EXHIBIT 4.4
Irvine Sensors Corporation
Shares of Series E Convertible Preferred Stock and Common Stock Warrant
SUBSCRIPTION AGREEMENT
December 23, 2002
MERCATOR MOMENTUM FUND, LP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Irvine Sensors Corporation, a Delaware corporation (the "Company"),
hereby confirms its agreement with you (the "Purchaser"), as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to Purchaser (a) 10,000 shares
(the "Shares") of its Series E Convertible Preferred Stock, par value $0.01 per
share (the "Series E Stock") which shall be convertible into not less than
800,000 and no more than 1,411,675 shares (the "Conversion Shares") of the
Company's Common Stock, par value $0.01 per share (the "Common Stock") and (b) a
warrant, substantially in the form attached hereto at Exhibit A (the "Warrant"),
to acquire up to 250,000 shares of Common Stock (the "Warrant Shares"). The
rights, preferences and privileges of the Series E Stock are as set forth in the
Certificate of Designation of Series E Preferred Stock as filed with the
Secretary of State of the State of Delaware (the "Certificate of Designation").
The number of Conversion Shares and the number of Warrant Shares are both
subject to adjustment as set forth in the Certificate of Designation and in the
Warrant, so that the aggregate number of shares of Common Stock issuable upon
such conversion and exercise shall in no event equal more than 19.99% of the
Company's then outstanding Common Stock.
The Shares and the Warrant are sometimes herein collectively
referred to as the "Securities." This Agreement and the Warrant are sometimes
herein collectively referred to as the "Transaction Documents."
The Securities will be offered and sold to the Purchaser without
such offers and sales being registered under the Securities Act of 1933, as
amended (together with the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated thereunder, the "Securities Act"), in
reliance on exemptions therefrom.
In connection with the sale of the Securities, the Company has made
available to Purchaser its periodic and current reports filed with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") since October 1, 2001. These reports (as amended),
filings and amendments, are collectively referred to as the "Disclosure
Documents." All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" in
the Disclosure Documents (or other references of like import) shall be deemed to
mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Disclosure Documents.
2. Representations and Warranties of the Company. The Company
represents and warrants to Purchaser as follows:
(a) The Disclosure Documents as of their respective dates did
not (after giving effect to any updated disclosures therein), and as of the
Closing Date as defined in Section 3 below will not, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. Company has filed all reports required to be filed by it
the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, since
October 1, 2001, on a timely basis or has received a valid extension of such
time of filing and has filed any such reports prior to the expiration of any
such extension. The Disclosure Documents and the documents incorporated or
deemed to be incorporated by reference therein, at the time they were filed
(after giving effect to any updated disclosures therein) or hereafter are filed
with the Commission, complied and will comply in all material respects with the
requirements of the under the Securities Act of 1933, as amended (the
"Securities Act") and/or the Exchange Act, as the case may be, as applicable.
(b) Each of the Company and its subsidiaries set forth on
Schedule A attached hereto (the "Subsidiaries") has been duly incorporated and
each of the Company and the Subsidiaries is validly existing in good standing as
a corporation under the laws of its jurisdiction of incorporation, with the
requisite corporate power and authority to own its properties and conduct its
business as now conducted as described in the Disclosure Documents and is duly
qualified to do business as a foreign corporation in good standing in all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified would not, individually or in the aggregate, have a material adverse
effect on the business, condition (financial or other), properties, prospects or
results of operations of the Company and the Subsidiaries, taken as a whole (any
such event, a "Material Adverse Effect"); the Company has the authorized, issued
and outstanding capitalization set forth in the Disclosure Documents (subject to
the issuance of shares pursuant to options outstanding under the Company's stock
option plans, employee stock purchase plans or outstanding warrants or other
rights to acquire shares described in the Disclosure Documents, and subject to
the filing of the Certificate of Designation); except as set forth in the
Disclosure Documents, the Company does not have any subsidiaries or own directly
or indirectly any of the capital stock or other equity or long-term debt
securities of or have any equity interest in any other person; all of the
outstanding shares of capital stock of the Company and the Subsidiaries have
been duly authorized and validly issued, are fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights and are owned
free and clear of all liens, encumbrances, equities, and restrictions on
transferability (other than those imposed by the Securities Act and the state
securities or "Blue Sky" laws) or voting; except as set forth in the Disclosure
Documents, all of the outstanding shares of capital stock of the Subsidiaries
are owned, directly or indirectly, by the Company; except as set forth in the
Disclosure Documents, no options, warrants or other rights to purchase from the
Company or any Subsidiary, agreements or other obligations of the Company or any
Subsidiary to issue or
2
other rights to convert any obligation into, or exchange any securities for,
shares of capital stock of or ownership interests in the Company or any
Subsidiary are outstanding; and except as set forth in the Disclosure Documents,
there is no agreement, understanding or arrangement among the Company or any
Subsidiary and each of their respective stockholders or any other person
relating to the ownership or disposition of any capital stock of the Company or
any Subsidiary or the election of directors of the Company or any Subsidiary or
the governance of the Company's or any Subsidiary's affairs, and, if any, such
agreements, understandings and arrangements will not be breached or violated as
a result of the execution and delivery of, or the consummation of the
transactions contemplated by, the Transaction Documents.
