US SENSOR SYSTEMS INC. COMMON STOCK OPTION PURCHASE AGREEMENT
Exhibit
10.1
This
Common Stock Option Purchase Agreement (the “Agreement”) is made as of
February 23, 2010 by and among US Sensor Systems Inc., a Delaware corporation
(the “Company”), and
Acorn Energy, Inc., a Delaware corporation (the “Purchaser”).
Preliminary
Statement
The
Company issued and sold to the Purchaser, and Purchaser did purchase, 50,917
shares (the “Initial
Shares”) of the Company’s common stock, $0.001 par value per share (the
“Common Stock”) and such
sale and purchase closed on November 30, 2009 (the “Initial
Closing”).
The
Company desires to grant to the Purchaser certain options for the Purchaser to
purchase shares of Common Stock, and the Purchaser desires to acquire such
options, all in accordance with the terms of this Agreement. The shares of
Common Stock subject to the options granted to the Purchaser pursuant to this
Agreement shall be referred to in this Agreement as the “Shares.”
NOW,
THEREFORE, for and in consideration of the Purchaser’s purchase of the shares of
Common Stock at the Initial Closing and other good and valuable consideration,
the receipt and sufficiency of which, are hereby acknowledged, the parties
hereto do hereby agree as follows:
1. Options to Purchase Common
Stock.
1.1. Grant of Options to Purchase
Common Stock. Subject to the terms and conditions of this
Agreement, the Company hereby grants to the Purchaser, and the Purchaser hereby
accepts, options to purchase Shares as follows:
(a) An
option to purchase 254,584 Shares with such option being exercisable in the
following increments and time periods and upon payment by the Purchaser to the
Company of the following applicable option purchase prices: (i) for three-eights
of such Shares the option must be exercised no later than March 1, 2010 with
payment of $300,000; (ii) for an additional one-quarter of such Shares the
option must be exercised no later than May 31, 2010 with payment of $200,000;
and (iii) for the remaining three-eights of such Shares the option must be
exercised no later than August 27, 2010 with payment of
$300,000. Such options may be exercised, if at all, only sequentially
in the order set forth in this subparagraph (a) and, if any incremental option
is not exercised in full on or before the applicable expiration date for such
incremental option, such incremental option together with any remaining
incremental options in this subparagraph (a) and all options set forth in
subparagraph (b) below shall terminate and be of no further force or
effect.
(b) An
option to purchase 3,386,782 Shares with such option being exercisable in the
following increments and time periods and upon payment by the Purchaser to the
Company of the following applicable option purchase prices: (i) for one-half of
such Shares such option must be exercised no later than November 30, 2010 with
payment of $1,500,000; and (ii) for the remaining one-half of such Shares the
option must be exercised no later than May 31, 2011 with payment of
$1,500,000. Such options may be exercised, if at all, only
sequentially in the order set forth in this subparagraph (b) and simultaneously
with or following exercise in full of all of the options specified in
subparagraph (a) above and in that certain Capital Stock Option Purchase
Agreement by and among the Purchaser and the stockholders named therein dated
the date hereof (the “Capital
Stock Option Purchase Agreement”). If any incremental option
hereunder is not exercised in full on or before the expiration of the prior
applicable option period, such option together with any remaining incremental
options in this subparagraph (b) shall terminate and be of no further force or
effect.
1.2. Exercise of Options.
Each option granted above may be exercised by the Purchaser providing written
notice of such exercise to the Company (the “Exercise Notice”) prior to the
expiration of the applicable option period together with payment therefor as
specified below. Any such notice shall specify the number of Shares being
exercised by the Purchaser and the applicable purchase price, with such option
to be deemed exercised upon receipt by the Company of payment
therefor.
1.3. Closing; Delivery.
The purchase price for the number of Shares with respect to which an option is
being exercised shall be payable to the Company in full in cash or by check or
wire transfer. Upon receipt of such purchase price, the Company shall promptly
deliver to the Purchaser a stock certificate for the Shares with respect to
which such option has been exercised, and in no event shall such certificate be
delivered later than fifteen (15) business days following date of payment of the
purchase price by the Purchaser.
1.4. Defined Terms Used in this
Agreement. In addition to the terms defined above, the
following terms used in this Agreement shall be construed to have the meanings
set forth or referenced below.
“Affiliate” means with respect
to any person or entity (a “Person”) any Person which,
directly or indirectly, controls, is controlled by, or is under common control
with such Person, including, without limitation, any partner, officer, director,
or member of such Person and any venture capital fund now or hereafter existing
which is controlled by or under common control with one or more general partners
or shares the same management company with such Person.
