notices and communications shall be as set forth in the Purchase
Agreement or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each Holder. The
Company may not assign its rights or obligations hereunder without the
prior written consent of each Holder. Each Holder may assign their
respective rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.
(h) Execution and Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed shall be
deemed to be an
B-11
original and, all of which taken together shall constitute one and the
same Agreement. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile
signature were the original thereof.
(i) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be
governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all Proceedings
concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a
party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York, Borough
of Manhattan. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of the any of this Agreement), and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, that
such Proceeding is improper. Each party hereto hereby irrevocably
waives personal service of process and consents to process being served
in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all
right to trial by jury in any legal proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If
either party shall commence a Proceeding to enforce any provisions of
this Agreement, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its attorneys fees and other costs
and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.
(j) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(k) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their reasonable efforts
to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have
executed the remaining
B-12
terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or
unenforceable.
(l) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
(m) Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with
the obligations of any other Purchaser hereunder, and no Purchaser
shall be responsible in any way for the performance of the obligations
of any other Purchaser hereunder. Nothing contained herein or in any
other agreement or document delivered at any closing, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such
obligations or the transactions contemplated by this Agreement. Each
Purchaser shall be entitled to protect and enforce its rights,
including without limitation the rights arising out of this Agreement,
and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.
*************************
B-13
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
IRVINE SENSORS CORPORATION
By: _____________________________________
Name:
Title:
PURCHASERS:
XXXXXXXXXXX X.X.
By: _____________________________________
Name:
Title:
ALPHA CAPITAL AG
By: ____________________________________
Name:
Title:
B-14
ANNEX A
Plan of Distribution
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their
shares of Common Stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be
at fixed or negotiated prices. The Selling Stockholders may use any one or
more of the following methods when selling shares:
. ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
. block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
. purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
. an exchange distribution in accordance with the rules of the
applicable exchange;
. privately negotiated transactions;
. short sales
. broker-dealers may agree with the Selling Stockholders to sell
a specified number of such shares at a stipulated price per
share;
. a combination of any such methods of sale; and
. any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The Selling Stockholders do not
expect these commissions and discounts to exceed what is customary in the
types of transactions involved.
The selling stockholder may from time to time pledge or grant a
security interest in some or all of the Shares or common stock owned by
them and, if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of
B-15
common stock from time to time under this prospectus, or under an amendment
to this prospectus under Rule 424(b)(3) or other applicable provision of
the Securities Act of 1933 amending the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus.
The selling stockholders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes
of this prospectus.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The Selling
Stockholders have informed the Company that it does not have any agreement
or understanding, directly or indirectly, with any person to distribute the
Common Stock.
The Company is required to pay all fees and expenses incurred by it
incident to the registration of the shares. The Selling Stockholders shall
bear each of their own fees and expenses, including but not limited to, the
fees and disbursements of counsel to the Selling Stockholders. The Company
has agreed to indemnify the Selling Stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act.
B-16
EXHIBIT C
May 29, 2002
To the Purchasers Listed on the
Signature Pages to the
Irvine Sensors Corporation
Securities Purchase Agreement dated
as of May 29, 2002
Ladies and Gentlemen:
We have acted as counsel for Irvine Sensors Corporation, a Delaware
corporation (the "Company"), in connection with the issuance and sale of
Units, each consisting of (i) 10 shares of the Company's Common Stock (ii)
a warrant (a "Parent Warrant") to purchase up to 3 shares of the Company's
Common Stock and (iii) a warrant (a "Subsidiary Warrant") to purchase 1
share of Common Stock of iNetWorks Corporation, a subsidiary of the
Company, pursuant to that certain Securities Purchase Agreement dated as of
May 29, 2002 (the "Securities Purchase Agreement") among the Company and
you. This opinion letter is being rendered to you pursuant to Section
2.2(a)(iii) of the Securities Purchase Agreement in connection with the
Closing of the sale of the Units. Capitalized terms not otherwise defined
in this opinion letter have the meanings given them in the Securities
Purchase Agreement.
In connection with the opinions expressed herein, we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the
opinions expressed herein, we have relied upon the representations and
warranties as to factual matters contained in and made by the Company
pursuant to the Securities Purchase Agreement and upon certificates and
statements of government officials and of officers of the Company. We have
also examined originals or copies of such corporate documents or records of
the Company as we have considered appropriate for the opinions expressed
herein. We have assumed for the purposes of this opinion letter the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of the documents submitted to us as originals, the conformity
to the original documents of all documents submitted to us as certified,
facsimile or photostatic copies, and the authenticity of the originals of
such copies.