(c) The Company has the requisite corporate power and
authority to execute, deliver and perform its obligations under the Transaction
Documents. Each of the Transaction Documents has been duly and validly
authorized by the Company and, when executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms except as the enforcement
thereof may be limited by (A) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect relating
to or affecting creditors' rights generally or (B) general principles of equity
and the discretion of the court before which any proceeding therefore may be
brought (regardless of whether such enforcement is considered in a proceeding at
law or in equity) (collectively, the "Enforceability Exceptions").
(d) The Shares and the Warrant have been duly authorized and,
when issued upon payment thereof in accordance with this Agreement, will have
been validly issued, fully paid and nonassessable. The Conversion Shares have
been duly authorized and validly reserved for issuance, and when issued upon
conversion of the Shares in accordance with the terms of the Certificate of
Designation, will have been validly issued, fully paid and nonassessable. The
Warrant Shares have been duly authorized and validly reserved for issuance, and
when issued upon exercise of the Warrant in accordance with the terms thereof,
will have been validly issued, fully paid and nonassessable. The Common Stock of
the Company conforms to the description thereof contained in the Disclosure
Documents. The rights, preferences and privileges of the Shares are as stated in
the Certificate of Designation. The stockholders of the Company have no
preemptive or similar rights with respect to the Common Stock.
(e) No consent, approval, authorization, license,
qualification, exemption or order of any court or governmental agency or body or
third party is required for the performance of the Transaction Documents by the
Company or for the consummation by the Company of any of the transactions
contemplated thereby, or the application of the proceeds of the issuance of the
Securities as described in the this Agreement, except for such consents,
approvals, authorizations, licenses, qualifications, exemptions or orders (i) as
have been obtained or (ii) the failure to obtain which would not have a Material
Adverse Effect; all such consents, approvals, authorizations, licenses,
qualifications, exemptions and orders will be in full force and effect as of the
Closing Date and not the subject of any pending or, to the knowledge of the
Company, threatened termination.
3
(f) None of the Company or the Subsidiaries is (i) in material
violation of its certificate of incorporation or bylaws (or similar
organizational document), (ii) in breach or violation of any statute, judgment,
decree, order, rule or regulation applicable to it or any of its properties or
assets, which breach or violation would, individually or in the aggregate, have
a Material Adverse Effect, or (iii) in default (nor has any event occurred which
with notice or passage of time, or both, would constitute a default) in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan agreement,
note, lease, license, franchise agreement, permit, certificate or agreement or
instrument to which it is a party or to which it is subject, which default would
have a Material Adverse Effect.
(g) The execution, delivery and performance by the Company of
the Transaction Documents and the consummation by the Company of the
transactions contemplated thereby and the fulfillment of the terms thereof will
not (a) violate, conflict with or constitute or result in a breach of or a
default under (or an event that, with notice or lapse of time, or both, would
constitute a breach of or a default under) any of (i) the terms or provisions of
any contract, indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or instrument to
which any of the Company or the Subsidiaries is a party or to which any of their
respective properties or assets are subject, (ii) the certificate of
incorporation or bylaws of any of the Company or the Subsidiaries (or similar
organizational document) or (iii) any statute, judgment, decree, order, rule or
regulation of any court or governmental agency or other body applicable to the
Company or the Subsidiaries or any of their respective properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the
properties or assets now owned or hereafter acquired by the Company or any of
the Subsidiaries, which violation, conflict, breach, default or lien would have
a Material Adverse Effect.
