Securities Purchase
Agreement
This
Securities Purchase Agreement (this “Agreement”) is
dated as of March 14, 2008, by and among Energy Focus, Inc., a Delaware
corporation (the “Company”), and
the parties listed on the signature page hereto (each an “Investor” and
together the “Investors”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated
thereunder, the Company desires to issue and sell to the Investor, and the
Investor desires to purchase from the Company certain securities of the Company,
as more fully described in this Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and the Investor agree as
follows:
ARTICLE 1
Section
1.1. Definitions. In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings indicated in this Section
1.1:
“Action” means
any action, suit, inquiry, notice of violation, proceeding (including any
partial proceeding such as a deposition) or investigation pending or threatened
in writing against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.
“Affiliate” means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144.
“Board” means
the Board of Directors of the Company.
“Business Day” means
any day except Saturday, Sunday and any day which is a federal legal holiday or
a day on which banking institutions in the City of New York are authorized or
required by law or other governmental action to close.
“Claim” has the
meaning set forth in Section 4.6(c).
“Closing” means
the closing of the purchase and sale of Shares and a Warrant pursuant to Article
2.
“Closing Date” means
the Business Day immediately following the date on which all of the conditions
set forth in Sections 6.1 and 6.2 hereof are satisfied, or such other date as
the parties may agree.
“Commission” means
the Securities and Exchange Commission.
“Common Stock” means
the common stock of the Company, par value $0.001 per share, and any securities
into which such common stock may hereafter be reclassified.
“Common Stock
Equivalents” means
any securities of the Company or any Subsidiary which entitle the holder thereof
to acquire Common Stock at any time, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any
time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock or other securities that entitle the holder to
receive, directly or indirectly, Common Stock.
“Company Counsel” means
Cowden & Humphrey Co. LPA.
“Company
Deliverables” has the
meaning set forth in Section 2.4.
“Company Stock
Options” has the
meaning set forth in Section 3.1(g).
“Contingent
Obligations” has the
meaning set forth in Section 3.1(r).
“Convertible
Securities” has the
meaning set forth in Section 3.1(g).
“Delaware Courts” has the
meaning set forth in Section 7.9.
“Effective Date” means
the date that any Registration Statement filed pursuant to Article 4 is first
declared effective by the Commission.
“Effectiveness
Period” has the
meaning set forth in Section 4.1(b).
“Environmental
Law” has the
meaning set forth in Section 3.1(aa).
“ERISA” means
the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations promulgated thereunder.
“ERISA Affiliate” means
any trade or business, whether or not incorporated, that together with the
Company would be deemed to be a single employer for purposes of Section 4001 of
ERISA or Sections 414(b), (c), (m), (n) or (o) of the Internal Revenue Code of
1986, as amended.
“Evaluation
Period” has the
meaning set forth in Section 3.1(r).
“Event” has the
meaning set forth in Section 4.1(d).
“Event Date” has the
meaning set forth in Section 4.1(d).
“Exchange Act” means
the Securities Exchange Act of 1934, as amended.
“Exempt Issuance” means
the issuance by the Company (a) to employees, officers, directors of, and
consultants to, the Company of shares of Common Stock or options for the
purchase of shares of Common Stock pursuant to stock option or long-term
incentive plans approved by the Board, (b) of shares of Common Stock upon the
exercise of Warrants issued hereunder, (c) of shares of Common Stock upon
conversion of shares of Series A Preferred Stock, (d) of shares of Common Stock
upon exercise of Prior Warrants or conversion of Prior Convertible Securities,
(e) of securities issued pursuant to acquisitions, licensing agreements, or
other strategic transactions, (f) of securities issued in connection with
equipment leases, real property leases, loans, credit lines, guaranties or
similar transactions approved by the Board, (g) of securities issued in
connection with join ventures or similar strategic relationships approved by the
Board, (h) of securities in a merger, or (i) of securities in a public offering
registered under the Securities Act; provided that in the case of securities
issued pursuant clauses (e), (f), (g) and (h), the purpose of such issuance may
not be primarily to obtain cash financing.
“Filing Date” means
the date that is 30 days after the Closing Date.
“Financial
Statements” has the
meaning set forth in Section 3.1(h).
“Financing Notice” has the
meaning set forth in Section 5.5(b).
“GAAP” means
generally accepted accounting principles as in effect as of the date hereof in
the United States of America.
“Governmental
Authority” has the
meaning set forth in Section 3.1(e).
“Hazardous
Substance” has the
meaning set forth in Section 3.1(aa).
“Indebtedness” has the
meaning set forth in Section 3.1(r).
“Indemnified
Party” has the
meaning set forth in Section 4.6(c).
“Indemnified
Person” has the
meaning set forth in Section 4.6(a).
“Indemnifying
Party” has the
meaning set forth in Section 4.6(c).
“Intellectual Property
Rights” has the
meaning set forth in Section 3.1(o).
“Lien” means
any lien, charge, encumbrance, security interest, right of first refusal or
other restrictions of any kind.
“Material Adverse
Effect” means
any of (i) a material and adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material and adverse effect
on the results of operations, assets, prospects, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (iii) a material impairment of the Company’s ability to perform on a timely
basis its obligations under any Transaction Document.
“NASD Rules” has the
meaning set forth in Section 4.3(o).
“OFAC” has the
meaning set forth in Section 3.1(ee).
“Penalty Base” has the
meaning set forth in Section 4.1(d).
“Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Per Unit Purchase
Price” has the
meaning set forth in Section 2.1.
“Placement Agent” has the
meaning set forth in Section 3.1(s).
“Post-Effective
Amendment” means a
post-effective amendment to the Registration Statement.
“Post-Effective Amendment Filing
Deadline” means
the seventh Business Day after the Registration Statement ceases to be effective
pursuant to applicable securities laws due to the passage of time or the
occurrence of an event requiring the Company to file a Post-Effective
Amendment.
“Prior Convertible
Securities” has the
meaning set forth in Section 3.1(g).
“Prior Warrants” has the
meaning set forth in Section 3.1(g).
“Proceeding” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an investigation or partial proceeding, such as a deposition), whether commenced
or threatened.
“Prospectus” has the
meaning set forth in Section 4.3.
“Proposed
Financing” has the
meaning set forth in Section 5.5(a).
“Purchase Price” has the
meaning set forth in Section 2.2.
“Registrable
Securities” means
the Shares and the Warrant Shares; provided, however, that the Investor shall
not be required to exercise the Warrants in order to have the Warrant Shares
included in any Registration Statement.
“Registration
Period” means
the period commencing on the date hereof and ending on the date on which all of
the Registrable Securities may be sold to the public without registration and
without volume or manner restrictions under the Securities Act in reliance on
Rule 144.
“Registration
Statement” means a
registration statement filed on the appropriate Form with, and declared
effective by, the Commission under the Securities Act and covering the resale by
the Investor of the Registrable Securities.
“Requested
Information” has the
meaning set forth in Section 4.3(a).
“Required Effectiveness
Date” means
the earlier of (i) the date that is 90 days after the Closing Date without SEC
review or 120 days in the event of an SEC review process, or, in the case of the
registration of Cut Back Shares (as defined in Section 4.1(a)), 120 days after
the Restriction Termination Date or (ii) five Business Days after receipt by the
Company from the Commission of notice of “no review” of the Registration
Statement.
“Rule 144” means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as such
Rule.
“SEC Reports” has the
meaning set forth in Section 3.1(h).
“Securities” means
the Shares, the Warrant, and the Warrant Shares.
“Securities Act” means
the Securities Act of 1933, as amended.
“Shares” means
the shares of Common Stock issuable to the Investor at the Closing.
“Subsidiary” means
any “significant subsidiary” as defined in Rule 1-02(w) of Regulation S X
promulgated by the Commission under the Exchange Act.
“Trading Day” means
(i) a day on which the Common Stock is traded on a Trading Market, or (ii) if
the Common Stock is not listed on a Trading Market, a day on which the Common
Stock is traded in the over-the-counter market, as reported by the OTC Bulletin
Board, or (iii) if the Common Stock is not then listed or quoted on the OTC
Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.
“Trading Market” means
whichever of the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market, or the Nasdaq Over-the-Counter Market on which the
Common Stock is listed or traded on the date in question.
“Transaction
Documents” means
this Agreement, the Warrant and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
“Unit” means a
unit consisting of one Share and a Warrant to purchase one share of Common
Stock, issued in combination.
“Warrant” means
any of the Common Stock Purchase Warrants, in the form of Exhibit B, which
are issuable to the Investor at the Closings.
“Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE 2
Section
2.1. Issuance of Securities at
the Closing. Upon
the terms and subject to the conditions set forth in this Agreement, and in
accordance with applicable law, the Company agrees to sell to the Investors, and
the Investors agree, severally and not jointly, to purchase from the Company,
for a per Unit purchase price of $3.205 (the “Per Unit Purchase
Price”), on
the Closing Date, the number of Units opposite each Investor’s name on
Exhibit A attached
hereto, each Unit to consist of (i) one Share and (ii) a Warrant to purchase one
share of Common Stock.
Section
2.2. Payment of Purchase
Price. As
consideration for the issuance of the Securities being purchased at the Closing,
each Investor shall on the Closing Date pay to the Company, by wire transfer of
immediately available funds, an amount equal to (i) the Per Unit Purchase Price
multiplied by (ii) the number of Units opposite each Investor’s name on
Exhibit A attached
hereto. The aggregate purchase price payable by all of the Investors hereunder
is hereinafter referred to as the “Purchase Price.”
Section
2.3. Delivery of
Securities. At the
Closing, the Company shall, against payment by each Investor of its pro rata
share of the Purchase Price, (i) issue to each Investor the Warrants included in
the Units being purchased at the Closing and (ii) execute and deliver to the
transfer agent for the Common Stock irrevocable instructions to issue to each
Investor the number of Shares included in the Units being purchased at the
Closing.
Section
2.4. Additional Closing
Deliveries. At the
Closing, the Company shall deliver or cause to be delivered to each Investor the
following (the “Company
Deliverables”):
(i) The legal
opinion of Company Counsel, in substantially the form of Exhibit C hereto,
addressed to each Investor;
(ii) The
Certificate of Incorporation of the Company, together with all amendments
thereto, certified by the Secretary of State of the State of Delaware as of a
recent date;
(iii) Copies of
each of the following documents, in each case certified by the Secretary of the
Company to be in full force and effect on the Closing Date:
(A) resolutions
of the board of directors of the Company approving the execution, delivery and
performance of the Transaction Documents and the transactions contemplated
thereby;
(B) the
Bylaws of the Company; and
(C) irrevocable
instructions to the Company’s transfer agent as to the reservation and issuance
of the Warrant Shares; and
(iv) A good
standing certificate of the Company issued by the Secretary of State of the
State of Delaware dated as of a recent date.
ARTICLE 3
REPRESENTATIONS AND
WARRANTIES
Section
3.1. Representations and
Warranties of the Company. The
Company hereby makes the following representations and warranties to each
Investor:
(a) Subsidiaries. The
Company has no direct or indirect Subsidiaries other than as specified in the
SEC Reports. Except as disclosed in the SEC Reports, the Company owns, directly
or indirectly, all of the capital stock of each Subsidiary free and clear of any
and all Liens other than Liens disclosed in the SEC Reports, and all the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar
rights.
(b) Organization and
Qualification. Each of
the Company and each Subsidiary is duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and each Subsidiary is duly qualified to conduct its respective business
and is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, and no proceedings have been instituted in any such jurisdiction
revoking, limiting or curtailing, or seeking to revoke, such power and authority
or qualification.
(c) Authorization;
Enforcement. The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
corporate action is required by the Company in connection therewith. Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application.
(d) No
Conflicts. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated thereby do
not and will not (i) conflict with or violate any provision of the Company’s or
any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
breach or default (or an event that with notice or lapse of time or both would
become a breach or default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, or result in the imposition of any Lien upon any of the material
properties or assets of the Company or of any Subsidiary pursuant to, any
agreement, credit facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.
(e) Filings, Consents and
Approvals. The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority (a “Governmental
Authority”) or
other Person in connection with the execution, delivery and performance by the
Company of the Transaction Documents and the consummation of the transactions
contemplated thereby, other than (i) the filing of a Notice of Sale of
Securities on Form D with the Commission under Regulation D of the Securities
Act (ii) filings required under applicable state securities laws, and (iii) the
filing with the Commission of one or more Registration Statements in accordance
with the requirements of Article 4 of this Agreement,.
(f) Issuance of the
Securities. The
Shares have been duly authorized and, when issued and paid for in accordance
with this Agreement, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens, other than Liens created by the
Investors and those imposed by applicable securities laws. The Company has
reserved and set aside from its duly authorized capital stock a sufficient
number of shares of Common Stock to satisfy in full the Company’s obligations to
issue the Warrant Shares upon exercise of the Warrants. The Warrant Shares are
duly authorized and, when issued and paid for upon exercise of the Warrants in
accordance with their terms, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens, other than Liens created by the
Investors and those imposed by applicable securities laws.
(g) Capitalization. The
authorized capital stock of the Company consists of 30,000,000 shares of Common
Stock and 0 shares of Preferred Stock, par value $.0001, of which 0 shares have
been designed Series A Preferred Stock and 0 shares are undesignated. As of the
close of business on February 29, 2008, (i) 0 shares of Series A Preferred Stock
were issued and outstanding, all of which are validly issued, fully-paid and
non-assessable, (ii) 11,645,719 shares of Common Stock were issued and
outstanding, all of which are validly issued, fully-paid and non-assessable,
(iii) 16,409,576 shares of Common Stock were held by the Company in Treasury,
(iv) 1,518,227 shares of Common Stock were reserved for issuance upon exercise
of outstanding options granted to employees, directors, and consultants of the
Company (the “Company Stock
Options”); (v)
426,478 shares of Common Stock were reserved for issuance upon exercise of
outstanding warrants to purchase Common Stock (the “Prior Warrants”); (vi)
0 shares of Common Stock were reserved for issuance upon conversion of
outstanding shares of Series A Preferred Stock, and (vii) 0 shares of Common
Stock were reserved for issuance upon conversion of other convertible notes,
debentures or securities (“Prior Convertible
Securities”). No
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents. Except pursuant to (i) the outstanding shares of Series A
Preferred Stock, (ii) the Company Stock Options, (iii) the Prior Warrants or
(iv) the Prior Convertible Securities, or as a result of the purchase and sale
of the Securities as contemplated by this Agreement, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issue and sale of the Securities will not obligate the Company
to issue shares of Common Stock or other securities to any Person (other than
the Investors and the Placement Agent) and will not result in a right of any
holder of Company securities to adjust the exercise or conversion price under
such securities. No further approval or authorization of any stockholder, the
Board of Directors of the Company or any other Person is required for the
issuance and sale of the Securities. There are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company’s
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders.
(h) SEC Reports; Financial
Statements. The
Company has filed all reports required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the twelve months preceding the date hereof (the foregoing materials, being
collectively referred to herein as the “SEC Reports”). As of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company (the
“Financial
Statements”)
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such Financial Statements
have been prepared in accordance with GAAP applied on a consistent basis during
the periods involved, except as may be otherwise specified in such Financial
Statements or the notes thereto, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal
year-end audit adjustments.
(i) Material
Changes. Except
as set forth in the Financial Statements, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities or obligations (contingent or otherwise) other than (A) trade
payables, accrued expenses and other liabilities incurred in the ordinary course
of business consistent with past practice incurred since the date of the most
recent Financial Statements and (B) liabilities incurred in the ordinary course
of business not required to be reflected in the Financial Statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting or the identity of its
auditors, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock, and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans or the Company
Stock Options. The Company does not have pending before the Commission any
request for confidential treatment of information. The Company maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP.
(j) Litigation and
Investigations. There
is no Action which (i) challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) except as
specifically disclosed in the SEC Reports, could, if there were an unfavorable
decision, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor
any director or officer thereof (in his capacity as such), is the subject of any
pending Action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty, except as
specifically disclosed in the SEC Reports. To the knowledge of the Company,
there is not pending any investigation by the Commission involving the Company
or any current or former director or officer of the Company (in his or her
capacity as such). The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act. There are no
outstanding comments by the staff of the Commission on any filing by the Company
or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor
Relations. No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company.
(l) Compliance. Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.
(m) Regulatory
Permits. The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or modification of any such
permits.
(n) Title to
Assets. The
Company and the Subsidiaries have good and marketable title in fee simple to all
real property owned by them that is material to their respective businesses and
good and marketable title in all personal property owned by them that is
material to their respective businesses, in each case free and clear of all
Liens, except for Liens that do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries. All real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under leases of which the Company and the Subsidiaries are in material
compliance, except as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.
(o) Patents and
Trademarks. The
Company and the Subsidiaries have, or have valid rights to use, all patents,
patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that are necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse Effect
(collectively, the “Intellectual Property
Rights”). No
claims or Actions have been made or filed by any Person against the Company to
the effect that Intellectual Property Rights used by the Company or any
Subsidiary violate or infringe upon the rights of such claimant. To the
knowledge of the Company, after
commercially reasonable investigation, all of the Intellectual Property Rights
are enforceable and there is
no existing infringement by another Person of any of the Intellectual Property
Rights or by the Company of the Intellectual Property Rights of any other
Person.
(p) Insurance. The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as the Company
believes are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged. The Company has no reason to believe that it will
not be able to renew its and the Subsidiaries’ existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business on terms consistent with
the market for the Company’s and such Subsidiaries’ respective lines of
business.
(q) Transactions With Affiliates
and Employees. Except
as set forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is a party to any transaction with the Company or any Subsidiary (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(r) Sarbanes-Oxley; Internal
Accounting Controls. The
Company is in material compliance with all provisions of the Sarbanes-Oxley Act
of 2002 (including the rules and regulations of the Commission adopted
thereunder) which are applicable to it as of the Closing Date. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the filing date of the most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act), or to the
Company’s knowledge, in other factors that could significantly affect the
Company’s internal controls.
(s) Certain
Fees. No
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement except to Merriman Curhan Ford & Co. (the
“Placement Agent”). The
Investors shall have no obligation with respect to any fees or with respect to
any claims (other than such fees or commissions owed by the Investors pursuant
to written agreements executed by the Investors which fees or commissions shall
be the sole responsibility of the Investors) made by or on behalf of the
Placement Agent or any other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by this
Agreement.
(t) Certain Registration
Matters.
Assuming the accuracy of each Investor’s representations and warranties set
forth in Section 3.2(b)-(e), no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the
Investors under the Transaction Documents.
(u) Investment
Company. The
Company is not, and is not an Affiliate of, and immediately following the
Closing will not have become, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.
(v) No Additional
Agreements. The
Company does not have any agreement or understanding with the Investors with
respect to the transactions contemplated by the Transaction Documents other than
as specified in the Transaction Documents.
(w) Full
Disclosure. The SEC
Reports and the Company’s representations and warranties set forth in this
Agreement, taken together, are true and correct in all material respects and do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. Except with
respect to the material terms and conditions of the transactions contemplated by
the Transaction Documents, the Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Investors or their agents or
counsel with any information that it believes constitutes or might constitute
material, non-public information. The Company understands and confirms that the
Investors will rely on the foregoing representation in effecting transactions in
securities of the Company. The Company acknowledges and agrees that no Investor
makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.
(x) Environmental
Matters. To the
Company’s knowledge: (i) the Company and its Subsidiaries have complied with all
applicable Environmental Laws, except for such noncompliance as could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect; (ii) after commercially reasonable investigation, the
properties currently owned or operated by Company (including soils, groundwater,
surface water, buildings or other structures) are not contaminated with any
Hazardous Substances; (iii) after commercially reasonable investigation, the
properties formerly owned or operated by Company or its Subsidiaries were not
contaminated with Hazardous Substances during the period of ownership or
operation by Company and its Subsidiaries; (iv) Company and its Subsidiaries are
not subject to any material liability for any Hazardous Substance disposal or
contamination on any third party property; (v) Company and its Subsidiaries have
not received any written notice, demand, letter, claim or request for
information alleging that Company and its Subsidiaries may be in violation of or
liable under any Environmental Law; and (vi) Company and its Subsidiaries are
not subject to any orders, decrees, injunctions or other arrangements with any
Governmental Authority or subject to any indemnity or other agreement with any
third party relating to liability under any Environmental Law or relating to
Hazardous Substances which could, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.
As used
in this Agreement, the term “Environmental Law” means
any federal, state, local or foreign law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement relating to: (A) the
protection, investigation or restoration of the environment, health and safety,
or natural resources; (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
As used
in this Agreement, the term “Hazardous
Substance” means
any substance that is: (i) listed, classified or regulated pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, polychlorinated biphenyls, radioactive materials or radon; or (iii)
any other substance which is the subject of regulatory action by any
Governmental Authority pursuant to any Environmental Law.
(y) Taxes. The
Company and its Subsidiaries have filed all necessary federal, state and foreign
income and franchise tax returns when due (or obtained appropriate extensions
for filing) and have paid or accrued all taxes shown as due thereon, and the
Company has no knowledge of a tax deficiency which has been or might be asserted
or threatened against it or any Subsidiary which would have a Material Adverse
Effect.
(z) ERISA. Neither
the Company nor any ERISA Affiliate maintains, contributes to or has any
liability or contingent liability with respect to any employee benefit plan
subject to ERISA.
(aa) Foreign Assets Control
Regulations and Anti-Money Laundering.
(i) OFAC. Neither
the issuance of the Shares and Warrants to the Investors, nor the use of the
respective proceeds thereof, shall cause the Investors to violate the U.S. Bank
Secrecy Act, as amended, and any applicable regulations thereunder or any of the
sanctions programs administered by the U.S. Department of the Treasury’s Office
of Foreign Assets Control (“OFAC”) of the
United States Department of Treasury, any regulations promulgated thereunder by
OFAC or under any affiliated or successor governmental or quasi-governmental
office, bureau or agency and any enabling legislation or executive order
relating thereto. Without limiting the foregoing, neither the Company nor any
Subsidiary (i) is a person whose property or interests in property are blocked
or subject to blocking pursuant to Section 1 of Executive Order 13224 of
September 23, 200l Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079
(2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of
such executive order, or is otherwise associated with any such person in any
manner violative of Section 2, or (iii) is a person on the list of Specially
Designated Nationals and Blocked Persons or subject to the limitations or
prohibitions under any other OFAC regulation or executive order.
(ii) Patriot
Act. The
Company and each of its Subsidiaries are in compliance, in all material
respects, with the USA PATRIOT Act. No part of the proceeds of the sale of the
Shares and the Warrants hereunder will be used, directly or indirectly, for any
payments to any governmental official or employee, political party, official of
a political party, candidate for political office, or anyone else acting in an
official capacity, in order to obtain, retain or direct business or obtain any
improper advantage, in violation of the United States Foreign Corrupt Practices
Act of 1977, as amended.
(bb) Acknowledgment Regarding
Investors’ Trading Activity. Except
as expressly set forth herein, it is understood and acknowledged by the Company
that, except to the extent required by applicable law: (i) none of the Investors
have been asked by the Company to agree, nor has any Investor agreed, to desist
from purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that past or future open market or other
transactions by any Investor, specifically including, without limitation, short
sales or “derivative” transactions, before or after the closing of this or
future private placement transactions, may negatively impact the market price of
the Company’s publicly-traded securities; (iii) that any Investor, and
counter-parties in “derivative” transactions to which any such Investor is a
party, directly or indirectly, presently may have a “short” position in the
Common Stock and (iv) that each Investor shall not be deemed to have any
affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that,
to the extent permitted by applicable law (y) one or more Investors may engage
in hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Warrant Shares deliverable with respect to Securities are being determined,
and (z) such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that the
hedging activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents, except to the extent that any such activities violate the
provisions of applicable law.
(cc) Regulation M
Compliance. The
Company has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or, paid any compensation for soliciting purchases of, any of the
Securities, or (iii) paid or agreed to pay to any Person any compensation for
soliciting another to purchase any other securities of the Company, other than,
in the case of clauses (ii) and (iii), compensation paid to the Company’s
placement agent in connection with the placement of the Securities.
(dd) Form S-3
Eligibility. The
Company is eligible to register the resale of the Shares and the Warrant Shares
for resale by the Investors on Form S-3 promulgated under the Securities Act;
provided, however, that no violation of this Section 3.1(dd) shall be deemed to
have occurred in the event that the SEC imposes any restriction on the
registration of the Shares and/or the Warrant Shares pursuant to Rule 415 as
contemplated in Section 4.1(a) below.
Section
3.2. Representations and
Warranties of the Investor. Each
Investor hereby represents and warrants to the Company as follows:
(a) Authority. This
Agreement has been duly executed by the Investor, and when delivered by the
Investor in accordance with terms hereof, will constitute the valid and legally
binding obligation of the Investor, enforceable against him in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors’ rights and
remedies or by other equitable principles of general application.
(b) Own
Account. The
Investor is acquiring the Securities as principal for its own account and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to the Investor’s right at all times to
sell or otherwise dispose of all or any part of such Securities in compliance
with applicable federal and state securities laws. The Investor does not have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
(c) Investor
Status. The
Investor is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and a “qualified institutional buyer” as defined in Rule 144A
under the Securities Act. The Investor is not a registered broker-dealer under
Section 15 of the Exchange Act or associated or affiliated with such a
broker-dealer. Any Investor which is an entity has not been formed specifically
for the purpose of investing in the Securities and has its principal place of
business at the address listed for it on the signature pages
hereto.
(d) Access to
Information. The
Investor acknowledges that it has reviewed the SEC Reports and has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities and the merits and risks of
investing in the Securities; (ii) access to information about the Company and
the Subsidiaries and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to enable
him to evaluate his investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment.
(e) General
Solicitation. The
Investor is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Disclosure. The
Investor acknowledges and agrees that the Company neither makes nor has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.1.
(g) Regulation M
Compliance. The
Investor has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or, paid any compensation for soliciting purchases of, any of the
Securities, or (iii) paid or agreed to pay to any Person any compensation for
soliciting another to purchase any other securities of the Company.
ARTICLE 4
Section
4.1. Shelf
Registration.
(a) As
promptly as possible, and in any event on or prior to the Filing Date, the
Company shall prepare and file with the Commission a “shelf” Registration
Statement covering the resale of all Registrable Securities for an offering to
be made on a continuous basis pursuant to Rule 415. If for any reason
(including, without limitation, the Commission’s interpretation of Rule 415) the
Commission does not permit all of the Registrable Securities to be included in
such Registration Statement, then the Company shall prepare and file with the
Commission one or more separate Registration Statements with respect to any such
Registrable Securities not included with the initial Registration Statements, as
soon as allowed under SEC Regulations and is commercially practicable. The
Registration Statement shall be on a Form S-3; in the event Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form in accordance herewith and (ii) attempt
to register the Registrable Securities on Form S-3 as soon as such form is
available, provided that the Company shall maintain the effectiveness of the
Registration Statements then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the Commission. If at any time the SEC takes the position that the
offering of some or all of the Registrable Securities in a Registration
Statement is not eligible to be made on a delayed or continuous basis under the
provisions of Rule 415 under the 1933 Act or requires any Investor to be named
as an “underwriter”, the Company shall use its commercially reasonable best
efforts to persuade the SEC that the offering contemplated by the Registration
Statement is a valid secondary offering and not an offering “by or on behalf of
the issuer” as defined in Rule 415 and that none of the Investors is an
“underwriter”. The Investors shall have the right to participate or have their
counsel participate in any meetings or discussions with the SEC regarding the
SEC’s position and to comment or have their counsel comment on any written
submission made to the SEC with respect thereto, and to have such comments
relayed to the SEC with the consent of the Company, not to be unreasonably
withheld. No such written submission shall be made to the SEC to which the
Investors’ counsel reasonably objects. In the event that, despite the Company’s
commercially reasonable efforts and compliance with the terms of this Section
2(e), the SEC refuses to alter its position, the Company shall (i) remove from
the Registration Statement such portion of the Registrable Securities (the
“Cut Back Shares”) and/or
(ii) with the consent of the Investor’s counsel, not to be unreasonably
withheld, agree to such restrictions and limitations on the registration and
resale of the Registrable Securities as the SEC may require to assure the
Company’s compliance with the requirements of Rule 415; provided, however, that
the Company shall not agree to name any Investor as an “underwriter” in such
Registration Statement without the prior written consent of such Investor
(collectively, the “SEC Restrictions”). The
Cut Back Shares shall be allocated among the Investors on a pro rata basis
unless the SEC otherwise requires. No liquidated damages shall accrue on or as
to any Cut Back Shares until such time as the Company is able, using
commercially reasonable efforts, to effect the filing of an additional
Registration Statement with respect to the Cut Back Shares in accordance with
any SEC Restrictions (such date, the “Restriction Termination
Date”). From
and after the Restriction Termination Date, all of the provisions of this
Article 4 (including the liquidated damages provisions) shall again be
applicable to the Cut Back Shares; provided, however, that for such purposes,
references to the Filing Date shall be deemed to be the Restriction Termination
Date.
(b) The
Company shall use its best efforts to cause each Registration Statement filed
hereunder to be declared effective by the Commission as promptly as possible
after the filing thereof, but in any event prior to the Required Effectiveness
Date, and shall use its best efforts to keep the Registration Statement
continuously effective under the Securities Act until the earlier of (i) the
fifth anniversary of the Effective Date, (ii) the date when all Registrable
Securities covered by such Registration Statement have been sold publicly, or
(iii) the date on which the Registrable Securities are eligible for sale without
volume limitation within a three-month period pursuant to Rule 144 or any
successor thereto (the “Effectiveness
Period”). The
Company shall notify the Investor in writing promptly (and in any event within
one Business Day) after receiving notification from the Commission that the
Registration Statement has been declared effective.
(c) As
promptly as possible, and in any event no later than the Post-Effective
Amendment Filing Deadline, the Company shall prepare and file with the
Commission a Post-Effective Amendment. The Company shall use its best efforts to
cause the Post-Effective Amendment to be declared effective by the Commission as
promptly as possible after the filing thereof. The Company shall notify the
investor in writing promptly (and in any event within one Business Day) after
receiving notification from the Commission that the Post-Effective Amendment has
been declared effective.
(d) If: (i)
any Registration Statement is not filed on or prior to the Filing Date (or the
Restriction Termination Date, as applicable) or a Post-Effective Amendment is
not filed on or prior to the Post-Effective Amendment Filing Deadline, or (ii)
the Company fails to file with the Commission a request for acceleration of
effectiveness in accordance with Rule 461 promulgated under the Securities Act,
within five Business Days after the date that the Company is notified (orally or
in writing, whichever is earlier) by the Commission that a Registration
Statement will not be “reviewed,” or will not be subject to further review, or
(iii) the Company fails to respond to any comments made by the Commission within
15 Business Days after the receipt of such comments, or (iv) a Registration
Statement filed hereunder is not declared effective by the Commission by the
Required Effectiveness Date, or a Post-Effective Amendment is not declared
effective on or prior to the fifteenth Business Day following the Post-Effective
Amendment Filing Deadline, or (v) after a Registration Statement is filed with
and declared effective by the Commission, such Registration Statement ceases to
be effective as to all Registrable Securities to which it is required to relate
at any time prior to the expiration of the Effectiveness Period for a period of
more than 30 days without being succeeded by an amendment to such Registration
Statement or by a subsequent Registration Statement filed with and declared
effective by the Commission, but excluding the Tolling Period (as defined
below), (vi) an amendment to a Registration Statement is not filed by the
Company with the Commission within 15 Business Days after the Commission’s
having notified the Company that such amendment is required in order for such
Registration Statement to be declared effective, but excluding the Tolling
Period, or (vii) after a Registration Statement is filed with and declared
effective by the Commission, the Company advises the Investors that the
Prospectus no longer may be used because it does not comply with applicable
laws, rules and regulations, but the Prospectus can be supplemented to so comply
without amending the Registration Statements, and the Company fails to provide a
supplement so complying within 15 Business Days thereafter, but excluding the
Tolling Period (any such failure or breach being referred to as an “Event” and the
date on which such Event occurs being referred to as “Event Date”), then:
(x) on each such Event Date the Company shall pay to the Investor an amount in
cash, as liquidated damages and not as a penalty, equal to 1% of the aggregate
Purchase Price paid by the Investor pursuant to this Agreement for the
Registrable Securities covered by such Registration Statement (the “Penalty Base”); and
(y) on the same day of each successive month following such Event Date (so long
as the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to the Investor an amount in
cash, as liquidated damages and not as a penalty, equal to 1% of the Penalty
Base. Notwithstanding the foregoing, in no event shall the Company be obligated
to pay any liquidated damages pursuant to this Section 4.1(d) of more than 10%
of the aggregate Purchase Price. Such payments shall be the Investor’s sole and
exclusive remedy for such Events. If the Company fails to pay any liquidated
damages pursuant to this Section in full within seven Business Days after the
date payable, the Company will pay interest thereon at a rate of 18% per annum
(or such lesser maximum amount that is permitted to be paid by applicable law)
to the Investor, accruing daily from the date such liquidated damages are due
until such amounts, plus all such interest thereon, are paid in full. For the
avoidance of doubt, any Event shall be deemed to have been cured and no further
liquidated damages shall accrue with respect thereto upon the end of the
Effectiveness Period; provided, however, that the Company shall not be relieved
of any liability it may have hereunder (including the payment of liquidated
damages) accruing prior to the end of the Effectiveness Period.
(e) Notwithstanding
the foregoing, the periods set forth in Section 4.1(d)(v), (vi) and (vii) may be
tolled for not more than twenty (20) consecutive days or for a total of not more
than forty-five (45) days in any twelve (12) month period, if the Company
determines in good faith that such tolling period is necessary to delay the
disclosure of material non-public information concerning the Company, the
disclosure of which at the time is not, in the good faith opinion of the
Company, in the best interests of the Company (the “Tolling Period”);
provided, that the Company shall promptly (a) notify each Investor in writing of
the commencement of and the reasons for the Tolling Period, but shall not
(without the prior written consent of an Investor) disclose to such Investor any
material non-public information giving rise to such Tolling Period, (b) advise
the Investors in writing to cease all sales under the Registration Statement
until the end of such Tolling Period and (c) use commercially reasonable efforts
to terminate such Tolling Period as promptly as practicable.
(f) The
Company shall not, prior to the Effective Date of the Registration Statement,
prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities.
(g) If the
Company issues to the Investor any Common Stock pursuant to the Transaction
Documents that is not included in the initial Registration Statement, then the
Company shall file an additional Registration Statement covering such number of
shares of Common Stock on or prior to the Filing Date and shall use it best
efforts, but in no event later than the Required Effectiveness Date, to cause
such additional Registration Statement to be declared effective by the
Commission.
(h) The
Registration Statement shall not include any securities other than the
Registrable Securities without the prior written consent of the Investors then
owning a majority of the Registrable Securities then owned by all of the
Investors.
Section
4.2. Registration
Process. In
connection with the registration of the Registrable Securities pursuant to
Section 4.1, the Company shall:
(a) Prepare
and file with the Commission the Registration Statement and such amendments
(including post effective amendments) to the Registration Statement and
supplements to the prospectus included therein (a “Prospectus”) as the
Company may deem necessary or appropriate and take all lawful action such that
the Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, not misleading and that the Prospectus forming part of the Registration
Statement, and any amendment or supplement thereto, does not at any time during
the Registration Period include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.;
(b) Comply
with the provisions of the Securities Act with respect to the Registrable
Securities covered by the Registration Statement until the end of the
Effectiveness Period;
(c) Prior to
the filing with the Commission of the Registration Statement (including any
amendments thereto) and the distribution or delivery of any Prospectus
(including any supplements thereto), provide draft copies thereof to the
Investor and reflect in such documents all such comments as the Investor (and
its counsel) reasonably may propose and furnish to the Investor and its legal
counsel identified to the Company (i) promptly after the same is prepared and
publicly distributed, filed with the Commission, or received by the Company, one
copy of the Registration Statement, each Prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of the Prospectus and all
amendments and supplements thereto and such other documents, as the Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities;
(d) (i)
register or qualify the Registrable Securities covered by the Registration
Statement under such securities or “blue sky” laws of such jurisdictions as the
Investors reasonably request, (ii) prepare and file in such jurisdictions such
amendments (including post effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times during the Registration Period, (iii) take
all such other lawful actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all such other lawful actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (A) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify, (B) subject itself to general
taxation in any such jurisdiction or (C) file a general consent to service of
process in any such jurisdiction;
(e) As
promptly as practicable after becoming aware of such event, notify the Investor
of the occurrence of any event, as a result of which the Prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare an amendment to the
Registration Statement and supplement to the Prospectus to correct such untrue
statement or omission, and deliver a number of copies of such supplement and
amendment to each Investor as such Investor may reasonably request;
(f) As
promptly as practicable after becoming aware of such event, notify the Investor
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement and take all lawful action to effect
the withdrawal, rescission or removal of such stop order or other
suspension;
(g) Take all
such other lawful actions reasonably necessary to expedite and facilitate the
disposition by the Investor of his Registrable Securities in accordance with the
intended methods therefor provided in the Prospectus which are customary under
the circumstances;
(h) Make
generally available to its security holders as soon as practicable, but in any
event not later than 18 months after the Effective Date of the Registration
Statement, an earnings statement of the Company and its subsidiaries complying
with Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder;
(i) In the
event of an underwritten offering, promptly include or incorporate in a
Prospectus supplement or post effective amendment to the Registration Statement
such information as the underwriters reasonably agree should be included therein
and to which the Company does not reasonably object and make all required
filings of such Prospectus supplement or post effective amendment as soon as
practicable after it is notified of the matters to be included or incorporated
in such Prospectus supplement or post effective amendment;
(j) Make
reasonably available for inspection by the Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by such Investors or any such
underwriter all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
Company’s officers, directors and employees to supply all information reasonably
requested by the Investor or any such underwriter, attorney, accountant or agent
in connection with the Registration Statement, in each case, as is customary for
similar due diligence examinations; provided, however, that all records,
information and documents that are designated in writing by the Company, in good
faith, as confidential, proprietary or containing any nonpublic information
shall be kept confidential by such Investors and any such underwriter, attorney,
accountant or agent (pursuant to an appropriate confidentiality agreement in the
case of any such holder or agent), unless such disclosure is made pursuant to
judicial process in a court proceeding (after first giving the Company an
opportunity promptly to seek a protective order or otherwise limit the scope of
the information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided, further, that, if the foregoing inspection and information
gathering would otherwise disrupt the Company’s conduct of its business, such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designated by and on behalf of the majority in interest of
Investors and other parties;
(k) In
connection with any offering, make such representations and warranties to the
Investor and to the underwriters if an underwritten offering, in form, substance
and scope as are customarily made by a company to underwriters in secondary
underwritten offerings;
(l) In
connection with any underwritten offering, deliver such documents and
certificates as may be reasonably required by the underwriters;
(m) Cooperate
with the Investor to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold pursuant to the
Registration Statement, which certificates shall, if required under the terms of
this Agreement, be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any Investor may request and maintain a transfer agent for the Common
Stock;
(n) Use its
commercially reasonable efforts to cause all Registrable Securities covered by
the Registration Statement to be listed or qualified for trading on the
principal Trading Market, if any, on which the Common Stock is traded or listed
on the Effective Date of the Registration Statement; and
(o) Unless
and to the extent that such Plan of Distribution requires modification due to
inaccuracy due to changes in the plan of distribution of Investor, or due to a
change in SEC regulations, to use the Plan of Distribution attached hereto as
Exhibit D in each
Prospectus and Registration Statement.