“Code” means the Internal
Revenue Code of 1986, as amended.
“Company Intellectual Property”
means all trademarks, service marks, tradenames, copyrights, trade secrets,
licenses, information and proprietary rights and processes and all patents and
patent rights owned or possessed by the Company.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Key Employee” means any of
Xxxxx Xxxxxxxx, Xxxxxx Xxxxx, and Xxxx Xxxxxxx.
“Material Adverse Effect” means
a material adverse effect on the business, assets (including intangible assets),
liabilities, financial condition, property or results of operations of the
Company.
“Options” means all of the
options to purchase shares of Common Stock granted by the Company to the
Purchaser under Section
1.
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“Preferred Stock” shall mean
the shares of the Company’s Preferred Stock, $0.001 par value per
share.
“Purchaser” means the Purchaser
who is a party to this Agreement.
“Rights Agreement” means the
Amended and Restated Investors’ Rights Agreement among the Company, the
Purchaser and the Stockholders, dated as of the date hereof, in the form of
Exhibit B
attached to this Agreement.
“Securities Act” means the
Securities Act of 1933, as amended.
“Shares” means the shares of
Common Stock of the Company subject to the options granted to Purchaser under
this Agreement.
“Stock” shall mean all of the
shares of the Company’s Common Stock and Preferred Stock.
“Stockholders” means the
holders of all shares of common and preferred stock of the Company as of the
date hereof.
“Stockholders’ Agreement” means
the agreement between the Company, the Purchaser and the Stockholders, dated as
of the date hereof, in the form of Exhibit C attached to
this Agreement.
“Transaction Agreements” means
this Agreement, the Rights Agreement, the Stockholders’ Agreement, the Capital
Stock Option Purchase Agreement (solely in the Company’s capacity as “notice
agent” thereunder) and any other agreements, instruments or documents entered
into in connection with this Agreement.
2. Representations and
Warranties of the Company. The Company hereby represents and
warrants to the Purchaser that, except as set forth on the Disclosure
Schedule attached to this Agreement which exceptions shall be deemed to
be part of the representations and warranties made hereunder, the following
representations are true and complete as of the date hereof, except as otherwise
indicated. The Disclosure
Schedule shall be arranged in sections corresponding to the numbered and
lettered sections and subsections contained in this Section 2, and the
disclosures in any section or subsection of the Disclosure
Schedule shall qualify other sections and subsections in this Section 2 only to the
extent it is readily apparent from a reading of the disclosure that such
disclosure is applicable to such other sections and subsections.
For
purposes of these representations and warranties, the phrase “to the Company’s
knowledge” shall mean the knowledge after reasonable investigation of the Key
Employees of the Company.
2.1. Organization, Good Standing,
Corporate Power and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as presently conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure to so qualify would
have a Material Adverse Effect.
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2.2. Capitalization. The
authorized capital of the Company consists, as of the date hereof (unless
otherwise noted), of:
(a) 2,500,000 shares of Common Stock,
889,906 shares of which are issued and outstanding as of the date hereof, and
141,507 shares of Preferred Stock, all of which are issued and outstanding as of
the date hereof. All of the outstanding shares of Stock have been
duly authorized, are fully paid and nonassessable and were issued in compliance
with all applicable federal and state securities laws. The Company
holds no treasury stock.
(b) The
Company is not committed to granting any options other than the options
described in Section
1 and options to be issued under the “Management Option Plan” (as such
quoted term is defined in the Stockholders’ Agreement).
(c) Section
2.2(c) of the Disclosure
Schedule sets forth the capitalization of the Company as of the date
hereof including the number of shares of the following: (i) issued and
outstanding Common Stock and Preferred Stock; (ii) stock options not yet
issued but reserved for issuance; and (iii) warrants or stock purchase
rights, if any. Except for (A) the options granted under Section 1 and the
Capital Stock Option Purchase Agreement, (B) the rights provided in Section 3 of the
Rights Agreement, (C) the rights provided in Section 2.5 of the Stockholders’
Agreement, and (D) the securities and rights described in Section 2.2(b) of
this Agreement and Section
2.2(c) of the Disclosure
Schedule, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, orally or in writing, to purchase or acquire from the Company, or
sell to the Company, any shares of Stock, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue Stock or any securities convertible into or exchangeable for shares of
Stock. Except as set forth in the Company’s Amended and Restated
Certificate of Incorporation, no current or former stockholder of the Company’s
capital stock has, or with the giving of notice or any other actions may have,
any appraisal rights or the right to obtain payment of the fair value of that
stockholder’s shares of Stock other than as required by applicable
law. Except as provided in this Agreement, the Rights Agreement, the
Stockholders’ Agreement, and the Company’s Amended and Restated Certificate of
Incorporation, no stockholder of the Company or other person has any right to
designate members to serve on the Company’s board of directors or any committee
thereof.