(h) The audited consolidated financial statements included in
the Disclosure Documents present fairly the consolidated financial position,
results of operations, cash flows and changes in stockholders' equity of the
entities, at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis; the interim unaudited consolidated financial statements
included in the Disclosure Documents present fairly the consolidated financial
position, results of operations and cash flows of the entities, at the dates and
for the periods to which they relate subject to year-end audit adjustments and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis with the audited consolidated financial statements
included therein; the selected financial and statistical data included in the
Disclosure Documents present fairly the information shown therein and have been
prepared and compiled on a basis consistent with the audited financial
statements included therein, except as otherwise stated therein; and ▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP, which has examined certain of such financial statements as set
forth in its report included in the Disclosure Documents, is an independent
certified public accountant as required by the Securities Act for an offering
registered thereunder.
(i) Except as described in the Disclosure Documents, there is
not pending or, to the knowledge of the Company, threatened any action, suit,
proceeding, inquiry or investigation, governmental or otherwise, to which any of
the Company or the Subsidiaries is a
4
party, or to which their respective properties or assets are subject, before or
brought by any court, arbitrator or governmental agency or body, that, if
determined adversely to the Company or any such Subsidiary, would, individually
or in the aggregate, have a Material Adverse Effect or that seeks to restrain,
enjoin, prevent the consummation of or otherwise challenge the issuance or sale
of the Securities to be sold hereunder or the application of the proceeds
therefrom or the other transactions described in the Disclosure Documents.
(j) The Company and the Subsidiaries own or possess adequate
licenses or other rights to use all patents, trademarks, service marks, trade
names, copyrights, know-how and other intellectual property rights that are
necessary to conduct their businesses as described in the Disclosure Documents.
None of the Company or the Subsidiaries has received any written notice of
infringement of (or knows of any such infringement of) asserted rights of others
with respect to any patents, trademarks, service marks, trade names, copyrights,
know-how or other intellectual property rights that, if such assertion of
infringement or conflict were sustained, would, individually or in the
aggregate, have a Material Adverse Effect.
(k) Each of the Company and the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals presently required or necessary
to own or lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now or proposed to be conducted as
set forth in the Disclosure Documents ("Permits"), except where the failure to
obtain such Permits would not have a Material Adverse Effect and none of the
Company or the Subsidiaries has received any notice of any proceeding relating
to revocation or modification of any such Permit, except as described in the
Disclosure Documents and except where such revocation or modification would not
have a Material Adverse Effect.
(l) Subsequent to the respective dates as of which information
is given in the Disclosure Documents and except as described therein, (i) the
Company and the Subsidiaries have not incurred any material liabilities or
obligations, direct or contingent, or entered into any material transactions not
in the ordinary course of business, (ii) the Company and the Subsidiaries have
not purchased any of their respective outstanding capital stock, or declared,
paid or otherwise made any dividend or distribution of any kind on any of their
respective capital stock or otherwise (other than, with respect to any of such
Subsidiaries, the purchase of capital stock by the Company), (iii) there has not
been any material increase in the long-term indebtedness of the Company or any
of the Subsidiaries, (iv) there has not occurred any event or condition that
has, or could reasonably be expected to have, a Material Adverse Effect, and (v)
the Company and the Subsidiaries have not sustained any material loss or
interference with respect to their respective businesses or properties from
fire, flood, hurricane, earthquake, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal or governmental
proceeding.
(m) There are no material legal or governmental proceedings
nor are there any material contracts or other documents required by the
Securities Act to be described in a prospectus that are not described in the
Disclosure Documents. Except as described in the
5
Disclosure Documents, none of the Company or the Subsidiaries is in default
under any of the contracts described in the Disclosure Documents, has received a
notice or claim of any such default or has knowledge of any breach of such
contracts by the other party or parties thereto, except for such defaults or
breaches as would not, individually or in the aggregate, have a Material Adverse
Effect.
(n) Each of the Company and the Subsidiaries has good and
marketable fee simple title to all real property and good and marketable title
to all personal property described in the Disclosure Documents as being owned by
it and good and marketable title to the leasehold estate in the real property
described therein as being leased by it, free and clear of all liens, charges,
encumbrances or restrictions, except, in each case, as described in the
Disclosure Documents or such as would not, individually or in the aggregate,
have a Material Adverse Effect. All material leases, contracts and agreements to
which the Company or any of the Subsidiaries is a party or by which any of them
is bound are valid and enforceable against the Company or any such Subsidiary,
are, to the knowledge of the Company, valid and enforceable against the other
party or parties thereto and are in full force and effect.