Section
4.3. Obligations and
Acknowledgements of the Investors. In
connection with the registration of the Registrable Securities, each Investor
shall have the following obligations and hereby make the following
acknowledgements:
(a) It shall
be a condition precedent to the obligations of the Company to include the
Registrable Securities in the Registration Statement that the Investor (i) shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and (ii) shall execute such documents in
connection with such registration as the Company may reasonably request. At
least five Business Days prior to the first anticipated filing date of a
Registration Statement, the Company shall notify the Investor of the information
the Company requires from the Investor (the “Requested
Information”) if the
Investor elects to have any of its Registrable Securities included in the
Registration Statement. If at least two Business Days prior to the anticipated
filing date the Company has not received the Requested Information from the
Investor, then the Company may file the Registration Statement without including
any Registrable Securities of the Investor and the Company shall have no further
obligations under this Article 4 to the Investor after such Registration
Statement has been declared effective. If the Investor notifies the Company and
provides the Company the information required hereby prior to the time the
Registration Statement is declared effective, the Company will file an amendment
to the Registration Statement that includes the Registrable Securities of the
Investor; provided, however, that the Company shall not be required to file such
amendment to the Registration Statement at any time less than 5 Business Days
prior to the Effectiveness Date.
(b) The
Investor agrees to cooperate with the Company in connection with the preparation
and filing of a Registration Statement hereunder, unless the Investor has
notified the Company in writing of its election to exclude all of its
Registrable Securities from such Registration Statement;
(c) The
Investor agrees that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in Section 4.2(e) or 4.2(f), the
Investor shall immediately discontinue its disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until the Investor’s receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 4.2(e) and, if so directed by the Company,
the Investor shall deliver to the Company (at the expense of the Company) or
destroy (and deliver to the Company a certificate of destruction) all copies in
the Investor’s possession (other than one copy of any documents not filed with
the SEC for evidentiary purposes), of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice; and
Section
4.4. Expenses of
Registration. All
expenses (other than underwriting discounts and commissions and the fees an
expenses of the Investor’s counsel) incurred in connection with registrations,
filings or qualifications pursuant to this Article 4, including, without
limitation, all registration, listing, and qualifications fees, printing and
engraving fees, accounting fees, and the fees and disbursements of counsel for
the Company, shall be borne by the Company.
Section
4.5. Accountant’s
Letter. If the
Investor proposes to engage in an underwritten offering, the Company shall
deliver to the Investor, at the Company’s expense, a letter dated as of the
effective date of each Registration Statement or Post-Effective Amendment
thereto, from the independent public accountants retained by the Company,
addressed to the underwriters and to the Investors, in form and substance as is
customarily given in an underwritten public offering, provided that such seller
has made such representations and furnished such undertakings as the independent
public accountants may reasonably require;
Section
4.6. Indemnification and
Contribution
(a) Indemnification by the
Company. The
Company shall indemnify and hold harmless the Investor and each underwriter, if
any, which facilitates the disposition of Registrable Securities, and each of
their respective officers and directors and each Person who controls such
underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act (each such Person being sometimes hereinafter referred to as
an “Indemnified Person”) from
and against any losses, claims, damages or liabilities, joint or several, to
which such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
an 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
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 4.2(e), the use
by the Indemnified Person of an outdated or defective Prospectus after the
Company has provided to such Indemnified Person an updated Prospectus correcting
the untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) Indemnification by
Investors. Each
Investor agrees, as a consequence of the inclusion of any of its Registrable
Securities in a Registration Statement to (i) indemnify and hold harmless the
Company, its directors (including any person who, with his or her consent, is
named in the Registration Statement as a director nominee of the Company), its
officers who sign any Registration Statement and each Person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, against any losses, claims, damages or
liabilities to which the Company or such other persons may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (A)
an untrue statement or alleged untrue statement of a material fact contained in
such Registration Statement or Prospectus or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in light of the
circumstances under which they were made, in the case of the Prospectus), not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by the Investor expressly for use therein or (B) the use by an Investor
of an outdated Prospectus from and after receipt by the Investor of a notice
pursuant to Section 4.2(e), and (ii) reimburse the Company for any legal or
other expenses incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Investor shall not be liable under this Section 4.6(b) for any
amount in excess of the net proceeds paid to the Investor in respect of
Registrable Securities sold by it.
(c) Notice of Claims,
etc.
Promptly after receipt by a Person seeking indemnification pursuant to this
Section 4.6 (an “Indemnified Party”) of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a “Claim”), the
Indemnified Party promptly shall notify the Person against whom indemnification
pursuant to this Section 4.6 is being sought (the “Indemnifying Party”) of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out of pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (i) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (ii) the Indemnified Party shall reasonably have concluded that
representation of the Indemnified Party by the Indemnifying Party by the same
legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
if there may be legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying Party (other
than that the Indemnified Party is entitled to be indemnified by the
Indemnifying Party), or (iii) the Indemnifying Party shall have failed to employ
legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in the preceding sentence, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnified Party shall not, without the prior written consent of the
Indemnifying Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnifying Party from all liabilities
with respect to such Claim or judgment or contain any admission of
wrongdoing.
(d) Contribution. If the
indemnification provided for in this Section 4.6 is unavailable to or
insufficient to hold harmless an Indemnified Party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each Indemnifying Party shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party and the Indemnified
Party in connection with the statements or omissions or alleged statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by such
Indemnifying Party or by such Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 4.6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 4.6(d).
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Limitation on Investors’
Obligations.
Notwith-standing any other provision of this Section 4.6, in no event shall any
Investor have any liability under this Section 4.6 for any amounts in excess of
the dollar amount of the proceeds actually received by the Investor from the
sale of Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration Statement under
which such Registrable Securities are registered under the Securities
Act.
(f) Other
Liabilities. The
obligations of the parties under this Section 4.6 shall be in addition to any
liability which such party may otherwise have to any Indemnified Person and the
obligations of any Indemnified Person under this Section 4.6 shall be in
addition to any liability which such Indemnified Person may otherwise have to
any other party. The remedies provided in this Section 4.6 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to an
indemnified party at law or in equity.
Section
4.7. Rule
144. With a
view to making available to the Investor the benefits of Rule 144 or any
successor thereto, until the shares are eligible for sale without volume
limitations, the Company agrees to use its best efforts to:
(i) comply
with the provisions of paragraph (c)(1) of Rule 144 or any successor thereto;
and
(ii) file with
the Commission in a timely manner all reports and other documents required to be
filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act;
and, if at any time it is not required to file such reports but in the past had
been required to or did file such reports, it will, upon the request of any
Investor, make available other information as required by, and so long as
necessary to permit sales of, its Registrable Securities pursuant to Rule 144 or
any successor thereto.
Section
4.8. Common Stock Issued Upon
Stock Split, etc. The
provisions of this Article 4 shall apply to any shares of Common Stock or any
other securities issued as a dividend or distribution in respect of the Shares
or the Warrant Shares.
ARTICLE 5
OTHER AGREEMENTS OF THE
PARTIES
Section
5.1. Certificates;
Legends.
(a) The
Securities may only be transferred in compliance with state and federal
securities laws. In connection with any transfer of the Securities other than
(i) pursuant to an effective registration statement, (ii) to the Company, or
(iii) to an Affiliate of the Investor, the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act or applicable state securities laws. In the event of a
private transfer of the Securities the Transferee shall be required to execute a
counterpart to this Agreement, agreeing to be bound by (and shall have the
benefits of) the terms hereof other than those set forth in Article 2 hereof,
and such Transferee shall be deemed to be an “Investor” for purposes of this
Agreement.
(b) The
certificates representing the Shares and the Warrants to be delivered at the
Closing and the certificates evidencing the Warrant Shares to be delivered upon
exercise of the Warrants will contain appropriate legends referring to
restrictions on transfer relating to the registration requirements of the
Securities Act and applicable state securities laws.
(c) In
connection with any sale or disposition of the Securities by an Investor
pursuant to Rule 144 or pursuant to any other exemption under the 1933 Act such
that the purchaser acquires freely tradable shares and upon compliance by the
Investor with the requirements of this Agreement, the Company shall or, in the
case of Common Stock, shall cause the transfer agent for the Common Stock (the
“Transfer Agent”) to
issue replacement certificates representing the Securities sold or disposed of
without restrictive legends. Upon the earlier of (i) registration for resale
pursuant to the Registration Rights Agreement or (ii) the Shares becoming freely
tradable without restriction pursuant to Rule 144 the Company shall (A) deliver
to the Transfer Agent irrevocable instructions that the Transfer Agent shall
reissue a certificate representing shares of Common Stock without legends upon
receipt by such Transfer Agent of the legended certificates for such shares,
and, in the case of a proposed sale pursuant to Rule 144, a customary
representation by the Investor that the conditions required to freely sell the
shares of Common Stock represented thereby without restriction pursuant to Rule
144 have been satisfied, and (B) cause its counsel to deliver to the Transfer
Agent one or more blanket opinions to the effect that the removal of such
legends in such circumstances may be effected under the 1933 Act. From and after
the earlier of such dates, upon an Investor’s written request, the Company shall
promptly cause certificates evidencing the Investor’s Securities to be replaced
with certificates which do not bear such restrictive legends, and Warrant Shares
subsequently issued upon due exercise of the Warrants shall not bear such
restrictive legends provided the provisions of either clause (i) or clause (ii)
above, as applicable, are satisfied with respect to such Warrant Shares. When
the Company is required to cause an unlegended certificate to replace a
previously issued legended certificate, if: (1) the unlegended certificate is
not delivered to an Investor within three (3) Business Days of submission by
that Investor of a legended certificate and supporting documentation to the
Transfer Agent as provided above and (2) prior to the time such unlegended
certificate is received by the Investor, the Investor, or any third party on
behalf of such Investor or for the Investor’s account, purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Investor of shares represented by such certificate
(a “Buy-In”), then
the Company shall pay in cash to the Investor (for costs incurred either
directly by such Purchaser or on behalf of a third party) the amount by which
the total purchase price paid for Common Stock as a result of the Buy-In
(including brokerage commissions, if any) exceeds the proceeds received by such
Investor as a result of the sale to which such Buy-In relates. The Investor
shall provide the Company written notice indicating the amounts payable to the
Investor in respect of the Buy-In.
Section
5.2. Integration. The
Company has not and shall not, and shall use its best efforts to ensure that no
Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Investor, or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market in a manner that would require stockholder
approval of the sale of the securities to the Investor.
Section
5.3. Securities Laws Disclosure;
Publicity. By 8:30
a.m. (New York time) on the Trading Day following the execution of this
Agreement, and by 5:00 p.m. (New York time) on the Closing Date, the Company
shall issue press releases disclosing the material terms of the transactions
contemplated hereby and the Closing. On the Trading Day following the execution
of this Agreement the Company will file a Current Report on Form 8-K disclosing
the material terms of the Transaction Documents (and attach the Transaction
Documents as exhibits thereto), and on each Closing Date the Company will file
an additional Current Report on Form 8-K to disclose the Closing. In addition,
the Company will make such other filings and notices in the manner and time
required by the Commission and the Trading Market on which the Common Stock is
listed.
Section
5.4. Use of
Proceeds. The
Company shall use the net proceeds from the sale of the Securities hereunder (i)
for working capital purposes, (ii) to purchase fixed assets used in the
development or production of the Company’s products or (iii) for investment in
new technologies related to the Company’s business (including without limitation
through the acquisition of other companies).
Section
5.5. Right of First
Refusal
(a) Proposed
Financings. In the
event that, during the period commencing on the Closing Date and continuing to
the second anniversary of the Closing Date, the Company seeks to raise
additional funds through a private placement of its equity or equity related
securities to one or more accredited investors (a “Proposed Financing”), other
than Exempt Issuances, each Investor investing a minimum of $5,000,000 at the
Closing (a “Qualified Investor”) shall
have the right to participate in the Proposed Financing on a pro rata basis,
based on the percentage that (a) the number of shares of Common Stock then held
by such Qualified Investor plus the
number of shares of Common Stock issuable upon conversion of the Warrants held
by such Qualified Investor bears to (b) the total number of shares of Common
Stock outstanding plus the
number of shares of Common Stock issuable upon conversion of the Warrants, the
Prior Warrants, the Prior Convertible Securities and the Company Stock
Options.
(b) Pre-Notice of Proposed
Financings. At
least five (5) Business Days prior to the closing of any Proposed Financing, the
Company shall deliver to each Qualified Investor a written notice of its
intention to effect a Proposed Financing (“Pre-Notice”), which
Pre-Notice shall ask such Investor if it wants to review the details of such
financing (such additional notice, a “Proposed Financing
Notice”). Each
such Qualified Investor hereby consents to the delivery of any such Pre-Notice
by the Company. Upon the request of a Qualified Investor, and only upon a
request by such Qualified Investor, for a Proposed Financing Notice, the Company
shall promptly, but no later than one Business Day after such request, deliver a
Proposed Financing Notice to such Qualified Investor. The Proposed Financing
Notice shall describe in reasonable detail the proposed terms of such Proposed
Financing, the amount of proceeds intended to be raised thereunder, the lead
investor with whom such Proposed Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating thereto.
Each Qualified Investor wishing to participate in the Proposed Financing shall
notify the Company in writing by 6:30 p.m. (New York City time) on the second
(2nd) Business Day after its receipt of the Proposed Financing Notice of its
willingness to participate in the Proposed Financing on the terms described in
the Proposed Financing Notice, subject to completion of mutually acceptable
documentation and diligence investigation (such Qualified Investor, a
“Participating Investor”). Any Qualified Investor who fails to provide a timely
notice of its willingness to so participate shall be deemed to have irrevocably
waived its right to participate in the Proposed Financing. The Company shall
promptly provide to Participating Investors such diligence materials as they may
reasonably request, subject to execution of a non-disclosure agreement, in
customary form, mutually acceptable to the parties.
(c) Investment
Terms. The
terms on which a Participating Investor shall purchase securities pursuant to
the Proposed Financing shall be the same as such securities are purchased by
other investors in such Proposed Financing. In the event that the terms of the
Proposed Financing are changed in a manner which is material to the
Participating Investors, the Company shall provide the Participating Investors
with the same notice of the revised terms that are provided to the other
investors in such Proposed Financing, and, shall provide the Participating
Investors the same amount of time as is provided to the other investors in such
Proposed Financing to allow the Participating Investors to review the revised
terms of the Proposed Financing and the Company’s financial condition and
prospects in light of the changed terms. In no event shall any change in the
terms of a Proposed Financing give any Qualified Investor which is not a
Participating Investor the right to participate in such Proposed
Financing.
(d) Financings. The
Company may sell any securities not purchased by the Participating Investors in
the Proposed Financing at a price and on terms which are no more favorable to
the investors in such Proposed Financing than the terms disclosed to the
Participating Investors pursuant to this Section 5.5.
Section
5.6. Equal Treatment of
Investors. No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents. For clarification purposes, this provision constitutes a
separate right granted to each Investor by the Company and negotiated separately
by each Investor, and is intended for the Company to treat the Investors as a
class and shall not in any way be construed as the Investors acting in concert
or as a group with respect to the purchase, disposition or voting of Securities
or otherwise.
Section
5.7. Prospectus Delivery
Requirements. Each
Investor, severally and not jointly with the other Investors, agrees that such
Investor will not effect any sale, transfer or other disposition of any
Securities except pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements, or an
exemption therefrom, and that if Securities are sold pursuant to a Registration
Statement, they will be sold in compliance with the plan of distribution set
forth therein, and acknowledges that the removal of the restrictive legend from
certificates representing Securities as set forth in Section 4.1 is predicated
upon the Company’s reliance upon this understanding.
Section
5.8. Reservation of Common
Stock. From
and after the Closing Date, the Company shall reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue the Warrant Shares pursuant to
any exercise of the Warrants.
Section
5.9. Subsequent Equity
Sales. For a
period of three months from the Closing Date, the Company shall not issue any
shares of Common Stock or Common Stock Equivalents, other than pursuant to an
Exempt Issuance.
Section
5.10. Disclosure of
Information. Except
for the delivery of one or more Pre-Notices as contemplated by Section 5.5,
except upon the prior written consent of an Investor, the Company shall not
disclose any material non-public information to such Investor or its counsel.
Any such disclosure shall be made pursuant to an in accordance with a customary
non-disclosure agreement between the Company and such Investor.
Section
5.11. Furnishing of
Information. If the
Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act
on the date hereof, the Company agrees to cause the Common Stock to be
registered under Section 12(g) of the Exchange Act on or before the 60th
calendar day following the date hereof. Until the earliest of the time that (i)
no Investor owns Securities or (ii) the Warrants have expired, the Company
covenants to maintain the registration of the Common Stock under Section 12(b)
or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to the Exchange Act. As long
as any Investor owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Investors and
make publicly available in accordance with Rule 144(c) such information as is
required for the Investors to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule
144.
ARTICLE 6
CONDITIONS PRECEDENT TO
CLOSING
Section
6.1. Conditions Precedent to the
Obligations of the Investor to Purchase Securities. The
obligation of the Investor to acquire Securities at any Closing is subject to
the satisfaction or waiver by the Investor, at or before the Closing, of each of
the following conditions:
(a) Representations and
Warranties. The
Company shall have delivered a certificate of the Company’s Chief Executive
Officer certifying that the representations and warranties of the Company
contained herein are true and correct in all material respects as of the date
when made and as of the Closing Date as though made on and as of such Closing
Date;
(b) Performance. The
Company shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by it at or prior to the
Closing;
(c) No
Injunction. No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents;
(d) No Adverse
Changes. Since
the date of execution of this Agreement, no event or series of events shall have
occurred that reasonably could have or result in a Material Adverse
Effect;
(e) Company
Deliverables. The
Company shall have delivered the Company Deliverables in accordance with Section
2.4.
Section
6.2. Conditions Precedent to the
Obligations of the Company to Sell Securities. The
obligation of the Company to sell Securities at any Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:
(a) Representations and
Warranties. The
representations and warranties of each Investor contained herein shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made on and as of such date;
(b) Performance. Each
Investor shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Investor at or
prior to the Closing;
(c) No
Injunction. No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents; and
(d) Purchase
Price. Each
Investor shall have paid its pro rata portion of the Purchase Price in
accordance with Section 2.2.
ARTICLE 7
Section
7.1. Fees and
Expenses. Each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of the
Transaction Documents; provided,
however, that, if
but only if Securities are sold hereunder at the Closing, the Company shall, at
the Closing, reimburse The Quercus Trust for its reasonable legal fees and
expenses of its legal counsel, up to a maximum of $30,000, incurred in
connection with the Quercus’ due diligence and the negotiation and preparation
of the Agreement. The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Shares.
Section
7.2. Entire
Agreement. The
Transaction Documents, together with the Exhibits thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements, understandings, discussions and representations,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents and exhibits.
Section
7.3. Notices. Any and
all notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile (provided the sender receives a machine-generated
confirmation of successful transmission) at the facsimile number specified in
this Section prior to 6:30 p.m. on a Business Day, (b) the next Business Day
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that is not
a Business Day or later than 6:30 p.m. on any Business Day, (c) the Business Day
following the date of transmission, if sent by a nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:
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If
to the Company:
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Energy
Focus, Inc.
32000
Aurora Road
Solon,
Ohio 44139
Telephone:
(440) 715-1300
Facsimile:
(440) 519-1038
Attention:
Chief Financial Officer
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With
a copy to:
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Cowden
& Humphrey Co. LPA
4415
Euclid Avenue, Suite 200
Cleveland,
Ohio 44103-3758
Telephone:
(216) 241-2880
Facsimile:
(216) 241-2881
Attention:
Gerald W. Cowden
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or if to
an Investor at such address as is listed on Exhibit A attached
hereto or such other address as may be designated by an Investor or the Company
in writing hereafter, in the same manner, by such Person.
Section
7.4. Amendments; Waivers; No
Additional Consideration. No
provision of this Agreement may be waived or amended except in a written
instrument signed by the Company and the Investors acquiring at least 66 and
2/3ds of the Securities sold at the Closing Date. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
Section
7.5. Termination. This
Agreement may be terminated prior to the Closing by written agreement of the
Investors and the Company. Upon a termination in accordance with this Section
7.5, the Company and the Investor shall have no further obligation or liability
(including as arising from such termination) to the other, provided that any
liabilities arising prior to such termination shall not be affected by the
termination.
Section
7.6. Construction. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party. This Agreement shall be
construed as if drafted jointly by the parties, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement or any of the Transaction
Documents.
Section
7.7. Successors and
Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. Neither party may assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
other party.
Section
7.8. No Third-Party
Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set forth
in Section 4.6 (with respect to rights to indemnification and
contribution).
Section
7.9. Governing
Law. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of Delaware, without regard to the
principles of conflicts of law thereof. Each party agrees that all Proceedings
concerning the interpretations, enforcement and of the transactions contemplated
by this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the state or federal courts sitting in, or having
jurisdiction over, New Castle County in the State of Delaware (the “Delaware Courts”). Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
Delaware Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
Proceeding, any claim that it is not personally subject to the jurisdiction of
any such Delaware Court, or that such Proceeding has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence a Proceeding to
enforce any provisions of a Transaction Document, then the prevailing party in
such Proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Proceeding.
Section
7.10. Survival. The
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery of the Securities; provided, however, that
the representations and warranties shall expire one month after the Company
files its 10-K for the period ending December 31, 2008.
Section
7.11. Execution. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof,
notwithstanding any subsequent failure or refusal of the signatory to deliver an
original executed in ink.
Section
7.12. Severability. If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
Section
7.13. Replacement of
Securities. If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement Securities.
If a replacement certificate or instrument evidencing any Securities is
requested due to a mutilation thereof, the Company may require delivery of such
mutilated certificate or instrument as a condition precedent to any issuance of
a replacement.
Section
7.14. Remedies. In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Investors and the Company will
be entitled to specific performance under the Transaction Documents. The parties
agree that, except as expressly set forth herein with respect to liquidated
damages, monetary damages may not be adequate compensation for any loss incurred
by reason of any breach of obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
Section
7.15. Independent Nature of
Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
[Signature Page Immediately
Follows]
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
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“COMPANY”
ENERGY
FOCUS, INC.,
a
Delaware corporation
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By: |
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Name: |
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Its: |
Signature
Page
NAME OF
PURCHASER:
By:
__________________________________
Name:
Title:
Aggregate
Purchase Price (Subscription Amount): $_____________________
Number of
Units to be Acquired:
______________________
Tax ID
No.: ____________________
Address
for Notice:
__________________________________
__________________________________
__________________________________
Telephone
No.: _______________________
Facsimile
No.: _______________________
E-mail
Address: _______________________
Attention:
_______________________
Delivery
Instructions:
(if
different than above)
c/o
_______________________________
Street:
_______________________________
City/State/Zip:
_______________________________
Attention:
_______________________________
Telephone
No.: _______________________________
Signature Page
EXHIBIT A
List of Purchasers, Addresses and
Number of Units Purchased
Signature Page
EXHIBIT B
Form of Warrant
Signature Page
EXHIBIT C
Form of Legal
Opinion
EXHIBIT D
Plan of
Distribution
The
selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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| · |
block
trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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privately
negotiated transactions;
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| · |
short
sales effected after the date the registration statement of which this
Prospectus is a part is declared effective by the
SEC;
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
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broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;
and
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a
combination of any such methods of
sale.
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The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common stock
offered by them will be the purchase price of the common stock less discounts or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering. Upon any
exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
“underwriters” within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are “underwriters” within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act.
To the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. In addition, to the
extent applicable we will make copies of this prospectus (as it may be
supplemented or amended from time to time) available to the selling stockholders
for the purpose of satisfying the prospectus delivery requirements of the
Securities Act. The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities
Act.
We have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this prospectus.
We have
agreed with the selling stockholders to keep the registration statement of which
this prospectus constitutes a part effective until the earlier of (1) such time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on which
the shares may be sold without restriction pursuant to Rule 144 of the
Securities Act.