(d) None
of the Company’s stock purchase agreements or stock option documents contains a
provision for acceleration of vesting (or lapse of a repurchase right) upon the
occurrence of any event or combination of events. Except as set forth on Section
2.2(d) of the Disclosure
Schedule, the Company has never adjusted or amended the exercise price of
any stock options previously awarded, whether through amendment, cancellation,
replacement grant, repricing, or any other means.
2.3. Subsidiaries and
Affiliates. The Company does not own, directly or indirectly,
any capital stock or other equity securities of any corporation or have any
direct or indirect equity ownership in any business.
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2.4. Authorization. All
corporate action required to be taken by the Company’s Board of Directors and
stockholders in order to authorize the Company to enter into the Transaction
Agreements, and to issue the Shares upon exercise of the applicable Options, has
been taken. The Transaction Agreements, when executed and delivered
by the Company, shall constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, or other laws of general
application relating to or affecting the enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, or (iii) to
the extent the indemnification provisions contained in the Stockholders’
Agreement may be limited by applicable federal or state securities laws.
2.5. Valid Grant of Option and
Issuance of Shares. Upon execution of this Agreement by all parties, the
Options will be validly granted and freely exercisable in accordance with the
terms of Section
1 of this Agreement, other than restrictions on transfer of this
Agreement, the Stockholders’ Agreement, applicable state and federal securities
laws and liens for encumbrances created by or imposed by the Purchaser. The
Shares, when issued, upon exercise of the applicable Options and delivered in
accordance with the terms and for the consideration set forth in this Agreement,
will be validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the
Stockholders’ Agreement, applicable state and federal securities laws and liens
or encumbrances created by or imposed by the Purchaser. Assuming the
accuracy of the representations of the Purchaser in Section 3 of this
Agreement, the Options will be granted and Shares will be issued in compliance
with all applicable federal and state securities laws. All certificates
representing all issued and outstanding shares of Stock contain a restrictive
legend similar to that set forth in Section
3.8(a).
2.6. Governmental Consents and
Filings. Assuming the accuracy of the representations made by
the Purchaser in Section 3 of this
Agreement, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority is required on the part of the Company in
connection with the consummation of the transactions contemplated by this
Agreement, except for filings, if any, pursuant to Regulation D of
the Securities Act, and applicable state securities laws, which have been made
or will be made in a timely manner.
2.7. Litigation. Except
as set forth on Section 2.7 of the Disclosure Schedule,
there is no claim, action, suit, proceeding, arbitration, complaint, charge or
investigation pending or, to the Company’s knowledge, currently threatened that
questions the validity of the Transaction Agreements or the right of the Company
to enter into them, or to consummate the transactions contemplated by the
Transaction Agreements.
2.8. Compliance with Other
Instruments. The execution, delivery and performance of the
Transaction Agreements and the consummation of the transactions contemplated by
the Transaction Agreements will not result in any violation or be in conflict
with or constitute, with or without the passage of time and giving of notice,
either (i) a default under any instrument, judgment, order, writ, decree,
contract or agreement to which the Company is a party or by which it is bound or
(ii) an event which results in the creation of any lien, charge or encumbrance
upon any property or assets of the Company or the suspension, revocation,
forfeiture, or nonrenewal of any permit or license applicable to the
Company.
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2.9. Rights of Registration and
Voting Rights. Except as provided in the Rights Agreement, the
Company is not under any obligation to register under the Securities Act any of
its currently outstanding securities or any securities issuable upon exercise or
conversion of its currently outstanding securities. Except as
contemplated in the Rights Agreement, the Stockholders’ Agreement, and the
Company’s Amended and Restated Certificate of Incorporation, no stockholder of
the Company has entered into any agreements with respect to the voting of
capital shares of the Company.
2.10. Company Operations and
Material Liabilities. A description of the Company’s material
liabilities and obligations in excess of $10,000, contingent or otherwise, as of
the date hereof is as set forth on Section
2.10 of the Disclosure
Schedule. For the purposes of meeting the foregoing threshold of
$10,000, all liabilities and obligations involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated.