(o) Each of the Company and the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns, except
where the failure to so file such returns would not, individually or in the
aggregate, have a Material Adverse Effect, and has paid all taxes shown as due
thereon; and other than tax deficiencies which the Company or any Subsidiary is
contesting in good faith and for which adequate reserves have been provided in
accordance with generally accepted accounting principles, there is no tax
deficiency that has been asserted against the Company or any Subsidiary that
would, individually or in the aggregate, have a Material Adverse Effect.
(p) None of the Company or the Subsidiaries is, or immediately
after the Closing Date will be, required to register as an "investment company"
or a company "controlled by" an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(q) None of the Company or the Subsidiaries or, to the
knowledge of the Company, any of such entities' directors, officers, employees,
agents or controlling persons, has taken, directly or indirectly, any action
designed, or that might reasonably be expected, to cause or result, under the
Securities Act or the Exchange Act, or otherwise, in, or that has constituted,
stabilization or manipulation of the price of the Common Stock.
(r) None of the Company, the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) directly, or through any agent, engaged in any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) in connection with the offering of the Securities or
in any manner involving a public offering within the meaning of Section 4(2) of
the Securities Act. Assuming the accuracy of the representations and warranties
of the Purchaser in Section 6 hereof, it is not necessary in connection with the
offer, sale and delivery of the Securities to the Purchaser in the manner
contemplated by this Agreement to register any of the Securities under the
Securities Act.
6
(s) Except as set forth in the Disclosure Documents, there is
no strike, labor dispute, slowdown or work stoppage with the employees of the
Company or any of the Subsidiaries which is pending or, to the knowledge of the
Company or any of the Subsidiaries, threatened.
(t) Each of the Company and the Subsidiaries is insured by
insurers of recognized financial responsibility against such losses and in such
amounts that are reasonably prudent and comparable to other companies of its
size and similar business. Neither the Company nor any Subsidiary has any reason
to believe that it will not be able to renew its 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.
(u) Except as set forth in the Disclosure Documents, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently 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 such services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments in excess
of $50,000 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.
(v) Each of the Company and the Subsidiaries maintains
internal accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access to its
material assets is permitted only in accordance with management's authorization
and (D) the reported accountability for its material assets is compared with
existing assets at reasonable intervals.
(w) Except the $100,000 fee payable to Mercator Group, LLC
(and the $20,000 fee payable to ▇▇▇▇▇ Benz), the Company does not know of any
claims for services, either in the nature of a finder's fee or financial
advisory fee, with respect to the offering of the Shares and the transactions
contemplated by the Transaction Documents.
(x) The Common Stock is listed on the Nasdaq SmallCap Market.
The Company currently is not in violation of, and the consummation of the
transactions contemplated by the Transaction Documents will not violate, any
rule of the National Association of Securities Dealers.
(y) The Company has filed a Listing of Additional Shares
Notification Form with the Nasdaq Stock Market with respect to the Conversion
Shares and the Warrant Shares. The Conversion Shares and the Warrant Shares will
be listed on the Nasdaq SmallCap Market immediately following their issuance.
7
(z) The Company is eligible to use Form S-3 for the resale of
the Conversion Shares and the Warrant Shares by Purchaser or its transferees.
The Company has no reason to believe that it is not capable of satisfying the
registration or qualification requirements (or an exemption therefrom) necessary
to permit the resale of the Conversion Shares and the Warrant Shares under the
securities or "blue sky" laws of any jurisdiction within the United States that
is the residence or domicile of any Purchaser.
(aa) Assuming the accuracy of the Purchaser's representations
and warranties set forth in Section 6, no registration under the Securities Act
is required for the offer and sale of the Securities by the Company to the
Purchaser as contemplated hereby.
3. Purchase, Sale and Delivery of the Shares. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Purchaser, and Purchaser agrees to purchase from the
Company, the 10,000 Shares of Series E Stock at $120.00 per share. In connection
with the purchase and sale of Shares hereunder, Purchaser will receive, for no
additional consideration, a Warrant to purchase up to 250,000 shares of Common
Stock, subject to adjustment as set forth in the Warrant.
