SHARE EXCHANGE AGREEMENT
THIS AGREEMENT (“Agreement”) is made and
entered into this _ day of December 2008, (the “Effective Date”) by and among
(A) NEONODE, INC., a
Delaware, United States corporation (“Neonode” or "Corporation"); (B) AB
Cypressen 9683 (changing to Neon Mobile Technology AB) a corporation organized
under the laws of Xxxxxxx (“NewCo”); and (C) Iwojima Sarl,
(“Iwojima”),Wireless Toys AB (“WT”), and Athemis Ltd.
(“Athemis”). The Employees are hereinafter collectively
referred to as the “NewCo
Stockholders.” Neonode, NewCo, and the NewCo Stockholders are
hereinafter collectively referred to as the “Parties.”
INTRODUCTION
A. Neonode
is a corporation of which ____________ shares of its common stock, $0.001 par
value per share are traded on the NASDAQ Capital Market under the symbol “NEON”.
B. The
NewCo Stockholders are the holders of 100% of the shares of NewCo (the “NewCo Shares”).
C. The
NewCo Stockholders are interested in exchanging the NewCo Shares for an
aggregate of 495,000 authorized and previously unissued shares of Neonode Series
A Preferred Stock (the “Exchange Shares”), all upon
the terms and subject to the conditions hereinafter set forth.
D. To
comply with the relevant NASDAQ maintenance criteria and to raise capital to
finance Neonode’s business going forward, Neonode will be engaging in certain
refinancing and capital raising activities, including the issuance of the
Exchange Shares to the NewCo Stockholders, and Neonode is willing to issue the
Exchange Shares to the NewCo Stockholders in exchange for the NewCo Shares, all
upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in
consideration of the mutual covenants and agreements herein contained, the
parties hereto intending to be bound hereby, it is agreed as
follows:
1. Exchange of
Shares
1.1 The
NewCo Stockholders shall transfer, deliver, and assign the NewCo Shares to
Neonode in exchange for Neonode issuing the Exchange Shares to the NewCo
Stockholders (the “Exchange Transaction”).
1.2 At
the Closing and simultaneous with the execution by the NewCo Stockholders of a
Repurchase Agreement with Neonode in the form attached hereto as Exhibit 1 (the "Repurchase Agreement"), each
of the NewCo Stockholders shall assign and transfer to Neonode all and not less
than all of the NewCo Shares set forth below opposite the names of each of the
NewCo Stockholders in exchange for the Exchange Shares. The number of
NewCo Shares to be exchanged and the number of Exchange Shares of Neonode to be
issued to each of the NewCo Stockholders on the Closing Date is as set forth
below.
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|
Number
of NewCo Shares
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Number
of Exchange Shares
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NewCo Stockholder
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to be Transferred to
Neonode
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to be Issued to NewCo
Stockholder
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Iwojima
Sarl
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334
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165,000
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Wireless
Toys AB
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333
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165,000
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Athemis
Ltd.
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333
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165,000
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Totals
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1000 NewCo
Shares
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495,000
Exchange
Shares
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1.3 Each
NewCo Stockholder acknowledges the following:
(a) that
the NewCo Stockholder may lose his entire investment in the Corporation;
and
(b) that
the stockholders of the Corporation may vote to reject (i) an increase in the
authorized share capital of the Corporation to enable the issuance of shares of
common stock upon conversion of the Exchange Shares or (ii) a modification of
the initial conversion rate of the Preferred A Stock; and
(c) certain
members of the Board of Directors of the Corporation are personally involved in
the Corporation’s refinancing and capital raising activities and will be
investing their own funds in the Corporation, and that the personal interest of
these Directors in these transactions creates the potential for a conflict of
interest.
A
complete discussion of the risks associated with this transaction and an
investment in the Corporation are set forth in the Corporation’s Form 10-K filed
with the SEC on April 15, 2008 for the fiscal year ended December 31, 2007, Form
S-3 filed with the SEC on September 23, 2008, and Form 10-Q filed with the SEC
on November 19, 2008 for the quarter ended September 30, 2008, and in Section 5
below.
2. Closing
2.1 The
consummation of the Exchange Transaction (the “Closing”) shall take place on
December __, 2008, or on such other date as the parties mutually agree, (the
“Closing
Date”). The Closing shall take place at the offices of the
Neonode, or at such other place as the parties mutually agree.
2.2 At
the Closing, (a) NewCo Stockholders shall deliver to Neonode stock certificates
of NewCo representing all, and not less than all, of the issued and outstanding
shares of NewCo, duly endorsed for transfer or accompanied by stock powers
executed in blank by each of the NewCo Stockholders with their signatures
certified by a notary, and (b) Neonode shall deliver to the NewCo Stockholders
stock certificates evidencing the Exchange Shares registered in the names of
each of the NewCo Stockholders as set forth in Section 1.2 above.
2.3 The
Closing is conditional upon;
(a) The
employment of the NewCo Stockholders by NewCo pursuant to the terms of an
employment agreement acceptable to Neonode; and
(b) The
execution of the Repurchase Agreement by the NewCo Stockholders.
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3. The
Preferred A Stock
3.1 Certificate of
Designations. The rights, preferences, privileges, and restrictions of
the Preferred A Stock shall be as described in the Certificate of Designations,
of which a copy has been provided to each NewCo Stockholder.
3.2 Conversion. Subject
to approval of the stockholders of Neonode, each share of Preferred A Stock
shall be convertible into 480.63 shares of Neonode’s common stock (the
“Conversion Rate”).
3.3 Stockholder Approval.
Neonode shall provide each stockholder entitled to vote at either (a) the next
annual meeting of stockholders of Neonode or (b) a special meeting of
stockholders of Neonode, which shall be promptly called and held not later than
March 30, 2009, (the “Stockholder Meeting”), with a proxy statement soliciting
each such stockholder’s affirmative vote at the Stockholder Meeting for approval
of resolutions (i) increasing the authorized share capital of Neonode so as to
authorize a sufficient amount of authorized share capital to enable the issuance
of shares of common stock upon conversion of the Exchange Shares, and (ii)
approving the Conversion Rate, (the “Stockholder Approvals”).
3.4 Acknowledgement. Each
NewCo Stockholder acknowledges that its right to convert the Exchange Shares
into shares of common stock of Neonode is subject to the Stockholder Approvals,
and that there can be no guarantee that the Stockholder Approvals will be
obtained
4. Information on Neonode;
Legal Proceedings
4.1 Information on
Neonode. Each Subscriber has been furnished with or has had access at the
XXXXX Website of the SEC to Neonode's Form 10-K filed on April 15, 2008 for the
fiscal year ended December 31, 2007 and the financial statements included
therein for the year ended December 31, 2007 together with all subsequent
filings made with the SEC available at the XXXXX website
("Reports"). In addition, each Subscriber may have received in
writing from Neonode such other information concerning its operations, financial
condition and other matters as such Subscriber has requested in writing,
identified thereon as "Other Written Information" and considered all factors
such Subscriber deems material in deciding on the advisability of entering into
this Agreement.
4.2 Legal
Proceedings.
4.2.1 Alpha Capital
Anstalt. On September 4, 2008, Alpha Capital Anstalt (“Alpha”), an
investor in the Corporation from previous private placement transactions,
initiated a law suit against the Corporation in the United States District Court
for the Southern District of New York alleging that the Corporation failed to
issue certain stock certificates pursuant to the terms and conditions of certain
investment subscription agreements. Alpha asked the court to award
them $734,650 in damages plus attorneys fees. Although the Corporation believes
the claim has no merit, the Corporation has reached an agreement in principal on
the terms for a negotiated settlement with Alpha, which agreement has not as of
yet been finalized.