In rendering this opinion letter we have also assumed: (A) that the
Securities Purchase Agreement and the Registration Rights Agreement of even
date herewith (collectively, the "Transaction Agreements") to which you are
a party have been duly and validly executed and delivered by you or on your
behalf, that each of you has the power to enter into and perform all your
obligations thereunder and has taken any and all necessary corporate,
partnership or other relevant action to authorize the Transaction
Agreements, and that the Transaction Agreements constitute valid, legal,
binding and enforceable obligations upon you; (B) that the representations
C-1
May 29, 2002
Page 2
and warranties made in the Securities Purchase Agreement by you are true
and correct; (C) that any wire transfers, drafts or checks tendered by you
will be honored; and (D) if you are a corporation or other entity, that you
have filed any required state franchise, income or similar tax returns and
have paid any required state franchise, income or similar taxes; and (E) if
you are a small business investment company subject to the Small Business
Investment Act of 1958, as amended, that you have complied with the
provisions of such Act and the regulations promulgated thereunder (the
"SBIA Laws").
As used in this opinion letter, the expression "we are not aware" or
the phrase "to our knowledge, " or any similar expression or phrase with
respect to our knowledge of matters of fact, means as to matters of fact
that, based on the actual knowledge of individual attorneys within the firm
principally responsible for handling current matters for the Company (and
not including any constructive or imputed notice of any information), and
after an examination of documents referred to herein and after inquiries of
certain officers of the Company, no facts have been disclosed to us that
have caused us to conclude that the opinions expressed are factually
incorrect; but beyond that we have made no factual investigation for the
purposes of rendering this opinion letter. Specifically, but without
limitation, we have not searched the dockets of any courts and we have made
no inquiries of securities holders or employees of the Company, other than
such officers. No inference as to our knowledge of the existence or absence
of any fact should be drawn from our representation of the Company or the
rendering of the opinions set forth below.
This opinion letter relates solely to the laws of the State of
California, the General Corporation Law of the State of Delaware and the
federal law of the United States, and we express no opinion with respect to
the effect or application of any other laws. Special rulings of authorities
administering such laws or opinions of other counsel have not been sought
or obtained.
Based upon our examination of and reliance upon the foregoing and
subject to the limitations, exceptions, qualifications and assumptions set
forth below and except as set forth in the Securities Purchase Agreement or
the Schedule of Exceptions thereto, we are of the opinion that as of the
date hereof:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware, and the Company
has the requisite corporate power and authority to own its properties and
to conduct its business as, to our knowledge, it is presently conducted.
The Company is qualified to do business as a foreign corporation in the
State of California.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform the Transaction Agreements. Each of the
Transaction Agreements has been duly and validly authorized by the Company
and constitutes a legal, valid and binding obligation of the Company,
enforceable by you against the Company in accordance with its terms.
C-2
May 29, 2002
Page 3
3. The authorized capital of the Company consists of 500,000 shares of
Preferred Stock and 80,000,000 shares of Common Stock. The shares of the
Company's Common Stock within the Units to be purchased at the Closing have
been duly authorized and, upon purchase at the Closing pursuant to the
terms of the Securities Purchase Agreement, will be validly issued,
nonassessable and fully paid. The shares of the Company's Common Stock
issuable upon exercise of the Parent Warrants, when as and if purchased in
accordance with the terms of the Parent Warrants, will be validly issued,
fully paid and nonassessable.
4. Other than in connection with any securities laws (with respect to
which we direct you to Paragraph 6 below), the Company's execution and
delivery of, and its performance and compliance as of the date hereof with
the terms of, the Transaction Agreements do not violate any provision of
any federal, Delaware corporate or California law, rule or regulation
applicable to the Company or any provision of the Company's Restated
Certificate of Incorporation or Bylaws.
5. Other than in connection with any securities laws (with respect to
which we direct you to Paragraph 6 below), all consents, approvals,
permits, orders or authorizations of, and all qualifications by and
registrations with, any federal, Delaware corporate or California state
governmental authority on the part of the Company required in connection
with the execution and delivery of the Securities Purchase Agreement and
consummation at the Closing of the transactions contemplated by the
Securities Purchase Agreement have been obtained, and are effective, and we
are not aware of any proceedings, or written threat of any proceedings,
that question the validity thereof.
6. On the assumption that the representations of the Purchasers in the
Securities Purchase Agreement are correct, the offer and sale of the Units
to you pursuant to the terms of the Securities Purchase Agreement are
exempt from the registration requirements of Section 5 of the Securities
Act of 1933, as amended, and from the qualification requirements of the
California Securities Law of 1968, as amended, and, under such securities
laws as they presently exist, the issuance of the Company's Common Stock to
you upon exercise of the Parent Warrant would also be exempt from such
registration and qualification requirements.
7. We are not aware that there is any action, proceeding or
governmental investigation pending or threatened in writing against the
Company which questions the validity of the Transaction Agreements or the
right of the Company to enter into the Transaction Agreements.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
The legality, validity, binding nature and enforceability of the
Company's obligations under the Transaction Agreements may be subject to or
limited by (1) bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent transfer and other similar laws affecting the rights
of creditors generally; (2) general principles of equity (whether relief is
sought in a proceeding at law or in equity), including, without limitation,
concepts of materiality,
C-3
May 29, 2002
Page 4
reasonableness, good faith and fair dealing, and the discretion of any
court of competent jurisdiction in awarding specific performance or
injunctive relief and other equitable remedies; and (3), without limiting
the generality of the foregoing, (a) principles requiring the consideration
of the impracticability or impossibility of performance of the Company's
obligations at the time of the attempted enforcement of such obligations,
and (b) the effect of California court decisions and statutes which
indicate that provisions of the Transaction Agreements which permit any of
you to take action or make determinations may be subject to a requirement
that such action be taken or such determinations be made on a reasonable
basis in good faith or that it be shown that such action is reasonably
necessary for your protection.
(B) We express no opinion as to the Company's or this transaction's
compliance or noncompliance with applicable federal or state antifraud or
antitrust statutes, laws, rules and regulations or Section 721 (as amended
by Section 5021 of the Omnibus Trade and Competitiveness Act of 1988: the
so-called "Exon-Xxxxxx" proviso of the Defense Production Act of 1950 and
the regulations thereunder.
(C) We express no opinion concerning the past, present or future fair
market value of any securities.
(D) We express no opinion as to the enforceability under certain
circumstances of any provisions indemnifying a party against, or requiring
contributions toward, that party's liability for its own wrongful or
negligent acts, or where indemnification or contribution is contrary to
public policy or prohibited by law. In this regard, we advise you that in
the opinion of the Securities and Exchange Commission, provisions regarding
indemnification of directors, officers and controlling persons of an issuer
against liabilities arising under the Securities Act of 1933, as amended,
are against public policy and are therefore unenforceable.
(E) We express no opinion as to the enforceability under certain
circumstances of any provisions prohibiting waivers of any terms of the
Transaction Agreements other than in writing, or prohibiting oral
modifications thereof or modification by course of dealing. In addition,
our opinions are subject to the effect of judicial decisions which may
permit the introduction of extrinsic evidence to interpret the terms of
written contracts such as the Transaction Agreements.
(F) We express no opinion as to the effect of Section 1670.5 of the
California Civil Code or any other California law, federal law or equitable
principle which provides that a court may refuse to enforce, or may limit
the application of, a contract or any clause thereof which the court finds
to have been unconscionable at the time it was made or contrary to public
policy.
(G) We express no opinion as to the effect of Sections 1203 and 1102(e)
of the California Uniform Commercial Code or any other California law,
federal law or equitable principle, providing for an obligation of good
faith in the performance or enforcement of contracts and prohibiting
disclaimer of such obligation.
C-4
May 29, 2002
Page 5
(H) Our opinions in paragraphs 4 and 5 are limited to laws and
regulations normally applicable to transactions of the type contemplated in
the Transaction Agreements and do not extend to licenses, permits and
approvals necessary for the conduct of the Company's business. In addition
and without limiting the previous sentence, we express no opinion herein
with respect to the effect of any land use, safety, hazardous material,
environmental or similar law, or any local or regional law. Further, we
express no opinion as to the effect of or compliance with any state or
federal laws or regulations applicable to the transactions contemplated by
the Transaction Agreements because of the nature of the business of any
party thereto other than the Company. Also, we express no opinion with
respect to any patent, copyright trademark or other intellectual property
matter, or as to the statutes, regulations, treaties or common laws of any
nation, state or jurisdiction with regard thereto.
(I) We express no opinion as to your compliance with any federal or
state law relating to your legal or regulatory status or the nature of your
business.
(J) We express no opinion as to the compliance of the Company, any
Purchaser or the sale of the Units to the Purchaser with the provisions of
the SBIA Laws.
(K) We express no opinion as to the effect of subsequent issuances of
securities of the Company to the extent that further issuances which may be
integrated with the Closing may include purchasers that do not meet the
definition of "accredited investors" under Rule 501 of Regulation D and
equivalent definitions under state securities or "blue sky" laws.
(L) We have assumed that the approval by the Company's Board of
Directors of the Transaction Agreements and the transactions contemplated
thereby did not violate the business judgment rule and we further assume
that the Transaction Agreements and the transactions contemplated thereby
were entirely fair to the Company as of the time the Company's Board of
Directors approved them.
(M) We express no opinion as to:
(1) The enforceability under certain circumstances of provisions
expressly or by implication waiving broadly or vaguely stated rights,
unknown future rights, or defenses to obligations or rights granted by law,
when such waivers are against public policy or prohibited by law;
(2) The enforceability under certain circumstances of provisions to
the effect that rights or remedies may be exercised without notice, that
failure to exercise or delay in exercising rights or remedies will not
operate as a waiver of any such right or remedy, 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
election of a particular remedy or remedies does not preclude recourse to
one or more remedies;
(3) Any provision providing for the exclusive jurisdiction of a
particular court or purporting to waive rights to trial by jury, service of
process or objections to
C-5
May 29, 2002
Page 6
the laying of venue or to forum on the basis of forum non conviens, in
connection with any litigation arising out of or pertaining to the
Transaction Agreements;
This opinion letter is rendered as of the date first written above
solely for your benefit in connection with the Securities Purchase
Agreement and may not be delivered to, quoted or relied upon by any person
other than you, or for any other purpose, without our prior written
consent. Our opinion is expressly limited to the matters set forth above
and we render no opinion, whether by implication or otherwise, as to any
other matters relating to the Company. We assume no obligation to advise
you of facts, circumstances, events or developments which hereafter may be
brought to our attention and which may alter, affect or modify the opinions
expressed herein.
Very truly yours,
XXXXXXX, PHLEGER & XXXXXXXX LLP
C-6
EXHIBIT D
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
SERIES A STOCK PURCHASE WARRANT
To Purchase ____ Shares of Common Stock of
IRVINE SENSORS CORPORATION
THIS CERTIFIES that, for value received, ________ (the
"Holder"), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after
the date hereof (the "Initial Exercise Date") and on or prior to the close
of business on May 29, 2005 (the "Termination Date") but not thereafter, to
subscribe for and purchase from Irvine Sensors Corporation, a corporation
incorporated in Delaware (the "Company"), up to ______ shares (the "Warrant
Shares") of Common Stock, $0.01 par value per share, of the Company (the
"Common Stock"). The purchase price of one share of Common Stock (the
"Exercise Price") under this Warrant shall be $2.34. The Exercise Price and
the number of Warrant Shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. This is the Series A Warrant
referred to in the Purchase Agreement (as defined below). In the event of
any conflict between the terms of this Warrant and the Securities Purchase
Agreement dated as of May 29, 2002 pursuant to which this Warrant has been
issued (the "Purchase Agreement"), the Purchase Agreement shall control.
Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
1. Title to Warrant. Prior to the Termination Date and subject
to compliance with applicable laws, this Warrant and all rights hereunder
are transferable, in whole or in part, at the office or agency of the
Company by the Holder in person or by duly authorized attorney, upon
surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
2. Authorization of Shares. The Company covenants that all
Warrant Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase rights
represented by this Warrant, be duly authorized, validly
D-1
issued, fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
3. Exercise of Warrant.
(a) Except as provided in Section 4 herein, exercise of the
purchase rights represented by this Warrant may be made at any time or
times on or after the Initial Exercise Date and on or before the close
of business on the Termination Date by the surrender of this Warrant
and the Notice of Exercise Form annexed hereto duly executed, at the
office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company), with a
copy of said notice to the law firm set forth in the Purchase
Agreement, and upon payment of the Exercise Price of the shares thereby
purchased by wire transfer or cashier's check drawn on a United States
bank, or by means of a cashless exercise, the Holder shall be entitled
to receive a certificate for the number of Warrant Shares so purchased.
Certificates for shares purchased hereunder shall be delivered to the
Holder within five (5) Trading Days after the date on which this
Warrant shall have been exercised as aforesaid. This Warrant shall be
deemed to have been exercised and such certificate or certificates
shall be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the date the Warrant
has been exercised by payment to the Company of the Exercise Price and
all taxes required to be paid by the Holder, if any, with respect to
the issuance of such shares, have been paid. If the Company fails to
deliver to the Holder a certificate or certificates representing the
Warrant Shares pursuant to this Section 3(a) by the seventh Trading Day
after the date of exercise, then the Holder will have the right to
rescind such exercise. In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an exercise by
the ninth Trading Day after the date of exercise, and if after such
ninth Trading Day the Holder purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a "Buy-In"), then the Company shall (1)
pay in cash to the Holder the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was
required to deliver to the Holder in connection with the exercise at
issue times (B) the closing bid price of the Common Stock at the time
of the obligation giving rise to such purchase obligation, and (2) at
the option of the Holder, either reinstate the portion of the Warrant
and equivalent number of Warrant Shares for which such exercise was not
honored or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its
exercise and delivery obligations hereunder. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted exercise of shares of
Common Stock with a market price on the date of exercise totaled
$10,000, under clause (1) of the immediately preceding sentence the
Company shall be
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required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of
the Buy-In. Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates
representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
(b) If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be identical
with this Warrant.
(c) Anytime beginning one year from the Initial Exercise Date, if
a registration statement registering the resale of the Warrant Shares is
not then effective, this Warrant shall also be exercisable by means of a
"cashless exercise" in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares equal to the quotient obtained
by dividing [(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of
Common Stock on the Trading Day preceding the date of such
election on the Principal Market;
(B) = the Exercise Price of this Warrant; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant and the
Notice of Exercise.
(d) Notwithstanding anything herein to the contrary, in no event
shall the Holder be permitted to exercise this Warrant for Warrant Shares
to the extent that (i) the number of shares of Common Stock owned by such
Holder (other than Warrant Shares issuable upon exercise of this Warrant)
plus (ii) the number of Warrant Shares issuable upon exercise of this
Warrant, would be equal to or exceed 4.999% of the number of shares of
Common Stock then issued and outstanding, including shares issuable upon
exercise of this Warrant held by such Holder after application of this
Section 3(d). As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act. To the extent that the
limitation contained in this Section 3(d) applies, the determination of
whether this Warrant is exercisable (in relation to other securities owned
by the Holder) and of which a portion of this Warrant is exercisable shall
be in the sole discretion of such Holder, and the submission of a Notice of
Exercise shall be deemed to be such Holder's determination of whether this
Warrant is exercisable (in relation to other securities owned by such
Holder) and of which portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such
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determination. Nothing contained herein shall be deemed to restrict
the right of a Holder to exercise this Warrant into Warrant Shares at
such time as such exercise will not violate the provisions of this
Section 3(d). The provisions of this Section 3(d) may be waived by the
Holder upon, at the election of the Holder, with not less than 61
days' prior notice to the Company, and the provisions of this Section
3(d) shall continue to apply until such 61st day (or such later date
as may be specified in such notice of waiver). No exercise of this
Warrant in violation of this Section 3(d) but otherwise in accordance
with this Warrant shall affect the status of the Warrant Shares as
validly issued, fully-paid and nonassessable.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the Holder or in such
name or names as may be directed by the Holder; provided, however, that in
the event certificates for Warrant Shares are to be issued in a name other
than the name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto duly executed
by the Holder; and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto.
6. Closing of Books. The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of this
Warrant.
7. Transfer, Division and Combination.
(a) Subject to compliance with any applicable securities laws,
transfer of this 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 this Warrant at the principal
office of the Company, together with a written assignment of this
Warrant substantially in the form attached hereto duly executed by the
Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new
Warrant evidencing the portion of this Warrant not so assigned, and
this Warrant shall promptly be cancelled. A Warrant, if properly
assigned, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued.
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(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section
7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under
this Section 7.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the
Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price or by means of a
cashless exercise, the Warrant Shares so purchased shall be and be deemed
to be issued to such Holder as the record owner of such shares as of the
close of business on the later of the date of such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the Company will make and deliver a new
Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares.
(a) Stock Splits, etc. The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time upon the happening of
any of the following. In case the Company shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of Common
Stock to holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares,
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (iv) issue any shares of its
capital stock in a reclassification of the Common Stock, then the
number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall
be entitled to receive
D-5
the kind and number of Warrant Shares or other securities of the
Company which it would have owned or have been entitled to receive had
such Warrant been exercised in advance thereof. Upon each such
adjustment of the kind and number of Warrant Shares or other
securities of the Company which are purchasable hereunder, the Holder
shall thereafter be entitled to purchase the number of Warrant Shares
or other securities resulting from such adjustment at an Exercise
Price per Warrant Share or other security obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the
number of Warrant Shares purchasable pursuant hereto immediately prior
to such adjustment and dividing by the number of Warrant Shares or
other securities of the Company resulting from such adjustment. An
adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(b) Voluntary Adjustment by the Company. The Company may at
any time during the term of this Warrant reduce the then current
Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
(c) Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable
upon the exercise of this Warrant or the Exercise Price is adjusted,
as herein provided, the Company shall promptly mail by registered or
certified mail, return receipt requested, to the Holder notice of such
adjustment or adjustments setting forth the number of Warrant Shares
(and other securities or property) purchasable upon the exercise of
this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such notice, in the
absence of manifest error, shall be conclusive evidence of the
correctness of such adjustment.
12. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where
there is a change in or distribution with respect to the Common Stock of
the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, shares of common stock of
the successor or acquiring corporation, or any cash, shares of stock or
other securities or property of any nature whatsoever (including warrants
or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"),
are to be received by or distributed to the holders of Common Stock of the
Company, then the Holder shall have the right thereafter to receive, at
their option, (a) upon exercise of this Warrant, the number of shares of
Common Stock of the successor or acquiring corporation or of the Company,
if it is the surviving corporation, and Other Property receivable upon or
as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a Holder of the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
event,
D-6
or (b) cash equal to the value of this Warrant as determined in accordance
with the Black-Sholes option pricing formula. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company)
shall expressly assume the due and punctual observance and performance of
each and every covenant and condition of this Warrant to be performed and
observed by the Company and all the obligations and liabilities hereunder,
subject to such modifications as may be deemed appropriate (as determined
in good faith by resolution of the Board of Directors of the Company) in
order to provide for adjustments of Warrant Shares for which this Warrant
is exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 12. For purposes of this Section
12, "common stock of the successor or acquiring corporation" shall include
stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and
which is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible
into or exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 12 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition
of assets.
13. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
or other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation
or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder,
if lawful to do so, (i) at least 10 days' prior written notice of the date
on which a record date shall be selected for such dividend, distribution or
right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 10 days'
prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and
the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale,
D-7
transfer, disposition, dissolution, liquidation or winding up is to take
place and the time, if any such time is to be fixed, as of which the
holders of Common Stock shall be entitled to exchange their Warrant Shares
for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with
Section 16(d).
14. Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged
with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Principal Market upon which the
Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder against impairment. Without
limiting the generality of the foregoing, the Company will (a) not increase
the par value of any Warrant Shares above the amount payable therefor upon
such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable Warrant Shares
upon the exercise of this Warrant, and (c) use commercially reasonable
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in
the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any
public regulatory body or bodies having jurisdiction thereof.
15. Miscellaneous.
(a) Jurisdiction. This Warrant shall constitute a contract
under the laws of New York, without regard to its conflict of law,
principles or rules, and be subject to arbitration pursuant to the
terms set forth in the Purchase Agreement.
D-8
(b) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by
Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
(e) Limitation of Liability. No provision hereof, in the absence
of affirmative action by Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of Holder, shall give rise
to any liability of Holder for the purchase price of any Common Stock or as
a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Warrant
and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities laws
and the provisions of this Warrant, this Warrant and the rights and
obligations evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
(h) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
(i) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law,
D-9
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the
remaining provisions of this Warrant.
(j) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
******************
D-10
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: May ___, 2002
IRVINE SENSORS CORPORATION
By:_______________________________________
Name:
Title:
D-11
NOTICE OF EXERCISE
To: Irvine Sensors Corporation
(1) The undersigned hereby elects to purchase ________ Warrant
Shares (the "Common Stock"), of Irvine Sensors Corporation pursuant to the
terms of the attached Warrant, and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
_______________________________
The Warrant Shares shall be delivered to the following:
_______________________________
_______________________________
_______________________________
[PURCHASER]
By: ______________________________
Name:
Title:
Dated: ___________________________
Deliver a copy of this notice to the law firm set forth in the Purchase
Agreement
D-12
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO CASHLESS EXERCISE PROVISIONS
To: Irvine Sensors Corporation
Aggregate Price of Warrant Before Exercise: $________________
Aggregate Price Being Exercised: $___________
Exercise Price: $_______________ per share
Number of Shares of Common Stock to be Issued Under this Notice: __________
Remaining Aggregate Price (if any) After Issuance: $__________
Gentlemen:
The undersigned, registered Holder of the Warrant delivered herewith,
hereby irrevocably exercises such Warrant for, and purchases thereunder,
shares of the Common Stock of Irvine Sensors Corporation a Delaware
corporation, as provided below. Capitalized terms used herein, unless
otherwise defined herein, shall have the meanings given in the Warrant. The
portion of the Exercise Price (as defined in the Warrant) to be applied
toward the purchase of Common Stock pursuant to this Notice of Exercise is
$_______, thereby leaving a remaining Exercise Price (if any) equal to
$________. Such exercise shall be pursuant to the cashless exercise
provisions of Section 3 of the Warrant; therefore, Holder makes no payment
with this Notice of Exercise. The number of shares to be issued pursuant to
this exercise shall be determined by reference to the formula in Section 3
of the Warrant which, by reference to Section 3, requires the use of the
high and low trading price of the Company's Common Stock on the Trading Day
preceding the date of such election. The high and low trading price of the
Company's Common Stock has been determined by Holder to be $______ and
$_________, respectively, which figure is acceptable to Holder for
calculations of the number of shares of Common Stock issuable pursuant to
this Notice of Exercise. Holder requests that the certificates for the
purchased shares of Common Stock be issued in the name of
_________________________ and delivered to
______________________________________________. To the extent the foregoing
exercise is for less than the full Aggregate Price of the Warrant, a
replacement Warrant representing the remainder of the Aggregate Price (and
otherwise of like form, tenor and effect) shall be delivered to Holder
along with the share certificate evidencing the Common Stock issued in
response to this Notice of Exercise.