One or more certificates in definitive form for the Shares that the
Purchaser has agreed to purchase hereunder, as well as the Warrant registered in
the name of Purchaser or its nominee, shall be delivered by or on behalf of the
Company, against payment by or on behalf of the Purchaser, of the purchase price
therefor by wire transfer of immediately available funds to the account of the
Company previously designated by it in writing. Such delivery of and payment for
the Series E Stock and the Warrant shall be made at the offices of ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, on
December 23, 2002, or at such date as the Purchaser and the Company may agree
upon, such time and date of delivery against payment being herein referred to as
the "Closing Date."
4. Certain Covenants of the Company. The Company covenants and
agrees with Purchaser as follows:
(a) None of the Company or any of its Affiliates will sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Securities Act) which could be integrated with the
sale of the Securities in a manner which would require the registration of the
Securities under the Securities Act.
(b) The Company will not become, at any time prior to the
expiration of three years after the Closing Date, an open-end investment
company, unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under the Investment
Company Act.
(c) None of the proceeds of the Series E Stock shall be used
to reduce or retire any insider note or convertible debt held by any officer of
director of the Company.
(d) The Company will perform its obligations under this
Agreement and the other Transaction Documents prior to or after the Closing Date
and will satisfy all
8
conditions precedent on its part to the obligations of the Purchaser to purchase
and accept delivery of the Securities.
5. Conditions of the Purchaser's Obligations. The obligation of
each Purchaser to purchase and pay for the Securities is subject to the
following conditions unless waived in writing by the Purchaser:
(a) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(other than representations and warranties with a Material Adverse Effect
qualifier, which shall be true and correct as written) on and as of the Closing
Date; the Company shall have complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to the Closing Date.
(b) None of the issuance and sale of the Securities pursuant
to this Agreement or any of the transactions contemplated by any of the other
Transaction Documents shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued in respect
thereof; and there shall not have been any legal action, order, decree or other
administrative proceeding instituted or, to the Company's knowledge, threatened
against the Company or against any Purchaser relating to the issuance of the
Securities or any Purchaser's activities in connection therewith or any other
transactions contemplated by this Agreement, the other Transaction Documents or
the Disclosure Documents.
(c) The Purchaser shall have received certificates, dated the
Closing Date and signed by the Chief Executive Officer and the Chief Financial
Officer of the Company, to the effect of paragraphs 5(a) and (b).
(d) The Purchaser shall have received an opinion of ▇▇▇▇▇▇▇,
Phleger & ▇▇▇▇▇▇▇▇ LLP, counsel to the Company, with respect to the
authorization of the Shares, the Warrant and the Warrant Shares and other
customary matters in the form attached hereto as Exhibit B.
(e) The Company shall have obtained any and all consents,
permits and waivers necessary or appropriate for consummation of the
transactions contemplated by the Transaction Documents.
(f) The Certificate of Designation shall have been filed with
the Secretary of State of the State of Delaware and shall continue to be in full
force and effective as of the Closing Date.
(g) The Company shall have paid the fees and expenses set
forth in Section 15.
(h) All proceedings in connection with the transactions
contemplated at the Closing Date and all documents incident to such transactions
shall be reasonably satisfactory in form and substance to the Purchasers and its
special counsel.
9
6. Representations and Warranties of the Purchaser.
(a) Purchaser represents and warrants to the Company that the
Securities to be acquired by it hereunder (including the Conversion Shares and
the Warrant Shares that it may acquire upon conversion or exercise thereof, as
the case may be) are being acquired for its own account for investment (and/or
on behalf of managed accounts who are purchasing solely for their own accounts
for investment) and with no intention of distributing or reselling such
Securities (including the Conversion Shares and the Warrant Shares that it may
acquire upon conversion or exercise thereof, as the case may be) or any part
thereof or interest therein in any transaction which would be in violation of
the securities laws of the United States of America or any State, without
prejudice, however, to a Purchaser's right, subject to the provisions of this
Agreement, at all times to sell or otherwise dispose of all or any part of such
Shares or Warrant Shares under an effective registration statement under the
Securities Act and in compliance with applicable state securities laws or under
an exemption from such registration, and subject, nevertheless, to the
disposition of a Purchaser's property being at all times within its control. By
executing this Agreement, each Purchaser further represents that such Purchaser
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to any Person with respect to
any of the Securities.
(b) Purchaser understands and acknowledges that the Shares may
not be sold, assigned, pledged or otherwise transferred prior to their
conversion. Purchaser agrees to the imprinting of the following legend on the
Shares, but not the Conversion Shares or the Warrant Shares:
This certificate and the shares of Series E Preferred Stock evidenced
by this certificate may not be offered, sold, pledged or otherwise
transferred in any manner prior to the conversion of said shares into
Common Stock.
(c) Purchaser understands that the Securities (including the
Conversion Shares and the Warrant Shares that it may acquire upon conversion or
exercise thereof, as the case may be) have not been registered under the
Securities Act and may not be offered, resold, pledged or otherwise transferred
except (a) pursuant to an exemption from registration under the Securities Act
(and, if requested by the Company, based upon an opinion of counsel acceptable
to the Company) or pursuant to an effective registration statement under the
Securities Act and (b) in accordance with all applicable securities laws of the
states of the United States and other jurisdictions.
Purchaser agrees to the imprinting, so long as appropriate, of
the following legend on the Securities (including the Conversion Shares and the
Warrant Shares that it may acquire upon conversion or exercise thereof, as the
case may be):
The shares of common stock evidenced by this certificate have not been
registered under the U.S. Securities Act of 1933, as amended, and may
not be offered, sold, pledged or otherwise transferred ("transferred")
in the absence of such registration or an applicable exemption
therefrom. In the absence of such registration, such shares may not be
transferred unless, if the Company
10
requests, the Company has received a written opinion from counsel in
form and substance satisfactory to the Company stating that such
transfer is being made in compliance with all applicable federal and
state securities laws.
The legend set forth above may be removed if and when the
Conversion Shares or the Warrant Shares, as the case may be, are disposed of
pursuant to an effective registration statement under the Securities Act or in
the opinion of counsel reasonably acceptable to the Company experienced in the
area of United States Federal securities laws such legends are no longer
required under applicable requirements of the Securities Act. The Shares, the
Conversion Shares and the Warrant Shares shall also bear any other legends
required by applicable Federal or state securities laws, which legends may be
removed when in the opinion of counsel to the Company experienced in the
applicable securities laws, the same are no longer required under the applicable
requirements of such securities laws. The Company agrees that it will provide
each Purchaser, upon request, with a substitute certificate, not bearing such
legend at such time as such legend is no longer applicable. Each Purchaser
agrees that, in connection with any transfer of the Conversion Shares or the
Warrant Shares by it pursuant to an effective registration statement under the
Securities Act, such Purchaser will comply with all prospectus delivery
requirements of the Securities Act. The Company makes no representation,
warranty or agreement as to the availability of any exemption from registration
under the Securities Act with respect to any resale of the Shares, the
Conversion Shares or the Warrant Shares.
(d) Purchaser is an "accredited investor" within the meaning
of Rule 501(a) of Regulation D under the Securities Act.
(e) Purchaser represents and warrants to the Company that it
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Securities, having been represented by counsel,
and has so evaluated the merits and risks of such investment and is able to bear
the economic risk of such investment and, at the present time, is able to afford
a complete loss of such investment.
(f) Purchaser represents and warrants to the Company that (i)
the purchase of the Securities to be purchased by it has been duly and properly
authorized and this Agreement has been duly executed and delivered by it or on
its behalf and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principals of equity; (ii) the
purchase of the Securities to be purchased by it does not conflict with or
violate its charter, by-laws or any law, regulation or court order applicable to
it; and (iii) the purchase of the Securities to be purchased by it does not
impose any penalty or other onerous condition on Purchaser under or pursuant to
any applicable law or governmental regulation.
(g) Purchaser represents and warrants to the Company that
neither it nor any of its directors, officers, employees, agents, partners,
members, or controlling persons has taken, directly or indirectly, any actions
designed, or might reasonably be expected to cause
11
or result, under the Securities Act or Exchange Act or otherwise, in, or that
has constituted, stabilization, or manipulation of the price of the Common
Stock.
(h) Purchaser acknowledges it has reviewed the Disclosure
Documents and further acknowledges that it 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 Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in the Securities;
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy and completeness of the information contained
in the Disclosure Documents.
(i) Purchaser represents and warrants to the Company that it has
based its investment decision solely upon the information contained in the
Disclosure Documents and such other information as may have been provided to it
by the Company in response to its inquiries, and has not based its investment
decision on any research or other report regarding the Company prepared by any
third party ("Third Party Reports"). Purchaser understands and acknowledges that
(i) the Company does not endorse any Third Party Reports and (ii) its actual
results may differ materially from those projected in any Third Party Report.