2.11. Changes. To
the Company’s knowledge, except as set forth in Section
2.11 of the Disclosure
Schedule, since January 1, 2009, there has not been:
(a) Other
than continuing losses from operations, any change in the assets, liabilities,
financial condition or operating results of the Company, except changes in the
ordinary course of business that have not caused, in the aggregate, a Material
Adverse Effect on the Company;
(b) any
damage, destruction or loss, whether or not covered by insurance, that would
have a Material Adverse Effect on the Company;
(c) any
waiver or compromise by the Company of a valuable right or of a material debt
owed to the Company;
(d) any
satisfaction or discharge of any lien, claim, or encumbrance or payment of any
obligation by the Company, except in the ordinary course of business and the
satisfaction or discharge of which would not have a Material Adverse Effect on
the Company;
(e) any
material adverse change to a material contract or agreement by which the Company
or any of its assets is bound or subject;
(f) any
mortgage, pledge, transfer of a security interest in, or lien, created by the
Company, with respect to any of the material properties or assets of the
Company, except liens for taxes not yet due or payable and liens that arise in
the ordinary course of business and do not materially impair the Company’s
ownership or use of such property or assets;
(g) any
sale, assignment or transfer of any Company Intellectual Property that could reasonably be
expected to result in a Material Adverse Effect to the Company;
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(h) receipt
of notice that there has been a loss of, or material order cancellation by, any
major customer of the Company; or
(i) any
other event or condition of any character, other than events affecting the
economy or the Company’s industry generally, that could reasonably be expected
to result in a Material Adverse Effect to the Company.
To the
Company’s knowledge, since January 1, 2008 (x) the Company has carried on and
operated its business in the ordinary course of business and (y) other than
continuing losses from operations, the Company has not suffered a Material
Adverse Effect.
2.12. Corporate
Documents. The Amended and Restated Certificate of
Incorporation and Bylaws of the Company are in the form provided to the
Purchaser. The copy of the minute books of the Company provided to
the Purchaser contains minutes of all material meetings of directors and
stockholders and all material actions by written consent without a meeting by
the directors and stockholders since incorporation of the Company and accurately
reflects in all material respects all actions by the directors (and any
committee of directors) and stockholders with respect to all material
transactions referred to in such minutes.
2.13. Offering. Subject
in part to the truth and accuracy of the Purchaser’s representations set forth
in Section 3 of
this Agreement, the grant of the Options and issuance of the Shares upon
exercise of the Options as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933, as amended, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.14. Preemptive
Rights. The Company has fully satisfied (including with
respect to rights of timely notification) or obtained enforceable waivers in
respect of any preemptive or similar rights directly or indirectly affecting any
of its securities.
2.15. Consents. All
consents, approvals, releases, filings, terminations and waivers by third
parties necessary to complete the transactions contemplated hereby that are set
forth in Section
2.15 of the Disclosure
Schedule have been obtained and delivered to the Purchaser and such
consents, approvals, releases, filings, terminations and waivers have not
expired or been withdrawn.
3. Representations and
Warranties of the Purchaser. The Purchaser hereby represents
and warrants to the Company that:
3.1. Authorization. The
Purchaser has full power and authority to enter into the Transaction
Agreements. The Transaction Agreements to which the Purchaser is a
party, when executed and delivered by the Purchaser, will constitute valid and
legally binding obligations of the Purchaser, enforceable in accordance with
their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors’ rights generally, and as limited
by laws relating to the availability of a specific performance, injunctive
relief, or other equitable remedies, or (b) to the extent the
indemnification provisions contained in the Rights Agreement and the
Stockholders’ Agreement may be limited by applicable federal or state securities
laws.
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3.2. Compliance with Other
Instruments. The execution and delivery of this Agreement by
the Purchaser, and the performance by the Purchaser of its obligations
hereunder, will not conflict, or result in any violation of, or default under,
any provision of any certificate of incorporation, bylaws or other governing
instrument applicable to the Purchaser, or any agreement or other instrument to
which the Purchaser is a party or by which the Purchaser or any of its
properties are bound, or any permit, franchise, judgment, decree, order, rule or
regulation applicable to the Purchaser or the Purchaser’s business or
properties.
3.3. Purchase Entirely for Own
Account. This Agreement is made with the Purchaser in reliance
upon the Purchaser’s representation to the Company, which by the Purchaser’s
execution of this Agreement, the Purchaser hereby confirms, that the Initial
Shares were, and the Options and Shares to be acquired by the Purchaser will be,
acquired for investment for the Purchaser’s own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser, when it purchased the Initial Shares, had no intention
of selling, granting any participation in, or otherwise distributing the Initial
Shares, and has no present intention of selling, granting any participation in,
or otherwise distributing the Initial Shares, Options and Shares. By
executing this Agreement, the Purchaser further represents that, when it
purchased the Initial Shares, the Purchaser did not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Initial Shares, and does not presently have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Initial Shares,
Options and Shares. The Purchaser has not been formed for the specific purpose
of acquiring the Initial Shares, Options and Shares.
3.4. Disclosure of
Information. The Purchaser has had an opportunity to discuss
the Company’s business, management, financial affairs and the terms and
conditions of the offering of the Options and Shares with the Company’s
management. Except as set forth in the Transaction Agreements, no
representations or warranties, whether written or oral, have been made to the
Purchaser by the Company or any officer, employee, affiliate or agent of the
Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this
Agreement or the right of the Purchaser to rely thereon.
3.5. Restricted
Securities. The Purchaser understands that the Initial Shares,
Options and Shares have not been, and will not be, registered under the
Securities Act, by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the Purchaser’s
representations as expressed herein. The Purchaser understands that
the Initial Shares, Options and Shares are “restricted securities” under
applicable U.S. federal and state securities laws and that, pursuant to these
laws, the Purchaser must hold the Initial Shares, Options and Shares
indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements is available. The
Purchaser acknowledges that the Company has no obligation to register or qualify
the Initial Shares, Options and Shares for resale except as set forth in the
Stockholders’ Agreement. The Purchaser further acknowledges that if
an exemption from registration or qualification is available, it may be
conditioned on various requirements including, but not limited to, the time and
manner of sale, the holding period for the Initial Shares, Options and Shares,
and on requirements relating to the Company which are outside of the Purchaser’s
control, and which the Company is under no obligation and may not be able to
satisfy.
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3.6. No Public
Market. The Purchaser understands that no public market now
exists for the Initial Shares, Options and Shares, and that the Company has made
no assurances that a public market will ever exist for the Initial Shares,
Options and Shares.
3.7. Suitability of
Investment. The Purchaser has such knowledge and experience in
financial, business and tax matters that the Purchaser is capable of evaluating
the merits and risks relating to the Purchaser’s investment in the Initial
Shares, Options and Shares and making an investment decision with respect to the
Company. The Purchaser acknowledges that it has had the opportunity
to review this Agreement and the transactions contemplated by this Agreement
with its own legal counsel. The Purchaser is not relying on any
statements or representations of the Company or any of its agents for legal
advice with respect to this investment or the transactions contemplated by this
Agreement other than as set forth in the Transaction Agreements.
3.8. Legends. The
Purchaser understands that the Initial Shares and Shares and any securities
issued in respect of or exchange for the Initial Shares and Shares, may bear one
or all of the following legends:
(a) “THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “ACT”), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
ACT, UNLESS SUCH TRANSFER SHALL (I) CONSTITUTE A ROUTINE SALE UNDER RULE 144 OF
THE ACT OR (II) BE OF SHARES THAT ARE ELIGIBLE FOR RESALE UNDER RULE 144(B)(1)
OF THE ACT.”
(b) Any
legend set forth in, or required by, the other Transaction
Agreements.
(c) Any
legend required by the securities laws of any state to the extent such laws are
applicable to the Shares represented by the certificate so
legended.
3.9. Accredited
Investor. The Purchaser is an accredited investor as defined
in Rule 501(a) of Regulation D promulgated under the Securities
Act.
3.10. Residence. The
Purchaser is a United States person.
4. Covenants of the
Company.
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4.1. Qualifications. The
Company shall use its commercially reasonable efforts to assure that all
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance of the Shares after exercise of the
applicable Options pursuant to this Agreement shall be obtained and effective
prior to any exercise of the Options.
4.2. Representations and
Warranties of Company. Upon the exercise of each Option or any
increment thereof by the Purchaser, the Company shall deliver to the Purchaser a
certificate of its President stating that the representations and warranties of
the Company contained in Section 2 are true
and correct in all material respects as of the date of such exercise, except as
set forth in such certificate; provided, however, that the Company shall only be
obligated to deliver such certificate within five (5) business days after having
received notice of such exercise.
4.3. Stockholders’ Agreement and
Preferred Stock Option Agreement. As of the date
hereof, the Company shall have executed and delivered the Rights Agreement and
the Stockholders’ Agreement and shall use its commercially reasonable efforts to
cause the Stockholders to have executed and delivered the Rights Agreement and
the Stockholders’ Agreement as of the date hereof.
4.4. Secretary’s
Certificate. The Secretary of the Company shall deliver to the
Purchaser as of the date hereof a certificate certifying (i) the Certificate of
Incorporation and Bylaws of the Company and (ii) resolutions of the Board of
Directors of the Company approving the Transaction Agreements and the
transactions contemplated under the Transaction Agreements, and upon exercise of
each Option or any increment thereof by the Purchaser the Secretary of the
Company shall deliver to the Purchaser an update to such certificate certifying
there have been no changes or amendments to the Certificate of Incorporation and
Bylaws of the Company since the date of the certificate first referenced in this
Section 4.5 or
the date of the last update provided by the Secretary of the
Company.
4.5. Proceedings and
Documents. The Company shall have provided to the Purchaser
all such counterpart original and certified or other copies of such documents as
reasonably requested. Such documents may include good standing
certificates.
4.6. Securities Laws
Compliance. The Company shall make in a timely manner any
filings required by applicable federal or state securities or Blue Sky laws, or
those of any other applicable jurisdiction.
4.7. Use of
Proceeds. The Company agrees that the purchase price paid by
the Purchaser upon exercise of each Option shall be used by it for working
capital expenses only, and shall not be used to reduce any outstanding
indebtedness of the Company or to make payments to any stockholder or affiliate
of the Company, other than salary payments (including payments of unpaid salary)
and payments of indebtedness incurred prior to the date hereof. For
the avoidance of doubt, outstanding indebtedness of the Company shall not
include past due payments on supplier or vendor invoices incurred in the
ordinary course of business.
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4.8. Access and
Information. From the date hereof through March 1, 2010, the
Company will give the Purchaser and its authorized representatives (including
accountants and legal counsel) full access at all reasonable times, upon
reasonable notice, to all of the offices and other facilities of the Company, to
all contracts, agreements, commitments, books and records of the Company, to the
personnel (including auditors) of the Company and to the customers and suppliers
of the Company.
4.9. Conduct of the Company’s
Business.
(a) Except
as contemplated by this Agreement, during the period from the date of this
Agreement to the exercise by Purchaser of the last of the Options or termination
of all Options, as the case may be, the Company shall conduct the operations of
the Company according to its ordinary course of business and consistent with
past practice, and shall use commercially reasonable efforts to preserve intact
its business organization, keep available the services of its officers and
employees, and maintain satisfactory relationships with suppliers, contractors,
distributors, customers and others having business relationships with the
Company. During such period of time, the Company agrees that it will
not take any action reasonably within its control, or omit to take any action
reasonably within its control, which would cause any of the representations and
warranties of the Company in this Agreement to become untrue.
(b) Without
limiting the foregoing, during such period of time, the Company shall not take
any of the actions specified in Section 2.11 without
the prior written consent of the Purchaser.
(c) Without limiting
the foregoing, during such period of time, the Company shall not alter or change
its capitalization in any manner including, without limitation, issuing any
additional shares of Stock except in accordance with this Agreement, issue or
grant any options, warrants or other rights, other than in connection with the
Management Option Plan, accept any contributions to capital, engage in any stock
split or recapitalization, and amend or revise its Amended and Restated
Certificate of Incorporation or Bylaws without the prior written consent of the
Purchaser.
4.10. Notices to
Purchaser. Prior to the exercise by Purchaser of the last of
the Options or termination of all Options, as the case may be, the Company shall
give prompt written notice to the Purchaser of: (a) any breach or default by the
Company, of which the Company becomes aware, of the representations, warranties,
covenants or agreements hereunder or under any document or instrument
contemplated hereby; (b) any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement; (c) any notice
or other communication from any governmental authority in connection with the
transactions contemplated by this Agreement; (d) any Material Adverse Effect;
and (e) any claim, action, or proceeding against the Company which could
reasonably be expected to have a Material Adverse Effect.
4.11. Exclusivity. From
the date hereof to the exercise by Purchaser of the last of the Options or
termination of all Options, as the case may be, the Company shall not, nor shall
it authorize or permit any officer, director or employee of or any investment
banker, broker, attorney, accountant, or other representative retained by the
Company to, solicit, initiate or encourage (including by way of furnishing
information) submission of any proposal or offer from any person which
constitutes, or may reasonably be expected to lead to, a Financing
Proposal. As used herein, a “Financing Proposal” shall mean
any proposal for a merger or other business combination involving the Company,
or any proposal or offer to acquire in any manner an equity interest in or a
material portion of the assets of the Company (other than sales in the ordinary
course of business consistent with past practice) or to extend indebtedness to
the Company. If the Company receives a Financing Proposal during such
period of time, the Company shall notify the Purchaser immediately and shall
provide to the Purchaser a copy of any written documentation of such Financing
Proposal.
11
4.12. Distribution through
DSIT. From the date hereof to the exercise by Purchaser of the
last of the Options or termination of all Options, the Company covenants and
agrees that the Company will use its commercially reasonable efforts to maximize
worldwide distribution of its security products through DSIT Solutions Ltd. of
Israel for distribution by DSIT Solutions Ltd., subject to the Company’s
currently existing commitments and sales opportunities, including but not
limited to currently existing commitments and sales opportunities with
Safeguards Technologies LLC, Proprietary Control Systems Corporation, RAE
Systems, Inc. and Petrus Aviation.
The
Company covenants and agrees that it shall use its reasonable best efforts to
cause all employees of the Company to promptly and without delay execute the
agreements described in Section 6.1 of the Stockholders’ Agreement.
5. Survival Period;
Indemnification.
5.1. Survival of Representations,
Warranties and Covenants. Unless otherwise set forth in this
Agreement, the representations and warranties of the Company and the Purchaser
contained in or made pursuant to this Agreement (x) shall survive the
execution and delivery of this Agreement until May 27, 2011 or the earlier
expiration of all the Options, except that the representations and warranties in
Sections 2.1, 2.2,
2.3, 2.4 and 2.5 shall survive the
exercise of the Options indefinitely, and (y) shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Purchaser or the Company and shall bind the parties’ successors and assigns
(including, without limitation, any successor to the Company by way of
acquisition, merger or otherwise), whether so expressed or not. This
Section 5 shall
survive the exercise of all Options and the covenants contained in this
Agreement shall survive for the periods contemplated by their
terms.
5.2. Indemnification. The
Company and the Purchaser shall, with respect to the representations, warranties
and agreements made by them herein, indemnify, pay, defend and hold the Company
or the Purchaser, as the case may be, and each of the Company or the Purchaser’s
officers, directors, partners, employees and agents and their respective
Affiliates, as the case may be, (the “Indemnitees”) harmless against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding (collectively, “Losses”), whether or not such
Indemnitees shall be designated a party thereto, which may be (a) imposed on
such Indemnitee, or (b) incurred by such Indemnitee, as a result of (i) the
violation or breach of any representation, warranty or covenant of the Company
or the Purchaser, as the case may be, under this Agreement, the Rights
Agreement, or the Stockholders’ Agreement; (ii) the Purchaser’s investment in or
ownership of the Options and the Shares; or (iii) actions or omissions by any
agent, representative or employee of the Company or the Purchaser, as the case
may be.
12
5.3. Limitations on
Indemnification. The Company or the Purchaser, as the case may
be, shall not have liability under Section 5.2 until the
aggregate amount of Losses of the Indemnitees exceeds $25,000, in which case the
Indemnitees shall be entitled to Losses in an amount up to the aggregate of the
purchase price paid by Purchaser under this Agreement.
6. Miscellaneous.
6.1. Transfer; Successors and
Assigns. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties. The Company may not assign this Agreement or
any rights or obligations hereunder without the prior written consent of
Purchaser. Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, except as expressly provided in this
Agreement.
6.2. Governing
Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware, without regard to
its principles of conflicts of laws.
6.3. Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement may also be executed and delivered by
facsimile signature and in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
6.4. Titles and
Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.5. Notices. All
notices and other communications given or made pursuant to this Agreement shall
be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party to be notified, (b) when sent by confirmed
electronic mail or facsimile if sent during normal business hours of the
recipient, and if not so confirmed, then on the next business day, (c) five (5)
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the
respective parties at their address as set forth below, or to such e-mail
address, facsimile number or address as subsequently modified by written notice
given in accordance with this Section
6.5.
13
If notice
is given to Purchaser, it shall be sent to:
0 X.
Xxxxxxxx Xxxx
X.X. Xxx
0
Xxxxxxxxxx,
Xxxxxxxx 00000
Attn: President
& CEO
A copy
shall also be sent to:
00000 Xx.
Xxxxx Xxxx
Xxxxxxxxx,
XX 00000
Attn: General
Counsel
If notice
is given to the Company, it shall be sent to the address set forth
below:
US Sensor
Systems Inc.
00000
Xxxxxxxx Xx., Xxxxx X
Xxxxxxxxxx,
XX 00000
Attn: President
A copy shall also be sent
to:
Xxxx Xxxxx LLP
000 Xxxxx Xxxxx Xxx.
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxxx Gunny,
Esq.
6.6. No Finder’s
Fees. Except as set forth in Section
6.6 of the Disclosure
Schedule, each party represents that it neither is nor will be obligated
for any finder’s fee, commission or other compensation in connection with this
transaction. The Purchaser agrees to indemnify and to hold harmless
the Company from any liability for any commission or compensation in the nature
of a finder’s fee arising out of this transaction (and the costs and
expenses of defending against such liability or asserted liability) for which
the Purchaser or any of its officers, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless the
Purchaser from any liability for any commission or compensation in the
nature of a finder’s or broker’s fee arising out of this transaction (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives
is responsible.
6.7. Amendments and
Waivers. Any term of this Agreement may be amended, terminated
or waived only with the written consent of the Company and the
Purchaser. Any amendment or waiver effected in accordance with this
Section 6.7
shall be binding upon the Company, the Purchaser, and their respective
successors and assigns. In the event a nonmaterial provision of this
Agreement is required to be amended by the Purchaser after the date hereof, the
Company will not unreasonably withhold its consent to such
amendment.
14
6.8. Severability. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
6.9. Delays or
Omissions. No delay or omission to exercise any right, power
or remedy accruing to any party under this Agreement, upon any breach or default
of any other party under this Agreement, shall impair any such right, power or
remedy of such non-breaching or non-defaulting party nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or
otherwise afforded to any party, shall be cumulative and not
alternative.
6.10. Entire
Agreement. This Agreement (including the Exhibits hereto, if
any), and the other Transaction Agreements constitute the full and entire
understanding and agreement between the parties with respect to the subject
matter hereof, and any other written or oral agreement relating to the subject
matter hereof existing between the parties are expressly canceled.
6.11. Publicity. The
Company may disclose the existence of the financing, as well as the investment
in the Company by the Purchaser, solely to the Company’s investors, investment
bankers, lenders, accountants, legal counsel, bona fide prospective investors
and employees, in each case only where such persons or entities were under
appropriate nondisclosure obligations. In addition, the Company may
disclose to third parties that the Purchaser is an investor in the Company
without the requirement for nondisclosure agreements. The Company is
permitted to issue a press release within 60 days of the date hereof disclosing
that the Purchaser has invested in the Company; provided that the release does
not disclose the amount or other specific terms of the investment and the final
form of the press release is approved in advance in writing by the
Purchaser. The Company may not use the name of the Purchaser, or any
of its Affiliates in any trade publication, in any marketing materials or
otherwise to the general public without the prior written consent of the
Purchaser, which consent may be withheld in the sole discretion of the
Purchaser.
6.12. Right to Conduct
Activities. The Company acknowledges and agrees that (i) the
Purchaser and its respective partners, affiliates and affiliates of its partners
engage in a wide variety of activities and have investments in many other
companies, some of which may be competitive with the business of the Company;
(ii) subject to any fiduciary obligations of the Purchaser’s designees to the
Company’s Board of Directors, except as waived by the Company pursuant to this
Section, it is critical that the Purchaser be permitted to continue to develop
its current and future business and investment activities without any
restriction arising from an investment by the Purchaser in the Company, the
right of the Purchaser to designate directors of the Company or any other
relationship, contractual or otherwise, between the Purchaser, on the one hand,
and the Company or any of its affiliates, on the other hand; and (iii) from time
to time, in connection with the foregoing activities of the Purchaser
(collectively, the “Activities”), the Purchaser
may have information that may be useful to the Company or its other stockholders
(which information may or may not be known by the member or members of the
Company’s Board of Directors designated by the Purchaser), and neither the
Purchaser nor any director so designated shall have any duty to disclose any
information known to such person or entity to the Company or any of its other
stockholders. In addition, the Purchaser shall not be liable for any claim
arising out of, or based upon, (i) the investment by the Purchaser in any entity
competitive to the Company, (ii) actions taken by any officer, director,
stockholder or other representative of the Purchaser to assist any such
competitive company, whether or not such action was taken as a board member of
such competitive company, or otherwise, and whether or not such action has a
detrimental effect on the Company, unless such claim arises directly from the
Purchaser’s misuse of confidential information in material breach of Section 2.5
of the Rights Agreement.
[Remainder
of page intentionally left blank; signature pages follow.]
15
The parties have executed this Common
Stock Option Purchase Agreement as of the date first written above.
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US
SENSOR SYSTEMS INC.
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|||
|
By:
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/s/ Xxxxx X. Xxxxxxxx
|
||
|
Name:
|
Xxxxx
X. Xxxxxxxx
|
||
|
Title:
|
President
and Chief Executive Officer
|
||
|
|
|||
|
By:
|
/s/ Xxxx X. Xxxxx
|
||
|
Name:
|
Xxxx
X. Xxxxx
|
||
|
Title:
|
President
and Chief Executive
Officer
|
||