[Purchaser]
By:________________________________
Name:
Title:
Date:
NOTE
The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant
D-13
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ________________________________________
NOTE: The signature to this Assignment Form must correspond with the name
as it appears on the face of the Warrant, without alteration or enlargement
or any change whatsoever, and must be guaranteed by a bank or trust
company. Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
D-14
EXHIBIT E
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
SERIES B STOCK PURCHASE WARRANT
To Purchase _______ Shares of Common Stock of
INETWORKS CORPORATION
THIS CERTIFIES that, for value received, ________ (the "Holder"),
is entitled, upon the terms and subject to the limitations on exercise and
the conditions hereinafter set forth, at any time on or after the date
hereof (the "Initial Exercise Date") and on or prior to the close of
business on May 29, 2005 (the "Termination Date") but not thereafter, to
subscribe for and purchase from iNetWorks Corporation, a corporation
incorporated in Delaware (the "Company"), up to ______ shares (the "Warrant
Shares") of Common Stock, $.001 par value per share, of the Company (the
"Common Stock"). The purchase price of one share of Common Stock (the
"Exercise Price") under this Warrant shall be $0.25. The Exercise Price and
the number of Warrant Shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. This is the Series B Warrant
referred to in the Purchase Agreement (as defined below). In the event of
any conflict between the terms of this Warrant and the Securities Purchase
Agreement dated as of May 29, 2002 pursuant to which this Warrant has been
issued (the "Purchase Agreement"), the Purchase Agreement shall control.
Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
by the Holder in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
2. Authorization of Shares. The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase rights
represented by this Warrant, be duly authorized, validly issued, fully paid
and nonassessable and free from all taxes, liens and charges in respect of
the
E-1
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. Exercise of Warrant.
(a) Except as provided in Section 4 herein, exercise of the
purchase rights represented by this Warrant may be made at any time or
times on or after the Initial Exercise Date and on or before the close
of business on the Termination Date by the surrender of this Warrant
and the Notice of Exercise Form annexed hereto duly executed, at the
office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company), with a
copy of said notice to the law firm set forth in the Purchase
Agreement, and upon payment of the Exercise Price of the shares thereby
purchased by wire transfer or cashier's check drawn on a United States
bank, the Holder shall be entitled to receive a certificate for the
number of Warrant Shares so purchased. Certificates for shares
purchased hereunder shall be delivered to the Holder within five (5)
Trading Days after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have
been issued, and Holder or any other person so designated to be named
therein shall be deemed to have become a holder of record of such
shares for all purposes, as of the date the Warrant has been exercised
by payment to the Company of the Exercise Price and all taxes required
to be paid by the Holder, if any, with respect to the issuance of such
shares, have been paid.
(b) If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase the unpurchased
Warrant Shares called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the Holder or in such
name or names as may be directed by the Holder; provided, however, that in
the event certificates for Warrant Shares are to be issued in a name other
than the name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto duly executed
by the Holder; and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto.
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6. Closing of Books. The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of this
Warrant.
7. Transfer, Division and Combination.
(a) Subject to compliance with any applicable securities laws,
transfer of this 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 this Warrant at the principal office of
the Company, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder
or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing
the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section
7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under
this Section 7.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the
Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price, the Warrant Shares
so purchased shall be and be deemed to be issued to such Holder as the
record owner of such shares as of the close of business on the later of the
date of such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the
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Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares.
(a) Stock Splits, etc. The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time upon the happening of
any of the following. In case the Company shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock
to holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares,
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (iv) issue any shares of its
capital stock in a reclassification of the Common Stock, then the
number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall be
entitled to receive the kind and number of Warrant Shares or other
securities of the Company which it would have owned or have been
entitled to receive had such Warrant been exercised in advance thereof.
Upon each such adjustment of the kind and number of Warrant Shares or
other securities of the Company which are purchasable hereunder, the
Holder shall thereafter be entitled to purchase the number of Warrant
Shares or other securities resulting from such adjustment at an
Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares purchasable pursuant hereto
immediately prior to such adjustment and dividing by the number of
Warrant Shares or other securities of the Company resulting from such
adjustment. An adjustment made pursuant to this paragraph shall become
effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) Voluntary Adjustment by the Company. The Company may at
any time during the term of this Warrant reduce the then current
Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
(c) Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable
upon the exercise of this Warrant or the Exercise Price is adjusted, as
herein provided, the Company shall promptly mail by registered or
certified mail, return receipt requested, to the Holder notice of such
adjustment or adjustments setting forth the number of Warrant Shares
(and other securities or property) purchasable upon the exercise of
this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and
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setting forth the computation by which such adjustment was made. Such
notice, in the absence of manifest error, shall be conclusive evidence
of the correctness of such adjustment.
12. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where
there is a change in or distribution with respect to the Common Stock of
the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, shares of common stock of
the successor or acquiring corporation, or any cash, shares of stock or
other securities or property of any nature whatsoever (including warrants
or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"),
are to be received by or distributed to the holders of Common Stock of the
Company, then the Holder shall have the right thereafter to receive, at
their option, (a) upon exercise of this Warrant, the number of shares of
Common Stock of the successor or acquiring corporation or of the Company,
if it is the surviving corporation, and Other Property receivable upon or
as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a Holder of the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
event, or (b) cash equal to the value of this Warrant as determined in
accordance with the Black-Sholes option pricing formula. In case of any
such reorganization, reclassification, merger, consolidation or disposition
of assets, the successor or acquiring corporation (if other than the
Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant
Shares for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section
12. For purposes of this Section 12, "common stock of the successor or
acquiring corporation" shall include stock of such corporation of any class
which is not preferred as to dividends or assets over any other class of
stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock,
either immediately or upon the arrival of a specified date or the happening
of a specified event and any warrants or other rights to subscribe for or
purchase any such stock. The foregoing provisions of this Section 12 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
13. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any
other securities or property, or to receive any other right, or
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(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder,
if lawful to do so, (i) at least 10 days' prior written notice of the date
on which a record date shall be selected for such dividend, distribution or
right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 10 days'
prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and
the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and
the time, if any such time is to be fixed, as of which the holders of
Common Stock shall be entitled to exchange their Warrant Shares for
securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with
Section 16(d).
14. Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged
with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Principal Market upon which the
Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder against impairment. Without
limiting the generality of the foregoing, the Company will (a) not increase
the par value of any Warrant Shares above the amount payable therefor upon
such exercise immediately prior to such
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increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable Warrant Shares upon the exercise of this Warrant,
and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to
perform its obligations under this Warrant.
Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in
the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any
public regulatory body or bodies having jurisdiction thereof.
15. Piggy-Back Registration Rights. If, in connection with an
initial public offering ("IPO") or at any time after an IPO, the Company
shall determine to proceed with the preparation and filing of a
registration statement pursuant to the Securities Act, in connection with
the proposed offer and sale of any of its securities by it or any of its
security holders (other than a registration statement on Form X-0, X-0 or
other similar limited purpose form), the Company will give written notice
of its determination to Holder. Upon receipt of a written request from
Holder within thirty (30) days after receipt of any such notice from the
Company, the Company will, except as herein provided, cause all the shares
of Common Stock issuable upon exercise of the Warrant requested by Holder
to be included in such registration statement, all to the extent required
to permit the sale or other disposition by Holder of such shares of Common
Stock. If any registration pursuant to this Section 15 shall be
underwritten in whole or in part, the Company may require that the shares
of Common Stock requested for inclusion pursuant to this Section 15 (to the
extent issued) be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters.
In the event that the shares of Common Stock requested for inclusion
pursuant to this Section 15 together with any other shares would, in the
good faith judgment of the managing underwriter of such public offering,
reduce the number of shares to be offered by the Company or interfere with
the successful marketing of the securities offered by the Company, the
Company will include in such registration the number of Holder's shares of
Common Stock which is pro rata, based on the number of securities which in
the opinion of such underwriters can be sold and on the number of
securities which all holders request be included in the registration,
provided that any shares of Common Stock proposed to be included in such
registration statement that are owned by directors or officers of the
Company or their affiliates shall be excluded prior to exclusion of any
shares of Common Stock requested to be included by Holder. The obligation
of the Company under this Section 15 shall be unlimited as to the number of
registration statements to which it applies, until such time that the
Holder may freely trade all of its Common Stock without the volume
limitations imposed pursuant to Rule 144 under the Securities Act.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall constitute a contract
under the laws of New York, without regard to its conflict of law,
principles or rules, and be subject to arbitration pursuant to the
terms set forth in the Purchase Agreement.
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(b) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by
Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
(e) Limitation of Liability. No provision hereof, in the absence
of affirmative action by Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of Holder, shall give rise
to any liability of Holder for the purchase price of any Common Stock or as
a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Warrant
and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities laws
and the provisions of this Warrant, this Warrant and the rights and
obligations evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
(h) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
(i) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law,
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such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the
remaining provisions of this Warrant.
(j) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
**********************
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: May ___, 2002
INETWORKS CORPORATION
By:_______________________________________
Name:
Title:
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NOTICE OF EXERCISE
To: INetWorks Corporation
(1) The undersigned hereby elects to purchase ________ Warrant
Shares (the "Common Stock"), of INetWorks Corporation pursuant to the terms
of the attached Warrant, and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
_______________________________
The Warrant Shares shall be delivered to the following:
_______________________________
_______________________________
_______________________________
[PURCHASER]
By: ____________________________
Name:
Title:
Dated: ________________________
Deliver a copy of this notice to the law firm set forth in the Purchase
Agreement.
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: __________________________
Holder's Address: __________________________
__________________________
Signature Guaranteed: ________________________________________
NOTE: The signature to this Assignment Form must correspond with the name
as it appears on the face of the Warrant, without alteration or enlargement
or any change whatsoever, and must be guaranteed by a bank or trust
company. Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
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