(j) Purchaser understands and acknowledges that (i) any
forward-looking information included in the Disclosure Documents supplied to
Purchaser by the Company or its management is subject to risks and
uncertainties, including those risks and uncertainties set forth in the
Disclosure Documents; and (ii) the Company's actual results may differ
materially from those projected by the Company or its management in such
forward-looking information.
(k) Purchaser understands and acknowledges that (i) the
Securities are offered and sold without registration under the Securities Act in
a private placement that is exempt from the registration provisions of the
Securities Act and (ii) the availability of such exemption depends in part on,
and that the Company and its counsel will rely upon, the accuracy and
truthfulness of the foregoing representations and Purchaser hereby consents to
such reliance.
7. Covenants of Purchaser Not to Short Stock. Purchaser and its
affiliates and assigns agree not to short the Company Common Stock as long as
shares of the Series E Stock are outstanding.
8. Survival of Representations. The respective representations,
warranties, agreements and covenants of the Company and the Purchaser set forth
in this Agreement shall survive until the second anniversary of the Closing
Date.
9. Termination.
(a) This Agreement may be terminated in the sole discretion of
the Company by notice to Purchaser if at the Closing Date:
12
(i) the representations and warranties made by Purchaser
in Section 6 are not true and correct in all material respects; or
(ii) as to the Company, the sale of the Securities
hereunder (i) is prohibited or enjoined by any applicable law or
governmental regulation or (ii) subjects the Company to any penalty,
or in its reasonable judgment, other onerous condition under or
pursuant to any applicable law or government regulation that would
materially reduce the benefits to the Company of the sale of the
Securities to such Purchaser, so long as such regulation, law or
onerous condition was not in effect in such form at the date of this
Agreement.
(b) This Agreement may be terminated in the sole discretion of
Purchaser by notice to the Company given in the event that the Company shall
have failed, refused or been unable to satisfy all conditions on its part to be
performed or satisfied hereunder on or prior to the Closing Date or if after the
execution and delivery of this Agreement and prior to the Closing Date trading
in securities of the Company or in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National or Small Cap Market
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange.
(c) This Agreement may be terminated by mutual written consent
of both parties.
10. Registration. Within 30 days from the Closing Date, the Company
shall prepare and file with the Securities and Exchange Commission (the "SEC") a
Registration Statement covering the resale of the Conversion Shares and the
Warrant Shares (collectively, the "Registrable Securities") for an offering to
be made on a continuous basis pursuant to Rule 415 (the "Registration
Statement"). Notwithstanding the forgoing, it is hereby agreed that the Company
will, to the extent feasible and acceptable to the SEC, amend its currently
pending Registration Statement to include these Registrable Securities, and that
the Company will file such amendment as soon as reasonably practicable after the
Closing Date. The Registration Statement required hereunder shall be on Form S-3
(except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form). The Company shall use its best efforts to cause such
Registration Statement to become effective within 120 days after the Registrable
Securities are first included in a Registration Statement filed with the SEC,
but shall not be liable for any damages should such effectiveness be delayed
solely by reason of the SEC review process. The Company shall use its best
efforts to keep such Registration Statement continuously effective under the
Securities Act until all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144(k) as determined by the counsel reasonably acceptable to the Company
pursuant to a written opinion to such effect addressed and acceptable to the
Company's transfer agent.
11. Furnishing of Information. As long as Purchaser owns Securities,
the Company covenants 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
13
pursuant to the Exchange Act. Upon the request of any such Person, the Company
shall deliver to such Person a written certification of a duly authorized
officer as to whether it has complied with the preceding sentence. As long as
any Purchaser owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers 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, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
12. Securities Laws Disclosure; Publicity; Non-Public Information.
The Company may, following the Closing Date, issue a press release or file a
Current Report on Form 8-K, in each case reasonably acceptable to the Purchaser
disclosing the transactions contemplated hereby and (ii) make such other filings
and notices in the manner and time required by the Commission. The Company and
the Purchaser shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby, and neither party shall issue
any such press release or otherwise make any such public statement without the
prior consent of the other, which consent shall not unreasonably be withheld,
except if such disclosure is required by law, in which case the disclosing party
shall promptly provide the other party with prior notice of such public
statement or communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of Purchaser, or include the name of Purchaser in any
filing with the Commission or any regulatory agency or trading market, without
the prior written consent of such Purchaser, except to the extent such
disclosure is required by law or trading market regulations, in which case the
Company shall provide the Purchaser with prior notice of such disclosure. The
Company covenants and agrees that neither it nor any other person acting on its
behalf will provide Purchaser or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that Purchaser shall be relying on the foregoing representations in
effecting transactions in securities of the Company.
