STOCK PURCHASE AGREEMENT
among
L-3 COMMUNICATIONS CORPORATION,
Investor,
and
INNOVATIVE MICRO TECHNOLOGY, INC.,
the Company
Dated as of August ___, 2002
THE OFFER AND SALE OF THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
QUALIFIED UNDER ANY STATE OR NON-U.S. SECURITIES LAWS. THE SECURITIES ARE BEING
OFFERED AND SOLD IN RELIANCE ON THE EXEMPTIONS AFFORDED BY REGULATION D
PROMULGATED UNDER THE SECURITIES ACT. THE SECURITIES MAY NOT BE TRANSFERRED OR
RESOLD WITHOUT REGISTRATION AND QUALIFICATION UNDER THE SECURITIES ACT AND
APPLICABLE STATE AND NON-U.S. SECURITIES LAWS, UNLESS AN EXEMPTION FROM
REGISTRATION AND QUALIFICATION UNDER THE SECURITIES ACT AND SUCH LAWS IS THEN
AVAILABLE.
THIS AGREEMENT HAS NOT BEEN FILED WITH OR REVIEWED OR APPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR BY THE ATTORNEY GENERAL OR SECURITIES AGENCY OF ANY
STATE OR NON-U.S. JURISDICTION. NONE OF THE FOREGOING HAS PASSED UPON OR
ENDORSED THE MERITS OF THIS OFFERING OR THE SECURITIES. ANY REPRESENTATION TO
THE CONTRARY IS ILLEGAL.
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.....................................................................................1
Section 1.1 Definition of Certain Terms...................................................................1
Section 1.2 Construction..................................................................................6
ARTICLE II SALE AND PURCHASE OF THE SHARES................................................................6
Section 2.1 Purchase and Sale of Common Stock and Warrants................................................6
Section 2.2 Place and Date................................................................................7
Section 2.3 Payment and Delivery..........................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................7
Section 3.1 Corporate Status..............................................................................7
Section 3.2 Authorization, etc............................................................................7
Section 3.3 Capital Stock of the Company..................................................................8
Section 3.4 No Conflicts, etc.............................................................................9
Section 3.5 Financial Statements..........................................................................9
Section 3.6 Absence of Undisclosed Liabilities............................................................9
Section 3.7 Taxes.........................................................................................9
Section 3.8 Absence of Changes...........................................................................10
Section 3.9 Litigation...................................................................................11
Section 3.10 Compliance with Laws; Governmental Approvals and Consents...................................12
Section 3.11 Assets......................................................................................12
Section 3.12 Contracts...................................................................................13
Section 3.13 Product Warranties..........................................................................13
Section 3.14 Intellectual Property.......................................................................13
Section 3.15 Insurance...................................................................................14
Section 3.16 Environmental Matters.......................................................................15
Section 3.17 Employees, Labor Matters....................................................................15
Section 3.18 Investor's Percentage Ownership.............................................................15
Section 3.19 Brokers, Finders, etc.......................................................................16
Section 3.20 Dealings with Affiliates....................................................................16
Section 3.21 Disclosure..................................................................................16
Section 3.22 This section intentionally omitted..........................................................16
Section 3.23 Territorial Restrictions....................................................................16
Section 3.24 Effect of Transaction.......................................................................16
Section 3.25 Antitakeover Provisions.....................................................................16
Section 3.26 No Retention Agreements.....................................................................16
Section 3.27 Real Property Holding Company...............................................................17
Section 3.28 Government Contracts........................................................................17
Section 3.29 Affiliated Group Liability..................................................................17
Section 3.30 Invention and Secrecy Agreements............................................................18
Section 3.31 Registration Rights.........................................................................18
Section 3.32 Officers, Directors and Shareholders........................................................18
Section 3.33 No Intervention.............................................................................18
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTOR....................................................18
Section 4.1 Corporate Status.............................................................................18
Section 4.2 Authorization................................................................................18
Section 4.3 No Conflicts, etc............................................................................19
Section 4.4 Litigation...................................................................................19
Section 4.5 Brokers, Finders, etc........................................................................19
Section 4.6 Purchase Entirely for Own Account............................................................19
Section 4.7 Investment Experience........................................................................19
Section 4.8 Disclosure of Information....................................................................19
Section 4.9 Accredited Investor..........................................................................20
Section 4.10 Restricted Securities.......................................................................20
ARTICLE V COVENANTS......................................................................................20
Section 5.1 Covenants of the Company.....................................................................20
Section 5.2 Covenants of Investor........................................................................23
Section 5.3 Legends......................................................................................24
Section 5.4 Removal of Legends...........................................................................24
Section 5.5 Further Restriction on Transfer..............................................................24
ARTICLE VI CONDITIONS PRECEDENT..........................................................................25
Section 6.1 Conditions to Obligations of Each Party......................................................25
Section 6.2 Conditions to Obligations of Investor........................................................25
Section 6.3 Conditions to Obligations of Company.........................................................26
ARTICLE VII ANTI-DILUTION RIGHTS.........................................................................27
Section 7.1 Anti-Dilution Right..........................................................................27
ARTICLE VIII TERMINATION.................................................................................28
Section 8.1 Termination..................................................................................28
Section 8.2 Effect of Termination........................................................................29
ARTICLE IX INDEMINIFICATION..............................................................................29
Section 9.1 By Company...................................................................................29
Section 9.2 By Investor..................................................................................30
Section 9.3 Indemnification Procedures...................................................................30
Section 9.4 Expiration of Representations and Warranties, etc............................................32
Section 9.5 Set-Off......................................................................................32
ARTICLE X REGISTRATION RIGHTS............................................................................32
Section 10.1 Definitions.................................................................................32
Section 10.2 Demand Registration Rights..................................................................33
Section 10.3 Expenses of Demand Registration.............................................................35
Section 10.4 Form S-3 Registration Rights................................................................35
Section 10.5 Company Registration........................................................................36
Section 10.6 Expenses of Company Registration Rights.....................................................37
Section 10.7 Indemnification.............................................................................37
Section 10.8 Reports Under Securities Exchange Act of 1934...............................................39
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Section 10.9 Assignment of Registration Rights...........................................................40
Section 10.10 Subsequent Registration Rights.............................................................40
Section 10.11 Market Stand-Off Agreement.................................................................40
Section 10.12 Amendment of Registration Rights...........................................................41
ARTICLE XI MISCELLANEOUS.................................................................................41
Section 11.1 Expenses....................................................................................41
Section 11.2 Severability................................................................................41
Section 11.3 Notices.....................................................................................42
Section 11.4 Attorneys' Fees.............................................................................42
Section 11.5 Liability for Transfer Taxes................................................................43
Section 11.6 Headings....................................................................................43
Section 11.7 Entire Agreement............................................................................43
Section 11.8 Counterparts................................................................................43
Section 11.9 Governing Law...............................................................................43
Section 11.10 Binding Effect.............................................................................44
Section 11.11 No Third Party Beneficiaries...............................................................44
Section 11.12 Amendment, Waivers, etc....................................................................44
Section 11.13 Company Acknowledgment.....................................................................44
Section 11.14 Company Acknowledgment.....................................................................44
Section 11.15 Titles and Subtitles.......................................................................44
iii
EXHIBITS
Exhibit A...................................Forms of Warrant
Exhibit B...................................Form of Officer's Certificate
SCHEDULES
Schedule 3.6................................Schedule of Liabilities
Schedule 3.8................................Material Adverse Changes
Schedule 3.9(a).............................Litigation
Schedule 3.9(b).............................Unsatisfied Judgments, Consent Decrees, Injunctions
Schedule 3.11(a) Real Property
Schedule 3.11(c) Permitted Liens
Schedule 3.12 Contracts
Schedule 3.13 Warranties
Schedule 3.14(e) Intellectual Property Supplied by the Company Without a Binding License
Schedule 3.15 Insurance Policies
Schedule 3.16(a) Non-Compliance With Environmental Laws
Schedule 3.16(b) Other Environmental Matters
Schedule 3.17 Exceptions to At-Will Employment
Schedule 3.20 Dealings With Affiliates
Schedule 3.26 Retention Agreements
Schedule 3.28 Government Contracts
Schedule 3.31 Registration Rights
Schedule 3.32 Officers, Directors and Shareholders
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This STOCK PURCHASE AGREEMENT is made as of August __, 2002, between L-3
Communications Corporation, a Delaware corporation ("Investor") and Innovative
Micro Technology, Inc., a Delaware corporation (the "Company").
R E C I T A L S :
- - - - - - - -
A. The Company is in the business of developing and supplying
micro-electronic machines (MEMs) technology and operating a fully-equipped and
functional wafer fabricating facility on a foundry basis.
B. Upon the terms and subject to the conditions set forth herein, Investor
wishes to purchase (i) 935,000 shares of common stock, $0.0001 par value per
share, of the Company (the "Shares") and (ii) a warrant to purchase up to an
additional 167,000 shares of Common Stock at a purchase price of $5.35 per share
and a warrant to purchase up to an additional 700,000 shares of Common Stock at
a purchase price of $7.29 per share, such warrants in the forms attached hereto
as Exhibit A (the "Warrants").
C. The Company wishes to sell the Shares and the Warrants to Investor.
D. Capitalized terms have the meanings assigned to them in Article I.
NOW, THEREFORE, in consideration of the foregoing facts and the mutual
covenants, representations and warranties made herein and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definition of Certain Terms.
The terms defined in this Section 1.1, whenever used in this Agreement,
shall have the respective meanings indicated below for all purposes of this
Agreement.
"Affiliate": of a Person means a Person that directly or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, the Person or a member of such Person's immediate family.
"Agreement": means this Stock Purchase Agreement (including the Exhibits
and the Schedules as provided herein), as the same from time to time may be
amended, supplemented, modified or waived.
"Applicable Law": means all applicable provisions of all (i) constitutions,
treaties, statutes, laws (including the common law), rules, regulations,
ordinances, codes or orders of any Governmental Authority, (ii) Governmental
Approvals, and (iii) orders, decisions, injunctions, judgments, awards and
decrees of or agreements with any Governmental Authority.
"Anti-Dilution Shares": has the meaning set forth in Section 7.1.
"Closing": has the meaning set forth in Section 2.2.
"Closing Date": has the meaning set forth in Section 2.2.
"Code": means the Internal Revenue Code of 1986, as amended.
"Common Stock": means the common stock, par value $0.0001 of the Company,
and also shall include any securities issued or issuable with respect to the
Common Stock, by way of a stock dividend, stock split, combination of shares,
recapitalization, restructuring, merger, consolidation or other reorganization
of the Company.
"Company": has the meaning set forth in the first paragraph of this
Agreement.
"Company Indemnitees": has the meaning set forth in Section 9.2.
"Company Threshold Amount": has the meaning set forth in Section 9.1(b).
"Competitive Product": has the meaning set forth in Section 5.1(l).
"Consent": means any consent, approval, authorization, stipulation, waiver,
permit, grant, franchise, concession, agreement, license, exemption or order of,
registration, certificate, declaration or filing with, or report or notice to,
any Person, including any Governmental Authority.
"Contracts": has the meaning set forth in Section 3.12(a).
"Control" (including the terms "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
"Debt": means, as to any Person, all obligations for payment of principal,
interest, penalties and collection costs thereof, with respect to money
borrowed, incurred or assumed (including guarantees), and other similar
obligations in the nature of a borrowing by which such Person will be obligated
to pay.
"$" or "dollars": means lawful money of the United States of America.
"Environmental Laws": means all Applicable Laws relating to the protection
of the environment, to human health and safety, or to any emission, discharge,
generation, processing, storage, holding, abatement, existence, Release,
threatened Release, arranging for the disposal or transportation of any
Hazardous Substances.
"Environmental Liabilities and Costs": means all Losses: (a) relating to
the alleged presence of Hazardous Substances, including claims for diminution of
property value, personal injury or property damages; (b) imposed by, under or
2
pursuant to Environmental Laws, including all fees, disbursements and expenses
of counsel, court costs and expert witness fees, based on, arising out of or
otherwise in respect of (i) the ownership or operation of the Company or Real
Property, by Company, and (ii) the environmental conditions existing on the
Closing Date on, under, above, or about any Real Property owned, leased or
operated by Company.
"ERISA": means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act": means the Securities Exchange Act of 1934, as amended.
"Financial Statements": has the meaning set forth in Section 3.5.
"GAAP": means United States generally accepted accounting principles.
"Governmental Approval": means any Consent of, with or to any Governmental
Authority.
"Governmental Authority": means any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including any government authority, agency, department, board,
commission or instrumentality of the United States, any State of the United
States or any political subdivision thereof, and any tribunal or arbitrator(s)
of competent jurisdiction, and any self-regulatory organization.
"Government Bid": means any offer to sell made by the Company prior to the
Closing Date which, if accepted, would result or may result in a Government
Contract.
"Government Contract": means any prime contract, subcontract, teaming
agreement or arrangement, joint venture, basic ordering agreement, pricing
agreement, letter contract, purchase order, delivery order, change order,
Government Bid or other arrangement of any kind, between the Company and (i) any
Governmental Authority, (ii) any prime contractor of a Governmental Authority in
its capacity as a prime contractor, or (iii) any subcontractor with respect to
any contract of a type described in clauses (i) or (ii) above.
"Hazardous Substances": means any substance that: (i) requires
investigation, removal or remediation under any Environmental Law, or is
defined, listed or identified as a "hazardous waste," "hazardous material,"
"toxic substance," "contaminant," "pollutant," "oil" or "hazardous substance"
thereunder; or (ii) is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated as
such by any Governmental Authority or Environmental Law.
"include," "includes" and "including": shall be construed as if followed by
the phrase "without being limited to."
"Indemnified Party": has the meaning set forth in Section 9.3.
"Indemnifying Party": has the meaning set forth in Section 9.3.
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"Intellectual Property": means: (a) any and all trademarks, service marks,
brand names, certification marks, trade dress, assumed names, trade names, logos
and other indications of origin, sponsorship or affiliation, together with the
goodwill associated therewith (whether the foregoing are registered or
unregistered); registrations thereof in any jurisdiction and applications to
register any of the foregoing in any jurisdiction, and any extension,
modification or renewal of any such registration or application; (b) any and all
inventions, developments, improvements, discoveries, know how, concepts and
ideas, whether patentable or not in any jurisdiction; (c) any and all patents,
revalidations, industrial designs, industrial models and utility models, patent
applications (including reissues, continuations, divisions,
continuations-in-part and extensions) and patent disclosures; (d) any and all
mask works and other semiconductor chip rights and registrations thereof; (e)
any and all non-public information, trade secrets and proprietary or
confidential information and rights in any jurisdiction to limit the use or
disclosure thereof by any Person; (f) any and all writings and other works,
whether copyrighted, copyrightable or not in any jurisdiction, such works
including computer programs and software (including source code, object code,
data and databases); (g) any and all copyrights, copyright registrations and
applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; (h) any and all other intellectual property or
proprietary rights; (i) any and all agreements, licenses, immunities, covenants
not to xxx and the like relating any of to the foregoing; and (j) any and all
claims or causes of action arising out of or related to any infringement or
misappropriation of any of the foregoing.
"Inventories": means all inventories of raw materials, work in process,
finished products, goods, spare parts, replacement and component parts, and
office and other supplies (whether on hand, in-transit or on order).
"Investor": has the meaning set forth in the first paragraph of this
Agreement.
"Investor Indemnitees": has the meaning set forth in Section 9.1.
"Investor's Threshold Amount": has the meaning set forth in Section 9.2.
"IRS": means the United States Internal Revenue Service.
"Knowledge": as to the Company, means the actual knowledge of Xxxx Xxxxxx
or Xxxxx Xxxxxxxxx after due inquiry.
"Leased Real Property": means all space leased pursuant to the Leases.
"Leases": means the real property leases, subleases, use agreements,
licenses and occupancy agreements pursuant to which the Company is the lessee,
sublessee, user, licensee or occupant.
"Lien": means any mortgage, pledge, hypothecation, right of others, claim,
security interest, encumbrance, lease, sublease, license, occupancy agreement,
adverse claim or interest, easement, covenant, encroachment, burden, title
defect, title retention agreement, voting trust agreement, interest, equity,
option, lien, right of first refusal, charge or other restriction or limitation.
4
"Losses": has the meaning set forth in Section 9.1.
"Material Adverse Effect": means any event, circumstance, occurrence, fact,
condition, change or effect that is materially adverse to the business,
operations, results of operations, financial condition, prospects, properties,
assets or liabilities of the Company.
"Military Market": has the meaning set forth in Section 5.1(l).
"New Securities": has the meaning set forth in Section 7.2.
"Notice": has the meaning set forth in Section 13.3.
"Order": means the order filed with the U.S. Bankruptcy Court for the
Central District of California on November 3, 2001 confirming the Reorganization
Plan.
"Permitted Liens": has the meaning set forth in Section 3.11.
"Percentage Equity": has the meaning set forth in Section 7.1.
"Person": means any natural person, firm, partnership, association,
corporation, company, limited liability company, trust, business trust,
Governmental Authority or other entity.
"Preferred Stock": has the meaning set forth in Section 3.3(a).
"Purchase Price": has the meaning set forth in Section 2.1.
"Registrable Securities": has the meaning set forth in Section 10.1(c).
"Registration Expenses": has the meaning set forth in Section 10.1(g).
"Release": means any releasing, disposing, discharging, injecting,
spilling, leaking, leaching, pumping, dumping, emitting, escaping, emptying,
seeping, dispersal, migration, transporting, placing and the like, including the
moving of any materials through, into or upon, any land, soil, surface water,
ground water or air, or otherwise entering into the environment.
"Reorganization Plan": means the Third Amended Plan of Reorganization under
Chapter 11 of the Bankruptcy Code, dated as of September 24, 2001.
"SEC": means the United States Securities and Exchange Commission.
"Securities" means, collectively, the Shares and the Warrants.
"Securities Act": means the Securities Act of 1933, as amended.
"Shares": has the meaning set forth in paragraph B of the recitals at the
head of this Agreement, and also shall include any securities issued or issuable
5
with respect thereto, by way of a stock dividend, stock split, combination of
shares, recapitalization, restructuring, merger, consolidation or other
reorganization of the Company.
"Subsidiary": means each corporation or other Person in which a Person owns
or controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interests.
"Tangible Property": has the meaning set forth in Section 3.11(b).
"Tax Return": means any return, report, declaration, form, claim for refund
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Taxes": means any federal, state, provincial, local or foreign income,
alternative, minimum, accumulated earnings, personal holding company, franchise,
capital stock, net worth, capital, profits, windfall profits, gross receipts,
value added, sales, use, goods and services, excise, customs duties, transfer,
conveyance, mortgage, registration, stamp, documentary, recording, premium,
severance, environmental (including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy, license,
occupational, employment, unemployment insurance, social security, disability,
workers' compensation, payroll, health care, withholding, estimated or other
similar tax, duty or other governmental charge or assessment or deficiencies
thereof, and including any interest, penalties or additions to tax attributable
to the foregoing.
"Transfer Taxes": has the meaning set forth in Section 13.5.
"Treasury Regulations": means the regulations prescribed pursuant to the
Code.
"2001 Year End Unaudited Balance Sheet": has the meaning set forth in
Section 3.5.
"Warrants": has the meaning set forth in recital B at the head of this
Agreement.
"Warrant Shares": has the meaning set forth in Section 10.1.
Section 1.2 Construction.
All references herein to a Section, Article, Exhibit or Schedule are to a
Section, Article, Exhibit or Schedule of or to this Agreement, unless otherwise
indicated.
ARTICLE I
SALE AND PURCHASE OF THE SHARES
Section 1.0 Purchase and Sale of Common Stock and Warrants.
Subject to the terms and conditions of this Agreement, at the Closing,
Investor agrees to purchase, and the Company agrees to sell to Investor: (1) the
Shares; and (2) the Warrants, for an aggregate purchase price of Five Million
Dollars ($5,000,000) (the "Purchase Price").
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Section 2.2 Place and Date.
The closing of the sale and purchase of the Shares and Warrants (the
"Closing") shall take place at 10:00 A.M. local time on August __, 2002, or such
other time and place upon which the parties may agree. The day on which the
Closing actually occurs is herein sometimes referred to as the "Closing Date."
Section 2.3 Payment and Delivery.
At the Closing, Investor shall deliver the Purchase Price by wire transfer
in immediately available funds to the account designated by the Company, against
delivery by the Company of certificates evidencing the Shares and the
certificates representing the Warrants.
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor as follows:
Section 3.1 Corporate Status.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with full corporate power
and authority to carry on its business and to own or lease and to operate its
properties as and in the places where its business is conducted and such
properties are owned, leased or operated. The Company is duly qualified or
licensed to do business and is in good standing in any jurisdiction where the
character of its properties owned or leased or the nature of its activities
would require it to be so qualified or registered, except where the failure to
do so would not have a Material Adverse Effect on the Company.
(b) The Company has delivered to Investor true, complete and correct copies
of the Company's certificate of incorporation and by-laws, as amended and in
effect on the date hereof and on the Closing Date. The Company is not in
violation of its certificate of incorporation or by-laws. The stock books of the
Company that have been made available to Investor for its inspection are true,
correct and complete. The minute books of the Company, as previously made
available to Investor, contain accurate records of all meetings of and
resolutions of, or written consents by, the stockholders or Board of Directors
of the Company since November 16, 2001.
Section 3.2 Authorization, etc.
The Company has all requisite power and authority (corporate or otherwise)
to execute and deliver this Agreement, to perform fully its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery by the Company of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by all requisite
corporate action of the Company. The Company has duly executed and delivered
this Agreement. This Agreement is a legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization and other laws of
7
general applicability relating to or affecting creditors' rights and to general
principles of equity.
Section 3.3 Capital Stock of the Company.
(a) Immediately prior to the Closing, the authorized capital stock of the
Company is 25,000,000 shares, consisting of:
(i) Common Stock. 22,500,000 shares of common stock, $0.0001 par value
per share, of which zero shares are issued and outstanding. The Company
will issue 4,500,000 shares of Common Stock in 2002 pursuant to the
Reorganization Plan and the Order.
(ii) Preferred Stock. 22,500,000 shares of preferred stock, par value
$0.0001 per share (the "Preferred Stock"), of which zero shares are issued
and outstanding.
(iii) Other Securities. Options and warrants to acquire from the
Company an aggregate of 1,247,300 shares of capital stock at an average
exercise per share of $5.00. In addition, the Company has issued
Convertible Notes in a principal amount of $4,136,918, which are
convertible into Common Stock at a price of $8.20 per share. Further, the
Company has issued reciprocal warrants and calls with a term ending
November 16, 2004 at exercise prices of $20.00 and above, the exercise of
which will have no net effect on the Company's outstanding capital stock.
The Company has granted 500,000 options to purchase common stock under the
2001 Stock Incentive Plan at an exercise price of $0.0001 per share.
No Common Stock constitutes treasury stock. No other capital stock is
authorized.
(b) All the issued and outstanding shares of the Company are validly
issued, fully paid and nonassessable and have been issued in substantial
compliance with all material Applicable Laws.
(c) Except as provided in Section 3.3(a), there are no outstanding
subscriptions, options, rights, warrants, stock-based or stock-related awards,
convertible, exercisable or exchangeable securities, or other agreements or
commitments obligating the Company to issue, grant, award, purchase, acquire,
sell or transfer any shares of the Company's capital stock of any class, or
other securities of the Company (including any agreement or commitment
obligating the Company to enter into any employee compensation arrangement based
on any valuation or transaction price of, or change of ownership in, shares of
its capital stock), and the Company shall not issue, grant, award, purchase,
acquire, sell or transfer such capital stock or other securities prior to the
Closing. There are no voting trusts, proxies or other agreements or
understandings to which the Company is a party with respect to the voting of
capital stock.
(d) When issued to Investor against payment in full of the Purchase Price,
the Shares will be validly issued, fully paid and non-assessable, and the
Warrants will represent the rights they purport to represent.
8
(e) The Company does not own, directly or indirectly, any interest or
investment (whether in equity or debt) in any Person.
Section 3.4 No Conflicts, etc.
The execution, delivery and performance of this Agreement, and the
consummation of the transaction contemplated hereby, do not and will not
conflict with or result in a violation of or a default under (with or without
the giving of notice or the lapse of time or both), or result in the
acceleration of or give rise in any party the right to terminate, modify or
cancel under, or result in the loss of any rights, privileges, options or
alternatives under, or result in the creation of any Lien on any of the
properties or assets of the Company under (i) the certificate of incorporation
or by-laws of the Company, (ii) any Applicable Law applicable to the Company or
any of its properties or assets, or (iii) any Contract to which the Company is a
party or by which the Company or any of its property is bound. Except for
securities notice filings that will have been made prior to Closing or that will
be made by the Company promptly after Closing, no Governmental Approval or other
Consent is required to be obtained or made by the Company in connection with the
execution and delivery of this Agreement or the consummation of the transaction
contemplated hereby.
Section 3.5 Financial Statements.
The Company has delivered to Investor (a) the audited balance sheet and the
statements of income, cash flows and stockholders' equity of the Company for the
year ended December 31, 2001, and the unaudited interim balance sheet and
statements of income, cash flows and stockholders' equity of the Company for the
quarter ended March 31, 2002 (collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with GAAP consistently
applied and fairly present the financial condition and results of operations of
the Company as at and for the periods specified therein.
Section 3.6 Absence of Undisclosed Liabilities.
The Company has no debts, claims, liabilities or obligations of any nature,
whether known or unknown, absolute, accrued, contingent or otherwise and whether
due or to become due, asserted or unasserted, constituting a Material Adverse
Effect, except (a) as set forth on Schedule 3.6. Schedule of Liabilities, (b) to
the extent disclosed or reserved against in the 2001 Year End Unaudited Balance
Sheet, and (c) for non-material liabilities and obligations that were incurred
after December 31, 2001 in the ordinary course of business consistent (in amount
and kind) with past practice.
Section 3.7 Taxes.
(a) The Company has duly and timely filed all Tax Returns with respect to
Taxes required to be filed on or before the Closing Date. All such tax returns
are true, complete and correct. All other taxes owed by the Company (whether or
not shown on any Tax Return) have been duly and timely paid. The Company has not
extended or otherwise waived the benefit of any applicable statute of
limitations or agreed to any extension of time with respect to a Tax assessment
or deficiency.
9
(b) The Company has withheld all required amounts in respect of Taxes from
its employees, agents, contractors and nonresidents and, to the extent required,
has remitted such amounts to the proper agencies.
(c) There is no dispute or claim concerning any Tax Liability of the
Company either (i) claimed or raised by any Governmental Authority in writing,
or (ii) as to which any Company or any of the directors and officers (and
employees responsible for Tax matters) of the Company has knowledge based upon
personal contact with any agent of such Governmental Authority. Company has
delivered to Investor correct and complete copies of all federal, state, local
and foreign income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company since the date of the
formation of the Company.
(d) The Company is not a "foreign person" within the meaning of Section
1445(b)(2) of the Code.
Section 3.8 Absence of Changes.
Except as set forth in Schedule 3.8, since December 31, 2001, the Company
has not:
(a) suffered any Material Adverse Effect or obtained knowledge of any event
that might reasonably be expected to cause the Company to suffer a Material
Adverse Effect in the future;
(b) incurred, assumed, guaranteed or discharged any additional, material
obligation or liability, absolute, accrued, contingent or otherwise, whether due
or to become due, or any additional indebtedness (including any Debt) beyond
that already listed and outstanding prior to December 31, 2001, except current
liabilities for trade or business obligations incurred in connection with the
purchase of goods or services in the ordinary course of business consistent (in
amount and kind) with prior practice;
(c) mortgaged, pledged or subjected to any other Lien, any property,
business or assets, tangible or intangible;
(d) sold, transferred, leased to others or otherwise disposed of any
material assets, except for production of the Company sold in the ordinary
course of business (consistent with past practice), or canceled or compromised
any debt or claim, or waived or released any right of substantial value;
(e) received any notice of termination of any Contract;
(f) suffered any damage, destruction or loss (whether or not covered by
insurance), in any case or in the aggregate, in excess of $50,000;
(g) transferred or granted any rights under, or entered into any settlement
regarding the breach or infringement of, any Intellectual Property, or modified
any existing rights with respect thereto;
10
(h) made any material change in the rate of compensation, commission, bonus
or other direct or indirect remuneration payable, or paid or agreed or orally
promised to pay, conditionally or otherwise, any bonus, incentive, retention or
other compensation, retirement, welfare, fringe or severance benefit or vacation
pay, to or in respect of any employee, distributor or agent of the Company;
(i) made any change in the accounting or auditing methods, practices or
principles of the Company;
(j) encountered any labor union organizing activity, had any actual or
threatened employee strikes, work stoppages, slowdowns or lockouts, or had any
material change in its relations with its employees, distributors, agents,
customers or suppliers;
(k) entered into any material transaction or Contract other than in the
ordinary course of business, or paid or agreed to pay any legal, accounting,
brokerage, finder's fee, Taxes or other expenses in connection with, or incurred
any severance pay obligations by reason of, this Agreement or the transactions
contemplated hereby;
(l) made any material grant of credit to any customer or distributor on
terms or in amounts materially more favorable than in the ordinary course of
business;
(m) amended its charter or by-laws or merged with or into or consolidated
with any other Person, subdivided, combined or in any way reclassified any
shares of its capital stock or changed or agreed to change in any manner the
rights of its outstanding capital stock or the character of its business;
(n) made any declaration of, or set aside or paid, any dividend or other
distribution (whether in cash, stock or other property) with respect to the
capital stock of the Company, or issued, pledged or sold any shares of capital
stock of the Company, or any other securities or rights, convertible into or
exchangeable for or conferring the right to purchase shares of capital stock of
the Company (or entered into any agreement, arrangement or other understanding
to do the same) or directly or indirectly purchased, redeemed, retired or
otherwise acquired any shares of capital stock of the Company or other
securities convertible into, exchangeable for or conferring the right to
purchase shares of capital stock of the Company (or entered into any agreement,
arrangement or other understanding to do the same); or
(o) taken any action or omitted to take any action that would result in the
occurrence of any of the foregoing.
Section 3.9 Litigation.
(a) Other than as disclosed on Schedule 3.9(a), there is no action, claim,
demand, suit, proceeding, arbitration, grievance, citation, summons, subpoena,
inquiry or investigation, civil, criminal, regulatory or otherwise, in law or in
equity, pending and served or, to the Knowledge of the Company, threatened
against or relating to the Company seeking unspecified damages, damages in
11
excess of $50,000 or any injunctive or other equitable relief except for any
unresolved claims that are not material in connection with the Company's
bankruptcy.
(b) Except as set forth on Schedule 3.9, there are no material judgments
unsatisfied against the Company or consent decrees or injunctions to which the
Company is subject.
(c) There is no action, claim, suit or proceeding pending, or to the
Company's knowledge, threatened, by or against or affecting the Company in
connection with or relating to the transactions contemplated by this Agreement
or of any action taken or to be taken in connection herewith or the consummation
of the transactions contemplated hereby.
(d) Since November 16, 2001 and to the Knowledge of the Company, during the
past five years, there have been no product liability claims, suits, actions or
proceedings involving the Company or relating to products or services
manufactured, sold or provided by the Company.
Section 3.10 Compliance with Laws; Governmental Approvals and Consents.
(a) The Company has complied in all material respects with all Applicable
Laws applicable to the Company.
(b) No Governmental Approvals and other Consents are necessary for, or
otherwise material to, the conduct of the business of the Company, except as has
been obtained.
Section 3.11 Assets.
(a) Schedule 3.11(a) sets forth a complete list of the real property owned
by the Company.
(b) Leases. (a) The Leases are in full force and effect and constitute
legal and binding obligations of the Company and the other parties thereto,
enforceable according to their terms, (b) the Company is not in default under
any of the Leases, (c) to the Knowledge of the Company, no other party to any of
the Leases is in default thereunder, and (d) there exist no conditions which,
with notice or lapse of time, or both, would constitute a default under any of
the Leases.
(b) Title to Assets. Except for the liens set forth on Schedule 3.11(c)
(the "Permitted Liens"), the Company has good and valid title to all of its
assets and interests in assets, whether real, personal, mixed, tangible, and
intangible, and to the knowledge of the Company all the assets and interests in
the assets of the Company are free of any Liens.
(c) Business. The assets owned by the Company are sufficient for the
continued conduct of the business by the Company after the Closing as such
business has been conducted in the past.
12
Section 3.12 Contracts.
(a) Schedule 3.12 sets forth a list of all agreements, contracts,
commitments, orders, licenses, leases (including the Leases) and other
instruments and arrangements (whether written or oral) (the "Contracts")
material to the business or properties of the Company to which the Company is a
party, or under which any of its property is bound and all Contracts are in full
force and effect.
(b) The Company has delivered or made available to Investor true, complete
and correct copies of all Contracts, together with all amendments thereto.
(c) To the knowledge of the Company, there does not exist under any
Contract any event of default or event or condition that, after notice or lapse
of time or both, would constitute a violation, breach or event of default
thereunder by any party to any of the Contracts. Each Contract is a legal,
valid, binding and enforceable obligation of the Company and, to the knowledge
of the Company, the other parties thereto, subject, as to enforceability, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and general principles of equity.
Section 3.13 Product Warranties. Except as set forth on Schedule 3.13, (i)
there are no warranties express or implied, written or oral, with respect to the
products or services of the Company, and there are no pending or, to the
knowledge of the Company, threatened, claims with respect to any such warranty;
(ii) during the past five years, the Company has not had a claim against it for
a product it has warranted and does not reserve for such warranty claims; and
(iii) the Company has no Knowledge of any facts that might lead to an increase
in warranty claims in the future.
Section 3.14 Intellectual Property.
All Intellectual Property used by the Company either is owned by the
Company or used pursuant to a valid license which is not terminable due to any
breach or noncompliance by the Company and which shall not be adversely affected
by the transactions contemplated herein. None of the Intellectual Property owned
by the Company is subject to any other Lien in favor of any third party and the
Company owns all right, title and interest therein and thereto.
(a) No claims with respect to any Intellectual Property have been asserted
or threatened by any Person (i) against the Company, or (ii) against any other
Person based on its permitted use of any of the Company's Intellectual Property
which, if determined adversely, could have a material adverse effect on the
Company. No permitted use of any of the Company's Intellectual Property by any
Person violates the Intellectual Property of any other Person and no valid
grounds exist for any bona fide claims against the Company or any such Person
with respect to any Intellectual Property. Without limiting the generality of
the foregoing, no Person ever employed or otherwise engaged by the Company has
asserted or threatened any claim against the Company relating to any
Intellectual Property. All granted and issued patents, copyright registrations,
and registered trademarks and service marks and all copyrights held by the
Company are valid, enforceable and subsisting. To the knowledge of the Company,
13
there has not been, nor is there presently, any unauthorized use, infringement
or misappropriation of any of its Intellectual Property by any Person. The
Company has the full right to possess, use, copy, distribute, display, transfer
and license all Intellectual Property material to its business or otherwise
necessary to its business as presently conducted.
(b) No Intellectual Property of the Company is subject to any
outstanding order, award, decision, injunction, judgment, decree, stipulation or
agreement in any manner restricting the transfer, use, enforcement or licensing
thereof by the Company. The Company has not entered into any agreement to
indemnify any other Person against any charge of infringement of any
Intellectual Property. The Company has not entered into any agreement granting
any third party the right to bring infringement actions with respect to, or
otherwise to enforce rights with respect to, any Intellectual Property. The
Company has the exclusive right to file, prosecute and maintain all applications
and registrations with respect to the Intellectual Property.
(c) The Company has taken all reasonable and necessary steps to
protect its Intellectual Property and its rights thereunder, and no such rights
to Intellectual Property have been lost or to the knowledge of the Company are
in jeopardy of being lost. The Company has paid all fees, annuities and all
other payments which have heretofore become due to any governmental or regional
authority with respect to its Intellectual Property and has taken all steps
reasonable and necessary to prosecute and maintain the same.
(d) The Company has not transferred its title in or to any copy
of any computer program or software. No computer program or software has been
supplied by the Company to any Person except pursuant to a binding license
prohibiting further distribution and disclosure. All source code for all
computer programs and software is in the sole possession of the Company and has
been maintained strictly confidential. The Company has no obligation to afford
any Person access to any source code for any computer program.
(e) Except through binding licenses or sublicensing agreement,
the Company has not transferred its title in or to any Intellectual Property.
Except as disclosed on Schedule 3.13(e), no Intellectual Property has been
supplied by the Company to any Person except pursuant to a binding license
prohibiting further distribution and disclosure.
(f) No current or former employee, independent contractor or consultant has
any interest in any Intellectual Property of the Company.
Section 3.15 Insurance.
Schedule 3.15 contains a true, complete and correct list of all insurance
policies maintained by the Company and no notice of cancellation, termination,
or reduction of coverage, and no notice of intention to cancel, terminate or
reduce coverage, has been received. The Company has given Investor access to
true, complete and correct copies of all such policies together with all riders
and amendments thereto.
Such policies are in full force and effect, and all premiums due thereon
have been paid.
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Section 3.16 Environmental Matters.
(a) Compliance with Environmental Law. Except as described on Schedule
3.15(a) or where failure to comply would not have a Material Adverse Effect, the
Company is and has been in compliance with all applicable Environmental Laws
and, to the knowledge of the Company, no violation by the Company is being
alleged of any applicable Environmental Law.
(b) Other Environmental Matters. Except as described on Schedule 3.15(b) and
where such action or condition would not cause a Material Adverse Effect, the
Company has not caused or taken any action that resulted in, and the Company is
not subject to, any liability or obligation relating to (i) the environmental
conditions on, under, or about the Leased Real Property or other properties or
assets owned, leased, operated or used by the Company, including the air, soil
and groundwater conditions at such properties, or (ii) the use, management,
handling, transport, treatment, generation, storage, disposal or Release of any
Hazardous Substances by the Company.
(c) No Hazardous Substances. The Company has purchased, stored or used no
Hazardous Substances other than those associated with normal operations.
(d) No Proceedings. The Company has not received notice or other
communication concerning any alleged liability for Environmental Liabilities and
Costs in connection with any Leased Real Property, and, to the Company's
knowledge, there exists no writ, injunction, decree, order, judgment, lawsuit,
claim, proceeding, citation, directive, or summons, pending or threatened,
relating to any environmental matters with respect to any Leased Real Property.
Section 3.17 Employees, Labor Matters, etc.
The Company is not a party to or bound by any collective bargaining
agreement and there are no labor unions or other organizations representing,
purporting to represent or attempting to represent any employees of the Company.
To the knowledge of the Company, there has not occurred or been threatened any
material strike, slowdown, picketing, work stoppage, concerted refusal to work
overtime or other similar labor activity with respect to any employees of the
Company. The Company has no knowledge of any labor disputes currently subject to
any grievance procedure, arbitration or litigation or any representation
petition pending or threatened with respect to any employee of the Company. The
Company has no knowledge that any officer or key employee, or that any group of
key employees, intends to terminate their employment with the Company, nor does
the Company have a present intention to terminate the employment of any of the
foregoing.
Except as described in Schedule 3.17, the employment of all employees of
the Company is terminable at will, with or without cause, and without the
Company thereby incurring liability for severance or otherwise.
Section 3.18 Investor's Percentage Ownership. Immediately following the
Closing, Investor's fully diluted ownership interest in the Company's capital
15
stock on a fully diluted basis, treating all outstanding options, warrants and
convertible securities as exercised, shall be eleven and fifteen one-hundredths
percent (11.15 %)
Section 3.19 Brokers, Finders, etc.
All negotiations relating to this Agreement and the transactions
contemplated hereby have been carried on without the participation of any Person
acting on behalf of the Company in such manner as to give rise to any valid
claim against Investor for any brokerage or finder's commission, fee or similar
compensation.
Section 3.20 Dealings with Affiliates.
Schedule 3.20 sets forth a complete list (including the parties) of all
contracts, arrangements or other agreements (written or oral) involving an
annual receipt or expenditure of $10,000 or more between the Company and any
shareholder of the Company, any partnership, corporation or other entity owned
and/or operated by any shareholder of the Company or any relative(s) of any
shareholder of the Company or any Affiliates known to the Company to be now in
effect. The Company heretofore has delivered or made available to Investor true
and complete copies (or a detailed summary in the case of an oral agreement) of
each such contract, arrangement or other agreement.
Section 3.21 Disclosure. No representation or warranty of Company in this
Agreement or in any certificate or instrument delivered by Company in accordance
with the terms hereof contains any untrue statement of a material fact or omits
any statement of a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they were
made, not misleading.
Section 3.22 This section was intentionally omitted.
Section 3.23 Territorial Restrictions. The Company is not restricted by any
agreement or understanding with any other Person from carrying on its business
anywhere in the world.
Section 3.24 Effect of Transaction.
No creditor, employee, consultant or customer or other Person having a
business relationship with the Company has informed the Company that such Person
intends to change the relationship because of the purchase and sale of the
Shares, nor does the Company have knowledge of any such intent.
Section 3.25 Antitakeover Provisions.
No "fair price", "moratorium", "control share acquisition" or other form of
antitakeover statute, regulation, charter provision or contract is applicable to
the purchase of the Shares by Investor or any of the other transactions
contemplated by this Agreement.
Section 3.26 No Retention Agreements. Except as set forth on Schedule 3.26,
there are no retention agreements, severance agreements, change of control
16
agreements and similar arrangements to which the Company, on the one hand, and
any employee, consultant or other Person, on the other hand, are a party.
Section 3.27 Real Property Holding Company.
The Company is not a real property holding company within the meaning of
Section 897 of the Code.
Section 3.28 Government Contracts. Except as set forth on Schedule 3.28:
(a) the Company is not a party to any Government Contracts.
(b) (i) to the Company's Knowledge, none of the Company's employees,
consultants or agents is (or during the last five years has been) under
administrative, civil or criminal investigation, indictment or information by
any Governmental Authority; (ii) there is not pending any audit or investigation
of the Company, its officers, employees or representatives nor within the last
five years has there been any audit or investigation of the Company, officers,
employees or representatives resulting in a material adverse finding with
respect to any alleged irregularity, misstatement or omission arising under or
relating to any Government Contract or Government Bid; and (iii) during the last
five years, the Company has not made any voluntary disclosure to the U.S.
Government or any non-U.S. government with respect to any alleged irregularity,
misstatement or omission arising under or relating to a Government Contract or
Government Bid. The Company has not had any irregularities, misstatements or
omissions arising under or relating to any Government Contract or Government Bid
that has led or is expected to lead, either before or after the Closing Date, to
any of the consequences set forth in clause (i) or (ii) of the immediately
preceding sentence or any other material damage, penalty assessment, recoupment
of payment or disallowance of cost.
(c) there are (i) no outstanding claims against the Company, either by the
U.S. Government or any non-U.S. Government or by any prime contractor,
subcontractor, vendor or other third party arising under or relating to any
Government Contract or Government Bid, and (ii) no disputes between the Company
and the U.S. Government or any non-U.S. Government under the Contract Disputes
Act or any other Federal statute or between the Company and any prime
contractor, subcontractor or vendor arising under or relating to any such
Government Contract or Government Bid. There are no facts that could reasonably
be expected to result in a claim or dispute under clause (i) or (ii) of the
immediately preceding sentence.
(d) neither the Company nor, to the Company's Knowledge, any of its
employees, consultants or agents is (or during the last five years has been)
suspended or debarred from doing business with the U.S. Government or any
non-U.S. government or is (or during such period was) the subject of a finding
of non-responsibility or ineligibility for U.S. Government or non-U.S.
government contracting. The Company has conducted its operations in compliance
with all requirements of all material laws pertaining to all Government
Contracts and Government Bids.
17
Section 3.29 Affiliated Group Liability.
The Company (a) has not been a member of an affiliated group filing a
consolidated income tax return; and (b) has no liability for the Taxes of any
person under Treasury Regulations section 1.1502-6(a) (or any analogous or
similar provision of any state, local or foreign law or regulation), as a
transferee or successor, by contract, or otherwise.
Section 3.30 Invention and Secrecy Agreements.
Each employee and consultant of the Company has executed a form of
employee's or consultant's invention and proprietary information agreement, as
the case may be, substantially the same as one of the forms provided to
Investor. The company is not aware that any employees or consultants are in
violation thereof, and the Company will use its commercially reasonable efforts
to prevent any such violation.
Section 3.31 Registration Rights.
Except as set forth in Schedule 3.31, the Company has not granted or agreed
to grant any registration rights, including piggy-back rights, to any person or
entity.
Section 3.32 Officers, Directors and Shareholders.
The Company has delivered a list of officers, directors, shareholders (and
their respective shareholdings), of the Company at March 31, 2002, which list is
complete, and which has not changed since then except as set forth in Schedule
3.32.
Section 3.33 No Intervention.
The Company has not received notice that any third party has taken any
action which prevents or may prevent the Company from continuing its operations
or from further developing the technology contemplated by this Agreement.
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company as follows:
Section 4.1 Corporate Status.
The Investor is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
Section 4.2 Authorization, etc.
The Investor has the corporate power and authority to execute and deliver
this Agreement, to perform fully its obligations hereunder, and to consummate
the transactions contemplated hereby. The execution and delivery by Investor of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by all requisite corporate action of Investor. The
Investor has duly executed and delivered this Agreement. This Agreement is a
18
legal, valid and binding obligation of Investor, enforceable against it in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general principles of equity.
Section 4.3 No Conflicts, etc.
The execution, delivery and performance by Investor of this Agreement, and
the consummation of the transactions contemplated hereby, do not and will not
conflict with or result in a violation of or under (with or without the giving
of notice or the lapse of time or both) (i) the certificate of incorporation or
by-laws of Investor, or (ii) any contract, agreement or other instrument
applicable to Investor or any of its properties or assets, except for violations
and defaults that, individually and in the aggregate, have not and shall not
materially impair the ability of Investor to perform its obligations under this
Agreement.
Section 4.4 Litigation.
There is no action, claim, suit or proceeding pending, or to Investor's
knowledge threatened by or against or affecting Investor in connection with or
relating to the transactions contemplated by this Agreement or of any action
taken or to be taken in connection herewith or the consummation of the
transactions contemplated hereby.
Section 4.5 Brokers, Finders, etc.
All negotiations relating to this Agreement and the transactions
contemplated hereby have been carried on without the participation of any Person
acting on behalf of Investor in such manner as to give rise to any valid claim
against Company for any brokerage or finder's commission, fee or similar
compensation.
Section 4.6 Purchase Entirely for Own Account.
The Securities will be acquired for investment for Investor's own account,
not as nominee or agent, and not with a view to the resale or distribution of
any part thereof, and Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same.
Section 4.7 Investment Experience.
The Investor is an investor in companies in the development stage, can bear
the economic risk of total loss its investment and has such knowledge and
experience in financial or business matters that it is capable of fending for
itself and evaluating the merits and risks of the investment in the Securities.
Section 4.8 Disclosure of Information.
The Investor believes it has received all the information it considers
necessary or appropriate for deciding whether to purchase the Securities. The
Investor further represents that it has had an opportunity to ask questions and
19
receive answers from the Company regarding the terms and conditions of the
offering of the Securities and the business, properties, prospects and financial
condition of the Company.
Section 4.9 Accredited Investor.
The Investor is a corporation not formed for the specific purpose of
acquiring the Securities, with total assets in excess of $5,000,000, and
accordingly is an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act, as presently in effect.
Section 4.10 Restricted Securities.
The Investor understands that the Securities are characterized as
"restricted securities" under the federal securities laws, inasmuch as they are
being acquired from the Company in a transaction not involving a public
offering, and that under such laws and applicable regulations such securities
may be resold without registration under the Securities Act only in certain
limited circumstances. In this connection Investor represents that it is
familiar with Rule 144 promulgated under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act, and that it is able, without materially impairing its financial
condition, to hold the Securities for an indefinite period of time.
ARTICLE I
COVENANTS
Section 5.1 Covenants of the Company.
(a) Public Announcements. Except as required by Applicable Law (in which
case the nature of the announcement shall be described to Investor and Investor
shall be allowed reasonable time to comment prior to dissemination to the
public), the Company shall not make any public announcement in respect of this
Agreement or the transactions contemplated hereby without the prior written
consent of Investor, which consent shall not be unreasonably withheld.
(b) Access and Information. The Company shall permit authorized
representatives of Investor to visit and inspect any of the properties of the
Company, including its books of account (and to make copies thereof and take
extracts therefrom), and to discuss its affairs, finances and accounts with its
officers, administrative employees and independent accountants, all at such
reasonable times and as often as may be reasonably requested; provided, however,
that Investor agrees to treat as confidential all the information so provided
and designated by the Company as confidential, and not to use such information
in any way reasonably foreseeable to be detrimental to the Company. Investor
further agrees that it shall disclose such information only to directors,
officers, employees and representatives of Investor who need to know such
information for the purpose of evaluating the performance and financial
condition of the Company and assisting Investor in the performance of its
fiduciary duties. Investor agrees that such directors, officers, employees and
representatives shall be informed by Investor of the confidential nature of such
information, that they shall be directed by Investor to treat such information
20
confidentially, and Investor shall be responsible for any breach of
confidentiality by such directors, officers, employees or representatives, up to
a maximum aggregate liability that shall not exceed Investor's profit derived
from such disclosure.
Notwithstanding the foregoing, if Investor or its directors, officers,
employees or representatives is legally compelled to disclose information
disclosed under this Section 5.1(b), Investor will provide the Company with
prompt notice so that the Company may seek a protective order or other
appropriate remedy or waive compliance with this Section 5.1(b). If such
protective order or other remedy is not obtained, or if the Company waives
compliance with the provisions of this Section 5.1(b) in writing, Investor shall
be permitted to disclose such information pursuant thereto, but only such
information as it is advised is legally required. The requirement of
confidential treatment in this Section 5.1(b) shall not apply to information
which: (1) becomes generally available to the public other than as a result of a
disclosure by Investor, (2) was available on a non-confidential basis prior to
its disclosure to Investor; (3) was received from a third party without similar
restriction or without breach of this Agreement; (4) was independently developed
by Investor; or (5) was furnished to a third party by the Company without a
restriction on the third party's rights.
(c) Further Actions. As promptly as practicable, the Company shall:
(i) use commercially reasonable efforts to take all actions and to do
all things necessary to consummate the transactions contemplated hereby by
the Closing Date;
(ii) file or supply, or cause to be filed or supplied, all
applications, notifications and information required to be filed or
supplied by it pursuant to Applicable Law in connection with the Agreement,
the sale and transfer of the Securities pursuant to the Agreement and the
consummation of the other transactions contemplated hereby;
(iii) use commercially reasonable efforts to obtain, or cause to be
obtained, all Consents (including all Governmental Approvals and any
Consents required under any Contract) necessary to be obtained by it in
order to consummate the sale and issuance of the Securities pursuant to
this Agreement.
(c) Further Assurances. Following the Closing, the Company shall, from time
to time, execute and deliver such additional instruments, documents, conveyances
or assurances and take such other actions as shall be necessary, or otherwise
reasonably requested by Investor, to confirm and assure the rights and
obligations provided for in this Agreement and render effective the consummation
of the transactions contemplated hereby.
(d) Delivery of Financial Statements. If the Company does not comply with
the periodic reporting requirements of Section 15(d) of the Securities Exchange
Act, the Company shall deliver to Investor the following:
(1) as soon as practicable in fiscal year 2002, and in any event
within 90 days after the end of each fiscal year beginning in fiscal year
2003 of the Company, an income statement for such fiscal year, a balance
sheet of the Company as of the end of such year, and a cash flow statement,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and
21
audited and certified by independent public accountants of nationally
recognized standing selected by the Company;
(2) within forty-five (45) days after the end of each quarter, an
unaudited statement of operations, cash flow analysis and balance sheet for
and as of the end of such quarter, in reasonable detail; such quarterly
statements shall also compare actual performance to budget and to the prior
year's comparable period;
(3) on a monthly basis, a copy of any materials prepared and
distributed to the Board of Directors of the Company in connection with
Board meetings;
(4) within 60 days after the close of each fiscal year, a
comprehensive operating budget for the next fiscal year forecasting the
Company's revenues, expenses and cash position, prepared on a quarterly
basis, including balance sheets and cash flow statements for such quarters
and, as soon as prepared, any other budgets or revised budgets prepared by
the Company; and
(5) with reasonable promptness, such other information and data with
respect to the Company as Investor may from time to time reasonably
request; provided, however, that the Company shall not be obligated
pursuant to this clause (f) to provide any information which it reasonably
considers to be a trade secret, or similar confidential information.
(e) Intentionally left blank.
(f) No Obligation to Provide Further Funds. After payment in full of the
Purchase Price, the Company acknowledges that neither Investor nor any of its
affiliates shall have any further obligation to invest in or provide additional
funds to the Company. Any investments made in or funds provided to the Company
by Investor or any of its affiliates following the payment of the Purchase Price
shall be made or provided, if it all, at Investor's sole discretion and on terms
acceptable to Investor in its sole discretion, provided that investments made at
Investor's discretion on exercise of the Warrants shall be made on the terms set
forth in the relevant Warrant.
(g) Board Participation. Immediately following the Closing and for as long
as Investor owns at least 250,000 shares of Common Stock or a 3% equity interest
in the Company, (i) the Company shall use its best efforts to cause to be
elected and/or appointed to the Company's Board of Directors one member
designated by Investor and (ii) the Company's Board of Directors shall consist
of a maximum of seven (7) members.
(h) Future Acquisition Discussions. The Company agrees to keep Investor's
representative(s) on the Company's Board of Directors fully informed of any and
all substantive discussions with potential acquirers of all or part of the share
capital of the Company or all or substantially all of its assets. Such
representative(s) will be informed of such substantive discussions as soon as
they commence or as soon as reasonably practicable thereafter.
22
(i) Preferred Customer. The Investor and Investor's affiliates shall be a
preferred customer of the Company and shall be provided priority access to and
use of the Company's products and services hereafter. Moreover, the Company
agrees that the price (including all discounts) charged to Investor for such
products and services and access shall be no higher than the lowest price
charged to any other customer of the Company for similar products and services.
(j) Military Market Exclusivity. The Company grants Investor a right of
first refusal to exclusively exploit and sell the Company's technology to the
Military Market for any product or application that Investor believes, and can
demonstrate, would compete with any Investor product or application (a
"Competitive Product"). Should the Company be approached by a third party with a
proposal to collaborate on a Competitive Product, Investor shall automatically
forfeit its right of exclusivity if: (i) it decides not to initiate product
development work with the Company on such Competitive Product within one year of
receiving written notice from the Company of such third party proposal; or (ii)
if Investor provides the Company with a written waiver of its exclusivity right
for such Competition Product any time after receiving written notice from the
Company of such third party proposal. With respect to any other Military Market
application that is not a Competitive Product, the Company and Investor will
discuss collaboration on a good faith basis prior to the Company concluding an
agreement to go forward with any other partner. For the purpose of this
agreement the term "Military Market" will mean all domestic and foreign armed
services and intelligence agencies, including, but not limited to, the Army,
Navy, Air Force, Marines, Coast Guard, U.S. Reserve Forces, CIA, DIA, NSA, and
all the State National Guard Forces, and foreign equivalents of any of the
foregoing. The term "Military Market" will not include Research and Development
contracts given by government agencies such as DARPA, DTRA, NIH, NSF and others.
The term "Military Market" shall include, inter alia, sales or licensing of the
Company's technology, or products that incorporate such, to any suppliers,
resellers or contractors using said Company technology in products for
distribution to any domestic or foreign armed service or intelligence agency.
Section 5.2 Covenants of Investor.
(a) Public Announcements. Except as required by Applicable Law (in which
case the nature of the announcement shall be described to Company and the
Company shall be allowed reasonable time to comment prior to dissemination to
the public), Investor shall not, and shall not permit its Affiliates to, make
any public announcement in respect of this Agreement or the transactions
contemplated hereby without the prior written consent of the Company.
(b) Pre-Closing Actions. As promptly as practicable, Investor shall use
commercially reasonable efforts to take all actions and to do all things
necessary, proper or advisable to consummate the transactions contemplated
hereby by each Closing Date.
(c) Further Assurances. Following the Closing, Investor shall, from time to
time, execute and deliver such additional instruments, documents, conveyances or
assurances and take such other actions as shall be necessary, or otherwise
23
reasonably requested by the Company, to confirm and assure the rights and
obligations provided for in this Agreement and render effective the consummation
of the transactions contemplated hereby.
Section 5.3 Legends.
To the extent applicable, each certificate or other document evidencing any
of the Shares or any of the Warrant Shares shall be endorsed with legends
substantially as set forth below, and Investor covenants that, except to the
extent such restrictions are waived by the Company or the legends may be removed
under Section 5.4, Investor shall not transfer Securities without complying with
the restrictions on transfer described in the legends endorsed thereon:
(a) The following legend under the Securities Act:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER THE ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER THE ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) If required by the authorities of any state in connection with the
issuance or sale of the Shares, or the Warrant Shares, the legend required by
such state authority.
Section 5.4 Removal of Legends.
(a) Any legend endorsed on a certificate pursuant to Section 5.3(a) hereof
shall be removed (i) if the Shares, Warrant Shares or Warrants represented by
such certificate shall have been effectively registered under the Securities Act
or otherwise lawfully sold in a public transaction, (ii) if such shares may be
transferred in compliance with Rule 144(k) promulgated under the Securities Act,
or (iii) if the holder of such shares shall have provided the Company with an
opinion of counsel, in form and substance acceptable to the Company and from
attorneys reasonably acceptable to the Company, stating that a public sale,
transfer or assignment of such Shares may be made without registration.
(b) Any legend endorsed on a certificate pursuant to Section 5.3(b) hereof
shall be removed if the Company receives an order of the appropriate state
authority authorizing such removal or if the holder of the Common Stock issuable
upon conversion thereof provides the Company with an opinion of counsel, in form
and substance acceptable to the Company and from attorneys reasonably acceptable
to the Company, stating that such legend may be removed.
Section 5.5 Further Restriction on Transfer. Unless and until the legends
described in Section 5.4 may be removed, Investor further covenants not to make
any disposition of the Securities until the transferee agrees to be bound by
Sections 5.3, 5.4 and 5.5.
24
ARTICLE I
CONDITIONS PRECEDENT
Section 6.1 Conditions to Obligations of Each Party.
The obligations of the parties to consummate the transactions contemplated
hereby at the Closing shall be subject to the fulfillment on or prior to the
Closing Date of the following conditions:
(a) No Injunction, etc. Consummation of the transactions contemplated
hereby shall not have been restrained, enjoined or otherwise prohibited by any
Applicable Law, including any order, injunction, decree or judgment of any court
or other Governmental Authority. No court or other Governmental Authority shall
have determined that any Applicable Law makes illegal the consummation of the
transactions contemplated hereby, and no proceeding with respect to the
application of any such Applicable Law to such effect shall be pending.
(b) Government Approvals. All requisite governmental approvals and
authorizations necessary for the consummations of the transactions contemplated
hereby shall have been duly issued or granted and all applicable waiting periods
shall have expired or otherwise been terminated.
Section 6.2 Conditions to Obligations of Investor.
The obligations of Investor to consummate the transactions contemplated
hereby at each Closing shall be subject to the fulfillment (or waiver by
Investor) on or prior to the Closing Date of the following additional
conditions:
(a) Representations; Performance. Each of the representations and
warranties of Company contained in this Agreement shall be true and correct in
all material respects, in each case on the date hereof and at and as of the
Closing Date, as though made on and as of the Closing Date. The Company shall
have duly performed and complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be performed or
complied with by it prior to or on the Closing Date.
(b) Consents. The Company shall have obtained and shall have delivered to
Investor copies of all Governmental Approvals and Consents required to be
obtained by the Company in connection with the execution and delivery of the
Agreement and the consummation of the transactions contemplated hereby.
(c) Corporate Proceedings. All corporate and other proceedings of the
Company in connection with this Agreement and the transactions contemplated
hereby, and all documents and instruments incident thereto, shall be reasonably
satisfactory in form and substance to Investor and its counsel, and Investor and
its counsel shall have received all such documents and instruments, or copies
thereof, certified if requested, as may be reasonably requested at least 48
hours prior to the Closing.
25
(d) Certificate of Status. The Investor shall have received copies of (i)
the Certificate of incorporation, as amended through the Closing Date, of the
Company, certified as of a recent date by the Secretary of State of the State of
Delaware, (ii) a certificate of good standing for the Company from the Secretary
of State of the State of Delaware, as of a recent date, and (iii) a copy of the
by-laws of the Company, as in effect on the Closing Date, certified by the
Secretary of the Company.
(e) Certificates for Shares. The Company shall have delivered to Investor
certificates representing the Shares, registered in the name of Investor, duly
executed by the Company.
(f) No Material Adverse Change. Except as set forth in Schedule 3.8, since
December 31, 2001, there shall not have occurred any Material Adverse Effect, or
any event or condition that might reasonably be expected to cause a Material
Adverse Effect to occur in the future.
(g) Officer's Certificate. The Company shall have delivered to Investor a
certificate, dated the Closing Date and signed by its chief executive officer,
in the form of Exhibit B hereto to the effect of Section 6.2(a) and Section
6.2(b) and certifying the fulfillment of the other conditions precedent.
(h) Legal Investment. At the time of such Closing, the purchase of the
Common Stock and Warrants by Investor shall be legally permitted by all laws and
regulations to which Investor and the Company are subject.
(i) No Government Intervention. The Company shall not have received notice
that any Governmental Authority has taken, or intends to take, any action which
prevents, or would prevent, the Company from continuing its operations or from
further developing the MEMS technology contemplated by this Agreement.
(j) Board of Directors. For so long as Investor holds at least 250,000
shares of Common Stock or a greater than 3% equity interest in the Company, the
Company's Board of Directors shall consist of a maximum of seven (7) duly
elected or appointed members. One of these members shall be designated by
Investor as set forth in Section 5.1(i).
Section 6.3 Conditions to Obligations of Company.
The obligation of Company to deliver the Shares and the Warrants and to
consummate the transactions contemplated hereby at the Closing shall be subject
to the fulfillment (or waiver by the Company), on or prior to the Closing Date,
of the following additional conditions:
(a) Payment of Consideration. The delivery in full of the Purchase Price.
(b) Representations; Performance. Each of the representations and
warranties of Investor contained in this Agreement shall be true and correct in
each case on the date hereof and at and as of the Closing Date as though made on
26
and as of the Closing Date. The Investor shall have duly performed and complied
in all material respects with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or on the Closing
Date. The Investor shall have delivered to Company a certificate, dated the
Closing Date and signed by its duly authorized officer, to the foregoing effect.
(c) Corporate Proceedings. All corporate proceedings of Investor in
connection with this Agreement and the transactions contemplated hereby, and all
documents and instruments incident thereto, shall be reasonably satisfactory in
form and substance to the Company, and its counsel, and the Company and its
counsel shall have received all such documents and instruments, or copies
thereof, certified if requested, as may be reasonably requested.
ARTICLE I
ANTI-DILUTION RIGHTS
Section 7.1 Anti-Dilution Right.
The Company hereby grants to Investor the right to purchase, upon the
issuance by the Company of New Securities (as defined in this Section 7) all or
any portion of the "Anti-Dilution Shares" (as defined in this Section 7). The
Anti-dilution Shares are, with respect to Investor, that number of New
Securities being issued, the purchase of which will result in Investor having
the same Percentage Equity (as defined in this Section 7) in the Company
immediately after such issuance of New Securities as it had immediately prior to
such issuance of New Securities. For purposes of this anti-dilution right,
Investor's "Percentage Equity" in the Company, to be calculated before or after
each issuance of New Securities, shall be the proportion that the number of
shares of common stock (assuming the conversion of all convertible securities
and the exercise of all rights, options and warrants) held by Investor at such
time bears to the total number of outstanding shares of common stock (assuming
the conversion of all convertible securities and the exercise of all rights,
options and warrants) of the Company at such time. This anti-dilution right
shall be subject to the following provisions:
(a) "New Securities" shall mean any common stock or preferred stock or
other equity security of the Company, whether now authorized or not, and rights,
options, or warrants to purchase said common stock or preferred stock or other
equity security, and securities of any type whatsoever that are, or may become,
convertible into said common stock or preferred stock or other equity security;
provided, however, that "New Securities" does not include:
(i) securities issued upon conversion of any Preferred Stock into
common stock;
(ii) a stock dividend or securities issued upon any subdivision of
shares of common stock, or any other right received on a pro rata basis by
the holder of the Shares along with other holders of Common Stock;
(iii) securities issued solely in consideration for the acquisition
(whether by merger or otherwise) by the Company or any of its subsidiaries
of all or substantially all of the stock or assets of any other business;
or
27
(iv) securities issued upon an exercise of any option, warrant,
convertible securities, or other right currently outstanding and set forth
in Section 3.1 or issued hereafter pursuant to the 2001 Stock Incentive
Plan or other plan approved by Investor and the Board of Directors,
provided that upon conversion of any amount of the Company's notes that are
convertible into an aggregate of 504,502 shares of Common Stock, the Common
Stock issued on such conversion shall be deemed New Securities and the
amount of debt released on such conversion shall be deemed the price of
such New Securities;
(b) If the Company plans, proposes or determines to issue New Securities,
the Company shall give Investor thirty (30) calendar days advance written notice
of such issuance describing the type of New Securities, the price, and the
general terms upon which the Company plans, proposes or determines to issue the
same. The Investor shall have twenty (20) calendar days from the date of receipt
of any such notice to agree to purchase all or a portion of its Anti-Dilution
Shares for the price and upon the general terms specified in the notice by
giving written notice to the Company and stating therein the quantity of
Anti-Dilution Shares to be purchased. If Investor exercises its anti-dilution
rights under this Section 7 to purchase Anti-Dilution Shares, the Company shall
issue such Anti-Dilution Shares to Investor at the time of the issuance of the
New Securities. In no event shall the Company issue New Securities without
giving Investor thirty (30) calendar days' advance written notice, unless
Investor waives such notice requirement in a writing signed by one or more of
the Company's Directors elected by Investor.
(c) In the event that Investor fails to exercise its anti-dilution right
within said twenty (20) day period, such right shall be deemed to have been
waived by Investor with respect to that issuance of New Securities.
(d) The anti-dilution right granted under this Agreement shall expire upon,
and be inapplicable to, (i) the first closing of the first firmly underwritten
public offering of common stock of the Company after the date hereof that is
made pursuant to a registration statement filed with, and declared effective by,
the SEC under the Securities Act, covering the offer and sale of common stock to
the public, or (ii) a merger or consolidation of the Company with or into
another corporation or other entity or person, or any other corporate
reorganization in which the Company shall not be the continuing or surviving
entity of such merger, consolidation or reorganization.
ARTICLE II
TERMINATION
Section 8.1 Termination.
This Agreement may be terminated at any time prior to the Closing Date:
(a) by the written agreement of Investor and the Company;
(b) by Company or Investor by written notice to the other party if the
Closing shall not have been consummated pursuant hereto by 5:00 p.m. New York
City time on August 8, 2002, provided that the terminating party may not be in
28
breach of this Agreement, and provided further that the failure by either party
to close on such date shall not of itself be a breach of this Agreement.
(c) by Investor by written notice to the Company if (i) the representations
and warranties of the Company shall not have been true and correct as of the
date when made, or (ii) if any of the conditions set forth in Section 6.1 or 6.2
shall not have been, or if it becomes apparent that any of such conditions will
not be, fulfilled by 5:00 p.m. New York City time on August 8, 2002, unless such
failure shall be due to the failure of Investor to perform or comply with any of
the covenants, agreements or conditions hereof to be performed or complied with
by it prior to the Closing; or
(d) by the Company by written notice to Investor if (i) the representations
and warranties of Investor shall not have been true and correct in all material
respects as of the date when made, or (ii) if any of the conditions set forth in
Section 6.1 or 6.3 shall not have been, or if it becomes apparent that any of
such conditions will not be, fulfilled by 5:00 p.m. New York City time on August
8, 2002, unless such failure shall be due to the failure of the Company to
perform or comply with any of the covenants, agreements or conditions hereof to
be performed or complied with by it prior to the Closing.
Section 8.2 Effect of Termination.
If this Agreement is terminated pursuant to the provisions of Section 8.1,
then this Agreement shall become void and have no effect, without any liability
to any Person in respect hereof or of the transactions contemplated hereby on
the part of any party hereto, or any of its directors, officers, employees,
agents, consultants, representatives, advisers, stockholders or Affiliates,
except as specified in Section 13.1 and except for any liability resulting from
such party's breach or default of this Agreement.
ARTICLE III
INDEMNIFICATION
Section 9.1 By Company.
Subject to the terms and conditions of this Article IX, the Company
covenants and agrees to defend, indemnify and hold harmless Investor, its
officers, directors, employees, agents, advisers, lenders, representatives and
Affiliates (including, after the Closing, the Company) (collectively, the
"Investor Indemnitees"), from and against, and pay or reimburse Investor
Indemnitees for, any and all claims, liabilities, obligations, losses, fines,
costs, judgments, penalties, proceedings, deficiencies or damages (whether
absolute, accrued, conditional or otherwise and whether or not resulting from
third party claims), including out-of-pocket expenses, court costs, consulting
fees, expert witness fees and reasonable attorneys' fees incurred in the
investigation or defense of any of the same or in asserting any of their
respective rights hereunder (collectively, "Losses"), resulting from or arising
out of:
(a) any misrepresentation or breach of any warranty of Company or the
Company contained in this Agreement; provided, however, that, for purposes of
this Article IX, in determining whether any such misrepresentation or breach
occurred, any dollar amount thresholds, materiality qualifiers and Material
29
Adverse Effect qualifiers contained in any representation or warranty herein
shall be disregarded; provided further, however, that no claim for
indemnification under this clause (a) may be made after the third anniversary of
the Closing Date, excepting only that any claim for misrepresentation or breach
of warranty under (i) Sections 3.7, 3.11(a), 3.11(c), and 3.16 may be made no
later than a date 30 days from and after the expiration of the period of the
applicable statute of limitations, or (ii) Section 3.3 may be made at any time;
(b) any failure of the Company to perform any covenant or agreement made or
contained in this Agreement or fulfill any obligation in respect thereof.
Company shall not be required to indemnify Investor Indemnitees with
respect to any claim for indemnification resulting from or arising out of
matters described in clause (a) above pursuant to this Section 9.1 unless and
until the aggregate amount of all claims against Company exceeds $50,000
("Company's Threshold Amount"), in which case Company shall be required to
indemnify Investor Indemnitees for the full amount of such claims, including
Company's Threshold Amount, but only up to an aggregate amount of $2,500,000 for
all claims.
Section 9.2 By Investor.
Subject to the terms and condition of this Article IX, Investor covenants
and agrees to defend, indemnify and hold harmless Company and each of its heirs,
executors, administrators, distributees or legal representatives (collectively,
the "Company Indemnitees"), from and against any and all Losses resulting from
or arising out of:
(a) any misrepresentation or breach of warranty of Investor contained in
this Agreement; provided, however, that no claim for indemnification under this
clause (a) may be made after the third anniversary of the Closing Date; or
(b) any failure of Investor to perform any covenant or agreement made or
contained in this Agreement or fulfill any other obligation in respect thereof.
The Investor shall not be required to indemnify Company Indemnitees with
respect to any claim for indemnification resulting from or arising out of
matters described in clause (a) above pursuant to this Section 9.2 unless and
until the aggregate amount of all claims against Investor exceeds $50,000
("Investor's Threshold Amount"), in which case Investor shall be required to
indemnify Company Indemnitees for the full amount of such claims, including
Investor's Threshold Amount, but only up to an aggregate amount of $500,000 for
all claims.
Section 9.3 Indemnification Procedures.
(a) Third Party Claims. In the case of any claim asserted by a third party
against a party entitled to indemnification under this Agreement (the
"Indemnified Party"), notice shall be given by the Indemnified Party to the
party required to provide indemnification (the "Indemnifying Party") as soon as
practicable after such Indemnified Party has actual and not imputed or implied
knowledge of any claim as to which indemnity may be sought, and the Indemnified
Party shall permit the Indemnifying Party (at the expense of such Indemnifying
Party) to assume the defense of any third party claim or any litigation with a
third party resulting therefrom; provided, however, that (i) the counsel for the
30
Indemnifying Party who shall conduct the defense of such claim or litigation
shall be subject to the approval of the Indemnified Party (which approval shall
not be unreasonably withheld or delayed), (ii) the Indemnified Party may
participate in such defense at such Indemnified Party's expense, and (iii) the
omission by any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its indemnification obligation under this
Agreement except and only to the extent that such Indemnifying Party is actually
and materially damaged as a result of such failure to give notice. Except with
the prior consent of the Indemnified Party, no Indemnifying Party, in the
defense of any such claim or litigation, shall consent to entry of any judgment
or enter into any settlement that provides for injunctive or other nonmonetary
relief affecting the Indemnified Party or that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to such
Indemnified Party of a general release from all liability with respect to such
claim or litigation. If the Indemnified Party shall in good faith determine that
the conduct of the defense of any claim subject to indemnification hereunder or
any proposed settlement of any such claim by the Indemnifying Party might be
expected to affect adversely the Indemnified Party's Tax liability or the
ability of Investor to conduct its business, or that the Indemnified Party may
have available to it one or more defenses or counterclaims that are inconsistent
with one or more of those that may be available to the Indemnifying Party in
respect of such claim or any litigation relating thereto, the Indemnified Party
shall have the right at all times to take over and assume control over the
defense, settlement, negotiations or litigation relating to any such claim at
the sole cost of the Indemnifying Party; provided, however, that if the
Indemnified Party does so take over and assume control, the Indemnified Party
shall not settle such claim or litigation without the consent of the
Indemnifying Party, such consent not to be unreasonably withheld or delayed. If
the Indemnifying Party does not accept the defense of any matter as above
provided, the Indemnified Party shall have the full right to defend against any
such claim or demand at the sole cost of the Indemnifying Party and shall be
entitled to settle or agree to pay in full such claim or demand. In any event,
the Indemnifying Party and the Indemnified Party shall reasonably cooperate in
the defense of any claim or litigation subject to this Article IX and the
records of each shall be reasonably available to the other with respect to such
defense.