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4.2.2 Empire Asset
Management. On December 9, 2008, Empire Asset Management (“Empire”), a
broker dealer that acted as the Corporation’s financial advisor and exclusive
placement agent and purchased stock for their own account in previous private
placement transactions, initiated a law suit against the Corporation in the
Supreme Court of the State of New York alleging that the Corporation
misrepresented the success of its business to induce Empire to invest in the
Corporation. Empire is seeking compensatory damages in an unspecified
amount for the harm allegedly suffered. The Corporation believes that
the action has no merit and intends to defend vigorously against the
action.
4.2.3 Nasdaq. On May 29,
2008, the Corporation received a NASDAQ Staff deficiency letter indicating that
the market value of our listed securities had been below the minimum $35 million
requirement for continued inclusion under its listing standards (the “Market
Capitalization Rule”), and provided until June 30, 2008 for the Corporation to
demonstrate compliance. On July 1, 2008, the Corporation received a
NASDAQ Staff Determination letter stating that the Corporation had not regained
compliance with the Market Capitalization Rule and, unless the Corporation
requests an appeal of this determination, trading of the Corporation’s common
stock will be suspended at the opening of business on July 10, 2008 and NASDAQ
will remove the Corporation’s securities from listing and registration on the
NASDAQ Capital Market. The Corporation has appealed the determination with the
NASDAQ Listing Qualifications Panel (the “Panel”), which stays the suspension of
Nenode’s securities pending the Panel’s decision. The Corporation
appeared before the Panel on August 28, 2008 and the Corporation is awaiting its
decision.
In
addition, on July 3, 2008, the Corporation received a NASDAQ Staff deficiency
letter indicating that for the last 30 consecutive days, the bid price for the
Corporation’s common stock had closed below the $1.00 minimum requirement for
continued inclusion under its listing standards (the “Minimum Bid Price Rule”),
and provided us 180 days (or until December 30, 2008) to regain
compliance.
Furthermore, on December 11, 2008, the
Corporation received a Nasdaq Staff deficiency letter (the “Notice”) from The
NASDAQ Stock Market Listing Qualifications Department stating that the
Corporation has not paid certain fees required by Marketplace Rule 4310(c)(13)
(the “Rule”). The Corporation’s past due balance currently totals
$43,615.08. The Notice further stated that the Nasdaq Listing
Qualification Panel (“Panel”) will consider this matter in rendering a
determination regarding the Corporation’s continued listing on the NASDAQ
Capital Markets.
5. Risk
Factors
An
investment in the Corporation’s preferred stock involves a high degree of risk.
Before exchanging your shares of NewCo for the Exchange Shares, you should
consider carefully the specific risks detailed in this “Risk Factors” section
together with all of the other information contained in this Agreement and any
other documents incorporated by reference herein. If any of these risks occur,
the Corporation’s business, results of operations and financial condition could
be harmed, the price of the Corporation’s preferred stock could decline, and you
may lose all or part of your investment in the Corporation.
5.1 The Corporation’s
independent registered public accounting firm issued a going concern opinion on
the Corporation’s financial statements, questioning the Corporation’s ability to
continue as a going concern.
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Due to
the Corporation’s need to raise additional financing to fund the Corporation’s
operations and satisfy obligations as they become due, the Corporation’s
independent registered public accounting firm has included an explanatory
paragraph in its report on the Corporation’s December 31, 2007 consolidated
financial statements regarding its substantial doubt as to the Corporation’s
ability to continue as a going concern. This may have a negative impact on the
trading price of the Corporation’s common stock and adversely impact the
Corporation’s ability to obtain necessary financing.
5.2 The Refinancing
of the Corporation may be unsuccessful and the stockholders of the Corporation
may lose their entire investment in the Corporation.
The
individuals and entities participating in the refinancing of the Corporation,
including the investors, note holders, warrant holders, and employees of the
Swedish subsidiary should be aware that if the Corporation is not successful in
its refinancing endeavors, their entire investment in the Company could become
worthless. Even if the Corporation is successful, there can be no assurance that
the participants in the refinancing of the Corporation will derive a profit from
their investment.
5.3 The Corporation’s current management
and Directors are personally involved in the Corporation’s refinancing and
capital raising activities.
The
Corporation’s board of directors has the authority to issue up to 2,000,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. In addition, as part of the Corporation’s refinancing
efforts, the Corporation’s current directors, Per Xxxxxxx, will be investing
additional funds in the Corporation in exchange for the issuance to them of
preferred stock, as well as participating in a share exchange transaction with
the Corporation as stockholders of a Swedish company to whom the Company will be
issuing preferred stock. The fact that the current management and
Directors of the Corporation have a personal interest as investors in the
Corporation creates the potential for a conflict of interest. While
the Corporation believes that the proposed refinancing and capital raising
transactions that the Corporation will be entering into with the Corporation’s
management and directors are fair and in the best interests of the Corporation,
there is a risk that the personal involvement of the management and directors
may have affected their judgment.
5.4 The tax
implications of this refinancing transaction are complex and should be reviewed
by the investor’s tax advisor.
The tax
implications, including United States federal income tax consequences, of this
refinancing transaction are complex. Each investor should consult its
own tax advisor regarding the particular United States Federal, state, local and
foreign tax consequences of purchasing, holding, and disposing of our Preferred
and Common Stock, including the consequences of any proposed change in
applicable laws.
RISKS
RELATED TO THE CORPORATION’S BUSINESS
5.5 The Corporation
will require additional capital to fund the Corporation’s operations, which
capital may not be available on commercially attractive terms or at
all.
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The
Corporation will require sources of capital in addition to cash on hand to
continue operations and to implement the Corporation’s strategy. The Corporation
does not have sufficient liquid assets to continue operating into the end of
December 2008. The Corporation estimates that the Corporation will need a
minimum of approximately $1.3 million of additional cash from additional
financings, to fund operating expenses through March 31, 2009. The Corporation
is currently evaluating different financing alternatives including but not
limited to selling shares of the Corporation’s common or preferred stock or
issuing notes that may be converted in shares of the Corporation’s common stock
which could result in the issuance of additional shares. If the
Corporation’s operations do not become cash flow positive as projected the
Corporation will be forced to seek credit line facilities from financial
institutions, additional private equity investment or debt arrangements. No
assurances can be given that the Corporation will be successful in obtaining
such additional financing on reasonable terms, or at all. If adequate funds are
not available on acceptable terms, or at all, the Corporation may be unable to
adequately fund the Corporation’s business plans and it could have a negative
effect on the Corporation’s business, results of operations and financial
condition. In addition, if funds are available, the issuance of
equity securities or securities convertible into equity could dilute the value
of shares of the Corporation’s stock and cause the market price to fall, and the
issuance of debt securities could impose restrictive covenants that could impair
the Corporation’s ability to engage in certain business
transactions.
5.6 The Corporation’s
common stock is at risk for delisting from the NASDAQ Capital Market. If it is
delisted, the Corporation’s stock price and the liquidity of the Corporation’s
stock may be impacted.
The
Corporation's common stock is quoted on The NASDAQ Capital Market under the
symbol “NEON”. In order for the Corporation's common stock to
continue to be quoted on the NASDAQ Capital Market, the Corporation must satisfy
various listing maintenance standards established by NASDAQ. Among
other things, as such requirements pertain to us, we are required to have
stockholders’ equity of at least $2.5 million or a market capitalization of at
least $35 million and our common stock must have a minimum closing bid price of
$1.00 per share.
On May
29, 2008, the Corporation received a NASDAQ staff deficiency letter from The
NASDAQ Stock Market Listing Qualifications Department stating that for the last
10 consecutive business days, the market value of the Corporation's listed
securities has been below the minimum $35 million requirement for continued
inclusion under Marketplace Rule 4310 (c)(3)(B) (the "Rule"). The notice further
states that pursuant to Marketplace Rule 4310(c)(8)(C), the Corporation was
provided 30 calendar days (or until June 30, 2008) to regain
compliance.
On July
1, 2008, the Corporation received a notice from NASDAQ that it had not regained
compliance within the specified time period and that unless the Corporation
requested an appeal of the non-compliance determination the Corporation's
securities would be suspended from trading on the NASDAQ Capital Market on July
10, 2008. The Corporation has submitted a request to have a hearing to the
NASDAQ Listing Qualifications Panel (Panel). The Corporation's
request stays the delisting of its securities pending the hearing and a
determination by the Panel. The Corporation appeared before the Panel
on August 28, 2008. On November 18, 2008, the Corporation received a
determination letter from the Panel that the Panel granted us an extension until
December 29, 2008 to complete its proposed refinancing and refinancing
transactions and regain compliance with the Rule.
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Additionally,
on July 3, 2008, the Corporation received another staff deficiency letter from
NASDAQ stating that for the last 30 consecutive business days, the bid price of
our common stock closed below the $1.00 minimum required for continued inclusion
under Marketplace Rule 4310(c)(4). The notice further states that pursuant to
Marketplace Rule 4310(c)(8)(D), the Corporation will be provided 180 calendar
days (or until December 30, 2008) to regain compliance. If, at any time before
December 30, 2008, the bid price of the Corporation's common stock closes at
$1.00 per share or more for a minimum of 10 consecutive business days, the
Corporation may regain compliance with the Minimum Bid Price Rule. NASDAQ
subsequently modified its Marketplace Rules and notified the Corporation that it
has until April 6, 2009 to regain compliance with the bid price under
Marketplace Rule 4310(c)(4).
Additionally
on December 11, 2008, the Corporation received a Nasdaq Staff deficiency letter
from The NASDAQ Stock Market Listing Qualifications Department stating that it
has not paid certain fees required by Marketplace Rule 4310(c)(13) (the
“Rule”). The Corporation’s past due balance currently total $43,615.08. The
notice further states that the Nasdaq Listing Qualification Panel (“Panel”) will
consider this matter in rendering a determination regarding the Corporation’s
continued listing on the NASDAQ Capital Markets.
5.7 The Corporation
has never been profitable and the Corporation anticipates significant additional
losses in the future.
The
Corporation was formed in 2006 as a holding company owning and operating Neonode
AB, its Swedish subsidiary, which was formed in 2004 and has been primarily
engaged in the business of developing and selling mobile phones. On
December 9, 2008, Neonode AB, filed a petition for bankruptcy in compliance with
the Swedish Bankruptcy Act (1987:672). Xx. Xxxx Xxxx of the
Stockholm- based Ackordscentralen AB, a consultancy firm specialized in
insolvency, was appointed by the district court of Stockholm to administrate the
process. Although the Corporation has transferred the intellectual property (IP)
related to its touch screen technology from Neonode AB to the Corporation
pursuant to an intercompany borrowing asset pledge agreement the Swedish
bankruptcy court may not allow the transfer and require the Corporation to
return the IP to Neonode AB. The Corporation has a limited operating history on
which to base an evaluation of the Corporation’s business and prospects. The
Corporation’s prospects must be considered in light of the risks and
uncertainties encountered by companies in the early stages of development,
particularly companies in new and rapidly evolving markets. After refinancing
efforts have been completed, the Corporation’s success will depend on
many factors, including, but not limited to:
|
·
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the
growth of the worldwide market for touch screen mobile
devices;
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·
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the
Corporations ability to develop and sell or license its touchscreen
technology to third party companies to embed in their products
;
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·
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the
level of competition from other touch screen technologies faced by us;
and
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·
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the
ability of future customers of the Corporation’s touchscreen technology to
develop and sell products incoportating the Corporation’s touch screen
technology.
|
In
addition, the Corporation has experienced substantial net losses in each fiscal
period since the Corporation’s inception. These net losses resulted from a lack
of substantial revenues and the significant costs incurred in the development of
the Corporation’s products and infrastructure. The Corporation’s ability to
continue as a going concern is dependent on the Corporation’s ability to raise
additional funds and implement the Corporation’s business plan.
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The
Corporation’s limited operating history and the emerging nature of the
Corporation’s market, together with the other risk factors set forth in this
Section, make prediction of the Corporation’s future operating results
difficult. There can also be no assurance that the Corporation will ever achieve
significant revenues or profitability or, if significant revenues and
profitability are achieved, that they could be sustained.
5.8 The Corporation’s
vendors may deny the Corporation’s requests to delay or reduce the payment of
amounts owed to them or to cancel shipments of materials and products purchased
from and to allow the Corporation to return unused materials and products
already received from them.
The
Corporation is not generating cash from operations and has been incurring
significant losses. The Corporation has been funding the Corporation’s
operations primarily with cash proceeds raised through the sale of notes that
are convertible into the Corporation’s common stock, shares of the Corporation’s
common stock, and warrants. Unless the Corporation is able to increase the
Corporation’s revenues and decrease expenses substantially and secure an
external funding source, the Corporation may not be able to pay the
Corporation’s vendors the amount due them and the Corporation will not have
sufficient cash to support the Corporation’s operations for the next six
months.
The
Corporation’s vendors may resort to legal action to try to enforce payment in
full pursuant to the terms or the original payment commitment.
5.9 If the
Corporation fails to develop and introduce new products and services
successfully and in a cost effective and timely manner, the Corporation will not
be able to compete effectively and the Corporation’s ability to generate
revenues will suffer.
The
Corporation operates in a highly competitive, rapidly evolving environment, and
the Corporation’s success depends on the Corporation’s ability to develop and
introduce new products and services that the Corporation’s customers and end
users choose to buy. If the Corporation is unsuccessful at developing and
introducing new products and services that are appealing to the Corporation’s
customers and end users with acceptable quality, prices and terms, the
Corporation will not be able to compete effectively and the Corporation’s
ability to generate revenues will suffer.
The
development of new products and services is very difficult and requires high
levels of innovation. The development process is also lengthy and costly. If the
Corporation fails to anticipate the Corporation’s end users’ needs or
technological trends accurately, or the Corporation is unable to complete the
development of products and services in a cost effective and timely fashion, the
Corporation will be unable to introduce new products and services into the
market or successfully compete with other providers.
As the
Corporation introduces new or enhanced products or integrates new technology
into new or existing products, the Corporation faces risks including, among
other things, disruption in customers’ ordering patterns, excessive levels of
older product inventories, inability to deliver sufficient supplies of new
products to meet customers’ demand, possible product and technology defects, and
a potentially different sales and support environment. Premature announcements
or leaks of new products, features, or technologies may exacerbate some of these
risks. The Corporation’s failure to manage the transition to newer products or
the integration of newer technology into new or existing products could
adversely affect the Corporation’s business, results of operations and financial
condition.
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5.10 The mobile device
industry is highly competitive and many of the Corporation’s competitors have
significantly greater resources to engage in product development, manufacturing,
distribution and marketing.
The
mobile device industry, in which the Corporation is engaged, is a highly
competitive business with companies of all sizes engaged in business in all
areas of the world, including companies with far greater resources than the
Corporation has. There can be no assurance that other competitors, with greater
resources and business connections, will not compete successfully against us in
the future. The Corporation’s competitors may adopt new technologies that reduce
the demand for the Corporation’s products or render the Corporation’s
technologies obsolete, which may have a material adverse effect on the cost
structure and competitiveness of the Corporation’s products, possibly resulting
in a negative effect on the Corporation’s revenues, profitability or
liquidity.
5.11 The Corporation’s
future results could be harmed by economic, political, regulatory and other
risks associated with international sales and operations.