13. Indemnification of Purchaser. The Company will indemnify and hold
the Purchaser and its directors, officers, shareholders, partners, employees and
agents (each, a "Purchaser Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation (collectively, "Losses") that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any
misrepresentation, breach or inaccuracy of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the Transaction Documents; (b) any cause of action, suit or claim brought or
made against such Purchaser Party and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any of the
other Transaction Documents as of the Closing Date or (c) any material
misstatement or omission in the Registration Statement. The Company will
reimburse Purchaser for its reasonable legal and other expenses (including the
cost of any investigation, preparation and travel in connection therewith)
incurred in connection with this Section 13, as such expenses are incurred.
14
14. Notices. All communications hereunder shall be in writing and
shall be hand delivered, mailed by first-class mail, couriered by next-day air
courier or by facsimile and confirmed in writing (i) if to the Company, at the
addresses set forth below, or (ii) if to Purchaser, to the address(es) set forth
on the signature page hereto.
If to the Company:
Irvine Sensors Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices and communications shall be deemed to have been duly
given: (i) when delivered by hand, if personally delivered; (ii) five business
days after being deposited in the mail, postage prepaid, if mailed certified
mail, return receipt requested; (iii) one business day after being timely
delivered to a next-day air courier guaranteeing overnight delivery; (iv) the
date of transmission if sent via facsimile to the facsimile number as set forth
in this Section or the signature page hereof prior to 6:00 p.m. on a business
day, or (v) the business day following the date of transmission if sent via
facsimile at a facsimile number set forth in this Section or on the signature
page hereof after 6:00 p.m. or on a date that is not a business day. Change of a
party's address or facsimile number may be designated hereunder by giving notice
to all of the other parties hereto in accordance with this Section.
15. Expense Reimbursement. The Company agrees to pay Purchaser up to
an aggregate of $15,000 for all out-of-pocket expenses incurred in connection
with the preparation and negotiation of the Transaction Documents, including the
fees and expenses of Sheppard, Mullin, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP.
16. Successors. This Agreement shall inure to the benefit of and be
binding upon Purchaser and the Company and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person. Neither the Company nor Purchaser may assign
this Agreement or any rights or obligation hereunder without the prior written
consent of the other party.
15
17. No Waiver; Modifications in Writing. No failure or delay on the
part of the Company or Purchaser in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or Purchaser at law or in equity
or otherwise. No waiver of or consent to any departure by the Company or
Purchaser from any provision of this Agreement shall be effective unless signed
in writing by the party entitled to the benefit thereof, provided that notice of
any such waiver shall be given to each party hereto as set forth below. Except
as otherwise provided herein, no amendment, modification or termination of any
provision of this Agreement shall be effective unless signed in writing by or on
behalf of each of the Company and the Purchaser. Any amendment, supplement or
modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure by the Company or
Purchaser from the terms of any provision of this Agreement shall be effective
only in the specific instance and for the specific purpose for which made or
given. Except where notice is specifically required by this Agreement, no notice
to or demand on the Company in any case shall entitle the Company to any other
or further notice or demand in similar or other circumstances.
18. Entire Agreement. This Agreement, together with Transaction
Documents constitutes the entire agreement among the parties hereto and
supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties hereto with respect to the subject matter hereof and
thereof.
19. 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.
20. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. Attorney's Fees. If either party to this Agreement shall bring
any action, suit, counterclaim, appeal, arbitration, or mediation for any relief
against the other, declaratory or otherwise, to enforce the terms hereof or to
declare rights hereunder, the losing party shall pay to the prevailing party a
reasonable sum for attorneys' fees and costs incurred in bringing and
prosecuting such action and/or enforcing any judgment, order, ruling, or award.
16
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this Agreement shall constitute a binding agreement among the Company
and the Purchaser.
Very truly yours,
Irvine Sensors Corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
____________________________________
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: Chief Financial Officer
ACCEPTED AND AGREED:
Mercator Momentum Fund, LP
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
____________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
__________________________
Title: Managing Partner
_________________________
Address for Notice:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to
Sheppard, Mullin, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
[SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT]