COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
March 4, 2002 by and between eMagin Corporation, a Delaware corporation (the
"Company") and Northwind Associates, Inc., a Cayman Islands corporation (the
"Purchaser").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall have the right to issue and sell
to Purchaser from time to time as provided herein, and Purchaser shall be
obligated to purchase, up to $20,000,000 of Common Stock and the Warrant subject
to the terms herein; and
WHEREAS, such investments will be made by the Purchaser as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company may sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company, up to an
aggregate of, $15,000,000 of Common Stock (the "Commitment Amount") and the
Warrant, subject to the terms herein; provided, however, that, the Commitment
Amount shall be increased to up to $20,000,000 of Common Stock if at any time
beginning one (1) year after the Effective Date (i) the VWAP equals or exceeds
$5 per share (adjusted for stock splits and the like) for ten (10) consecutive
Trading Days ("Threshold Period"), (ii) during the Threshold Period and during
the 10 consecutive Trading Days either immediately before or after the Threshold
Period the average daily trading volume equals or exceeds 75,000 shares, and
(iii) on the Trading Day immediately after the Threshold Period the Company's
market cap (based on the average of the VWAPs during the Threshold Period)
equals or exceeds $100,000,000.
Section 1.2. Purchase Price and Initial Closing. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The delivery of executed documents
under this Agreement and the other agreements referred to herein and the payment
of the fees set forth in Article I of the Escrow Agreement, attached as Exhibit
B hereto, (the "Initial Closing") shall take place at the offices of Feldman
Weinstein LLP, 36 West 44th Street, New York, New York 10036-8102 (i) within
fifteen (15) days from the date hereof, or (ii) such other time and place or on
such date as the Purchaser and the Company
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may agree upon (the "Initial Closing Date"). Each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Initial Closing.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser, in
each case except as set forth in the SEC Documents or on the Disclosure Letter
prepared by the Company and delivered concurrently herewith, or as contemplated
by this Agreement:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated validly existing and in good standing
under the laws of Delaware and has all requisite corporate authority
to own, lease and operate its properties and assets and to carry on
its business as now being conducted, except as would not have a
Material Adverse Effect. The Company does not have any subsidiaries
and does not own more than fifty percent (50%) of or control any other
business entity. The Company is duly qualified to do business and is
in good standing as a foreign corporation in every jurisdiction in
which the nature of the business conducted or property owned by it
makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
(b) Authorization, Enforcement. (i) The Company has the
requisite corporate power and corporate authority to enter into and
perform its obligations under the Transaction Documents and to issue
the Draw Down Shares pursuant to their respective terms, (ii) the
execution and delivery of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action
and no further consent or authorization of the Company or its Board of
Directors or stockholders is required, and (iii) the Transaction
Documents have been duly executed and delivered by the Company and at
the Initial Closing shall constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies
or by other equitable principles of general application.
(c) Capitalization.
(i) The authorized capital stock of the Company consists
of 100,000,000 shares of Common Stock of which 25,085,144 shares
are issued and outstanding and 10,000,00 preferred shares, none
of which are issued and outstanding. All of the outstanding
shares of the Company's Common Stock have
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been duly and validly authorized and are fully paid and
non-assessable, except as set forth in the SEC Documents.
(ii) No shares of Common Stock are entitled to
preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, there are no contracts,
commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights
convertible into shares of Common Stock. The Company is not a
party to any agreement granting registration rights to any
person with respect to any of its equity or debt securities. The
Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of
the capital stock of the Company. The offer and sale of all
capital stock, convertible securities, rights, warrants, or
options of the Company issued prior to the Initial Closing
complied in all material respects with all applicable federal
and state securities laws, and no stockholder has a right of
rescission or damages with respect thereto which would have a
Material Adverse Effect. The Company has made available to the
Purchaser true and correct copies of the Company's articles or
certificate of incorporation as in effect on the date hereof
(the "Charter"), and the Company's bylaws as in effect on the
date hereof (the "Bylaws"). The Company has not received any
notice from the Principal Market questioning or threatening the
continued inclusion of the Common Stock on such market.
(d) Issuance of Shares. The Warrant Shares to be issued upon
exercise of the Warrant have been duly authorized by all necessary
corporate action and, when paid for and issued in accordance with the
terms hereof and the Warrant, the Warrant Shares shall be validly
issued and outstanding, fully paid and non-assessable, and the
Purchaser shall be entitled to all rights accorded to a holder of
Common Stock.
(e) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of
the transactions contemplated herein do not and will not (i) violate
any provision of the Company's Charter or Bylaws, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company is a
party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which
any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state or local statute, rule,
regulation, order, judgment or decree (including any federal or state
securities laws and regulations) applicable to the Company or any of
its subsidiaries or by which any property or asset of the Company or
any of its subsidiaries are bound, except, in all cases, for such
conflicts, defaults, termination, amendments, accelerations,
cancellations and violations
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as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is
not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for violations which
singularly or in the aggregate do not and will not have a Material
Adverse Effect. The Company is not required under any federal, state
or local law, rule or regulation to obtain any consent, authorization
or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement, or issue and sell the Shares
in accordance with the terms hereof (other than any filings which may
be required to be made by the Company with the SEC or state securities
administrators subsequent to the Initial Closing and any registration
statement which may be filed pursuant hereto); provided, however, that
for purpose of the representations made in this sentence, the Company
is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock of
the Company is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d) of the Exchange Act.
The Company has delivered or made available to the Purchaser, through
the EDGAR system or otherwise, true and complete copies of the SEC
Documents filed with the SEC since December 31, 1999. As of their
respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act or the Securities
Act, as applicable, and the rules and regulations of the SEC
promulgated thereunder applicable to such documents, and, as of their
respective filing dates, none of the SEC Documents 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
included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements under GAAP and the
published rules and regulations of the SEC. Such financial statements
have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements or do not
reflect normal year-end adjustments), and fairly present in all
material respects the financial position of the Company and its
subsidiaries as of 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).
(g) Subsidiaries. The SEC Documents or the Disclosure
Schedule sets forth each subsidiary of the Company, showing the
jurisdiction of its incorporation or organization and showing the
percentage of the Company's ownership of the outstanding stock or
other interests of such subsidiary. For the purposes of this
Agreement, "subsidiary" shall mean any corporation or other entity of
which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or
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contingently) for the election of directors or other persons
performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of
the issued and outstanding shares of capital stock of each subsidiary
have been duly authorized and validly issued, and are fully paid and
non-assessable. Neither the Company nor any subsidiary is subject to
any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of the capital stock of any subsidiary or
any convertible securities, rights, warrants or options of the type
described in the preceding sentence.
(h) No Material Adverse Effect. Since the date of the
financial statement contained in the most recently filed Form 10-Q or
Form 10-K, whichever is most current, no Material Adverse Effect has
occurred or exists with respect to the Company.
(i) No Undisclosed Liabilities. Since the date of the
financial statement contained in the most recently Form 10-Q or Form
10-K, whichever is most current, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise) that would be required to be
disclosed on a balance sheet of the Company or any subsidiary
(including the notes thereto) in conformity with GAAP or which would
have to be disclosed in the SEC Documents, other than those incurred
in the ordinary course of the Company's or its subsidiaries'
respective businesses since such date and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on
the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. Since the date
of the financial statement contained in the most recently filed Form
10- Q (or 10-QSB) or Form 10-K (or 10-KSB), whichever is most current,
no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or
financial condition, that, under applicable law, rule or regulation,
requires public disclosure or announcement prior to the date hereof by
the Company but which has not been so publicly announced or disclosed
in the SEC Documents.
(k) Indebtedness. The SEC Documents or the Disclosure
Schedule sets forth as of the date hereof all outstanding secured and
unsecured Indebtedness of the Company or any subsidiary, or for which
the Company or any subsidiary has commitments. For the purposes of
this Agreement, "Indebtedness" shall mean (A) any liabilities for
borrowed money or amounts owed in excess of $500,000 (other than trade
accounts payable incurred in the ordinary course of business), (B) all
guaranties, endorsements and contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of
business; and (C) the present value of any lease payments in excess of
$500,000 due under leases required to be capitalized in accordance
with GAAP. Neither the Company nor any subsidiary is in default with
respect to any Indebtedness.
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(l) Title to Assets. Each of the Company and the
subsidiaries has good and marketable title to all of its real and
personal property reflected in the SEC Documents, free of any
mortgages, pledges, charges, liens, security interests or other
encumbrances, except for those that do not cause a Material Adverse
Effect. All said leases of the Company and each of its subsidiaries
are valid and subsisting and in full force and effect.
(m) Actions Pending. As of the date hereof, there is no
action, suit, claim, investigation or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any
subsidiary which questions the validity of this Agreement or the
transactions contemplated hereby or any action taken or to be taken
pursuant hereto or thereto. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the
Company, threatened, against or involving the Company, any subsidiary
or any of their respective properties or assets, except as would not
have a Material Adverse Effect. Except as would not have a Material
Adverse Effect, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary.
(n) Compliance with Law. The Company and each of its
subsidiaries have all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals
necessary for the conduct of their respective businesses as now being
conducted by them unless the failure to possess such franchises,
permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each subsidiary has filed all
material Tax Returns which it is required to file under applicable
laws; all such material Tax Returns are true and accurate and have
been prepared in each case, in all material respects in compliance
with all applicable laws; the Company has paid all material Taxes due
and owing by it or any subsidiary (whether or not such material Taxes
are required to be shown on a Tax Return) and has withheld and paid
over to the appropriate taxing authorities all material Taxes which it
is required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third parties; and since December 31,
2000, the charges, accruals and reserves for material Taxes with
respect to the Company (including any provisions for deferred income
taxes) reflected on the books of the Company are in the aggregate
adequate to cover any Tax liabilities of the Company if its current
tax year were treated as ending on the date hereof.
No material written claim has been made by a taxing
authority in a jurisdiction where the Company does not file tax
returns that the Company or any subsidiary is or may be subject to
taxation by that jurisdiction. Except as would not have a Material
Adverse Effect, (i) there are no foreign, federal, state or local tax
audits or administrative or judicial proceedings pending or being
conducted with respect to the Company or any subsidiary; (ii) no
information related to Tax matters has been requested by any foreign,
federal, state or local taxing authority; and, (iii) except as
disclosed above,
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no written notice indicating an intent to open an audit or other
review has been received by the Company or any subsidiary from any
foreign, federal, state or local taxing authority. The Company (A) has
not executed or entered into a closing agreement pursuant to section
7121 of the Internal Revenue Code or any predecessor provision thereof
or any similar provision of state, local or foreign law; and (B) has
not agreed to or is required to make any adjustments pursuant to
section 481 (a) of the Internal Revenue Code or any similar provision
of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any
knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods
that relate to the business or operations of the Company. The Company
has not been a United States real property holding corporation within
the meaning of section 897(c)(2) of the Internal Revenue Code during
the applicable period specified in section 897(c)(1)(A)(ii) of the
Internal Revenue Code.
The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under Treas. Reg. section
1.1502-6 (or comparable provisions of state, local or foreign law).
The Company is not a party to any tax sharing agreement under which
the Company could be liable for any material taxes of any party (other
than a under which the Company could be liable for any material taxes
of any party (other than a subsidiary of the Company) after the
Closing Date. The Company has not made any payments, is not obligated
to make payments nor is it a party to an agreement that could obligate
it to make any payments that would not be deductible under section
280G of the Internal Revenue Code.
For purposes of this Section 2.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local,
foreign, or other income, gross receipts, ad valorem,
franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or
other withholding, employment, social security, severance,
stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
(p) Certain Fees. No brokers, finders or financial advisory
fees or commissions will be payable by the Company or any subsidiary
with respect to the transactions contemplated by this Agreement.
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(q) Operation of Business. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, service marks,
trade names, copyrights, licenses and authorizations as set forth in
the SEC Documents or on the Disclosure Schedule hereto, and all rights
with respect to the foregoing, which are necessary for the conduct of
its business as now conducted without any conflict with the rights of
others.
(r) Insurance. The Company carries or will have the benefit
of insurance in such amounts and covering such risks as is adequate in
all material respects for the conduct of its business and the value of
its properties and as is customary for companies engaging in similar
businesses and similar industries.
(s) Books and Records. The records and documents of the
Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the
nature of all transactions giving rise to the obligations or accounts
receivable of the Company or any subsidiary.
(t) Material Agreements. Neither the Company nor any
subsidiary is a party to any Material Agreement. Except as would not
have a Material Adverse Effect, the Company and each of its
subsidiaries has performed all the obligations required to be
performed by them to date under the foregoing agreements, have
received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in
effect, the result of which would cause a Material Adverse Effect.
Except as set forth in the SEC Documents, no written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of
the Company or of any subsidiary limits or shall limit the payment of
dividends on the Company's Common Stock.
(u) Transactions with Affiliates. There are no material
loans, leases, agreements, contracts, royalty agreements, management
contracts or arrangements or other continuing transactions exceeding
$100,000 between (A) the Company, any subsidiary on the one hand, and
(B) on the other hand, any officer, employee, consultant or director
of the Company, or any of its subsidiaries, or any person owning 5% or
more of the capital stock of the Company or any subsidiary or any
member of the immediate family of such officer, employee, consultant,
director or stockholder or any corporation or other entity controlled
by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant,
director or stockholder.
(v) Securities Laws. The Company has complied and will
comply with all applicable federal and state securities laws in
connection with the offer, issuance and sale of the Shares hereunder.
Neither the Company nor anyone acting on its behalf, directly or
indirectly, has or will sell, offer to sell or solicit offers to buy
the Shares or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the
Purchaser), so as to bring the issuance and sale of the Shares under
the registration
8
provisions of the Securities Act and applicable state securities laws.
Neither the Company nor any of its affiliates, nor any person acting
on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation
D under the Securities Act) in connection with the offer or sale of
the Shares.
(w) Employees. Neither the Company nor any subsidiary has
any collective bargaining arrangements or agreements covering any of
its employees. Neither the Company nor any subsidiary is in breach of
any employment contract, agreement regarding proprietary information,
noncompetition agreement, nonsolicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant to
which the Company is a party, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or
such subsidiary. Since the date of the December 31, 2000 Form 10-K (or
10-KSB), no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present
intention of terminating his or her employment or engagement with the
Company or any subsidiary.
(x) Absence of Certain Developments. Except as would not
have a Material Adverse Effect, since the date of the financial
statement contained in the most recently filed Form 10-Q or Form 10-K,
whichever is most current, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect
thereto (other than pursuant to equity incentive plans or
arrangements adopted by the Company);
(ii) borrowed any material amount or incurred or become
subject to any material liabilities (absolute or contingent)
except liabilities incurred in the ordinary course of business;
(iii) discharged or satisfied any lien or encumbrance or
paid any material obligation or liability (absolute or
contingent), other than liabilities paid in the ordinary course
of business;
(iv) declared or made any payment or distribution of
cash or other property to stockholders with respect to its
stock, or purchased or redeemed, or made any agreements so to
purchase or redeem, any shares of its capital stock;
(v) suffered any material losses (except for anticipated
losses consistent with prior quarters) or waived any rights of
material value, whether or not in the ordinary course of
business, or suffered the loss of any material amount of
prospective business;
(vi) made any material changes in employee compensation
except in the ordinary course of business and consistent with
past practices;
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(vii) made capital expenditures or commitments therefor
that aggregate in excess of $500,000;
(viii) entered into any other material transaction,
whether or not in the ordinary course of business;
(ix) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(x) experienced any material problems with labor or
management in connection with the terms and conditions of their
employment; or
(xi) effected any two or more events of the foregoing
kind which in the aggregate would be material to the Company or
its subsidiaries.
(aa) Acknowledgment Regarding Purchaser's Purchase of
Shares. Company acknowledges and agrees that Purchaser is acting
solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereunder. The Company
further acknowledges that the Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereunder.
Section 2.2. Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) Organization and Standing of the Purchaser. The
Purchaser is a corporation duly incorporated, validly existing and in
good standing under the laws of the Cayman Islands.
(b) Authorization and Power. The Purchaser has the requisite
power and authority and financial resources to enter into and perform
the Transaction Documents and to purchase the Shares being sold to it
hereunder. The execution, delivery and performance of the Transaction
Documents by Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action and at the Initial Closing shall constitute valid and
binding obligations of the Purchaser enforceable against the Purchaser
in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws
relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general
application
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the consummation by the Purchaser of the
transactions contemplated hereby or relating hereto do not and will
not (i) result in a violation of the Purchaser's charter documents or
bylaws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default)
under, or give to
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others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which the
Purchaser is a party, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Purchaser or its properties
(except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on
the business, operations, properties or financing conditions of the
Purchaser or on the ability of Purchaser to consummate the
transactions contemplated by the Transaction Agreements). The
Purchaser is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or to purchase the Shares in
accordance with the terms hereof.
(d) Financial Risks. The Purchaser acknowledges that it is
able to bear the financial risks associated with an investment in the
Shares and the Warrant and that it has been given full access to such
records of the Company and the subsidiaries and to the officers of the
Company and the subsidiaries as it has deemed necessary or appropriate
to conduct its due diligence investigation. The Purchaser is capable
of evaluating the risks and merits of an investment in the Shares and
the Warrant by virtue of its experience as an investor and its
knowledge, experience, and sophistication in financial and business
matters and the Purchaser is capable of bearing the entire loss of its
investment in the Shares and the Warrant.
(e) Accredited Investor. The Investor is an "accredited
investor" as defined in Regulation D promulgated under the Securities
Act.
(f) General. The Purchaser understands that the Company is
relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the
Purchaser set forth herein in order to determine the suitability of
the Purchaser to acquire the Shares.
(g) Litigation; Claims. There are no lawsuits or proceedings
pending or, to the knowledge of the Purchaser, threatened, against the
Purchaser or any subsidiary, nor has the Purchaser received any
written or oral notice of any action, suit, proceeding or
investigation. No judgment, order, writ, injunction or decree or award
has been issued by or, to the knowledge of the Purchaser, requested of
any court, arbitrator or governmental agency.
(h) Not an Affiliate. Purchaser is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
(i) Disclosure; Access to Information. Purchaser has
reviewed all documents, records, books and other publicly available
information pertaining to Purchaser's investment in the Company that
have been requested and received by the Purchaser.
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(j) Manner of Sale. At no time was Purchaser presented with
or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
(k) Underwriter Liability. Purchaser understands that it is
the position of the SEC that the Purchaser is an underwriter within
the meaning of Section 2(11) of the Securities Act and that the
Purchaser will be identified as an underwriter of the Draw Down Shares
in the Registration Statement.
ARTICLE 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. The Shares. As of the date of each applicable Draw Down
Notice, the Company will have authorized and reserved, free of preemptive rights
and other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock to cover the Draw Down Shares
to be issued in connection with such Draw Down requested under this Agreement.
The Draw Down Shares to be issued under this Agreement, when paid for and issued
in accordance with the terms hereof, shall be duly and validly issued and
outstanding, fully paid and non-assessable, and the Purchaser shall be entitled
to all rights accorded to a holder of Common Stock. Anything in this Agreement
to the contrary notwithstanding, (i) at no time will the Company request a Draw
Down which would result in the issuance of an aggregate number of shares of
Common Stock pursuant to this Agreement which exceeds 19.9% of the number of
shares of Common Stock issued and outstanding on the Initial Closing Date
without obtaining stockholder approval of such excess issuance, or such other
amount as would require stockholder approval under rules of the Principal Market
or otherwise without obtaining stockholder approval of such excess issuance, and
(ii) the Company may not make a Draw Down to the extent that, after such
purchase by the Purchaser, the sum of the number of shares of Common Stock
beneficially owned by the Purchaser and its affiliates would result in
beneficial ownership by the Purchaser and its affiliates of more than 9.9% of
the then outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act.
Section 3.2. Securities Compliance. If applicable, the Company shall
notify the Principal Market, in accordance with its rules and regulations, of
the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Shares and the
Warrant to the Purchaser.
Section 3.3. Registration and Listing. The Company will use its
reasonable best efforts to cause its Common Stock to continue to be registered
under Sections 12(b) or 12(g) of the Exchange Act, will comply in all respects
with its reporting and filing obligations under the
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Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement, and will not voluntarily take any
action or file any document (whether or not permitted by the Securities Act or
the Exchange Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will use its reasonable best efforts to take all action
necessary to continue the listing or trading of its Common Stock on the
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide the Purchaser with copies of any correspondence to or from
such Principal Market which questions or threatens delisting of the Common
Stock, within three (3) Trading Days of the Company's receipt thereof, until the
Purchaser has disposed of all of the Shares.
Section 3.4. Escrow Arrangement. The Company and the Purchaser shall
enter into an escrow arrangement with Feldman Weinstein, LLP (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against delivery of
the Shares.
Section 3.5. Registration Rights Agreement. The Company and the
Purchaser shall enter into the Registration Rights Agreement in the Form of
Exhibit A hereto. Before the Purchaser shall be obligated to accept a Draw Down
request from the Company, the Company shall have caused a sufficient number of
shares of Common Stock to be registered to cover the Shares to be issued in
connection with such Draw Down.
Section 3.6. Accuracy of Registration Statement. On each Settlement
Date, the Registration Statement and the prospectus therein shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading in light of the circumstances under which they were made;
and on such Settlement Date or date of filing the Registration Statement and the
prospectus therein will not include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement and the
prospectus therein in reliance upon and in conformity with the information
furnished in writing to the Company by the Purchaser specifically for inclusion
in the Registration Statement and the prospectus therein.
Section 3.7. Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.8. Keeping of Records and Books of Account. The Company
shall keep and cause each subsidiary to keep adequate records and books of
account, in which entries that are complete in all material respects will be
made in accordance with GAAP consistently applied, reflecting all financial
transactions of the Company and its subsidiaries, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
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Section 3.9. Notice of Certain Events Affecting Registration;
Suspension of Right to Request a Draw Down. The Company will promptly notify the
Purchaser in writing upon the occurrence of any of the following events in
respect of the Registration Statement or related prospectus in respect of the
Shares: (i) receipt of any request for additional information from the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would require
any amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Shares for sale in
any jurisdiction in which the Purchaser is entitled to sell the Shares hereunder
or the receipt of notice with respect to the initiation of any proceeding for
such purpose; (iv) becoming aware that any statement made in the Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
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 (v) the Company's determination that the filing of a
post-effective amendment to the Registration Statement is required. The Company
shall not deliver to the Purchaser any Draw Down Notice during the continuation
of any of the foregoing events. The Company shall promptly make available to the
Purchaser any such supplements or amendments to the related prospectus, at which
time, provided that the registration statement and any supplements and
amendments thereto are then effective, the Company may recommence the delivery
of Draw Down Notices.
Section 3.10. Consolidation; Merger. The Company shall not, at any
time prior to the termination of this Agreement, effect any merger or
consolidation of the Company with or into, or a transfer of all or substantially
all of the assets of the Company to, another entity (a "Consolidation Event")
unless the resulting successor or acquiring entity (if not the Company) assumes
by written instrument or by operation of law the obligation of the Company with
respect to the obligations hereunder.
Section 3.11. Limitation on Future Financing. The Company agrees that
it will not enter into any equity line type of financing during the term of this
Agreement. In the event the Company enters into any other subsequent sale of its
securities ("Subsequent Placement"), the Company shall deliver to the Purchaser
a written notice (a "Subsequent Placement Notice") of its intention to effect
such Subsequent Placement, which Subsequent Placement Notice shall describe in
reasonable detail the proposed terms of such Subsequent Placement, the amount of
proceeds intended to be raised thereunder, the persons and/or entities with whom
such Subsequent Placement shall be effected, and attached to which shall be a
term sheet or similar document relating thereto. If the Purchaser shall not have
notified the Company by 6:30 p.m.
14
(New York City time) on the 5th Trading Day after their receipt of the
Subsequent Placement Notice of their willingness to participate in or provide
(or to cause their sole designee to provide), subject to completion of mutually
acceptable documentation, financing to the Company on conversion, reset and
pricing terms (including original issue discount, if any) and substantially on
such other terms as set forth in the Subsequent Placement Notice, the Company
may effect the Subsequent Placement substantially upon the terms and to the
persons and/or entities set forth in the Subsequent Placement Notice and the
Purchaser shall not have any further rights with regard to the sale, conversion
or exercise of the Company's securities pursuant to the Subsequent Placement;
provided, however, that the Company shall provide the Purchaser with a second
Subsequent Placement Notice, and the Purchaser shall again have the right of
first refusal set forth above in this Section, if the Subsequent Placement
subject to the initial subsequent Placement Notice shall not have been
consummated for any reason on conversion, reset and pricing terms (including
original issue discount, if any) and substantially on such other terms set forth
in such Subsequent Placement Notice within 60 Trading Days after the date of the
initial Subsequent Placement Notice with the persons and/or entities identified
in the Subsequent Placement Notice. The foregoing right of participation or
first refusal shall not apply to any sale of securities (i) pursuant to any
presently existing or future employee benefit plan which plan has been or is
approved by the Company's stockholders, (ii) pursuant to any compensatory plan
for a full-time employee or key consultant, (iii) in connection with a strategic
partnership or other business transaction, the principal purpose of which is not
simply to raise money, or (iv) pursuant to the exercise of any presently issued
and outstanding options or warrants.
Section 3.12. Minimum Commitment Amount. During the Commitment Period,
the Company shall make Draw Downs of at least $250,000, in the aggregate,
pursuant to this Agreement. In the event that the Company fails to make Draw
Downs of at least $250,000, in the aggregate, during the Commitment Period, the
Company shall pay the Purchaser, as liquidated damages, within five (5) days
from the end of the Commitment Period, an amount equal to $250,000 minus the
aggregate Purchase Price of all Draw Downs.
Section 3.13. Use of Proceeds. The proceeds from the sale of the
Shares will be used by the Company and its subsidiaries for general corporate
purposes.
The Purchaser covenants with the Company as follows:
Section 3.14. Prospectus Delivery Requirements. The Purchaser agrees
that it will, whenever required by federal securities laws, deliver the
Prospectus included in the Registration Statement to any purchaser of Draw Down
Shares from the Purchaser.
ARTICLE 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to proceed to close
this Agreement and to
15
issue and sell the Shares to the Purchaser is subject to the satisfaction or
waiver, at or before the Initial Closing, and as of each Settlement Date of each
of the conditions set forth below. These conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser shall
be true and correct in all material respects as of the date when made
and as of the Initial Closing and as of each Settlement Date as though
made at that time, except for representations and warranties that
speak as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchaser at or prior to
the Initial Closing and as of each Settlement Date.
(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 which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) No Proceedings or Litigation. No material action, suit
or proceeding before any arbitrator or any governmental authority
shall have been commenced against the Purchaser or the Company or any
subsidiary, or any of the officers, directors or affiliates of the
Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
Section 4.2. Conditions Precedent to the Obligation of the Purchaser
to Close. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and
Warranties. Each of the representations and warranties of the Company
shall be true and correct in all material respects as of the date when
made and as of the Initial Closing as though made at that time (except
for representations and warranties that speak as of a particular date,
which shall be true and correct in all material respects as of such
date).
(b) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all
material covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company
at or prior to the Initial Closing.
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(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 which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) No Proceedings or Litigation. No material action, suit
or proceeding before any arbitrator or any governmental authority
shall have been commenced, against the Purchaser or the Company or any
subsidiary, or any of the officers, directors or affiliates of the
Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the
Purchaser shall have received an opinion of counsel to the Company,
dated as of the Initial Closing Date, in the form of Exhibit C hereto.
(f) Warrant. On the Initial Closing Date, the Company shall
issue to the Purchaser a warrant to purchase 150,000 shares of Common
Stock (the "Warrant"). The Warrant shall be exercisable for the period
of 3 years beginning 6 months after the date on which the Warrant is
delivered to the Escrow Agent for the Initial Closing. The exercise
price of the Warrant shall be $0.8731 (115% of the average of the 15
consecutive VWAPs immediately preceding the date on which the Warrant
is delivered to the Escrow Agent for the Initial Closing). The Common
Stock underlying the Warrant will be registered in the Registration
Statement referred to in Section 4.3 hereof. The Warrant shall be in
the form of Exhibit E hereto.
Section 4.3. Conditions Precedent to the Obligation of the Purchaser
to Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of the
conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The
Company shall have satisfied at the Initial Closing, or the Purchaser
shall have waived at the Initial Closing, the conditions set forth in
Section 4.2 hereof
(b) Effective Registration Statement. The Registration
Statement registering the Shares to be delivered in connection with
the applicable Draw Down shall have been declared effective by the SEC
and shall remain effective on the applicable Settlement Date.
(c) No Suspension. Trading in the Company's Common Stock
shall not have been suspended by the SEC or the Principal Market
(except for any suspension of trading of limited duration agreed to by
the Company, which suspension shall be terminated prior to the
delivery of each Draw Down Notice), and, at any time prior to such
Draw Down Notice, trading in securities generally as reported on the
Principal Market shall not have been suspended or limited, or minimum
prices shall not have been
17
established on securities whose trades are reported on the Principal
Market unless the general suspension or limitation shall have been
terminated prior to the delivery of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and
no Consolidation Event where the successor entity has not agreed to
perform the Company's obligations shall have occurred, such
occurrences to be determined in accordance with Section 8.9 herein.
(e) Opinion of Counsel. The Purchaser shall have received an
opinion from the Company's counsel in the form of Exhibit C, and any
other items set forth in the Escrow Agreement.
ARTICLE 5
DRAW DOWN TERMS
Section 5.1. Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company may, in its sole discretion, issue and
exercise draw downs against the Commitment Amount (each a "Draw Down")
during the Commitment Period, which Draw Downs the Purchaser shall be
obligated to accept, subject to the terms and conditions herein.
(b) Only one Draw Down shall be allowed in each Draw Down
Pricing Period and the Company may not exercise a Draw Down until the
applicable Trading Cushion has elapsed since the last Settlement Date.
The number of shares of Common Stock purchased by the Purchaser with
respect to each Draw Down shall be determined as set forth in Section
5.1(e) herein and settled on or before the 3rd Trading Day immediately
after the Draw Down Pricing Period (each such settlement period and
each such settlement date referred to as a "Settlement Period" and a
"Settlement Date", respectively).
(c) In connection with each Draw Down Pricing Period, the
Company may set the Threshold Price in the Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down shall be
$50,000 and the maximum Investment Amount as to each Draw Down shall
be equal to the lesser of (i) $5,000,000, and (ii) 15% of the volume
weighted average price for the Common Stock (as reported by the
American Stock Exchange) for the 30 Trading Days immediately prior to
the applicable Commencement Date (defined below) multiplied by the
total aggregate trading volume in respect of the Common Stock for such
period. Notwithstanding anything herein to the contrary, in the event
the minimum Investment Amount is greater than the maximum Investment
Amount, as to such Draw Down only,
18
the minimum Investment Amount shall equal the maximum Investment
Amount, but in no event shall the minimum Investment Amount be less
than $25,000, such that if the maximum Investment Amount is less than
$25,000, then the Company shall be precluded from exercising a Draw
Down at such time.
(e) The number of Shares of Common Stock to be issued on
each Settlement Date shall be a number of shares equal to the sum of
the quotients (for each Trading Day within the Settlement Period) of
(x) 1/10th of the Investment Amount, and (y) the Purchase Price on
each Trading Day within the Draw Down Pricing Period, subject to the
following adjustments:
(i) if the VWAP on a given Trading Day is less
than the Threshold Price, then that portion of the
Investment Amount to be paid on the immediately pending
Settlement Date shall be reduced by 1/10th of the Investment
Amount and such Trading Day shall be withdrawn from the Draw
Down Pricing Period; and
(ii) if during any Trading Day during the Draw
Down Pricing Period trading of the Common Stock on the
Principal Market is suspended for more than 3 hours, in the
aggregate, or if any Trading Day during the Settlement
Period is shortened because of a public holiday, then that
portion of the Investment Amount to be paid on the
immediately pending Settlement Date shall be reduced by
1/10th of the Investment Amount for each such suspension and
such Trading Days shall be withdrawn from the Settlement
Period; and
(iii) if during any Trading Day during the Draw
Down Pricing Period sales of Draw Down Shares pursuant to
the Registration Statement are suspended by the Company in
accordance with Sections 3(j) or 5(e) of the Registration
Rights Agreement for more than three (3) hours, in the
aggregate, during the Settlement Period, then that portion
of the Investment Amount to be paid on the immediately
pending Settlement Date shall be reduced by 1/10th of the
Investment Amount and such Trading Days shall be withdrawn
from the Settlement Period.
(f) The Company must inform the Purchaser by delivering a
draw down notice, in the form of Exhibit D hereto (the "Draw Down
Notice"), via facsimile transmission in accordance with Section 8.4 as
to the amount of the Draw Down (the "Investment Amount") the Company
wishes to exercise. The Draw Down Notice shall also inform the
Purchaser the first day of the Draw Down Pricing Period (the
"Commencement Date"); provided; however, if the Commencement Date
shall be the date on which the Draw Down Notice is delivered, the Draw
Down Notice must delivered to the Purchaser at least 1 hour before
trading commences on such Trading Day date. At no time shall the
Purchaser be required to purchase more than the maximum Investment
Amount for a given Draw Down Pricing Period.
19
(g) On or before each Settlement Date, the Shares purchased
by the Purchaser shall be delivered to The Depository Trust Company
("DTC") on the Purchaser's behalf. Upon the Company electronically
delivering whole shares of Common Stock to the Purchaser or its
designees via DTC through its Deposit Withdrawal Agent Commission
("DWAC") system prior to 1:00 p.m. ET, the Purchaser shall wire
transfer immediately available funds to the Company's designated
account on such day, less any fees as set forth in the Escrow
Agreement, which fees shall be wired as directed in the Escrow
Agreement. Upon the Company electronically delivering whole shares of
Common Stock to the Purchaser or its designee's DTC account via DWAC
after 1:00 p.m. ET, the Purchaser shall wire transfer next day
available funds to the Company's designated account on such day, less
any fees as set forth in the Escrow Agreement, which fees shall be
wired as directed in the Escrow Agreement. In the event that either
party elects to use the Escrow Agent, the Shares shall be credited by
the Company to the DTC account designated by the Purchaser via DWAC
upon receipt by the Escrow Agent of payment for the Draw Down Shares
into the Escrow Agent's master escrow account and notice to the
Company thereof, all as further set forth in the Escrow Agreement. The
Escrow Agent shall be directed to pay the purchase price to the
Company, net of $1,000 per Settlement as escrow expenses to the Escrow
Agent and any additional fees as set forth in the Escrow Agreement.
ARTICLE 6
TERMINATION
Section 6.1. Term. The term of this Agreement shall begin on the date
hereof and shall end 36 months from the Effective Date or as otherwise set forth
in Section 6.2.
Section 6.2. Other Termination.
(a) This Agreement shall terminate upon one (1) Trading
Day's notice if (i) an event resulting in a Material Adverse Effect
has occurred and has not been cured for a period of ninety (90) days
after giving notice thereof, (ii) the Common Stock is de-listed from
the Principal Market unless such de-listing is in connection with the
Company's subsequent listing of the Common Stock on the Nasdaq
National Market, Nasdaq SmallCap Market, the American Stock Exchange
or the New York Stock Exchange, or (iii) the Company files for
protection from creditors under any applicable law.
(b) The Company may terminate this Agreement upon 1 Trading
Day's notice if the Purchaser shall fail to fund more than 1 properly
noticed Draw Down within 5 Trading Days of the end of the applicable
Settlement Period.
Section 6.3. Effect of Termination. In the event of termination of
this Agreement pursuant to Section 6.2 herein, written notice thereof shall
forthwith be given to the
20
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 or 6.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 8.1, 8.2 and 8.9,
and Article 7 herein, which shall survive the termination of this Agreement.
Nothing in this Section 6.3 shall be deemed to release the Company or the
Purchaser from any liability for any breach under this Agreement, or to impair
the rights of the Company or the Purchaser to compel specific performance by the
other party of its obligations under this Agreement.
ARTICLE 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the
Purchaser (and its directors, officers, affiliates, agents, successors
and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements)
incurred by the Purchaser as a result of any inaccuracy in or breach
of the representations, warranties or covenants made by the Company
herein.
(b) The Purchaser agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors
and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements)
incurred by the Company as result of any material inaccuracy in or
breach of the representations, warranties or covenants made by the
Purchaser herein. Notwithstanding anything to the contrary herein, the
Purchaser shall be liable under this Section 7.1(b) for only that
amount as does not exceed the gross proceeds to the Purchaser as a
result of the sale of the Shares.
Section 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an "Indemnified Party") will give prompt
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the Indemnified Party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. In the event that the indemnifying party
advises an Indemnified Party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification
21
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
Indemnified Party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the Indemnified Party's costs (including reasonable
attorneys' fees, charges and disbursements) and expenses arising out of the
defense, settlement or compromise of any such action, claim or proceeding shall
be losses subject to indemnification hereunder. The Indemnified Party shall
cooperate fully with the indemnifying party in connection with any settlement
negotiations or defense of any such action or claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably available
to the Indemnified Party, which relates to such action or claim. The
indemnifying party shall keep the Indemnified Party fully apprised at all times
as to the status of the defense or any settlement negotiations with respect
thereto. If the indemnifying party elects to defend any such action or claim,
then the Indemnified Party shall be entitled to participate in such defense with
counsel of its choice at its sole cost and expense. The indemnifying party shall
not be liable for any settlement of any action, claim or proceeding effected
without its prior written consent. Notwithstanding anything in this Article 7 to
the contrary, the indemnifying party shall not, without the Indemnified Party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
Indemnified Party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the Indemnified Party of a
release from all liability in respect of such claim. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the Indemnified Party against the indemnifying party or others, and
(b) any liabilities to which the indemnifying party may be subject.
ARTICLE 8
MISCELLANEOUS
Section 8.1. Fees and Expenses. Each of the parties to this Agreement
shall pay its own fees and expenses related to the transactions contemplated by
this Agreement except that the Company shall deliver to the Purchaser a letter
from the Company to its transfer agent instructing the transfer agent to
immediately issue 30,000 shares of Common Stock (the "Transfer Agent Letter") to
the Purchaser and such shares shall be delivered to the Purchaser within 5
Trading Days of the Closing Date. The Company shall pay all stamp or other
similar taxes and duties levied in connection with issuance of the Shares
pursuant hereto.
Section 8.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
22
Section 8.3. Entire Agreement; Amendment. The Transaction Documents
contain the entire understanding of the parties with respect to the matters
covered in the Transaction Documents. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought and no condition to
closing any Draw Down in favor of the Purchaser may be waived by the Purchaser.
Section 8.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: eMagin Corporation
2070 Route 52
Hopewell Junction, NY 12533
Attn: Gary W. Jones
Tel: (845) 892-1910
Fax: (845) 892-1935
If to Purchaser: As set forth on the signature page hereto.
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other party hereto in
accordance herewith.
Section 8.5. Waivers. No waiver by either party 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 other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
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Section 8.6. Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
The parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and the Purchaser.
This Agreement may not be assigned by either party without the prior written
consent of the other party.
Section 8.8. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 8.9. Governing Law/Arbitration. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without giving effect to the choice of law provisions. The Company and
the Purchaser agree to exclusively submit themselves to the in personam
jurisdiction of the state and federal courts situated within the Southern
District of the State of New York with regard to any controversy arising out of
or relating to this Agreement. Any dispute under this Agreement or any Exhibit
attached hereto shall be submitted to arbitration under the American Arbitration
Association (the "AAA") in New York City, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
three (3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York City, New York, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any, which
the losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including reasonable attorneys' fees, from the non-prevailing party.
Section 8.10. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other
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parties hereto, it being understood that all parties need not sign the same
counterpart. Execution may be made by delivery by facsimile.
Section 8.11. Publicity. Neither the Company nor the Purchaser shall
issue any press release or otherwise make any public statement or announcement
with respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement, without the prior written consent of the other
party. After the Initial Closing, the Company may issue a press release or
otherwise make a public statement or announcement with respect to this Agreement
or the transactions contemplated hereby or the existence of this Agreement;
provided, however, that prior to issuing any such press release, making any such
public statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
Section 8.12. Severability. The provisions of this Agreement are
severable and, in the event that The Board of Arbitration or any court or
officials of any regulatory agency of competent jurisdiction shall determine
that any one or more of the provisions or part of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
and this Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible, so long as such construction does not materially
adversely affect the economic rights of either party hereto.
Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 8.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
ARTICLE 9
DEFINITIONS
Section 9.1. Certain Definitions.
(a) "Commencement Date" shall have the meaning assigned to
such term in Section 5.1(f) hereof.
(b) "Commitment Amount" shall have the meaning assigned to
such term in Section 1.1 hereof.
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(c) "Commitment Period" shall mean the period of 36
consecutive months commencing immediately after the Effective Date.
(d) "Common Stock" shall mean the Company's common stock,
$0.001 par value per share.
(e) "Consolidation Event" shall mean a sale of all or
substantially all of the Company's assets or a merger pursuant to
which the holders of the voting securities of the Company prior to the
merger do not own a majority of the voting securities of the surviving
entity.
(f) "Disclosure Letter" shall mean the separate disclosure
letter prepared by the Company and delivered concurrently herewith.
(g) "Draw Down" shall have the meaning assigned to such term
in Section 5.1(a) hereof.
(h) "Draw Down Notice" shall have the meaning assigned to
such term in Section 5.1(f) hereof.
(i) "Draw Down Pricing Period" shall mean a period of 10
consecutive Trading Days beginning on the date specified in the Draw
Down Notice; provided, however, the Draw Down Pricing Period shall not
begin before the day on which receipt of such notice is delivered to
Purchaser Pursuant to Section 8.4 herein.
(j) "DTC" shall have the meaning assigned to such term in
Section 5.1(g).
(k) "DWAC" shall have the meaning assigned to such term in
Section 5.1(g).
(l) "Effective Date" shall mean the date the Registration
Statement of the Company covering the Shares being subscribed for
hereby is declared effective by the SEC.
(m) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder.
(n) "GAAP" shall mean the United States Generally Accepted
Accounting Principles as those conventions, rules and procedures are
determined by the Financial Accounting Standards Board and its
predecessor agencies.
(o) "Initial Closing" shall have the meaning assigned to
such term in Section 1.2 hereof.
(p) "Initial Closing Date" shall have the meaning assigned
to such term in Section 1.2 hereof.
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(q) "Investment Amount" shall have the meaning assigned to
such term in Section 5.1(f) hereof.
(r) "Material Adverse Effect" shall mean any adverse effect
on the business, operations, properties or financial condition of the
Company that is material and adverse to the Company and its
subsidiaries and affiliates, taken as a whole and/or any condition,
circumstance, or situation that would prohibit or otherwise materially
interfere with the ability of the Company to perform any of its
material obligations under this Agreement or the Registration Rights
Agreement or to perform its obligations under any other Material
Agreement.
(s) "Material Agreement" shall mean any written or oral
contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which is required to be filed with the SEC as
an exhibit to any of the SEC Documents.
(t) "Principal Market" shall mean initially the American
Stock Exchange and shall include the Nasdaq National Market, the
Nasdaq Small-Cap Market, the New York Stock Exchange and the OTC
Bulletin Board if the Company becomes listed and trades on such market
or exchange after the date hereof.
(u) "Purchase Price" shall mean, with respect to Shares
purchased during each applicable Settlement Period, if the average of
the VWAPs during the 10 Trading Days immediately prior to the
applicable Draw Down Notice is less than $4.00 per share, 88% (the
"Purchase Price Percentage") of the VWAP on the date in question
during such Draw Down Pricing Period and if the average of the VWAPs
during the 10 Trading Days immediately prior to the applicable Draw
Down Notice is greater than $4 per share but less than $6 per share,
90% of the VWAP on the date in question during such Draw Down Pricing
Period and if the average of the VWAPs during the 10 Trading Days
immediately prior to the applicable Draw Down Notice is greater than
$6 per share, 92% of the VWAP on the date in question during such Draw
Down Pricing Period . Notwithstanding anything herein to the contrary,
in the event any Draw Downs are exercised during any periods the
Trading Cushion is reduced because of a Special Activity or the Common
Stock is listed on the OTC Bulletin Board, the Purchase Price
Percentage, as to such Draw Downs, shall be reduced by an additional
3% from the amount specified above.
(v) "Registration Statement" shall mean the registration
statement under the Securities Act, to be filed with the Securities
and Exchange Commission for the registration of the Shares pursuant to
the Registration Rights Agreement attached hereto as Exhibit A (the
"Registration Rights Agreement).
(w) "SEC" shall mean the Securities and Exchange Commission.
(x) "SEC Documents" shall mean the Company's latest Form
10-K or Form 10-KSB as of the time in question, all Forms 10-Q or
10-QSB and 8-K filed thereafter, and the Proxy Statement for its
latest fiscal year as of the time in question, in
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each case, together with all exhibits, supplements, amendments and
schedules thereto, and all documents incorporated by reference therein
until such time as the Company no longer has an obligation to maintain
the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
(y) "Securities Act" shall mean the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
(z) "Settlement" shall mean the delivery of the Draw Down
Shares into the Purchaser's DTC account via DTC's DWAC system in
exchange for payment therefor.
(aa) "Settlement Date" shall have the meaning assigned to
such term in Section 5.1(b).
(bb) "Settlement Period" shall have the meaning assigned to
such term in Section 5.1(b).
(cc) "Shares" shall mean, collectively, the shares of Common
Stock of the Company being subscribed for hereunder (the "Draw Down
Shares") and the shares of Common Stock issuable upon exercise of the
Warrant (the "Warrant Shares").
(dd) "Special Activity" shall mean any one-time charge the
Company expects to incur for any reason, including, without
limitation, in connection with the acquisition of another business.
(ee) "Threshold Price" shall mean the price per Share
designated by the Company as the lowest VWAP during any Draw Down
Pricing Period at which the Company shall sell its Common Stock in
accordance with this Agreement.
(ff) "Trading Cushion" shall mean the mandatory 10 Trading
Days between Draw Down Pricing Periods; except that, in the event the
Company gives the Purchaser 10 days notice of a Special Activity, the
Trading Cushion shall be adjusted to 4 Trading Days for a period of 7
consecutive weeks.
(gg) "Trading Day" shall mean any day on which the Principal
Market is open for business.
(hh) "Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement and the Escrow Agreement.
(ii) "VWAP" shall mean the daily volume weighted average
price of the Company's Common Stock on the Principal Market as
reported by the American Stock Exchange (based on a trading day from
9:30 a.m. Eastern Time to 4:00 p.m. ET) on the date in question or if
such entity no longer reports such information, than by another
reputable source mutually agreed to by the parties.
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(jj) "Warrant" shall mean the warrant issued to the
Purchaser pursuant to Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
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[SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officer as of this __ day of
March, 2002.
eMAGIN CORPORATION
By:
------------------------------------
Name:
Title:
Address: NORTHWIND ASSOCIATES, INC.
- --------
By:
------------------------------------
Name:
Title:
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