Because
the Corporation plans to sell the Corporation’s products worldwide and most of
the facilities where the Corporation’s future customers devices will be
manufactured, distributed and supported are located outside the United States,
the Corporation’s business is subject to risks associated with doing business
internationally, such as:
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·
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changes
in foreign currency exchange rates;
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·
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the
impact of recessions in the global economy or in specific sub
economies;
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changes
in a specific country’s or region’s political or economic conditions,
particularly in emerging markets;
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·
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changes
in international relations;
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·
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trade
protection measures and import or export licensing
requirements;
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·
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changes
in tax laws;
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·
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compliance
with a wide variety of laws and regulations which may have civil and/or
criminal consequences for them and the Corporation’s officers and
directors who they indemnify;
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·
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difficulty
in managing widespread sales operations;
and
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·
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difficulty
in managing a geographically dispersed workforce in compliance with
diverse local laws and customs.
|
In
addition, the Corporation is subject to changes in demand for the Corporation’s
products resulting from exchange rate fluctuations that make the Corporation’s
products relatively more or less expensive in international markets. If exchange
rate fluctuations occur, the Corporation’s business and results of operations
could be harmed by decreases in demand for the Corporation’s products or
reductions in margins.
While the
Corporation sells the Corporation’s products worldwide, one component of the
Corporation’s strategy is to expand the Corporation’s sales efforts in countries
with large populations and propensities for adopting new technologies. The
Corporation has limited experience with sales and marketing in some of these
countries. There can be no assurance that the Corporation will be able to market
and sell the Corporation’s products in all of the Corporation’s targeted
international markets. If the Corporation’s international efforts are not
successful, the Corporation’s business growth and results of operations could be
harmed.
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5.12 The Corporation
must significantly enhance the Corporation’s sales and product development
organizations.
The
Corporation will need to improve the effectiveness and breadth of the
Corporation’s sales operations in order to increase market awareness and sales
of the Corporation’s products, especially as the Corporation expands into new
markets. Competition for qualified sales personnel is intense, and the
Corporation may not be able to hire the kind and number of sales personnel the
Corporation is targeting. Likewise, the Corporation’s efforts to improve and
refine the Corporation’s products require skilled engineers and programmers.
Competition for professionals capable of expanding the Corporation’s research
and development organization is intense due to the limited number of people
available with the necessary technical skills. If the Corporation is unable to
identify, hire or retain qualified sales, marketing and technical personnel, the
Corporation’s ability to achieve future revenue may be adversely
affected.
5.13 The Corporation
is dependent on the services of the Corporation’s key
personnel.
The
Corporation is dependent on the Corporation’s current management for the
foreseeable future. The loss of the services of any member of management could
have a materially adverse effect on the Corporation’s operations and
prospects.
5.14 If third parties
infringe the Corporation’s intellectual property or if the Corporation is unable
to secure and protect the Corporation’s intellectual property, the Corporation
may expend significant resources enforcing the Corporation’s rights or suffer
competitive injury.
The
Corporation’s success depends in large part on the Corporation’s proprietary
technology and other intellectual property rights. The Corporation relies on a
combination of patents, copyrights, trademarks and trade secrets,
confidentiality provisions and licensing arrangements to establish and protect
the Corporation’s proprietary rights. The Corporation’s intellectual property,
particularly the Corporation’s patents, may not provide us a significant
competitive advantage. If the Corporation fails to protect or to enforce the
Corporation’s intellectual property rights successfully, the Corporation’s
competitive position could suffer, which could harm the Corporation’s results of
operations.
The
Corporation’s pending patent and trademark applications for registration may not
be allowed, or others may challenge the validity or scope of the Corporation’s
patents or trademarks, including patent or trademark applications or
registrations. Even if the Corporation’s patents or trademark registrations are
issued and maintained, these patents or trademarks may not be of adequate scope
or benefit to them or may be held invalid and unenforceable against third
parties.
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The
Corporation may be required to spend significant resources to monitor and police
the Corporation’s intellectual property rights. Effective policing of the
unauthorized use of the Corporation’s products or intellectual property is
difficult and litigation may be necessary in the future to enforce the
Corporation’s intellectual property rights. Intellectual property litigation is
not only expensive, but time consuming, regardless of the merits of any claim,
and could divert attention of the Corporation’s management from operating the
business. Despite the Corporation’s efforts, the Corporation may not be able to
detect infringement and may lose competitive position in the market before they
do so. In addition, competitors may design around the Corporation’s technology
or develop competing technologies. Intellectual property rights may also be
unavailable or limited in some foreign countries, which could make it easier for
competitors to capture market share.
Despite
the Corporation’s efforts to protect the Corporation’s proprietary rights,
existing laws, contractual provisions and remedies afford only limited
protection. Intellectual property lawsuits are subject to inherent uncertainties
due to, among other things, the complexity of the technical issues involved, and
the Corporation cannot ensure that the Corporation will be successful in
asserting intellectual property claims. Attempts may be made to copy or reverse
engineer aspects of the Corporation’s products or to obtain and use information
that the Corporation regard as proprietary. Accordingly, the Corporation cannot
ensure that the Corporation will be able to protect the Corporation’s
proprietary rights against unauthorized third party copying or use. The
unauthorized use of the Corporation’s technology or of the Corporation’s
proprietary information by competitors could have an adverse effect on the
Corporation’s ability to sell the Corporation’s products.
5.15 The Corporation
has an international presence in countries whose laws may not provide protection
of the Corporation’s intellectual property rights to the same extent as the laws
of the United States, which may make it more difficult for us to protect the
Corporation’s intellectual property.
As part
of the Corporation’s business strategy, the Corporation targets customers and
relationships with suppliers and original distribution manufacturers in
countries with large populations and propensities for adopting new technologies.
However, many of these countries do not address misappropriation of intellectual
property or deter others from developing similar, competing technologies or
intellectual property. Effective protection of patents, copyrights, trademarks,
trade secrets and other intellectual property may be unavailable or limited in
some foreign countries. In particular, the laws of some foreign countries in
which the Corporation does business may not protect the Corporation’s
intellectual property rights to the same extent as the laws of the United
States. As a result, the Corporation may not be able to effectively prevent
competitors in these regions from infringing the Corporation’s intellectual
property rights, which would reduce the Corporation’s competitive advantage and
ability to compete in those regions and negatively impact the Corporation’s
business.
5.16 If the
Corporation is unable to obtain key technologies from third parties on a timely
basis and free from errors or defects, the Corporation may have to delay or
cancel the release of certain products or features in the Corporation’s products
or incur increased costs.
The
Corporation licenses third-party software for use in the Corporation’s products,
including the operating systems. The Corporation’s ability to release and sell
the Corporation’s products, as well as the Corporation’s reputation, could be
harmed if the third-party technologies are not delivered to customers in a
timely manner, on acceptable business terms or contain errors or defects that
are not discovered and fixed prior to release of the Corporation’s products and
the Corporation is unable to obtain alternative technologies on a timely and
cost effective basis to use in the Corporation’s products. As a result, the
Corporation’s product shipments could be delayed, the Corporation’s offering of
features could be reduced or the Corporation may need to divert the
Corporation’s development resources from other business objectives, any of which
could adversely affect the Corporation’s reputation, business and results of
operations.
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5.17 The Corporation’s
product strategy is to base the Corporation’s products on software operating
systems that are commercially available to competitors.
The
Corporation’s multimedia phone is based on a commercially available version of
Microsoft’s Windows CE. The Corporation cannot ensure that the Corporation will
be able to maintain this licensing agreement with Microsoft and that Microsoft
will not grant similar rights to the Corporation’s competitors or that the
Corporation will be able to sufficiently differentiate the Corporation’s
multimedia phone from the multitude of other devices based on Windows
CE.
In
addition, there is significant competition in the operating system software and
services market, including proprietary operating systems such as Symbian and
Palm OS, open source operating systems, such as Linux, other proprietary
operating systems and other software technologies, such as Java and RIM’s
licensed technology. This competition is being developed and promoted by
competitors and potential competitors, some of which have significantly greater
financial, technical and marketing resources than the Corporation has, such as
Access, Motorola, Nokia, Sony-Ericsson and RIM. These competitors could provide
additional or better functionality than the Corporation does or may be able to
respond more rapidly than the Corporation can to new or emerging technologies or
changes in customer requirements. Competitors in this market could devote
greater resources to the development, promotion and sale of their products and
services and the third-party developer community, which could attract the
attention of influential user segments.
If the
Corporation is unable to continue to differentiate the operating systems that
the Corporation includes in the Corporation’s mobile computing devices, the
Corporation’s revenues and results of operations could be adversely
affected.
5.18 The market for
touchscreen technologies is volatile, and changing market conditions, or failure
to adjust to changing market conditions, may adversely affect the Corporation’s
revenues, results of operations and financial condition, particularly given the
Corporation’s size, limited resources and lack of
diversification.
The
Corporation operates in the touchscreen technology market, which has seen
significant growth during the past years. The Corporation cannot ensure that
this significant growth in the sales of the touchscreen technology market will
continue. If the Corporation is unable to adequately respond to changes in
demand for the Corporation’s products, the Corporation’s revenues and results of
operations could be adversely affected. In addition, as the Corporation’s
products mature and face greater competition, the Corporation may experience
pressure on the Corporation’s product pricing to preserve demand for the
Corporation’s products, which would adversely affect the Corporation’s margins,
results of operations and financial condition.
This
reliance on the success of and trends in the Corporation’s industry is
compounded by the size of the Corporation’s organization and the Corporation’s
focus on touchscreen technology These factors also make us more dependent on
investments of the Corporation’s limited resources. For example, the Corporation
faces many resource allocation decisions, such as: where to focus the
Corporation’s research and development, geographic sales and marketing and
partnering efforts; which aspects of the Corporation’s business to outsource;
and which operating systems and email solutions to support. Given the size and
undiversified nature of the Corporation’s organization, any error in investment
strategy could harm the Corporation’s business, results of operations and
financial condition.
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5.19 Changes in
financial accounting standards or practices may cause unexpected fluctuations in
and may adversely affect the Corporation’s reported results of
operations.
Any
change in financial accounting standards or practices that cause a change in the
methodology or procedures by which the Corporation tracks, calculates, records
and reports the Corporation’s results of operations or financial condition or
both could cause fluctuations in and adversely affect the Corporation’s reported
results of operations and cause the Corporation’s historical financial
information to not be reliable as an indicator of future results.
5.20 Wars, terrorist
attacks or other threats beyond the Corporation’s control could negatively
impact consumer confidence, which could harm the Corporation’s operating
results.
Wars,
terrorist attacks or other threats beyond the Corporation’s control could have
an adverse impact on the United States, Europe and world economy in general, and
consumer confidence and spending in particular, which could harm the
Corporation’s business, results of operations and financial
condition.
RISKS
RELATED TO OWNING THE CORPORATION’S STOCK
5.21 The Corporation
will issue additional shares of its common stock as a result of the proposed
refinancing activities and the Corporation’s stock price could be negatively
affected.
The
proposed refinancing agreements will require the Corporation to seek shareholder
approval to amend the Corporations bylaws to increase the authorized shares of
common stock from 75,000,000 to an amount greater than 500,000,000. The
Corporation currently has approximately 30,600,000 shares of common stock
outstanding and after the proposed transactions it is estimated that the
Corporation will have greater than 400,000,000 shares of common stock
outstanding. As a result of the issuance of the additional shares of the common
stock the Corporation’s stock price could be negatively affected.
5.22 If the
Corporation continues to experience losses, the Corporation could experience
difficulty meeting the Corporation’s business plan and the Corporation’s stock
price could be negatively affected.
If the
Corporation is unable to gain market acceptance of the Corporation’s mobile
phone handsets, the Corporation will experience continuing operating losses and
negative cash flow from the Corporation’s operations. Any failure to achieve or
maintain profitability could negatively impact the market price of the
Corporation’s common stock. The Corporation anticipates that the Corporation
will continue to incur product development, sales and marketing and
administrative expenses. As a result, the Corporation will need to generate
significant quarterly revenues if the Corporation is to achieve and maintain
profitability. A substantial failure to achieve profitability could make it
difficult or impossible for the Corporation to grow the Corporation’s business.
The Corporation’s business strategy may not be successful, and the Corporation
may not generate significant revenues or achieve profitability. Any failure to
significantly increase revenues would also harm the Corporation’s ability to
achieve and maintain profitability. If the Corporation does achieve
profitability in the future, the Corporation may not be able to sustain or
increase profitability on a quarterly or annual basis.
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5.23 The Corporation’s
certificate of incorporation and bylaws and the Delaware General Corporation Law
contain provisions that could delay or prevent a change in
control.
The
Corporation’s board of directors has the authority to issue up to 2,000,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. The rights of the holders of common stock and/or preferred stock
will be subject to, and may be materially adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock could have the effect of making it more difficult
for a third party to acquire a majority of the Corporation’s outstanding voting
stock. Furthermore, certain other provisions of the Corporation’s certificate of
incorporation and bylaws may have the effect of delaying or preventing changes
in control or management, which could adversely affect the market price of the
Corporation’s common stock. In addition, the Corporation is subject to the
provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law.
5.24 The Corporation’s
stock price has been volatile, and an investment in the Corporation’s stock
could suffer a decline in value.
There has
been significant volatility in the market price and trading volume of equity
securities, which is unrelated to the financial performance of the companies
issuing the securities. These broad market fluctuations may negatively affect
the market price of the Corporation’s common stock. One may not be able to
resell one’s shares at or above the price one’s pays for those shares due to
fluctuations in the market price of the Corporation’s common stock caused by
changes in the Corporation’s operating performance or prospects and other
factors.
Some
specific factors that may have a significant effect on the Corporation’s common
stock market price include:
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actual
or anticipated fluctuations in the Corporation’s operating results or
future prospects;
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the
Corporation’s announcements or the Corporation’s competitors’
announcements of new products;
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the
public’s reaction to the Corporation’s press releases, the Corporation’s
other public announcements and the Corporation’s filings with the
SEC;
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strategic
actions by us or the Corporation’s competitors, such as acquisitions or
restructurings;
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·
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new
laws or regulations or new interpretations of existing laws or regulations
applicable to the Corporation’s business;
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·
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changes
in accounting standards, policies, guidance, interpretations or
principles;
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changes
in the Corporation’s growth rates or the Corporation’s competitors’ growth
rates;
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developments
regarding the Corporation’s patents or proprietary rights or those of the
Corporation’s competitors;
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·
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the
Corporation’s inability to raise additional capital as
needed;
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concern
as to the efficacy of the Corporation’s
products;
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changes
in financial markets or general economic conditions;
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Sales
of common stock by us or members of the Corporation’s management
team;
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certain
anti-dilution features included in certain securities issued in prior
financing transactions; and
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·
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changes
in stock market analyst recommendations or earnings estimates regarding
the Corporation’s common stock, other comparable companies or the
Corporation’s industry generally.
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5.25 Future sales of
the Corporation’s common stock could adversely affect its price and the
Corporation’s future capital-raising activities could involve the issuance of
equity securities, which would dilute an investment in the Corporation and could
result in a decline in the trading price of the Corporation’s common
stock.
The
Corporation may sell securities in the public or private equity markets if and
when conditions are favorable, even if the Corporation does not have an
immediate need for additional capital at that time. Sales of substantial amounts
of common stock, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Corporation’s common stock and the
Corporation’s ability to raise capital. The Corporation may issue additional
common stock in future financing transactions or as incentive compensation for
the Corporation’s executive management and other key personnel, consultants and
advisors. Issuing any equity securities would be dilutive to the equity
interests represented by the Corporation’s then-outstanding shares of common
stock. The market price for the Corporation’s common stock could decrease as the
market takes into account the dilutive effect of any of these issuances.
Furthermore, the Corporation may enter into financing transactions at prices
that represent a substantial discount to the market price of the Corporation’s
common stock or issue securities that have anti-dilution features. A negative
reaction by investors and securities analysts to any discounted sale of the
Corporation’s equity securities or sales of securities with anti-dilution
features could result in a decline in the trading price of the Corporation’s
common stock.
5.26 If registration
rights that the Corporation has previously granted are exercised, then the price
of the Corporation’s common stock may be adversely affected.
The
Corporation has agreed to register with the SEC the shares of common stock
issued to former stockholders in connection with the merger and to participants
in private placement financings the Corporation completed in March 2008 and May
2008. In the event these securities are registered with the SEC, they may be
freely sold in the open market, subject to trading restrictions to which the
Corporation’s insiders holding the shares may be subject from time to time. In
the event that the Corporation fails to register such shares in a timely basis,
the Corporation may have liabilities to such stockholders. The Corporation
expects that the Corporation also will be required to register any securities
sold in future private financings. The sale of a significant amount of shares in
the open market, or the perception that these sales may occur, could cause the
trading price of the Corporation’s common stock to decline or become highly
volatile.
RISKS
RELATED TO OWNING OUR PREFERRED STOCK
5.27 There is no
public market for the Preferred Stock.
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There is
no public for the Preferred Stock to be issued pursuant to this Agreement and
the Company does not intend to apply for listing of the Preferred Stock on any
securities exchange. No assurance can be given that the stockholders
of the Corporation will agree to the conversion ratio for Common Stock set forth
in the Certificate of Designations of Preferred Stock or that an active trading
market for the Preferred Stock will develop. If an active market does
not develop and/or the Preferred Stock is not converted to Common Stock pursuant
to the conversion ratio set forth in the Certificate of Designations of
Preferred Stock, the market price and liquidity of the Preferred Stock may be
adversely affected and you may lose your total investment.
5.28 We expect
volatility in the price of our common stock, which may subject us to securities
litigation.
If we
complete the refinancing transactions, the market for our common stock may be
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will be more volatile than a seasoned issuer
for the indefinite future. In the past, plaintiffs have often initiated
securities class action litigation against a company following periods of
volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.
5.29 The current
worldwide financial and credit markets are difficult to
access.
The
recent collapse of the worldwide financial and credit markets make it extremely
difficult to access source of capital or borrowings, Credit line facilities from
financial institutions, additional private equity investment or debt
arrangements may not be available to us for some time in the future. No
assurances can be given that the Corporation will be successful in obtaining
such additional financing on reasonable terms, or at all. If adequate funds are
not available on acceptable terms, or at all, the Corporation may be unable to
adequately fund the Corporation’s business plans and it could have a negative
effect on the Corporation’s business, results of operations and financial
condition.
THE
SECURITIES TO BE ISSUED INVOLVE A HIGH DEGREE OF RISK AND MAY RESULT IN THE LOSS
OF ONE’S ENTIRE INVESTMENT. ANY PERSON CONSIDERING THE PURCHASE OF THESE
SECURITIES SHOULD BE AWARE OF THESE AND OTHER FACTORS AND SHOULD CONSULT WITH
HIS LEGAL, TAX AND FINANCIAL ADVISORS PRIOR TO EXECUTING THIS AGREEMENT. THE
SECURITIES SHOULD ONLY BE PURCHASED BY PERSONS WHO CAN AFFORD TO LOSE ALL OF
THEIR INVESTMENT.
6. Capitalization
of Shareholder Advances; Total
Liabilities
6.1 On
the Closing Date, except for the obligations listed in Schedule 4.1, any and all
loans, advances, indebtedness and other obligations owed by NewCo to any
officer, director, or shareholder, including the NewCo Stockholders or any
affiliate of such persons, shall be capitalized, cancelled, and
forgiven.
6.2 On
the Closing Date, the total amount of all outstanding liabilities and
obligations of NewCo of any kind shall not exceed USD $_______________, in the
aggregate.
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7. Representations and
Warranties of NewCo and the NewCo Stockholders
NewCo and the NewCo Stockholders hereby
represent and warrant to Neonode, as follows:
7.1 Organization and Good
Standing. NewCo is a corporation duly organized, validly
existing and in good standing under the laws of Xxxxxxx. NewCo has
the power to own its own property and to carry on its business as now being
conducted and is duly qualified to do business in any jurisdiction where so
required except where the failure to so qualify would have no material negative
impact.
7.2 Authority. NewCo
has the power to enter into this Agreement and to perform their respective
obligations hereunder. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by the board of Directors of NewCo and NewCo Stockholders as required
by Swedish law. The execution and performance of this Agreement will
not constitute a material breach of any agreement, indenture, mortgage, license
or other instrument or document to which NewCo or the NewCo Stockholders are a
party and will not violate any judgment, decree, order, writ, rule, statute, or
regulation applicable to NewCo or its properties. The execution and
performance of this Agreement will not violate or conflict with any provision of
the [corporate documents] of NewCo.
7.3 NewCo
Capitalization. As of the date of this Agreement and at the
Closing, the authorized capital stock of NewCo consists of: 1000 shares of
Common Stock, par value $12,7426,(100SEK) each. A complete and
correct list of the security holders of the NewCo immediately prior to the
Closing and immediately following the Closing is as set forth in Exhibit 2 (the
"Cap Table"). The individuals and entities identified in the Cap Table are the
holders of record the lawful owners, beneficially and of record, of all of the
issued and outstanding capital stock of the Company, on a fully-diluted basis
and of all rights thereto, free and clear of any security interest,
participation rights, restrictions, rights, options to purchase, proxies, voting
trust and other voting agreements, calls or commitments of every kind except as
set forth in the Cap Table, and, except as set forth in the Cap Table, none of
the said individuals or entities owns any other stock, options or other rights
to subscribe for, purchase or acquire any capital stock of the Company from the
Company or to the Company's best knowledge from any stockholder of the
Company.
Except as
set forth in the Cap Table there are no outstanding options, warrants, purchase
rights, subscription rights, participation rights, rights of first refusal,
conversion rights, anti-dilution rights, exchange rights, or other rights or
securities, of any nature whatsoever, or other contracts, agreements,
undertakings, promises or commitments that could require NewCo or a stockholder
of the NewCo, to issue, sell, or otherwise cause to become outstanding any of
the NewCo’s capital stock; and no rights were granted by NewCo or by a
stockholder of NewCo and there are no claims possessed by any person enforceable
against NewCo or enforceable against a stockholder of NewCo in law or in equity
to compel such an issuance, adjustment or transfer of NewCo’s or a stockholder
of NewCo’s stock (or any options, warrants, preemptive rights or other rights or
securities, of any nature whatsoever, convertible into or exchangeable for stock
of NewCo) by reason of the execution, closing or performance of this Agreement
or by any other reason. There are no outstanding or authorized stock
appreciation, phantom stock, or similar rights with respect to NewCo or with
respect to a stockholder of NewCo.
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7.4 The Exchange
Shares. The Exchange Shares to be acquired by the NewCo
Stockholders under this Agreement will not be registered under the Securities
Act, or the securities laws of any state, and cannot be transferred,
hypothecated, sold or otherwise disposed of until: (i) a registration statement
with respect to such securities is declared effective under the Securities Act,
or (ii) Neonode receives an opinion of counsel for the transferring stockholder,
reasonably satisfactory to counsel for Neonode, that an exemption from the
registration requirements of the Securities Act is available.
7.5 Legend. The
certificates representing the Exchange Shares shall contain a legend
substantially as follows:
“THE
SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH
RESPECT THERETO IS DECLARED EFFECTIVE UNDER SUCH ACT, OR NEONODE, INC. RECEIVES
AN OPINION OF COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO COUNSEL FOR
NEONODE, INC. THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT IS AVAILABLE.”
7.6 Investment
Intent. Each of the NewCo Stockholders understands that the
Securities are “restricted securities” and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Exchange Shares as principal for its own account for investment purposes only
and not with a view to or for distributing or reselling such Exchange Shares or
any part thereof, has no present intention of distributing any of such Exchange
Shares, and has no arrangement or understanding with any other persons regarding
the distribution of such Exchange Shares (this representation and warranty not
limiting such NewCo Stockholder’s right to sell the Securities in compliance
with applicable securities laws). Each of the NewCo Stockholders is
acquiring the Exchange Shares in the ordinary course of its business. Each of
the NewCo Stockholders does not have any agreement or understanding, directly or
indirectly, with any person to distribute any of the Exchange
Shares.
7.7 Experience of NewCo
Stockholders. Each of the NewCo Stockholders, 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 Exchange Shares, and
has so evaluated the merits and risks of such investment. Each of the
NewCo Stockholders is able to bear the economic risk of an investment in the
Exchange Shares and, at the present time, is able to afford a complete loss of
such investment.
7.8 General
Solicitation. Each of the NewCo Stockholders is not purchasing
the Exchange Shares as a result of any advertisement, article, notice or other
communication regarding the Exchange Shares 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.
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7.9 Limited
Representations. Each of the NewCo Stockholders acknowledges and agrees
that Neonode did not make, nor has it made, any representations or warranties
with respect to the transactions contemplated hereby other than those
specifically set forth in Section 8. Each of the NewCo Stockholders
is aware that: (i) investment in the Corporation involves a high degree of risk,
may result in a lack liquidity, and places substantial restrictions on
transferability of interest; and (ii) no Federal or state agency has made any
finding or determination as to the fairness for investment by the public, nor
has made any recommendation or endorsement, of the Exchange Shares.
7.10 Receipt of
Information. Each of the NewCo Stockholders has been furnished with any
and all materials that he has requested relating to the Corporation and to the
Exchange Shares, and each NewCo Stockholder has been afforded the opportunity to
ask questions of the senior management and directors of the Corporation
concerning the terms and conditions of this transaction and to obtain any
additional information necessary to verify the accuracy of the information
provided to him. Each of the NewCo Stockholders understands that such
material is current information about the Corporation and does not in any way
guarantee future performance or the completion of future proposed events
discussed in such material. Each of the NewCo Stockholders, either
alone or with his professional advisors, has the capacity to protect his own
interests in connection with this transaction.
7.11 Accredited Investor.
If the NewCo Stockholder is a U.S. person, (i) such NewCo Stockholder qualifies
as an “accredited investor” as such term is defined in Regulation D promulgated
under the Securities Act, and (ii) such NewCo Stockholder, if it is a
corporation, partnership, limited liability company, trust, or other business
entity, has not been organized for the purpose of purchasing the Exchange
Shares. In this regard, the NewCo Stockholder represents and warrants
that:
7.11.1 The NewCo Stockholder is
experienced in investment and business matters.
7.11.2 The NewCo Stockholder has made
investments of a speculative nature and has purchased non-registered securities
of United States publicly-owned companies in the past.
7.11.3 The NewCo Stockholder, with its
representatives, has such knowledge and experience in financial, tax, and other
business matters as to enable the NewCo Stockholder to utilize the information
made available by Neonode to evaluate the merits and risks of and to make an
informed investment decision with respect to the purchase of the Exchange
Shares.
7.11.4 The NewCo Stockholder is able to
bear the risk of such investment for an indefinite period and to afford a
complete loss thereof.
7.12 Regulation S
Exemption. If the NewCo Stockholder is not a U.S. Person, the NewCo
Stockholder understands that that the Exchange Shares are being issued to him in
reliance on an exemption from the registration requirements of United States
federal and the state securities laws under Regulation S promulgated under the
Securities Act, and that the Neonode is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments, and understandings
of the NewCo Stockholder set forth herein order to determine the applicability
of such exemptions and the suitability of the NewCo Stockholder to acquire the
Exchange Shares. In this regard, the NewCo Stockholder represents and
warrants that:
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7.12.1
The NewCo Stockholder is not a U.S. Person and is not acquiring the Exchange
Shares for the account or benefit of a U.S. Person.
7.12.2 At
the time of the origination of contact concerning this Agreement and the date of
the execution and delivery of this Agreement, the undersigned was outside of the
United States.
7.12.3
The NewCo Stockholder will not, during the period commencing on the date of
issuance of the Exchange Shares and ending on the first anniversary of such
date, or such shorter period as may be permitted by Regulation S or other
applicable securities law (the "Restricted Period"), offer, sell, pledge or
otherwise transfer the Exchange Shares in the United States, or to a U.S. Person
for the account or for the benefit of a U.S. Person, or otherwise in a manner
that is not in compliance with Regulation S.
7.12.4
The NewCo Stockholder will, after expiration of the Restricted Period, offer,
sell pledge or otherwise transfer the Exchange Shares only pursuant to
registration under the Securities Act or an available exemption therefrom, and,
in accordance with all applicable state foreign securities laws.
7.12.5
The NewCo Stockholder was not in the United States engaged in, and prior to the
expiration of the Restricted Period will not engage in, any short selling of or
any hedging transaction with respect to the Exchange Shares, including without
limitation, any put, call or other option transaction, option writing, or equity
swap.
7.12.6
Neither the NewCo Stockholder nor or any person acting on his behalf has
engaged, nor will engage, in any directed selling efforts to a U.S. Person with
respect to the Exchange Shares, and the NewCo Stockholder and any person acting
on his behalf have complied and will comply with the "offering restrictions"
requirements of Regulation S under the Securities Act.
7.12.7
The transactions contemplated by this Exchange Agreement have not been
pre-arranged with a buyer located in the United States or with a U.S. Person,
and are not part of a plan or scheme to evade the registration requirements of
the Securities Act.
7.12.8
Neither the NewCo Stockholder nor any person acting on his behalf has undertaken
or carried out any activity for the purpose of, or that could reasonably be
expected to have the effect of, conditioning the market in the United States,
its territories or possessions, for any of the Exchange Shares. The
NewCo Stockholder agrees not to cause any advertisement of the Exchange Shares
to be published in any newspaper or periodical or posed in any public place and
not to issue any circular relating to the Exchange Shares, except such
advertisements that include the statements required by Regulation S under the
Securities Act, and only offshore and not in the U.S. or its territories, and
only in compliance with any local applicable securities laws.
7.12.9 Compliance with Local
Laws. Any resale of the Exchange Shares during the “distribution
compliance period” as defined in Ruled 902(f) to Regulation S shall be made only
in compliance with exemptions from registration afforded by Regulation
S. Further, any such sale of the Exchange Shares in any jurisdiction
outside of the United States will be made in compliance with the securities laws
of such jurisdiction. The NewCo Stockholder will not offer to sell or
sell the Exchange Shares in any jurisdiction unless the NewCo Stockholder
obtains all required consents, if any
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7.13 Reliance. Each of the
NewCo Stockholders understands that Neonode is relying on the statements
contained herein to establish an exemption from registration under federal and
state securities laws.
7.14 Brokers. No broker,
investment banker, financial advisor or other person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of any of the NewCo Stockholders.
7.15 Disclosure. NewCo
and the NewCo Stockholders have (and at the Closing will have) provided Neonode
with all information regarding events, conditions and facts materially affecting
the business, financial conditions or results of operation of
NewCo.
8. Representations
and Warranties of
Neonode
Neonode does hereby represent and
warrant to NewCo and the NewCo Stockholders, as follows:
8.1 Organization and Good
Standing. Neonode is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware. Neonode has the corporate power to own its own property and
to carry on its business as now being conducted and is duly qualified to do
business in any jurisdiction where so required except where the failure to so
qualify would have no material negative impact.
8.2 Corporate
Authority. Neonode has the corporate power to enter into this
Agreement and to perform its respective obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Neonode, as required by Delaware law. The execution and
performance of this Agreement will not constitute a material breach of any
agreement, or other document to which Neonode is a party and will not violate
any judgment, decree, order, writ, rule, statute, or regulation applicable to
Neonode or its properties. The execution and performance of this
Agreement will not violate or conflict with any provision of the respective
Certificate of Incorporation or by-laws of Neonode.
8.3 Neonode
Capitalization. As of the date of this Agreement, Neonode is
authorized to issue 75,000,000 shares of Neonode Common Stock, $0.001 par value
per share, of which (i) ____________ shares of Neonode Common Stock are issued
and outstanding, and (iii) 2,000,000 shares of Preferred Stock of which no
shares of Neonode Preferred Stock are issued and outstanding.
8.4 Periodic
Reports. Neonode is current in the filing of all forms or
reports with the SEC, and has been a reporting company under the Securities
Exchange Act of 1934, as amended.
8.5 Disclosure. Neonode
has (and at the Closing will have) provided the NewCo Stockholders with all
publicly available information regarding events, conditions and facts materially
affecting the business, financial conditions or results of operation of
Neonode. Neonode has not now and will not have, at the Closing,
withheld disclosure of publicly available information regarding any such events,
conditions, and facts which it has knowledge of or has reasonable grounds to
know may exist.
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9. Conditions
Precedent
9.1 Conditions Precedent to the
Obligations of NewCo and the NewCo Stockholders.
All obligations of NewCo and the NewCo
Stockholders under this Agreement are subject to the fulfillment, prior to or as
of the Closing Date, as indicated below, of each of the following conditions;
any one or more of which may be waived at Closing by NewCo or the NewCo
Stockholders:
(a) The
representations and warranties by or on behalf of Neonode contained in this
Agreement shall be true in all material respects at and as of Closing Date as
though such representations and warranties were made at and as of such
time.
(b) Neonode
shall have performed and complied in all material respects, with all covenants,
agreements, and conditions set forth in, and shall have executed and delivered
all documents required by this Agreement to be performed or complied with or
executed and delivered by it prior to or at the Closing.
(c) The
Exchange Shares shall have been issued and delivered by Neonode, as contemplated
by this Agreement.
9.2 Conditions Precedent to the
Obligations of Neonode.
All obligations of Neonode under this
Agreement are subject to the fulfillment, prior to or as of the Closing Date, as
indicated below, of each of the following conditions; any one or more of which
may be waived at Closing by Neonode:
(a) The
representations and warranties by or on behalf of NewCo and the NewCo
Stockholders contained in this Agreement or in any certificate or document
delivered pursuant to the provisions hereof shall be true in all material
respects at and as of Closing Date as though such representations and warranties
were made at and as of such time.
(b) NewCo
and the NewCo Stockholders shall have performed and complied in all material
respects, with all covenants, agreements, and conditions set forth in, and shall
have executed and delivered all documents required by this Agreement to be
performed or complied with or executed and delivered by it and them prior to or
at the Closing, including, without limitation the delivery of the NewCo Shares
to Neonode.
(c) The
NewCo Shares shall have been transferred and delivered by the NewCo
Stockholders, as contemplated by this Agreement.
(d) On
the Closing Date, NewCo shall have received the written resignations of all of
the officers and directors of NewCo and the designees of Neonode shall become
the entire board of directors of NewCo.
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10.
No-Sale of the
Exchange Shares
10.1 Until
the first to occur of (i) repurchase of the Exchange Shares by Neonode or its
assignee pursuant to the Repurchase Agreement, (ii) eighteen months from the
Closing or (iii) an M&A Transaction (the period ending upon the first to
occur of the foregoing events, is referred to as the "No Sale Period"), none of
NewCo Stockholders shall transfer the Exchange Shares held or owned by him. The
provisions in this Section 10.1 above shall not apply to a transfer by a NewCo
Stockholder to a Permitted Transferee; provided such Permitted Transferee agrees
in writing to be bound by the terms of this Section 10.1.
10.2 For
purposes of Section 10.1, “M&A Transaction” shall mean the consummation of
(i) the sale of all or substantially all of the securities of the Company, other
than to a wholly-owned subsidiary of the Company; (ii) the sale, lease or other
disposal of all or substantially all of the assets of the Company; or (iii) the
consolidation or merger of the Company with or into any other entity, in one or
a series of related transactions in which the stockholders of the Company prior
to the transaction or series of related transactions hold less than fifty
percent (50%) of the outstanding capital stock of the Company or the surviving
company, as applicable, following such transaction or series of related
transactions.
10.3 For
purposes of Section 10.1, “Permitted Transferee” shall mean for the NewCo
Stockholders (i) any member or members of his/its immediate family; (ii) any
entity which is wholly-owned by such stockholder; (iii) any transferee of shares
by bequest or inheritance or (iv) any transfer to an existing employee of
NewCo.
11.
Miscellaneous
11.1 Waivers. The
waiver of a breach of this Agreement or the failure of any party hereto to
exercise any right under this Agreement shall in no way constitute waiver as to
future breach whether similar or dissimilar in nature or as to the exercise of
any further right under this Agreement.
11.2 Amendment. This
Agreement may be amended or modified only by an instrument of equal formality
signed by the parties or the duly authorized representatives of the respective
Parties.
11.3 Assignment. This
Agreement is not assignable except by operation of law.
11.4 Notice. Until
otherwise specified in writing, the mailing addresses and fax numbers of the
parties of this Agreement shall be as follows:
|
|
To:
Neonode
:
|
____________
____________
Attn: _____________,
President
Tel: (___)
___________
Page 23
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cc: Xxxxxx Xxxxxxxxxx,
Esq.
SRK Law Offices
Xxxxx Science Park
Rehovot, Israel
tel: (000)
000-0000
To: newco and
the newco Stockholders:
cc:
Any
notice or statement given under this Agreement shall be deemed to have been
given if sent by registered mail addressed to the other party at the address
indicated above or at such other address which shall have been furnished in
writing to the addressor.
11.5 Governing
Law. This Agreement shall be construed, and the legal
relations between the parties determined, in accordance with the laws of the
State of Delaware, United States of America, thereby precluding any choice of
law rules which may direct the application of the laws of any other
jurisdiction.
11.6 Publicity. No
publicity release or announcement concerning this Agreement or the transactions
contemplated hereby shall be issued by either party hereto at any time from the
signing hereof without advance approval in writing of the form and substance by
the other party.
11.7 Entire
Agreement. This Agreement (including the Exhibits to be
attached hereto) and the collateral agreements executed in connection with the
consummation of the transactions contemplated herein contain the entire
agreement among the parties with respect to the transactions contemplated
hereby, and supersedes all prior agreements, written or oral, with respect
hereof.
11.8 Headings. The
headings in this Agreement are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement.
11.9 Severability of
Provisions. The invalidity or unenforceability of any term,
phrase, clause, paragraph, restriction, covenant, agreement or provision of this
Agreement shall in no way affect the validity or enforcement of any other
provision or any part thereof.
11.10 Counterparts. This
Agreement may be executed in any number of counterparts, each of which when so
executed, shall constitute an original copy hereof, but all of which together
shall consider but one and the same document.
11.11 Binding
Effect. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns.
[the
balance of this page intentionally left blank – signature pages
follow]
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IN WITNESS WHEREOF, the
parties have executed this Agreement on the date and year first above
written.
|
(a
Delaware corporation)
|
||||
|
_______________________
|
By:
|
__________________________
|
||
|
___________,
Secretary
|
_____________,
President
|
|||
|
ATTEST:
|
[NEWCO]
|
|||
|
(a
corporation organized under the laws of Xxxxxxx)
|
||||
|
______________________
|
By:
|
__________________________
|
||
|
Secretary
|
_____________,
|
|||
|
Director
|
||||
|
NEWCO
STOCKHOLDERS:
|
||||
|
ATTEST:
|
||||
|
By:
|
________________________
|
____________________________________
|
||
|
________________________
|
||||
|
ATTEST:
|
||||
|
By:
|
________________________
|
____________________________________
|
||
|
________________________
|
||||
|
ATTEST:
|
||||
|
________________________
|
____________________________________
|
|||
|
________________________
|
||||
Page 25
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EXHIBIT
1
REPURCHASE
AGREEMENT
Page 26
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