(b) Non-Third Party Claims. With respect to any claim for indemnification
hereunder which does not involve a third party claim, the Indemnified Party will
give the Indemnifying Party written notice of such claim. The Indemnifying Party
may acknowledge and agree by notice to the Indemnified Party in writing to
satisfy such claim within 20 days of receipt of notice of such claim from the
Indemnified Party. If the Indemnifying Party shall dispute such claim, the
Indemnifying Party shall provide written notice of such dispute to the
Indemnified Party within such 20-day period, setting forth in reasonable detail
the basis of such dispute. Upon receipt of notice of any such dispute, the
Indemnified Party and the Indemnifying Party shall use commercially reasonable
efforts to resolve such dispute within 30 days of the date such notice of
dispute is received. If the Indemnifying Party shall fail to provide written
notice to the Indemnified Party within 20 days of receipt of notice from the
Indemnified Party that the Indemnifying Party either acknowledges and agrees to
pay such claim or disputes such claim, the Indemnifying Party shall be deemed to
have acknowledged and agreed to pay such claim in full and to have waived any
right to dispute such claim. Once (a) the Indemnifying Party has acknowledged
and agreed to pay any claim pursuant to this Section 9.3, (b) any dispute under
this Section 9.3 has been resolved in favor of indemnification by mutual
agreement of the Indemnifying Party and the Indemnified Party, or (c) any
dispute under this Section 9.3 has been finally resolved in favor of
31
indemnification by order of a court of competent jurisdiction or other tribunal
having jurisdiction over such dispute, then the Indemnifying Party within 20
days of the date of acknowledgement by the Indemnifying Party or final
resolution in favor of indemnification, as the case may be, to such account and
in such manner as is designated in writing by the Indemnified Party.
Section 9.4 Expiration of Representations and Warranties, etc. All
representations and warranties contained in this Agreement shall survive the
Closing for a period of three years; provided, however, that the representations
and warranties stated in Sections 3.7, 3.11(a), 3.11(c), and 3.16 shall survive
the Closing for the applicable statute of limitations; provided further,
however, that the representations and warranties contained in Section 3.3 shall
survive indefinitely.
Section 9.5 Set-Off. If Company shall be obligated to indemnify Investor or
any other Investor Indemnitee pursuant to Article IX, Investor shall be
entitled, in addition to any other right or remedy it may have, to exercise
rights of set-off against any amounts due and payable to Company hereunder or
that may thereafter become due and payable to Company hereunder (including
amounts under Article II).
ARTICLE IV
REGISTRATION RIGHTS
The Company covenants and agrees as follows:
Section 10.1 Definitions.
For purposes of this Section 10:
(a) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "Warrant Shares" shall mean the Common Stock issued or
issuable upon exercise of the Warrants.
(c) The term " Registrable Securities" means (i) the Shares; (ii) the
Warrant Shares; and (iii) any Common Stock of the Company issued or issuable in
respect on the Conversion Shares or other securities issued or issuable pursuant
to the conversion of the Warrants upon any stock split, stock dividend,
recapitalization, or similar event, or any Common Stock otherwise issued or
issuable with respect to the Warrants; provided, however, that shares of Common
Stock or other securities shall only be treated as Registrable Securities if and
so long as they have not been (1) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, whether
in a registered offering, Rule 144 transaction or otherwise, or (2) sold or are
available for sale in the opinion of counsel to the Company in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act so that all transfer restrictions and restrictive legends with
32
respect thereto are removed upon the consummation of such sale, excluding in all
cases; provided however, that any Registrable Securities sold by a person in a
transaction in which his registration rights are not assigned shall cease to be
Registerable Securities;
(d) The number of shares of "Registrable Securities then outstanding" shall
be determined by the number of shares of Common Stock outstanding which are
Registrable Securities, and the number of shares of Common Stock issuable
pursuant to then exercisable Warrants that are exercisable for Registrable
Securities;
(e) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee of a Holder in accordance with
Section 10.9 hereof;
(f) The term "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the SEC in lieu of Form S-3 which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC;
(g) "Registration Expenses" shall mean all expenses, except Selling
Expenses, incurred by the Company in complying with Sections 10.2, 10.4 and 10.5
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Holders in the event of one exercise of a requested registration provided for in
Section 10.2 hereof, in the event of two Company registrations pursuant to
Section 10.5 hereof, and for four Company registrations on Form S-3 pursuant to
Section 10.4 hereof; and
(h) "Selling Expenses" shall mean all underwriting discounts, selling
commission and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all fees and disbursements of
counsel for any Holder.
Section 10.2 Demand Registrations Rights.
(a) If at any time after the Company's initial registered underwritten
public offering, the Company shall receive a written request (specifying that it
is being made pursuant to this Section 10.2) from Investor that the Company file
a registration statement or similar document under the Securities Act covering
the registration of the lesser of (i) at least ten percent (10%) of Investor's
then outstanding Registrable Securities (or securities that are convertible into
Registrable Securities) or (ii) Registrable Securities the expected price to the
public of which exceeds $2,000,000, then the Company shall promptly notify all
other Holders of such request and shall use its best efforts to cause all
Registrable Securities that such Holders have requested be registered in
accordance with this Section 10.2 to be registered under the Securities Act.
Notwithstanding the foregoing, (a) the Company shall not be obligated to effect
a registration pursuant to this Section 10.2 during the period starting with the
date sixty (60) days prior to the Company's estimated date of filing of, and
ending on a date sixty (60) days following the effective date of, a registration
statement pertaining to an underwritten public offering of the Company's
33
securities, provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective and
that the Company's estimate of the date of filing such registration statement is
made in good faith, and (b) if the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company or its shareholders for a registration statement to
be filed in the near future, then the Company's obligation to use its best
efforts to file a registration statement shall be deferred for a period not to
exceed six (6) months; provided, however, that the Company shall not obtain such
a deferral more than once in any 12-month period. The Company shall be obligated
to effect only two registrations pursuant to this Section 10.2. Any request for
registration under this Section 10.2 must be for a firmly underwritten public
offering to be managed by an underwriter or underwriters of recognized national
standing selected by Investor and reasonably acceptable to the Company.
(b) If the registration requested is for a registered public offering
involving an underwriting, the Company shall so indicate in the notice given
pursuant to Section 10.2(a). In such event the right of any Holder to
registration pursuant to this Section 10.2 shall be conditioned upon such
Holder's agreeing to participate in such underwriting and in the inclusion of
such Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company or by Investor exercising any demand registration
rights. Notwithstanding any other provisions of this Section 10.2, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the underwriter may exclude some or all
Registrable Securities or other securities from such registration and
underwriting (hereinafter an "Underwriter Cutback"). In the event of an
Underwriter Cutback, the Company shall so advise all Holders and the other
holders distributing their securities through such underwriting, and the number
of Registrable Securities and other securities that may be included in the
registration and underwriting shall be allocated among all holders thereof
(including those holders who are exercising their demand registration rights) on
the basis that the holders who are not Holders shall be cut back before any
cutback of Holders. If the limitation determined by the underwriter requires a
cutback of the Holders, then the number of shares that may be included in the
registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of securities
entitled to inclusion in such registration held by such Holders at the time of
filing the registration statement. In the event of an Underwriter Cutback,
holders of securities with respect to which registration rights have been
granted pursuant to Section 10.10 hereof shall be treated as Holders for
purposes of any cutbacks. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter. If shares are so withdrawn from the
registration, the Company shall then offer to all persons who have retained the
right to include securities in the registration the right to include additional
securities in the registration in an aggregate amount equal to the number of
shares so withdrawn, with such shares to be allocated among the persons
requesting additional inclusion pro rata according to the total amount of
securities entitled to be included in such registration owned by each person or
34
in such other proportions as shall be mutually agreed by such selling
shareholders.
(c) Notwithstanding anything to the contrary set forth herein, any
registration requested by Investor pursuant to this Section 10.2 shall not be
deemed to have been effected (and, therefore, not requested for purposes of this
Section 10.2), (i) unless it has become effective, provided that a registration
which does not become effective after the Company has filed a registration
statement with respect thereto solely by reason of the refusal to proceed by
Investor (other than a refusal to proceed based upon the advice of counsel
relating to a matter with respect to the Company) shall be deemed to have been
effected by the Company at request of Investor unless Investor shall have
elected to pay all registration expenses in connection with such registration;
(ii) if after it has become effective such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
governmental agency or court for any reason other than a misrepresentation or an
omission by Investor and, as a result thereof, the securities requested to be
registered cannot be completely distributed in accordance with the plan of
distribution set forth in the related registration statement or (iii) if the
closing pursuant to the purchase agreement or underwriting agreement entered
into in connection with such registration does not occur. Any registration
effected pursuant to Section 10.5 shall not be deemed to have been requested by
a requesting holder for purposes of this Section 10.2
Section 10.3 Expenses of Demand Registration.
All Registration Expenses incurred in connection with any registration,
qualification, or compliance pursuant to Section 10.2 (exclusive of Selling
Expenses, which shall be borne by the selling holders pro rata based on the
number of their shares registered) shall be borne by the Company.
Section 10.4 Form S-3 Registration Rights.
After the Company's initial registered underwritten public offering, the
Company shall use its best efforts to qualify for registration on Form S-3 (as
used hereafter "Form S-3" shall include any successor form to Form S-3), and to
that end the Company shall use its best efforts to comply with the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act"), within twelve (12) months following the effective date of the
first registration of any securities of the Company for an underwritten
registered public offering. After the Company has qualified for the use of Form
S-3, and subject to the provisions of this Section 10.4, and the market standoff
in Section 10.10, each Holder shall have the right to request registrations on
Form S-3 (such requests shall be in writing and shall state the number of shares
of Registrable Securities to be disposed of and the intended method of
disposition of such shares by each such Holder), subject only to the following
limitations:
(a) The Company shall not be obligated to cause a registration on Form S-3
to become effective prior to one hundred fifty (150) days following the
effective date of a Company initiated registration (other than a registration
effected solely to qualify an employee benefit plan or to effect a business
combination pursuant to SEC Rule 145);
35
(b) The Company shall not be required to effect a registration pursuant to
this Section 10.4 unless the Holder or Holders requesting such a registration
propose to dispose of shares of Registrable Securities having an aggregate
disposition price (before deduction of underwriting discounts and expenses of
sale) of at least $500,000;
(c) The Company shall not be required to maintain and keep any such
registration on Form S-3 effective for a period exceeding one hundred and eighty
(180) days from the effective date thereof;
(d) The Company shall not be obligated to cause a registration on Form S-3
if in the prior twelve-month period the Company has caused a registration on
Form S-3 to become effective; and
(e) The Company shall not be required to effect a registration pursuant to
this Section 10.4 more than three years after the Company's registered
underwritten public offering or more than four times at Company's expense.
The Company shall give notice to all Holders of the receipt of a request
for registration pursuant to this Section 10.4 and shall provide a reasonable
opportunity for other Holders to participate in the registration. Subject to the
foregoing, the Company will use its best efforts to effect promptly any
registration requested pursuant to this Section 10.4. Notwithstanding the
foregoing, the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 10.4 if the Company shall
furnish to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the Company
it would be seriously detrimental to the Company and its shareholders for such
Form S-3 Registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 Registration Statement
for a period of not more than 120 days after receipt of the request of the
Holder or Holders under this Section 9.4; provided, however, that the Company
shall not utilize this right more than once in any 12-month period.
Section 10.5 Company Registration.
