Exhibit 10.32
M-WAVE, INC.
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANTS
SUBSCRIPTION AGREEMENT
June __, 2004
Mercator Advisory Group LLC
Mercator Momentum Fund, LP
Mercator Momentum Fund III, LP
Monarch Pointe Fund, Ltd.
000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
M-Wave, Inc., a Delaware corporation (the "COMPANY"), hereby confirms its
agreement with Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP, and
Monarch Pointe Fund, Ltd. (collectively, the "PURCHASERS"), and Mercator
Advisory Group, LLC ("MAG") as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Purchasers an aggregate
of: (a) 30,000 shares (the "SHARES") of its Series A Convertible Preferred Stock
(the "SERIES A STOCK"), which shall be convertible into shares (the "CONVERSION
SHARES") of the Company's Common Stock (the "COMMON STOCK") in accordance with
the formula set forth in the Certificate of Designations further described below
and (b) four (4) warrants, substantially in the form attached hereto at Exhibit
A (the "WARRANTS"), to acquire up to 1,530,000 shares of Common Stock (the
"WARRANT SHARES"). The rights, preferences and privileges of the Series A Stock
are as set forth in the Certificate of Designations of Series A Preferred Stock
as filed with the Secretary of State of the State of Delaware (the "CERTIFICATE
OF DESIGNATIONS") in the form attached hereto as Exhibit B. The numbers of
Conversion Shares and Warrant Shares that any Purchaser may acquire at any time
are subject to limitation in the Certificate of Designations and in the
Warrants, respectively, so that the aggregate number of shares of Common Stock
of which such Purchaser and all persons affiliated with such Purchaser have
beneficial ownership (calculated pursuant to Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) does not at any time exceed 9.99% of the
Company's then outstanding Common Stock.
The Shares and the Warrants are sometimes herein collectively referred
to as the "SECURITIES." This Agreement and the Certificate of Designations are
sometimes herein collectively referred to as the "TRANSACTION DOCUMENTS."
The Securities will be offered and sold to the Purchasers without such
offers and sales being registered under the Securities Act of 1933, as amended
(together with the rules and
regulations of the Securities and Exchange Commission (the "SEC") promulgated
thereunder, the "SECURITIES ACT"), in reliance on exemptions therefrom.
In connection with the sale of the Securities, the Company has made
available (including electronically via the SEC's XXXXX system) to Purchasers
its periodic and current reports, forms, schedules, proxy statements and other
documents (including exhibits and all other information incorporated by
reference) filed with the SEC under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"). These reports, forms, schedules, statements,
documents, filings and amendments, are collectively referred to as the
"DISCLOSURE DOCUMENTS." All references in this Agreement to financial statements
and schedules and other information which is "contained," "included" or "stated"
in the Disclosure Documents (or other references of like import) shall be deemed
to mean and include all such financial statements and schedules, documents,
exhibits and other information which is incorporated by reference in the
Disclosure Documents.
2. Representations and Warranties of the Company. Except as set
forth in the Disclosure Documents and on the Disclosure Schedule contained in
Schedules A through D attached hereto and made a part hereof (the "DISCLOSURE
SCHEDULE" delivered by the Company to Purchasers on the date that this
Subscription Agreement and the Certificate of Designations are fully executed by
all parties (the "EXECUTION DATE"), the Company represents and warrants to and
agrees with Purchasers and MAG as follows:
(a) The Disclosure Documents as of their respective dates did
not, and will not (after giving effect to any updated disclosures therein) as of
the Execution Date, contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The Disclosure
Documents and the documents incorporated or deemed to be incorporated by
reference therein, at the time they were filed or hereafter are filed with the
SEC, complied and will comply, at the time of filing, in all material respects
with the requirements of the Securities Act and/or the Exchange Act, as the case
may be, as applicable.
(b) Schedule A attached hereto sets forth a complete list of the
subsidiaries of the Company (the "Subsidiaries"). Each of the Company and its
Subsidiaries has been duly incorporated and each of the Company and the
Subsidiaries is validly existing in good standing as a corporation under the
laws of its jurisdiction of incorporation, with the requisite corporate power
and authority to own its properties and conduct its business as now conducted as
described in the Disclosure Documents and is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, condition (financial or other), properties, prospects or results of
operations of the Company and the Subsidiaries, taken as a whole (any such
event, a "MATERIAL ADVERSE EFFECT"); as of the Execution Date, the Company will
have the authorized, issued and outstanding capitalization set forth in on
Schedule B attached hereto (the "COMPANY CAPITALIZATION"); except as set forth
in the Disclosure Documents or on Schedule A, the Company does not have any
subsidiaries or own directly or indirectly any of the capital stock or other
equity or long-term
2
debt securities of or have any equity interest in any other person; all of the
outstanding shares of capital stock of the Company and the Subsidiaries have
been duly authorized and validly issued, are fully paid and non-assessable and
were not issued in violation of any preemptive or similar rights and are owned
free and clear of all liens, encumbrances, equities, and restrictions on
transferability (other than those imposed by the Securities Act and the state
securities or "Blue Sky" laws) or voting; except as set forth in the Disclosure
Documents, all of the outstanding shares of capital stock of the Subsidiaries
are owned, directly or indirectly, by the Company; except as set forth in the
Disclosure Documents, no options, warrants or other rights to purchase from the
Company or any Subsidiary, agreements or other obligations of the Company or any
Subsidiary to issue or other rights to convert any obligation into, or exchange
any securities for, shares of capital stock of or ownership interests in the
Company or any Subsidiary are outstanding; and except as set forth in the
Disclosure Documents or on Schedule C, there is no agreement, understanding or
arrangement among the Company or any Subsidiary and each of their respective
stockholders or any other person relating to the ownership or disposition of any
capital stock of the Company or any Subsidiary or the election of directors of
the Company or any Subsidiary or the governance of the Company's or any
Subsidiary's affairs, and, if any, such agreements, understandings and
arrangements will not be breached or violated as a result of the execution and
delivery of, or the consummation of the transactions contemplated by, the
Transaction Documents.
(c) The Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under the Transaction Documents.
Each of the Transaction Documents has been duly and validly authorized by the
Company and, when executed and delivered by the Company, will constitute a valid
and legally binding agreement of the Company, enforceable against the Company in
accordance with its terms except as the enforcement thereof may be limited by
(A) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally or (B) general principles of equity and the
discretion of the court before which any proceeding therefore may be brought
(regardless of whether such enforcement is considered in a proceeding at law or
in equity) (collectively, the "ENFORCEABILITY EXCEPTIONS").
(d) The Shares and the Warrants have been duly authorized and,
when issued upon payment thereof in accordance with this Agreement, will have
been validly issued, fully paid and non-assessable. The Conversion Shares
issuable have been duly authorized and validly reserved for issuance, and when
issued upon conversion of the Shares in accordance with the terms of the
Certificate of Designations, will have been validly issued, fully paid and
non-assessable. The Warrant Shares have been duly authorized and validly
reserved for issuance, and when issued upon exercise of the Warrants in
accordance with the terms thereof, will have been validly issued, fully paid and
non-assessable. The Common Stock of the Company conforms to the description
thereof contained in the Disclosure Documents. The stockholders of the Company
have no preemptive or similar rights with respect to the Common Stock.
(e) No consent, approval, authorization, license, qualification,
exemption or order of any court or governmental agency or body or third party is
required for the performance of the Transaction Documents by the Company or for
the consummation by the Company of any of the transactions contemplated thereby,
or the application of the proceeds of
3
the issuance of the Securities as described in this Agreement, except for such
consents, approvals, authorizations, licenses, qualifications, exemptions or
orders (i) as have been obtained on or prior to the Closing Date, (ii) as are
not required to be obtained on or prior to the Closing Date that will be
obtained when required, or (iii) the failure to obtain which would not,
individually or in the aggregate, have a Material Adverse Effect.
(f) Except as set forth on Schedule D, none of the Company or
the Subsidiaries is (i) in material violation of its articles of incorporation
or bylaws (or similar organizational document), (ii) in breach or violation of
any statute, judgment, decree, order, rule or regulation applicable to it or any
of its properties or assets, which breach or violation would, individually or in
the aggregate, have a Material Adverse Effect, or (iii) except as described in
the Disclosure Documents, in default (nor has any event occurred which with
notice or passage of time, or both, would constitute a default) in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan agreement,
note, lease, license, franchise agreement, permit, certificate or agreement or
instrument to which it is a party or to which it is subject, which default
would, individually or in the aggregate, have a Material Adverse Effect.
(g) Subject to shareholder approval required by the NASDAQ Small
Cap Market rules, the execution, delivery and performance by the Company of the
Transaction Documents and the consummation by the Company of the transactions
contemplated thereby and the fulfillment of the terms thereof will not (a)
violate, conflict with or constitute or result in a breach of or a default under
(or an event that, with notice or lapse of time, or both, would constitute a
breach of or a default under) any of (i) the terms or provisions of any
contract, indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or instrument to
which any of the Company or the Subsidiaries is a party or to which any of their
respective properties or assets are subject, (ii) the Certificate of
Designations or bylaws of any of the Company or the Subsidiaries (or similar
organizational document) or (iii) any statute, judgment, decree, order, rule or
regulation of any court or governmental agency or other body applicable to the
Company or the Subsidiaries or any of their respective properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the
properties or assets now owned or hereafter acquired by the Company or any of
the Subsidiaries; which violation, conflict, breach, default or lien would,
individually or in the aggregate, have a Material Adverse Effect.
(h) The audited consolidated financial statements included in
the Disclosure Documents present fairly the consolidated financial position,
results of operations, cash flows and changes in shareholders' equity of the
entities, at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis; the interim un-audited consolidated financial statements
included in the Disclosure Documents present fairly the consolidated financial
position, results of operations and cash flows of the entities, at the dates and
for the periods to which they relate subject to year-end audit adjustments and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis with the audited consolidated financial statements
included therein; the selected financial and statistical data included in the
Disclosure Documents present fairly the information shown therein and have been
prepared and
4
compiled on a basis consistent with the audited financial statements included
therein, except as otherwise stated therein; and each of the auditors previously
engaged by the Company or to be engaged in the future by the Company is an
independent certified public accountant as required by the Securities Act for an
offering registered thereunder.
(i) Except as described in the Disclosure Documents, there is
not pending or, to the knowledge of the Company, threatened any action, suit,
proceeding, inquiry or investigation, governmental or otherwise, to which any of
the Company or the Subsidiaries is a party, or to which their respective
properties or assets are subject, before or brought by any court, arbitrator or
governmental agency or body, that, if determined adversely to the Company or any
such Subsidiary, would, individually or in the aggregate, have a Material
Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Securities to be sold hereunder
or the application of the proceeds therefrom or the other transactions described
in the Disclosure Documents.
(j) The Company and the Subsidiaries own or possess adequate
licenses or other rights to use all patents, trademarks, service marks, trade
names, copyrights and know-how that are necessary to conduct their businesses as
described in the Disclosure Documents. None of the Company or the Subsidiaries
has received any written notice of infringement of (or knows of any such
infringement of) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how that, if such
assertion of infringement or conflict were sustained, would, individually or in
the aggregate, have a Material Adverse Effect.
(k) Each of the Company and the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals presently required or necessary
to own or lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now or proposed to be conducted as
set forth in the Disclosure Documents ("PERMITS"), except where the failure to
obtain such Permits would not, individually or in the aggregate, have a Material
Adverse Effect and none of the Company or the Subsidiaries has received any
notice of any proceeding relating to revocation or modification of any such
Permit, except as described in the Disclosure Documents and except where such
revocation or modification would not, individually or in the aggregate, have a
Material Adverse Effect.
(l) Subsequent to the respective dates as of which information
is given in the Disclosure Documents and except as described therein, (i) the
Company and the Subsidiaries have not incurred any material liabilities or
obligations, direct or contingent, or entered into any material transactions not
in the ordinary course of business or (ii) the Company and the Subsidiaries have
not purchased any of their respective outstanding capital stock, or declared,
paid or otherwise made any dividend or distribution of any kind on any of their
respective capital stock or otherwise (other than, with respect to any of such
Subsidiaries, the purchase of capital stock by the Company), (iii) there has not
been any material increase in the long-term indebtedness of the Company or any
of the Subsidiaries, (iv) there has not occurred any event or condition,
individually or in the aggregate, that has a Material Adverse Effect, and
5
(v) the Company and the Subsidiaries have not sustained any material loss or
interference with respect to their respective businesses or properties from
fire, flood, hurricane, earthquake, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal or governmental
proceeding.
(m) There are no material legal or governmental proceedings nor
are there any material contracts or other documents required by the Securities
Act to be described in a prospectus that are not described in the Disclosure
Documents. Except as described in the Disclosure Documents, none of the Company
or the Subsidiaries is in default under any of the contracts described in the
Disclosure Documents, has received a notice or claim of any such default or has
knowledge of any breach of such contracts by the other party or parties thereto,
except for such defaults or breaches as would not, individually or in the
aggregate, have a Material Adverse Effect.
(n) Each of the Company and the Subsidiaries has good and
marketable title to all real property described in the Disclosure Documents as
being owned by it and good and marketable title to the leasehold estate in the
real property described therein as being leased by it, free and clear of all
liens, charges, encumbrances or restrictions, except, in each case, as described
in the Disclosure Documents or such as would not, individually or in the
aggregate, have a Material Adverse Effect. All material leases, contracts and
agreements to which the Company or any of the Subsidiaries is a party or by
which any of them is bound are valid and enforceable against the Company or any
such Subsidiary, are, to the knowledge of the Company, valid and enforceable
against the other party or parties thereto and are in full force and effect.
(o) Each of the Company and the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns, except
where the failure to so file such returns would not, individually or in the
aggregate, have a Material Adverse Effect, and has paid all taxes shown as due
thereon; and other than tax deficiencies which the Company or any Subsidiary is
contesting in good faith and for which adequate reserves have been provided in
accordance with generally accepted accounting principles, there is no tax
deficiency that has been asserted against the Company or any Subsidiary that
would, individually or in the aggregate, have a Material Adverse Effect.
(p) None of the Company or the Subsidiaries is, or immediately
after the Closing Date will be, required to register as an "investment company"
or a company "controlled by" an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT").
(q) None of the Company or the Subsidiaries or, to the knowledge
of any of such entities' directors, officers, employees, agents or controlling
persons, has taken, directly or indirectly, any action designed, or that might
reasonably be expected, to cause or result in the stabilization or manipulation
of the price of the Common Stock.
(r) None of the Company, the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) directly, or through any agent, engaged in any form of general
solicitation or general advertising (as those
6
terms are used in Regulation D under the Securities Act) in connection with the
offering of the Securities or engaged in any other conduct that would cause such
offering to be constitute a public offering within the meaning of Section 4(2)
of the Securities Act. Assuming the accuracy of the representations and
warranties of the Purchasers in Section 6 hereof, it is not necessary in
connection with the offer, sale and delivery of the Securities to the Purchasers
in the manner contemplated by this Agreement to register any of the Securities
under the Securities Act.
(s) There is no strike, labor dispute, slowdown or work stoppage
with the employees of the Company or any of the Subsidiaries which is pending
or, to the knowledge of the Company or any of the Subsidiaries, threatened.
(t) Each of the Company and the Subsidiaries carries general
liability insurance coverage comparable to other companies of its size and
similar business.
(u) Each of the Company and the Subsidiaries maintains internal
accounting controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B) transactions are
recorded as necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its material assets is
permitted only in accordance with management's authorization and (D) the values
and amounts reported for its material assets are compared with its existing
assets at reasonable intervals.
(v) Except for a fee payable to MAG and a fee payable to Credit
Support International and Xxxxx X. Xxxxxxx in the amount of $120,000, the
Company does not know of any claims for services, either in the nature of a
finder's fee or financial advisory fee, with respect to the offering of the
Shares and the transactions contemplated by the Transaction Documents.
(w) The Common Stock is traded on the NASDAQ Small Cap Market.
Except as described in the Disclosure Documents, the Company currently is not in
violation of, and subject to approval of the Company's shareholders, the
consummation of the transactions contemplated by the Transaction Documents will
not violate, any rule of the NASDAQ Small Cap Market.
(x) The Company is eligible to use SB-2 for the resale of the
Conversion Shares and the Warrant Shares by Purchasers or their transferees and
the Warrant Shares by MAG or its transferees. The Company has no reason to
believe that it is not capable of satisfying the registration or qualification
requirements (or an exemption therefrom) necessary to permit the resale of the
Conversion Shares and the Warrant Shares under the securities or "blue sky" laws
of any jurisdiction within the United States.
3. Purchase, Sale and Delivery of the Shares. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Purchasers, and Purchasers agree to purchase from the
Company, 30,000 Shares of Series A Stock at $100.00 per Share in the amounts
shown on the signature page hereto. In connection with the purchase and sale of
Shares, for no additional consideration, the Purchasers and MAG will receive
Warrants to
7
purchase up to an aggregate of 1,530,000 shares of Common Stock allocated
pursuant to MAG's instructions at the Closing, , subject to adjustment as set
forth in the Warrants.
One or more certificates in definitive form for the Shares that the
Purchasers have agreed to purchase, as well as the Warrants, shall be delivered
by or on behalf of the Company, against payment by or on behalf of the
Purchasers, of the purchase price therefor by wire transfer of immediately
available funds to the account of the Company previously designated by it in
writing. Such delivery of and payment for the Shares and the Warrants shall be
made at the offices of Mercator Advisory Group, LLC, 000 Xxxxx Xxxxxx Xxxxxx,
Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000, at not later than 5:00 p.m. (Los
Angeles Time) two trading days after the Company obtains shareholder approval
required by the NASDAQ Small Cap Market for the transactions contemplated in the
Transaction Documents (the "CLOSING"), or at such date as the Purchasers and the
Company may agree upon, such time and date of delivery against payment being
herein referred to as the "CLOSING DATE." In the event that the Company is
delisted from the NASDAQ Small Cap Market and, therefore, shareholder approval
is not required, then, subject to the provisions of Section 8(b), the Closing
shall take place two trading days after the Company commences trading on the OTC
Bulletin Board or similar market.
No later than three (3) days after completion of the Closing, the
Company agrees to pay to MAG a Due Diligence fee of $160,000, payable by wire
transfer of immediately available funds to an account of MAG previously
designated by it in writing.
4. Certain Covenants of the Company. The Company covenants and
agrees with each Purchaser as follows:
(a) None of the Company or any of its Affiliates will sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Securities Act) which could be integrated with the
sale of the Securities in a manner which would require the registration under
the Securities Act of the Securities.
(b) The Company will not become, at any time prior to the
expiration of three years after the Closing Date, an open-end investment
company, unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under the Investment
Company Act.
(c) None of the proceeds of the Series A Stock will be used to
reduce or retire any insider note or convertible debt held by an officer or
director of the Company.
(d) Subject to Section 10 of this Agreement, the Conversion
Shares and the Warrant Shares will be traded on the NASDAQ Small Cap Market, or
such market on which the Company's shares are subsequently listed or traded,
immediately following their issuance.
(e) The Company will use commercially reasonable efforts to do
and perform all things required to be done and performed by it under this
Agreement and the other Transaction Documents and to satisfy all conditions
precedent on its part to the obligations of the Purchasers to purchase and
accept delivery of the Securities.
8
(f) The Purchasers shall have a right of first refusal on any
financing in which the Company is the issuer of debt or equity securities
between the Execution Date and the date of effectiveness of the Registration
Statement.
5. Conditions of the Purchasers' Obligations. The obligation of each
Purchaser to purchase and pay for the Securities is subject to the following
conditions unless waived in writing by the Purchaser:
(a) The representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects (other than
representations and warranties with a Material Adverse Effect qualifier, which
shall be true and correct as written) on and as of the Execution Date; the
Company shall have complied in all material respects with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder at
or prior to the Execution Date.
(b) None of the issuance and sale of the Securities pursuant to
this Agreement or any of the transactions contemplated by any of the other
Transaction Documents shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued in respect
thereof; and there shall not have been any legal action, order, decree or other
administrative proceeding instituted or, to the Company's knowledge, threatened
against the Company or against any Purchaser relating to the issuance of the
Securities or any Purchaser's activities in connection therewith or any other
transactions contemplated by this Agreement, the other Transaction Documents or
the Disclosure Documents.
(c) The Purchasers shall have received certificates, dated the
Execution Date and signed by the Chief Executive Officer and the Chief Financial
Officer of the Company, to the effect of paragraphs 5(a) and (b).
(d) The Purchasers shall have received an opinion of Xxxxxxxx &
Xxxxxx, LLP legal counsel to the Company, with respect to the authorization of
the Shares, the Warrants and the Warrant Shares and other customary matters in
the form attached hereto as Exhibit C.
(e) The Company shall have obtained, on or before forty (40)
days after the Execution Date, shareholder approval required pursuant to NASDAQ
Small Cap Market rules for the transaction contemplated in the Transaction
Documents.
6. Representations and Warranties of the Purchasers and MAG.
(a) Each Purchaser and MAG represents and warrants to the
Company that the Securities to be acquired by it hereunder (including the
Conversion Shares and the Warrant Shares that it may acquire upon conversion or
exercise thereof, as the case may be) are being acquired for its own account for
investment and with no intention of distributing or reselling such Securities
(including the Conversion Shares and the Warrant Shares that it may acquire upon
conversion or exercise thereof, as the case may be) or any part thereof or
interest
9
therein in any transaction which would be in violation of the
securities laws of the United States of America or any State. Nothing in this
Agreement, however, shall prejudice or otherwise limit a Purchaser's or MAG's
right to sell or otherwise dispose of all or any part of such Conversion Shares
or Warrant Shares under an effective registration statement under the Securities
Act and in compliance with applicable state securities laws or under an
exemption from such registration. By executing this Agreement, each Purchaser
and MAG further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any Person with respect to any of the Securities.
(b) Each Purchaser and MAG understands that the Securities
(including the Conversion Shares and the Warrant Shares that it may acquire upon
conversion or exercise thereof, as the case may be) have not been registered
under the Securities Act and may not be offered, resold, pledged or otherwise
transferred except (a) pursuant to an exemption from registration under the
Securities Act (and, if requested by the Company, based upon an opinion of
counsel acceptable to the Company) or pursuant to an effective registration
statement under the Securities Act and (b) in accordance with all applicable
securities laws of the states of the United States and other jurisdictions.
Each Purchaser and MAG agrees to the imprinting, so long as
appropriate, of the following legend on the Securities (including the Conversion
Shares and the Warrant Shares that it may acquire upon conversion or exercise
thereof, as the case may be):
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ("TRANSFERRED")
IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. IN THE ABSENCE OF SUCH REGISTRATION, SUCH SHARES MAY NOT BE
TRANSFERRED UNLESS, IF THE COMPANY REQUESTS, THE COMPANY HAS RECEIVED A
WRITTEN OPINION FROM COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY STATING THAT SUCH TRANSFER IS BEING MADE IN COMPLIANCE WITH ALL
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
Further with regard to the Series A Stock and the Warrants, the following legend
shall be included:
ADDITIONAL RESTRICTIONS ON TRANSFER PURSUANT TO AGREEMENTS EXIST AND
ARE AVAILABLE UPON REQUEST FROM THE COMPANY.
The legend set forth above may be removed if and when the Conversion
Shares or the Warrant Shares, as the case may be, are disposed of pursuant to an
effective registration statement under the Securities Act or in the opinion of
counsel to the Company experienced in the area of United States Federal
securities laws such legends are no longer required under applicable
requirements of the Securities Act. The Shares, the Warrants, the Conversion
Shares and the Warrant Shares shall also bear any other legends required by
applicable Federal or state securities laws, which legends may be removed when
in the opinion of counsel to the Company experienced in the applicable
securities laws, the same are no longer required under the applicable
requirements of such securities laws. The Company agrees that it will provide
each Purchaser, upon request, with a substitute certificate, not bearing such
legend at such time as
10
such legend is no longer applicable. Each Purchaser and MAG agrees that, in
connection with any transfer of the Conversion Shares or the Warrant Shares by
it pursuant to an effective registration statement under the Securities Act,
such it will comply with all prospectus delivery requirements of the Securities
Act. The Company makes no representation, warranty or agreement as to the
availability of any exemption from registration under the Securities Act with
respect to any resale of the Shares, the Conversion Shares or the Warrant
Shares.
(c) Each Purchaser and MAG is an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the Securities Act. Neither
Purchaser nor MAG learned of the opportunity to acquire Shares or any other
security issuable by the Company through any form of general advertising or
public solicitation.
(d) Each Purchaser and MAG represents and warrants to the
Company that it has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, having been represented by
counsel, and has so evaluated the merits and risks of such investment and is
able to bear the economic risk of such investment and, at the present time, is
able to afford a complete loss of such investment.
(e) Each Purchaser represents and warrants to the Company that
(i) the purchase of the Securities to be purchased by it has been duly and
properly authorized and this Agreement has been duly executed and delivered by
it or on its behalf and constitutes the valid and legally binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; (ii) the
purchase of the Securities to be purchased by it does not conflict with or
violate its charter, by-laws or any law, regulation or court order applicable to
it; and (iii) the purchase of the Securities to be purchased by it does not
impose any penalty or other onerous condition on the Purchaser under or pursuant
to any applicable law or governmental regulation.
(f) Each Purchaser and MAG represents and warrants to the
Company that neither it nor any of its directors, officers, employees, agents,
partners, members, or controlling persons has taken, or will take, directly or
indirectly, any actions designed, or that might reasonably be expected to cause
or result in, the destabilization or manipulation of the price of the Common
Stock.
(g) Each Purchaser and MAG acknowledges it or its
representatives have reviewed the Disclosure Documents and further acknowledges
that it or its representatives have been afforded (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in the Securities;
and (iii) the opportunity to obtain such additional information which the
11
Company possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy and completeness of the information contained
in the Disclosure Documents.
(h) Each Purchaser and MAG represents and warrants to the
Company that it has based its investment decision solely upon the information
contained in the Disclosure Documents and such other information as may have
been provided to it or its representatives by the Company in response to its
inquiries, and has not based its investment decision on any research or other
report regarding the Company prepared by any third party ("THIRD PARTY
REPORTS"). Each Purchaser and MAG understands and acknowledges that (i) the
Company does not endorse any Third Party Reports and (ii) its actual results may
differ materially from those projected in any Third Party Report.
(i) Each Purchaser and MAG understands and acknowledges that (i)
any forward-looking information included in the Disclosure Documents is subject
to risks and uncertainties, including those risks and uncertainties set forth in
the Disclosure Documents; and (ii) the Company's actual results may differ
materially from those projected by the Company or its management in such
forward-looking information.
(j) Each Purchaser and MAG understands and acknowledges that (i)
the Securities are offered and sold without registration under the Securities
Act in a private placement that is exempt from the registration provisions of
the Securities Act and (ii) the availability of such exemption depends in part
on, and that the Company and its counsel will rely upon, the accuracy and
truthfulness of the foregoing representations and Purchaser hereby consents to
such reliance.
7. Covenants of Purchasers
a. Not to Short Stock. Purchasers and MAG, on behalf of
themselves and their affiliates and the permitted assignee of any Conversion
Shares or Warrant Shares, hereby covenant and agree not to, directly or
indirectly, offer to "short sell", contract to "short sell" or otherwise "short
sell" any securities of the Company, including, without limitation, shares of
Common Stock that will be received as a result of the conversion of the Series A
Stock or the exercise of the Warrants.
b. Volume Limitation. Purchasers and MAG, on behalf of
themselves and their affiliates, hereby covenant and agree not to, directly or
indirectly, sell in the aggregate during any trading day shares of Common Stock
totaling more than 15% of the total shares of Common Stock traded on such day.
c. Private Sales. Purchasers and MAG, on behalf of themselves
and their affiliates, hereby covenant and agree not to, directly or indirectly,
engage in a private sale of (i) any Series A Stock , (ii) any Warrants or (iii)
more than 688,684 shares of the Conversion Shares or Warrants Shares in the
aggregate to any third party. Any such sale would be made in accordance with and
subject to the provisions of the Securities Act.
12
8. Termination.
(a) This Agreement may be terminated in the sole discretion of
the Company by notice to each Purchaser if at the Execution Date:
(i) the representations and warranties made by any
Purchaser in Section 6 are not true and correct in all material respects; or
(ii) as to the Company, the sale of the Securities hereunder
(i) is prohibited or enjoined by any applicable law or governmental regulation
or (ii) subjects the Company to any penalty, or in its reasonable judgment,
other onerous condition under or pursuant to any applicable law or government
regulation that would materially reduce the benefits to the Company of the sale
of the Securities to such Purchaser, so long as such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement.
(b) This Agreement may be terminated by any Purchaser by notice
to the Company given in the event that (i) the Company shall have failed,
refused or been unable to satisfy all material conditions on its part to be
performed or satisfied hereunder on or prior to the Execution Date, (ii) the
Company shall have failed to obtain the shareholder approval required pursuant
to NASDAQ Small Cap Market rules for the transaction contemplated in the
Transaction Documents on or before forty (40) days after the Execution Date, or
(iii) if after the Execution Date but prior to the Closing Date, trading in
securities of the Company on the NASDAQ Small Cap Market shall have been
suspended and the Company ceases to be publicly traded.
(c) This Agreement may be terminated by mutual written consent
of all parties.
9. Registration. Within 30 days from the Closing Date, the Company
shall use its best efforts to prepare and file with the SEC a Registration
Statement covering the resale of the maximum number of Conversion Shares
issuable upon conversion of the Shares and the Warrant Shares (collectively, the
"REGISTRABLE SECURITIES"), for an offering to be made on a continuous basis
pursuant to Rule 415 (the "REGISTRATION STATEMENT") based on a Floor Price of
$0.98 per share. The Company shall use its best efforts to ensure that the
Registration Statement is declared effective by the SEC within 120 days of
filing the Registration Statement.
10. Event of Default. If an Event of Default (as defined below)
occurs and remains uncured for a period of 5 days, the Purchasers shall have the
right to exercise any or all of the rights given to the Purchasers relating to
the Securities, as further described in the Certificate of Designations. In
addition, the price at which the share of Series A stock may be converted into
Common Stock shall be reduced from 85% of the Market Price (as defined in the
Certificate of Designations) to 75% of the Market Price, subject to the Ceiling
Price and Floor Price as those terms are defined in the Certificate of
Designations.
The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all
13
other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
An "EVENT OF DEFAULT" shall be the commencement by the Company of a
voluntary case or proceeding under the bankruptcy laws or the Company's failure
to: (i) discharge or stay a bankruptcy proceeding within 60 days of such action
being taken against the Company, (ii) file the Registration Statement with the
SEC within 30 days after the Closing Date, (iii) have the Registration Statement
deemed effective by the SEC within 120 days after the date of filing of the
Registration Statement; (iv) fail to maintain trading of the Company's Common
Stock on the NASDAQ Small Cap Market or other publicly traded market (v) pay the
expenses referred to below or the Due Diligence Fee within three (3) days of the
Closing; or (vi) deliver to Purchasers, or Purchasers' broker, as directed,
Common Stock that Purchasers have converted or acquired by warrant exercise
within three (3) business days of such conversions or exercise.
IN THE EVENT THAT THE COMPANY FAILS TO FILE THE REGISTRATION STATEMENT WITH THE
SEC WITHIN 30 DAYS AFTER THE CLOSING DATE, AS A REMEDY FOR SUCH AN EVENT OF
DEFAULT, COMPANY SHALL PAY TO PURCHASERS ON A PRO RATA BASIS BASED ON THEIR
INVESTMENT, IN CASH, THE AMOUNT EQUAL TO ONE PERCENT (1%) OF THE PURCHASE PRICE
FOR EACH DAY THAT THE REGISTRATION STATEMENT FILING IS DELAYED. PURCHASERS AND
COMPANY ACKNOWLEDGE AND AGREE THAT THEY HAVE MUTUALLY DISCUSSED THE
IMPRACTICALITY AND EXTREME DIFFICULTY OF FIXING THE ACTUAL DAMAGES PURCHASERS
WOULD INCUR IN THE CASE OF SUCH AN EVENT OF DEFAULT, AND THAT AS A RESULT OF
SUCH DISCUSSION THE PARTIES AGREE THAT THE AMOUNT OF ONE PERCENT OF THE PURCHASE
PRICE REPRESENTS A REASONABLE ESTIMATE OF THE ACTUAL DAMAGES WHICH PURCHASERS
WOULD INCUR IN THE CASE OF SUCH AN EVENT OF DEFAULT. BY SIGNING IN THE SPACES
WHICH FOLLOW, PURCHASERS AND COMPANY SPECIFICALLY AND EXPRESSLY AGREE TO ABIDE
BY THE TERMS AND PROVISIONS OF THIS PARAGRAPH CONCERNING LIQUIDATED DAMAGES.
14
Purchasers: Company:
Mercator Momentum Fund, LP M-Wave, Inc.,
a California limited partnership a __________ corporation
By: Mercator Advisory Group LLC
Its: General Partner By: ___________________________
____________________________ ___________________________
Xxxxx Xxxxxxxxx [Printed Name and Title]
Managing Member
Mercator Momentum Fund III, LP Monarch Pointe Fund, Ltd.,
a California limited partnership a BVI Company
By: Mercator Advisory Group LLC
Its: General Partner _______________________________
By: Xxxxx Xxxxxxxxx
____________________________ Its: President
Xxxxx Xxxxxxxxx
Managing Member
11. Notices. All communications hereunder shall be in writing and
shall be hand delivered, mailed by first-class mail, couriered by next-day air
courier or by facsimile and confirmed in writing (i) if to the Company, at the
addresses set forth below, or (ii) if to a Purchaser or MAG, to the address set
forth for such party on the signature page hereto, with a copy to Sheppard,
Mullin, Xxxxxxx & Hampton, LLP, 000 Xxxxx Xxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx
00000, Attention: Xxxxx Xxxxx, Esq.
If to the Company:
M-Wave, Inc.
000 Xxxxxxxxxx XxxxX
Xxxx Xxxxxxx, Xxxxxxxx 00000
Attention: Xxx Xxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
15
with a copy to:
Xxxxxxxx & Xxxxxx LLP
000 Xxxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxx X. Xxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
All such notices and communications shall be deemed to have been duly
given: (i) when delivered by hand, if personally delivered; (ii) five business
days after being deposited in the mail, postage prepaid, if mailed certified
mail, return receipt requested; (iii) one business day after being timely
delivered to a next-day air courier guaranteeing overnight delivery; (iv) the
date of transmission if sent via facsimile to the facsimile number as set forth
in this Section or the signature page hereof prior to 6:00 p.m. (Pacific time)
on a business day, or (v) the business day following the date of transmission if
sent via facsimile at a facsimile number set forth in this Section or on the
signature page hereof after 6:00 p.m. (Pacific time) or on a date that is not a
business day. Change of a party's address or facsimile number may be designated
hereunder by giving notice to all of the other parties hereto in accordance with
this Section.
12. Survival Clause. The respective representations, warranties,
agreements and covenants of the Company and the Purchasers set forth in this
Agreement shall survive until the first anniversary of the Closing.
13. Fees and Expenses. Within three (3) days of Closing, the Company
agrees to pay Purchasers' legal expenses incurred in connection with the
preparation and negotiation of the Transaction Documents up to $15,000. The
$5,000 paid by Company on June 10, 2004 will be credited against this amount.
14. Enforcement. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the Warrants or the
Certificate of Designations, the prevailing party or parties shall be entitled
to receive from the other party or parties reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which the prevailing
party or parties may be entitled.
15. Successors. This Agreement shall inure to the benefit of and be
binding upon Purchasers, MAG and the Company and their respective successors and
legal representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions
16
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person. Neither the
Company nor any Purchaser may assign this Agreement or any rights or obligation
hereunder without the prior written consent of the other party.
16. No Waiver; Modifications in Writing. No failure or delay on the
part of the Company, MAG or any Purchaser in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company, MAG or any Purchaser at law or in
equity or otherwise. No waiver of or consent to any departure by the Company,
MAG or any Purchaser from any provision of this Agreement shall be effective
unless signed in writing by the party entitled to the benefit thereof, provided
that notice of any such waiver shall be given to each party hereto as set forth
below. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless signed
in writing by or on behalf of each of the Company, MAG and the Purchasers. Any
amendment, supplement or modification of or to any provision of this Agreement,
any waiver of any provision of this Agreement, and any consent to any departure
by the Company, MAG or any Purchaser from the terms of any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by
this Agreement, no notice to or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances.
17. Entire Agreement. This Agreement, together with Transaction
Documents, constitutes the entire agreement among the parties hereto and
supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties hereto with respect to the subject matter hereof and
thereof. Disclosure by the Company in any Schedule to this Agreement shall be
deemed applicable to all applicable provisions hereof.
18. Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby.
19. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE
PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN
STATE OR FEDERAL COURTS LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND
HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
17
20. Counterparts. This Agreement may be executed in two or more
counterparts and may be delivered by facsimile transmission, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
21. If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this Agreement shall constitute a binding agreement among the Company,
the Purchasers and MAG.
Very truly yours,
M-Wave, Inc.
By: ___________________________
Name: ____________________
Title: ____________________
ACCEPTED AND AGREED:
18
Mercator Momentum Fund, LP Mercator Momentum Fund III, LP
By: Mercator Advisory Group LLC By: Mercator Advisory Group LLC
Its: General Partner Its: General Partner
___________________________ ___________________________
Xxxxx Xxxxxxxxx Xxxxx Xxxxxxxxx
Portfolio Manager Portfolio Manager
Number of Shares Purchased at
Number of Shares Purchased at Closing: 9,070
Closing: 12,900
Purchase Price: $907,000
Purchase Price: $1,290,000
Monarch Pointe Fund, Ltd.
Mercator Advisory Group LLC
_______________________________
______________________________
By: Xxxxx Xxxxxxxxx
By: Xxxxx Xxxxxxxxx Its: Portfolio Manager
Its: Portfolio Manager
Number of Shares Purchased at
Closing: 8,030
Purchase Price: $803,000
Mercator Advisory Group, LLC Addresses for Notice:
By: _________________________ Mercator Advisory Group, LLC
Xxxxx Xxxxxxxxx 000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000
Portfolio Manager Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
with copy to:
Xxxxx X. Xxxxx, Esq.
Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
19
Schedule A
Direct and Indirect Subsidiaries of M-Wave, Inc.
Poly Circuits, Inc., an Illinois
corporation
-1-
Schedule B
Company Capitalization
See the Balance Sheet of the Company set forth in the Form 10-QSB included in
the Disclosure Documents. (The Company intends to obtain shareholder approval
for an amendment to its Articles of Incorporation to increase its authorized
shares of common stock from 10,000,000 to 20,000,000 at the meeting contemplated
in Section 8 (b) of this Agreement.)
The Company expects to close a new revolving line of credit with Silicon Valley
Bank within the next two weeks which will increase the amount of its credit line
to by $1,500,000 to $4,500,000 and lower its effective cost of credit from 13.6%
per annum to 8% per annum
-1-1
Schedule C
Agreements regarding ownership or disposition of capital stock
None, but see Schedule D below concerning a related matter
-1-
Schedule D
Violations/Breaches
The Company is in arrears in its obligations to two vendors for payment of
amounts due under settlement arrangements providing for discounted payment of
past due invoices, These obligations are in the approximate amount of $800,000
to one vendor and $175,000 to another vendor. The Company expects to receive
proceeds from a Federal tax refund and from the sale of its prior manufacturing
plant in Bensenville, Illinois within in the next 45 days and to use the
proceeds thereof to resolve these obligations. Both vendors are cooperating with
the Company in this regard.
The Company is allegedly delinquent on obligations relating to its lease of
certain facilities in Bensenville, Illinois. Its exposure does not exceed
$150,000. It has offered to resolve the dispute by the payment of $50,000 in
cash and the issuance of warrants to purchase 25,000 shares of its common stock
at $1.00 per share. Negotiations of the dispute are ongoing.
-1-
Exhibit A
Warrant
(attached hereto)
-2-
Exhibit B
Certificate of Designations of
Series A Convertible Preferred Stock
of
M-Wave, Inc.
-3-
Exhibit C
Form of Legal Opinion
(Delivered to Purchasers at the Closing)
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, with corporate
power to own its properties and to conduct its business.
2. The Company has the corporate power to execute, deliver and
perform the transaction documents, including the Exhibits thereto (the
"Transaction Documents"). The Transaction Documents have been duly authorized by
all requisite corporate action by the Company and constitute the valid and
binding obligations of the Company, enforceable in accordance with their terms
(subject to bankruptcy, equitable principles and other customary exceptions).
(a) As of the date hereof, in accordance with its Articles of
Incorporation on file with the Secretary of State of Delaware, the authorized
capital stock of the Company consists of 1,000,000 shares of Preferred Stock,
and 20,000,000 shares of Common Stock.
(b) The shares of the Company's Series A Stock have been duly
authorized and, upon issuance, delivery, and payment therefor as described in
the Subscription Agreement, will be validly issued, fully paid and
nonassessable.
(c) The shares of the Company's Common Stock initially issuable
upon conversion of the shares of Series A Stock sold have been duly authorized
and reserved for issuance and, upon issuance and delivery upon conversion of the
Shares as described in the Certificate of Designations, will be validly issued,
fully paid and nonassessable.
(d) The shares of the Company's Common Stock issuable upon
exercise of the Warrants have been duly authorized and reserved for issuance,
and upon issuance, delivery, and payment therefor in accordance with the
Warrants, will be validly issued, fully paid and nonassessable.
3. The Company's execution and delivery of the Transaction Documents
and the issue and sale of the Shares and the Warrants, on the terms and
conditions set forth in the Subscription Agreement, and the Stock Purchase
Agreement, will not violate any law of the United States or the State of
Delaware any rule or regulation of any governmental authority or regulatory body
of the United States or the State of Delaware or any provision of the Company's
Articles of Incorporation or Bylaws.
4. No consent, approval, order or authorization of, and no notice to
or filing with, any governmental agency or body or any court is required to be
obtained or made by the Company for the issuance and sale of the Shares and the
Warrants pursuant to the Transaction
-4-
Documents or Agreement, except such as have been obtained or made and such as
may be required under applicable securities laws.
5. On the assumption that the representations of the Company and the
Purchasers in the Subscription Agreement are correct and complete, the offer and
sale of the Shares and the Warrants pursuant to the terms of the Subscription
Agreement are exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended, , and, under such securities laws as they
presently exist, the issuance of the Company's Common Stock upon conversion of
the Shares and exercise of the Warrants would also be exempt from such
registration.
6. We know of no pending or overtly threatened action, proceeding or
governmental investigation with respect to the Company's sale of Series A Stock
and Warrants pursuant to the Transaction Documents.
-5-
Exhibit D
Registration Rights Agreement
-6-