(a) If, at any time or from time to time, the Company shall determine to
register any of its securities, either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights, other than a registration (i) relating solely to employee benefit plans
on Form S-8 or similar forms which may be promulgated in the future or (ii)
relating solely to a SEC Rule 145 or similar transaction, the Company will
promptly give to each Holder written notice thereof (which shall include a list
of the jurisdictions in which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state securities laws, and
include in such registration (and any related qualification under blue sky laws
or other compliance), and in any underwriting involved therein, all Registrable
Securities of such Holders as specified in a written request or requests made
within 15 days after receipt of such written notice from the Company.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
36
indicate in the notice given pursuant to Section 10.5(a). In such event the
right of any Holder to registration pursuant to this Section 10.5 shall be
conditioned upon such Holder's agreeing to participate in such underwriting and
in the inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company or by other holders exercising
demand registration rights. Notwithstanding any other provisions of this Section
10.5, if the underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, the underwriter may exclude some or
all Registrable Securities or other securities from such registration and
underwriting (hereinafter an "Underwriter Cutback"). In the event of an
Underwriter Cutback, the Company shall so advise all Holders and the other
holders distributing their securities through such underwriting, and the number
of Registrable Securities and other securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof
(including those holders who are exercising their demand registration rights) on
the basis that the holders who are not Holders shall be cut back before any
cutback of Holders. If the limitation determined by the underwriter requires a
cutback of the Holders, then the number of shares that may be included in the
Registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of securities
entitled to inclusion in such registration held by such Holders at the time of
filing the registration statement. In the event of an Underwriter Cutback,
holders of securities with respect to which registration rights have been
granted pursuant to Section 10.10 hereof shall be treated as Holders for
purposes of any cutbacks. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
Section 10.6 Expenses of Company Registration Rights.
All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 10.5 (exclusive of Selling
Expenses including fees and expenses of any special counsel to the selling
holders, which shall be borne by the selling Holders pro rata based on the
number of their shares registered) shall be borne by the Company.
Section 10.7 Indemnification.
In the event any Registrable Securities are included in a registration
statement under this Section 10:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers, directors, partners and legal counsel of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning Exchange Act, against any losses, claims, damages or liabilities (joint
or several) to which they may become subject under the Securities Act, the
37
Exchange Act or other federal or state law, rule or regulation insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any law; and the Company will reimburse each such Holder,
officer, director, partner, legal counsel, underwriter or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section
10.7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
officer, partner, director, underwriter, legal counsel or controlling person;
provided that such reimbursement shall be made on a monthly basis within ten
(10) days after receipt of any invoice with respect to expenses reasonably
incurred during the preceding calendar month.
(b) To the extent permitted by law, each selling Holder will indemnify and
hold harmless the Company, each of its directors, officers, its legal counsel,
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities in such
registration statement or any of such other Holder's directors, legal counsel,
or officers or any person who controls such other Holder, against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, legal counsel, controlling person, or underwriter or
controlling person, or such other Holder or director, officer, legal counsel or
controlling person of such other Holder may become subject, under the Securities
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, legal counsel,
or controlling person, underwriter or controlling person of such Holder in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 10.7(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the indemnifying Holder, which consent shall not be
unreasonably withheld; provided, that, in no event shall any indemnity under
this Section 10.7(b) exceed the gross proceeds from the offering received by
such holder and provided that such reimbursement shall be made on a monthly
basis within ten (10) days after the end of each calendar month with respect to
expenses reasonably incurred during the preceding calendar month.
38
(c) Promptly after receipt by an indemnified party under this Section 10.7
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 10.7, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party, if
such indemnified party is advised in writing by counsel (which writing shall be
furnished to the indemnifying party) that representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnifying party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 10.7, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnifying party otherwise than under this Section
10.7.
(d) If the indemnification provided for in this Section 10.7 is held by a
court of competent jurisdiction to be unavailable to an indemnified party, then
each indemnifying party, in lieu of indemnifying such indemnified party
thereunder, hereby agrees to contribute to the amount paid or payable to such
indemnified party in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and of the indemnified party on
the other. Notwithstanding the foregoing, the amount any Holder of Registrable
Securities shall be obligated to contribute pursuant to this Section 10.7(d)
shall be limited to an amount equal to the offering price of the shares sold by
such Holder.
(e) The obligations of the Company and Holders under this Section 10.7
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 10, and otherwise.
Section 10.8 Reports Under Securities Exchange Act of 1934.
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time permit a Holder to sell securities of the Company to the
public without registration or pursuant to a registration on Form S-3, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 promulgated under the Securities Act, at all
times after 90 days after the Closing;
(b) take such action as is reasonably necessary to enable the Holders to
utilize Form S-3 for the sale of their Registrable Securities, such action to be
taken as soon as practicable after the end of the first fiscal year after the
Closing;
39
(c) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(d) furnish to any holder, so long as the holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144, the Securities
Act and the Exchange Act (at any time after it has complied with such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
Section 10.9 Assignment of Registration Rights.
The rights to cause the Company to register Registrable Securities pursuant
to this Section 10 may be assigned by a Holder to a transferee or assignee who
acquires at least Five Hundred Thousand (500,000) shares of Registrable
Securities; provided that the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. If the Holder is a partnership and
transfers or assigns its rights hereunder to any of its partners, such partners
may aggregate the number of Registrable Securities held by them for purposes of
meeting the Five Hundred Thousand (500,000) share threshold set forth in this
Section 10.9.
Section 10.10 Subsequent Registration Rights.
From and after the date of this Agreement, the Company shall not enter into
any agreement granting any holder or prospective holder of any securities of the
Company registration rights with respect to such securities (a "Registration
Rights Agreement") unless such new registration rights, including standoff
obligations, are on a pari passu basis with or are subordinate to the
registration rights granted to the Holders hereunder. Each Holder hereby
consents and agrees to the modification of such Holder's rights under this
Section 10 consistent with the foregoing and agrees to execute a registration
rights agreement submitted by the Company setting forth such modifications and
not otherwise unfavorably modifying the rights of such Holder.
Section 10.11 "Market Stand-Off" Agreement.
Each holder hereby agrees that it shall not, to the extent requested by the
Company and an underwriter of Common Stock (or other securities) of the Company,
sell or otherwise transfer or dispose (other than to donees who agree to be
similarly bound) of any securities of the Company (other than securities
registered in the offering) whether or not acquired by such Holder under this
40
Agreement during a reasonably and customary period of time not to exceed 180
days, as agreed to by the Company and the underwriters, following the effective
date of a registration statement of the Company filed under the Securities Act;
provided, however, that:
(a) such agreement shall be applicable only to the first such registration
statement of the Company which covers shares (or securities) to be sold on its
behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company, all other persons with
registration rights (whether or not pursuant to this Agreement) and all holders
of at least 5% of the Company's outstanding stock and of an aggregate of 50% of
the Company's outstanding stock enter into similar agreements; and
(c) in the event the underwriter or the Company releases any shareholder
from the terms of such shareholder's "market stand-off" agreement prior to the
expiration of the relevant period (not to exceed 180 days) all of the Holders
are released from the terms of this Section 10.11 or any other "market
stand-off" agreement to which such holder is a party.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such reasonable and customary period.
Section 10.12 Amendment of Registration Rights.
Any provision of this Section 10 may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of at least a majority of the Registrable Securities. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement (including
securities into which such securities are convertible), each transferee or
future holder of all such securities, and the Company.
ARTICLE V
MISCELLANEOUS
Section 11.1 Expenses.
Except to the extent expressly provided otherwise in this Agreement, the
Company, on the one hand, and Investor, on the other hand, shall bear their
respective expenses, costs and fees (including attorneys' and auditors' fees) in
connection with the transactions contemplated hereby, including the preparation,
execution and delivery of this Agreement and compliance herewith, whether or not
the transactions contemplated hereby shall be consummated.
Section 11.2 Severability.
If any provision of this Agreement, including any phrase, sentence, clause,
Section or subsection is inoperative or unenforceable for any reason, such
circumstances shall not have the effect of rendering the provision in question
41
inoperative or unenforceable in any other case or circumstance, or of rendering
any other provision or provisions herein contained invalid, inoperative, or
unenforceable to any extent whatsoever.
Section 11.3 Notices.
All notices, requests, demands, approvals, consents, waivers and other
communications required or permitted to be given under this Agreement (each, a
"Notice") shall be in writing and shall be (a) delivered personally, (b) mailed
by first-class mail or certified mail, return receipt requested, postage
prepaid, (c) sent by next-day or overnight mail or delivery, or (d) sent by
facsimile transmission, provided that a confirmation statement is retained by
sender.
(i) if to Investor, to:
L-3 Communications Corporation
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxxxxxx X. Xxxxxxx, Esq.
(ii) if to Company, to:
Innovative Micro Technology, Inc.
00 Xxxxx Xxxx Xx.
Xxxxx Xxxxxxx, XX 00000
Facsimile: 805-967-2677
Attention: Xxxx Xxxxxx, President
With a copy (which shall not comprise notice) to
Xxxxx X. Xxxxx, Esq.
Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP
000 X. Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
or, in each case, at such other address as may be specified in a Notice to the
other party hereto. All Notices shall be deemed effective and given upon
receipt.
Section 11.4 Attorneys' Fees.
If any party hereto initiates any legal action arising out of or in
connection with this Agreement, the prevailing party shall be entitled to
recover from the other party all reasonable attorneys' fees, expert witness fees
and expenses incurred by the prevailing party in connection therewith.
42
Section 11.5 Liability for Transfer Taxes.
Company shall be responsible for and pay in a timely manner all sales, use,
value added, documentary, stamp, gross receipts, registration, transfer,
conveyance, excise, recording, license and other similar Taxes and fees
("Transfer Taxes"), arising out of or in connection with or attributable to the
transactions effected pursuant to this Agreement. Each party hereto shall
prepare and timely file all Tax Returns required to be filed in respect of
Transfer Taxes that are the primary responsibility of such party under
applicable law; provided, however, that such party's preparation of any such Tax
Returns shall be subject to the other party's approval, which approval shall not
be withheld or delayed unreasonably.
Section 11.6 Headings.
The headings contained in this Agreement are for purposes of convenience
only and shall not affect the meaning or interpretation of this Agreement.
Section 11.7 Entire Agreement.
This Agreement (including the Schedules and Exhibits hereto) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof.
Section 11.8 Counterparts.
This Agreement may be executed (including by facsimile transmission) with
counterpart signature pages or in several counterparts, each of which shall be
deemed an original and all of which shall together constitute one and the same
instrument.
Section 11.9 Governing Law, etc.
This Agreement shall be governed in all respects, including as to validity,
interpretation and effect, by the internal laws of the State of New York without
giving effect to the conflict of laws rules thereof. The Investor and the
Company hereby irrevocably submit to the jurisdiction of the courts of the State
of New York, and the Federal courts of the United States of America located in
the Southern District of New York solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the interpretation or enforcement hereof or
of any such document, that it is not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any of such
document may not be enforced in or by said courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a Delaware State or Federal court. The
Investor and the Company hereby consent to and grants any such court
jurisdiction over the person of such parties and over the subject matter of any
such dispute and agrees that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 11.3, or in
such other manner as may be permitted by law, shall be valid and sufficient
service thereof.
43
Section 11.10 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors and permitted assigns.
Section 11.11 No Third Party Beneficiaries.
Except as provided in Article IX with respect to indemnification of
Indemnified Parties hereunder, nothing in this Agreement shall confer any rights
upon any Person other than the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
Section 11.12 Amendment; Waivers, etc.
No discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing and duly executed by the party against whom
enforcement of the discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder.
Section 11.13 Company Acknowledgement. Company acknowledges that the
representations and warranties contained in this Agreement and in any document
or instrument delivered to Investor pursuant hereto or in connection herewith
shall not be deemed waived or otherwise affected by any investigation by
Investor, its officers, directors, employees, counsel, accountants, advisors,
representatives and agents.
Section 11.14 Investor Acknowledgement. Investor acknowledges that the
representations and warranties contained in this Agreement and in any document
or instrument delivered to the Company pursuant hereto or in connection herewith
shall not be deemed waived or otherwise affected by any investigation by the
Company, its officers, directors, employees, counsel, accountants, advisors,
representatives and agents.
Section 11.15 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.
The next page is the signature page.
44
IN WITNESS WHEREOF, the parties have duly executed this Stock Purchase
Agreement as of the date first above written.
Investor:
L-3 COMMUNICATIONS CORPORATION
By:____________________________________
Name:
Title:
Company:
INNOVATIVE MICRO TECHNOLOGY, INC.
By:____________________________________
Name:
Title:
