M-Wave, Inc. Shares of Series B Convertible Preferred Stock SUBSCRIPTION AGREEMENT
M-Wave,
Inc.
Shares
of Series B Convertible Preferred Stock
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March
1, 2006
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M.A.G.
Capital, LLC
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Mercator
Momentum Fund, LP
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Mercator
Momentum Fund III, LP
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Monarch
Pointe Fund, Ltd.
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Ladies
and Gentlemen:
M-Wave,
Inc., a Delaware corporation (the "Company"),
hereby
confirms its agreement with Mercator Momentum Fund, LP ("MMF"),
Mercator Momentum Fund III, LP ("MMF
III"),
and
Monarch Pointe Fund, Ltd. ("Monarch"
and,
together with MMF and MMF III, the "Purchasers"),
and
M.A.G. Capital, LLC ("MAG")
as set
forth below.
1. The
Securities.
Subject to the terms and conditions herein contained, the Company proposes
to
issue and sell to the Purchasers an aggregate of: (a) 64,648 shares (the
"Shares")
of its
Series B Convertible Preferred Stock (the "Series
B Stock"),
which
shall be convertible into shares (the "Conversion
Shares")
of the
Company's Common Stock (the "Common
Stock")
in
accordance with the formula set forth in the Certificate of Designations
further
described below. The rights, preferences and privileges of the Series B
Stock are as set forth in the Certificate of Designations of Series B
Preferred Stock as filed with the Secretary of State of the State of Delaware
(the "Certificate
of Designations")
in the
form attached hereto as Exhibit
A.
The
numbers of Conversion Shares that any Purchaser may acquire at any time are
subject to limitation in the Certificate of Designations, so that the aggregate
number of shares of Common Stock of which such Purchaser and all persons
affiliated with such Purchaser have beneficial ownership (calculated pursuant
to
Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does not at
any
time exceed 9.99% of the Company's then outstanding Common Stock.
The
Shares are sometimes herein referred to as the "Securities."
This
Agreement, the Certificate of Designations and the Registration Rights
Agreement, in the form attached hereto as Exhibit
B
(the
"Registration
Rights Agreement")
are
sometimes herein collectively referred to as the "Transaction
Documents."
The
Securities will be offered and sold to the Purchasers without such offers
and
sales being registered under the Securities Act of 1933, as amended (together
with the rules and regulations of the Securities and Exchange Commission
(the
"SEC")
promulgated thereunder, the "Securities
Act"),
in
reliance on exemptions therefrom.
Each
Purchaser and MAG acknowledges that notwithstanding the terms of the
Registration Rights Agreement, the Company may issue the Conversion
Shares in unregistered form; provided, however, that the immediately preceding
clause shall not affect the obligations of the Company under this Agreement
and
under Section 2 and Section 3 of the Registration Rights Agreement to file
the
Registration Statement and to use its best efforts to cause the Registration
Statement to become effective with the SEC within the applicable periods
described herein and in the Registration Rights Agreement.
-1-
In
connection with the sale of the Securities, the Company has made available
(including electronically via the SEC's ▇▇▇▇▇ system) to Purchasers its periodic
and current reports, forms, schedules, proxy statements and other documents
(including exhibits and all other information incorporated by reference)
filed
with the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange
Act").
These
reports, forms, schedules, statements, documents, filings and amendments,
are
collectively referred to as the "Disclosure
Documents."
All
references in this Agreement to financial statements and schedules and other
information which is "contained," "included" or "stated" in the Disclosure
Documents (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules, documents, exhibits
and
other information which is incorporated by reference in the Disclosure
Documents.
2. Representations
and Warranties of the Company.
Except as set forth in the Disclosure Documents and on the Disclosure
Schedule contained in Schedules A through D attached hereto and made a part
hereof (the "Disclosure
Schedule"),
the
Company represents and warrants to and agrees with Purchasers and MAG as
follows:
(a) The
Disclosure Documents as of their respective dates did not and will not as
of the
Closing Date (after giving effect to any updated disclosures therein), contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Disclosure Documents and
the
documents incorporated or deemed to be incorporated by reference therein,
at the
time they were filed or hereafter are filed with the SEC, complied and will
comply, at the time of filing, in all material respects with the requirements
of
the Securities Act and/or the Exchange Act, as the case may be, as
applicable.
(b) Schedule
A attached hereto sets forth a complete list of the subsidiaries of the Company
(the "Subsidiaries"). Except as set forth in the Disclosure Documents or
on
Schedule
A,
each of
the Company and its Subsidiaries has been duly incorporated and each of the
Company and the Subsidiaries is validly existing in good standing as a
corporation under the laws of its jurisdiction of incorporation, with the
requisite corporate power and authority to own its properties and conduct
its
business as now conducted as described in the Disclosure Documents and is
duly
qualified to do business as a foreign corporation in good standing in all
other
jurisdictions where the ownership or leasing of its properties or the conduct
of
its business requires such qualification, except where the failure to be
so
qualified would not, individually or in the aggregate, have a material adverse
effect on the business, condition (financial or other), properties, prospects
or
results of operations of the Company and the Subsidiaries, taken as a whole
(any
such event, a "Material
Adverse Effect");
as of
the Closing Date, the Company will have the authorized, issued and outstanding
capitalization set forth in on Schedule
B
attached
hereto (the "Company
Capitalization");
except
as set forth in the Disclosure Documents or on Schedule
A,
the
Company does not have any subsidiaries or own directly or indirectly any
of the
capital stock or other equity or long-term debt securities of or have any
equity
interest in any other person; all of the outstanding shares of capital stock
of
the Company and the Subsidiaries have been duly authorized and validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive or similar rights and are owned free and clear of all liens,
encumbrances, equities, and restrictions on transferability (other than those
imposed by the Securities Act and the state securities or "Blue Sky" laws)
or
voting; except as set forth in the Disclosure Documents, all of the outstanding
shares of capital stock of the Subsidiaries are owned, directly or indirectly,
by the Company; except as set forth in the Disclosure Documents, no options,
warrants or other rights to purchase from the Company or any Subsidiary,
agreements or other obligations of the Company or any Subsidiary to issue
or
other rights to convert any obligation into, or exchange any securities for,
shares of capital stock of or ownership interests in the Company or any
Subsidiary are outstanding; and except as set forth in the Disclosure Documents
or on Schedule
C,
there
is no agreement, understanding or arrangement among the Company or any
Subsidiary and each of their respective stockholders or any other person
relating to the ownership or disposition of any capital stock of the Company
or
any Subsidiary or the election of directors of the Company or any Subsidiary
or
the governance of the Company's or any Subsidiary's affairs, and, if any,
such
agreements, understandings and arrangements will not be breached or violated
as
a result of the execution and delivery of, or the consummation of the
transactions contemplated by, the Transaction Documents.
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(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 have been duly authorized and, when issued upon payment thereof in
accordance with this Agreement, will have been validly issued, fully paid
and
non-assessable. The Conversion Shares issuable have been duly authorized
and
validly reserved for issuance, and when issued upon conversion of the Shares
in
accordance with the terms of the Certificate of Designations, will have been
validly issued, fully paid and non-assessable. The Common Stock of the Company
conforms to the description thereof contained in the Disclosure Documents.
The
stockholders of the Company have no preemptive or similar rights with respect
to
the Common Stock.
(e) No
consent, approval, authorization, license, qualification, exemption or order
of
any court or governmental agency or body or third party is required for the
performance of the Transaction Documents by the Company or for the consummation
by the Company of any of the transactions contemplated thereby, or the
application of the proceeds of the issuance of the Securities as described
in
this Agreement, except for such consents, approvals, authorizations, licenses,
qualifications, exemptions or orders (i) as have been obtained on or prior
to the Closing Date, (ii) as are not required to be obtained on or prior to
the Closing Date that will be obtained when required, or (iii) the failure
to obtain which would not, individually or in the aggregate, have a Material
Adverse Effect.
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(f) Except
as
set forth on Schedule
D,
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) except as described in the Disclosure Documents, in
default (nor has any event occurred which with notice or passage of time,
or
both, would constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate or agreement or instrument to which
it
is a party or to which it is subject, which default would, individually or
in
the aggregate, have a Material Adverse Effect.
(g) The
execution, delivery and performance by the Company of the Transaction Documents
and the consummation by the Company of the transactions contemplated thereby
and
the fulfillment of the terms thereof will not (a) violate, conflict with or
constitute or result in a breach of or a default under (or an event that,
with
notice or lapse of time, or both, would constitute a breach of or a default
under) any of (i) the terms or provisions of any contract, indenture,
mortgage, deed of trust, loan agreement, note, lease, license, franchise
agreement, permit, certificate or agreement or instrument to which any of
the
Company or the Subsidiaries is a party or to which any of their respective
properties or assets are subject, (ii) the Certificate of Designations or
bylaws of any of the Company or the Subsidiaries (or similar organizational
document) or (iii) any statute, judgment, decree, order, rule or regulation
of any court or governmental agency or other body applicable to the Company
or
the Subsidiaries or any of their respective properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the
properties or assets now owned or hereafter acquired by the Company or any
of
the Subsidiaries; which violation, conflict, breach, default or lien would,
individually or in the aggregate, have a Material Adverse Effect.
(h) The
audited consolidated financial statements included in the Disclosure Documents
present fairly the consolidated financial position, results of operations,
cash
flows and changes in shareholders' equity of the entities, at the dates and
for
the periods to which they relate and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis; the
interim un-audited consolidated financial statements included in the Disclosure
Documents present fairly the consolidated financial position, results of
operations and cash flows of the entities, at the dates and for the periods
to
which they relate subject to year-end audit adjustments and have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis with the audited consolidated financial statements included
therein; the selected financial and statistical data included in the Disclosure
Documents present fairly the information shown therein and have been prepared
and compiled on a basis consistent with the audited financial statements
included therein, except as otherwise stated therein; and each of the auditors
previously engaged by the Company or to be engaged in the future by the Company
is an independent certified public accountant as required by the Securities
Act.
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(i) Except
as
described in the Disclosure Documents, there is not pending or, to the knowledge
of the Company, threatened any action, suit, proceeding, inquiry or
investigation, governmental or otherwise, to which any of the Company or
the
Subsidiaries is a party, or to which their respective properties or assets
are
subject, before or brought by any court, arbitrator or governmental agency
or
body, that, if determined adversely to the Company or any such Subsidiary,
would, individually or in the aggregate, have a Material Adverse Effect or
that
seeks to restrain, enjoin, prevent the consummation of or otherwise challenge
the issuance or sale of the Securities to be sold hereunder or the application
of the proceeds therefrom or the other transactions described in the Disclosure
Documents.
(j) The
Company and the Subsidiaries own or possess adequate licenses or other rights
to
use all patents, trademarks, service marks, trade names, copyrights and know-how
that are necessary to conduct their businesses as described in the Disclosure
Documents. None of the Company or the Subsidiaries has received any written
notice of infringement of (or knows of any such infringement of) asserted
rights
of others with respect to any patents, trademarks, service marks, trade names,
copyrights or know-how that, if such assertion of infringement or conflict
were
sustained, would, individually or in the aggregate, have a Material Adverse
Effect.
(k) Each
of
the Company and the Subsidiaries possesses all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and other governmental
authorities, all self-regulatory organizations and all courts and other
tribunals presently required or necessary to own or lease, as the case may
be,
and to operate its respective properties and to carry on its respective
businesses as now or proposed to be conducted as set forth in the Disclosure
Documents ("Permits"),
except
where the failure to obtain such Permits would not, individually or in the
aggregate, have a Material Adverse Effect and none of the Company or the
Subsidiaries has received any notice of any proceeding relating to revocation
or
modification of any such Permit, except as described in the Disclosure Documents
and except where such revocation or modification would not, individually
or in
the aggregate, have a Material Adverse Effect.
(l) Subsequent
to the respective dates as of which information is given in the Disclosure
Documents and except as described therein, (i) the Company and the
Subsidiaries have not incurred any material liabilities or obligations, direct
or contingent, or entered into any material transactions not in the ordinary
course of business or (ii) the Company and the Subsidiaries have not
purchased any of their respective outstanding capital stock, or declared,
paid
or otherwise made any dividend or distribution of any kind on any of their
respective capital stock or otherwise (other than, with respect to any of
such
Subsidiaries, the purchase of capital stock by the Company), (iii) there
has not been any material increase in the long-term indebtedness of the Company
or any of the Subsidiaries, (iv) there has not occurred any event or
condition, individually or in the aggregate, that has a Material Adverse
Effect,
and (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.
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(m) There
are
no material legal or governmental proceedings nor are there any material
contracts or other documents required by the Securities Act to be described
in a
prospectus that are not described in the Disclosure Documents. Except as
described in the Disclosure Documents, none of the Company or the Subsidiaries
is in default under any of the contracts described in the Disclosure Documents,
has received a notice or claim of any such default or has knowledge of any
breach of such contracts by the other party or parties thereto, except for
such
defaults or breaches as would not, individually or in the aggregate, have
a
Material Adverse Effect.
(n) Each
of
the Company and the Subsidiaries has good and marketable title to all real
property described in the Disclosure Documents as being owned by it and good
and
marketable title to the leasehold estate in the real property described therein
as being leased by it, free and clear of all liens, charges, encumbrances
or
restrictions, except, in each case, as described in the Disclosure Documents
or
such as would not, individually or in the aggregate, have a Material Adverse
Effect. All material leases, contracts and agreements to which the Company
or
any of the Subsidiaries is a party or by which any of them is bound are valid
and enforceable against the Company or any such Subsidiary, are, to the
knowledge of the Company, valid and enforceable against the other party or
parties thereto and are in full force and effect.
(o) Each
of
the Company and the Subsidiaries has filed all necessary federal, state and
foreign income and franchise tax returns, except where the failure to so
file
such returns would not, individually or in the aggregate, have a Material
Adverse Effect, and has paid all taxes shown as due thereon; and other than
tax
deficiencies which the Company or any Subsidiary is contesting in good faith
and
for which adequate reserves have been provided in accordance with generally
accepted accounting principles, there is no tax deficiency that has been
asserted against the Company or any Subsidiary that would, individually or
in
the aggregate, have a Material Adverse Effect.
(p) None
of
the Company or the Subsidiaries is, or immediately after the Closing Date
will
be, required to register as an "investment company" or a company "controlled
by"
an "investment company" within the meaning of the Investment Company Act
of
1940, as amended (the "Investment
Company Act").
(q) None
of
the Company or the Subsidiaries or, to the knowledge of any of such entities'
directors, officers, employees, agents or controlling persons, has taken,
directly or indirectly, any action designed, or that might reasonably be
expected, to cause or result in the stabilization or manipulation of the
price
of the Common Stock.
(r) None
of
the Company, the Subsidiaries or any of their respective Affiliates (as defined
in Rule 501(b) of Regulation D under the Securities Act) directly, or
through any agent, engaged in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities
Act) in connection with the offering of the Securities or engaged in any
other
conduct that would cause such offering to be constitute a public offering
within
the meaning of Section 4(2) of the Securities Act. Assuming the accuracy of
the representations and warranties of the Purchasers in Section 6 hereof,
it is not necessary in connection with the offer, sale and delivery of the
Securities to the Purchasers in the manner contemplated by this Agreement
to
register any of the Securities under the Securities Act.
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(s) There
is
no strike, labor dispute, slowdown or work stoppage with the employees of
the
Company or any of the Subsidiaries which is pending or, to the knowledge
of the
Company or any of the Subsidiaries, threatened.
(t) Each
of
the Company and the Subsidiaries carries general liability insurance coverage
comparable to other companies of its size and similar business.
(u) Each
of
the Company and the Subsidiaries maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are recorded
as necessary to permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its material assets is
permitted only in accordance with management's authorization and (D) the
values and amounts reported for its material assets are compared with its
existing assets at reasonable intervals.
(v) The
Company does not know of any claims for services, either in the nature of
a
finder's fee or financial advisory fee, with respect to the offering of the
Shares and the transactions contemplated by the Transaction
Documents.
(w) The
Common Stock is traded on the NASDAQ Small Cap Market. Except as described
in
the Disclosure Documents, the Company currently is not in violation of, and
subject to approval of the Company's shareholders, the consummation of the
transactions contemplated by the Transaction Documents will not violate,
any
rule of the NASDAQ Small Cap Market.
(x) The
Company is eligible to use SB-2 for the resale of the Conversion Shares by
Purchasers or their 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
under the securities or "blue sky" laws of any jurisdiction within the United
States.
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3.
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Purchase,
Sale and Delivery of the Shares.
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(a) On
the
basis of the representations, warranties, agreements and covenants herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the Purchasers, and Purchasers agree to purchase
from the Company on the Closing Date (as defined below), 45,648 Shares of
Series B Stock as follows:
(i) MMF
agrees to purchase 7,100 Shares of Series B Stock in exchange for tendering
the
Promissory Note in the principal amount of $710,000 plus accrued interest
issued
by the Company in favor of MMF on June 16, 2005;
(ii) MMF
III
agrees to purchase 25,148 Shares of Series B Stock in exchange for tendering
the
Promissory Note in the principal amount of $350,000 plus accrued interest
issued
by the Company in favor of MMF III on June 16, 2005 and for the cancellation
of
all indebtedness of the Company to MMF III pursuant to the "Loans",
as such
term is defined in that certain First Amendment to Loan and Security Agreements
dated January 25, 2006, among the Company, M-Wave DBS, an Illinois corporation
and MMF III; and
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(iii) Monarch
agrees to purchase 13,400 Shares of Series B Stock in exchange for tendering
the
Promissory Note in the principal amount of $1,340,000 plus accrued interest
issued by the Company in favor of Monarch on June 16, 2005.
(b) Effective
as of the Closing, all warrants previously issued by the Company to any of
the
Purchasers or to MAG shall be amended such that the Warrant Price (as defined
in
the warrants) for each such warrant shall be $0.65 per share. Promptly upon
delivery of any such warrants by any Purchaser or MAG to the Company, the
Company shall issue a replacement warrant that shall reflect such amended
Warrant Price.
(c) One
or
more certificates in definitive form for the Shares that the Purchasers have
agreed to purchase, shall be delivered by or on behalf of the Company, against
delivery by or on behalf of each of the Purchasers, of the securities to
be
tendered pursuant to Sections 3(a) and 3(b) above, each of the Purchasers,
MAG
and the Company shall deliver the Registration Rights Agreement, duly executed
by such party, and each of MMF III and the Company shall deliver such
instruments as the other may reasonably request to effect and to evidence
the
cancellation of the indebtedness under the Loans pursuant to Section 3(a)(ii)
above. Such delivery of and payment for the Shares shall be made at the offices
of M.A.G., LLC, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, at not later than 5:00 p.m. (Los Angeles Time) on March
1,
2006 (the "Closing"),
or at
such date as the Purchasers and the Company may agree upon, such time and
date
of delivery against payment being herein referred to as the "Closing
Date."
On the
Closing Date, the Company shall deliver by wire transfer of immediately
available funds to the account or accounts designated by MAG, the aggregate
amount of interest accrued through the Closing Date on the Promissory Notes
and
Loans described in Sections 3(a)(i), (ii) and (iii) above.
(d) 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 Subsequent Purchasers (as defined below),
and
the Subsequent Purchasers agree to purchase from the Company on March 15,
2006 (the "Second
Closing Date"),
an
aggregate of 19,000 Shares of Series B Stock for an aggregate purchase
price of $1,900,000 (the "Second
Purchase Price");
provided,
however, that the Subsequent Purchasers shall have no obligation to consummate
the transactions contemplated to occur on the Second Closing Date unless
all of
the following conditions have been met as of the Second Closing Date:
(i) no Event of Default shall have occurred and remain uncured,
(ii) there shall have been no breach by the Company of any covenant under
this Agreement, (iii) the Subsequent Purchasers shall have received
certificates, dated as of the Second Closing Date and signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
of
Sections 5(a) and 5(b) hereof, (iv) the Company shall be current in all of
its public filings, (v) the Subsequent Purchasers shall have received an
opinion from the Company's counsel with respect to the authorization of the
securities to be issued to the Subsequent Purchasers and other customary
matters, and (vi) the Company shall not, after the date of this Agreement
but prior to the Second Closing Date, have consummated or entered into any
agreement to effect a transaction that would be regarded as a liquidation,
dissolution or winding up of the affairs of the Company under the Certificate
of
Designations. The term "Subsequent
Purchasers,"
means,
with respect to a given Second Closing Date, the Purchaser or Purchasers
designated by MAG in writing prior to the Second Closing Date.
-8-
(e) One
or
more certificates in definitive form for the Shares that the Purchasers have
agreed to purchase pursuant to Section 3(d) above, shall be delivered by
or on
behalf of the Company, against delivery by or on behalf of each of the
Subsequent Purchasers of the Second Purchase Price by wire transfer of
immediately available funds to the account of the Company previously designated
by it in writing. Such delivery of and payment for the Shares shall be made
at
the offices of M.A.G., LLC, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at not later than 5:00 p.m. (Los Angeles Time) on the Second
Closing Date.
(f) The
proceeds from the Second Purchase Price shall be held in a reserve account
at
the bank currently utilized by the Company and shall be released therefrom
only
upon a resolution by a majority of the Company's independent directors (as
defined in the NASD Manual) that the release of such proceeds (or a portion
thereof) is necessary or appropriate under the Company's budget (as approved
by
the Finance Committee of the Company's Board of Directors).
4. Certain
Covenants of the Company.
The Company covenants and agrees with each Purchaser as follows:
(a) None
of
the Company or any of its Affiliates will sell, offer for sale or solicit
offers
to buy or otherwise negotiate in respect of any "security" (as defined in
the
Securities Act) which could be integrated with the sale of the Securities
in a
manner which would require the registration under the Securities Act of the
Securities.
(b) The
Company will not become, at any time prior to the expiration of three years
after the Closing Date, an open-end investment company, unit investment trust,
closed-end investment company or face-amount certificate company that is
or is
required to be registered under the Investment Company Act.
(c) None
of
the proceeds of the Series B Stock will be used to reduce or retire any
insider note or convertible debt held by an officer or director of the
Company.
(d) Subject
to Section 9 of this Agreement, the Conversion Shares will be traded on the
NASDAQ Small Cap Market, or such market on which the Company's shares are
subsequently listed or traded, immediately following the later of (i) their
issuance or (ii) declaration of effectiveness of the Registration Statement
by the SEC.
(e) The
Company will use commercially reasonable efforts to do and perform all things
required to be done and performed by it under this Agreement and the other
Transaction Documents and to satisfy all conditions precedent on its part
to the
obligations of the Purchasers to purchase and accept delivery of the Securities.
-9-
(f) The
Purchasers shall have a right of first refusal on any financing in which
the
Company is the issuer of debt or equity securities between the date of this
Agreement and the date of effectiveness of the Registration
Statement.
(g) For
so
long as any shares of Series B Stock are outstanding, the Company shall not
issue any debt or equity securities with rights or preferences superior to
those
of the Series B Stock with respect to the distribution of assets on any
liquidation, dissolution or winding up of the Company.
5. Conditions
of the Purchasers' Obligations.
The obligation of each Purchaser to purchase and pay for the Securities is
subject to the following conditions unless waived in writing by the
Purchaser:
(a) The
representations and warranties of the Company contained in this Agreement
shall
be true and correct in all material respects (other than representations
and
warranties with a Material Adverse Effect qualifier, which shall be true
and
correct as written) on and as of the 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
Purchasers 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
Purchasers shall have received an opinion of legal counsel to the Company,
with
respect to the authorization of the Shares and other customary matters in
the
form attached hereto as Exhibit C.
|
6.
|
Representations
and Warranties of the Purchasers and MAG.
|
(a) Each
Purchaser and MAG represents and warrants to the Company that the Securities
to
be acquired by it hereunder (including the Conversion Shares that it may
acquire
upon conversion thereof) are being acquired for its own account for investment
and with no intention of distributing or reselling such Securities (including
the Conversion Shares that it may acquire upon conversion thereof) 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. Nothing
in
this Agreement, however, shall prejudice or otherwise limit a Purchaser's
or
MAG's right to sell or otherwise dispose of all or any part of such Conversion
Shares under an effective registration statement under the Securities Act
and in
compliance with applicable state securities laws or under an exemption from
such
registration. By executing this Agreement, each Purchaser and MAG further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to any
Person with respect to any of the Securities.
-10-
(b) Each
Purchaser and MAG understands that the Securities (including the Conversion
Shares that it may acquire upon conversion thereof) have not been registered
under the Securities Act and may not be offered, resold, pledged or otherwise
transferred except (a) pursuant to an exemption from registration under the
Securities Act (and, if requested by the Company, based upon an opinion of
counsel acceptable to the Company) or pursuant to an effective registration
statement under the Securities Act and (b) in accordance with all
applicable securities laws of the states of the United States and other
jurisdictions.
Each
Purchaser and MAG agrees to the imprinting, so long as appropriate, of the
following legend on the Securities (including the Conversion Shares that
it may
acquire upon conversion thereof):
The
shares of stock evidenced by this certificate have not been registered under
the
U.S. Securities Act of 1933, as amended, and may not be offered, sold, pledged
or otherwise transferred ("transferred") in the absence of such registration
or
an applicable exemption therefrom. In the absence of such registration, such
shares may not be transferred unless, if the Company requests, the Company
has
received a written opinion from counsel in form and substance satisfactory
to
the Company stating that such transfer is being made in compliance with all
applicable federal and state securities laws.
Further
with regard to the Series B Stock, the following legend shall be included:
Additional
restrictions on transfer pursuant to agreements exist and are available upon
request from the Company.
The
legend set forth above may be removed if and when the Conversion Shares are
disposed of pursuant to an effective registration statement under the Securities
Act or in the opinion of counsel to the Company experienced in the area of
United States Federal securities laws such legends are no longer required
under
applicable requirements of the Securities Act. The Shares and the Conversion
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 by it pursuant to an effective registration
statement under the Securities Act, it will comply with all prospectus delivery
requirements of the Securities Act. The Company makes no representation,
warranty or agreement as to the availability of any exemption from registration
under the Securities Act with respect to any resale of the Shares or the
Conversion Shares.
-11-
(c) Each
Purchaser and MAG is an "accredited investor" within the meaning of Rule
501(a)
of Regulation D under the Securities Act. Neither Purchaser nor MAG learned
of
the opportunity to acquire Shares or any other security issuable by the Company
through any form of general advertising or public solicitation.
(d) Each
Purchaser and MAG represents and warrants to the Company that it has such
knowledge, sophistication and experience in business and financial matters
so as
to be capable of evaluating the merits and risks of the prospective investment
in the Securities, having been represented by counsel, and has so evaluated
the
merits and risks of such investment and is able to bear the economic risk
of
such investment and, at the present time, is able to afford a complete loss
of
such investment.
(e) Each
Purchaser represents and warrants to the Company that (i) the purchase of
the Securities to be purchased by it has been duly and properly authorized
and
this Agreement has been duly executed and delivered by it or on its behalf
and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights
generally and to general principles of equity; (ii) the purchase of the
Securities to be purchased by it does not conflict with or violate its charter,
by-laws or any law, regulation or court order applicable to it; and
(iii) the purchase of the Securities to be purchased by it does not impose
any penalty or other onerous condition on the Purchaser under or pursuant
to any
applicable law or governmental regulation.
(f) Each
Purchaser and MAG represents and warrants to the Company that neither it
nor any
of its directors, officers, employees, agents, partners, members, or controlling
persons has taken, or will take, directly or indirectly, any actions designed,
or that might reasonably be expected to cause or result in, the destabilization
or manipulation of the price of the Common Stock.
(g) Each
Purchaser and MAG acknowledges it or its representatives have reviewed the
Disclosure Documents and further acknowledges that it or its representatives
have been afforded (i) the opportunity to ask such questions as it has
deemed necessary of, and to receive answers from, representatives of the
Company
concerning the terms and conditions of the offering of the Securities and
the
merits and risks of investing in the Securities; (ii) access to information
about the Company and the Company's financial condition, results of operations,
business, properties, management and prospects sufficient to enable it to
evaluate its investment in the Securities; and (iii) the opportunity to
obtain such additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
and completeness of the information contained in the Disclosure
Documents.
(h) Each
Purchaser and MAG represents and warrants to the Company that it has based
its
investment decision solely upon the information contained in the Disclosure
Documents and such other information as may have been provided to it or its
representatives by the Company in response to its inquiries, and has not
based
its investment decision on any research or other report regarding the Company
prepared by any third party ("Third
Party Reports").
Each
Purchaser and MAG understands and acknowledges that (i) the Company does
not endorse any Third Party Reports and (ii) its actual results may differ
materially from those projected in any Third Party Report.
-12-
(i) Each
Purchaser and MAG understands and acknowledges that (i) any forward-looking
information included in the Disclosure Documents is subject to risks and
uncertainties, including those risks and uncertainties set forth in the
Disclosure Documents; and (ii) the Company's actual results may differ
materially from those projected by the Company or its management in such
forward-looking information.
(j) Each
Purchaser and MAG understands and acknowledges that (i) the Securities are
offered and sold without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities
Act
and (ii) the availability of such exemption depends in part on, and that
the Company and its counsel will rely upon, the accuracy and truthfulness
of the
foregoing representations and Purchaser hereby consents to such
reliance.
7. Covenants
of Purchasers.
Purchasers
and MAG, on behalf of themselves and their affiliates and the permitted assignee
of any Conversion Shares hereby covenant and agree not to, directly or
indirectly, offer to "short sell", contract to "short sell" or otherwise
"short
sell" any securities of the Company, including, without limitation, shares
of
Common Stock that will be received as a result of the conversion of the
Series B Stock.
|
8.
|
Termination.
|
(a) This
Agreement may be terminated in the sole discretion of the Company by notice
to
each Purchaser if at the Closing Date:
(i) the
representations and warranties made by any Purchaser in Section 6 are not
true
and correct in all material respects; or
(ii) as
to the
Company, the sale of the Securities hereunder (i) is prohibited or enjoined
by any applicable law or governmental regulation or (ii) subjects the
Company to any penalty, or in its reasonable judgment, other onerous condition
under or pursuant to any applicable law or government regulation that would
materially reduce the benefits to the Company of the sale of the Securities
to
such Purchaser, so long as such regulation, law or onerous condition was
not in
effect in such form at the date of this Agreement.
(b) This
Agreement may be terminated by any Purchaser by notice to the Company given
in
the event that (i) the Company shall have failed, refused or been unable to
satisfy all material conditions on its part to be performed or satisfied
hereunder on or prior to the Closing Date or (ii) if after the date of this
Agreement but prior to the Closing Date, trading in securities of the Company
on
the NASDAQ Small Cap Market shall have been suspended and the Company ceases
to
be publicly traded.
(c) This
Agreement may be terminated by mutual written consent of all
parties.
-13-
9. Registration.
The
Company shall use its best efforts to prepare and file with the SEC on or
prior
to the Filing Deadline (as defined below) a Registration Statement covering
the
resale of the maximum number of Conversion Shares issuable upon conversion
of
the Shares (collectively, the "Registrable
Securities"),
for an
offering to be made on a continuous basis pursuant to Rule 415 (the "Registration
Statement")
based
on the Conversion Price set forth in the Certificate of Designations. The
term
"Filing Deadline" means (i) in the event that within 45 days after the Closing
Date the Company enters into any agreement (a "Merger
Agreement")
to
effect a merger, reorganization, consolidation, recapitalization, sale of
substantial assets or similar transaction, the date that is 45 days after
the
Company enters into such Merger Agreement, or (ii) in the event that the
Company
does not enter into a Merger Agreement within 45 days after the Closing Date,
the date that is 60 days after the Closing Date. The Company shall use its
best
efforts to ensure that the Registration Statement is declared effective by
the
SEC (i) in the event that the Company enters into a Merger Agreement within
45
days after the Closing Date, not later than 150 days after the date the Company
enters into such Merger Agreement and (ii) in the event that the Company
does
not enter into a Merger Agreement within 45 days after the Closing Date,
within
60 days of the date the Registration Statement is filed with the SEC.
10. Event
of Default.
An
"Event
of Default"
means
the Company's failure to: (i) file the Registration Statement with the SEC
on or prior to the Filing Deadline (as defined in Section 9 hereof), (ii)
maintain trading of the Company's Common Stock on the NASDAQ Small Cap Market
or
other publicly traded market, or (iii) deliver to Purchasers, or
Purchasers' broker, as directed, Common Stock that Purchasers have converted
within three (3) business days of such conversions.
11. Notices.
All communications hereunder shall be in writing and shall be hand delivered,
mailed by first-class mail, couriered by next-day air courier or by facsimile
and confirmed in writing (i) if to the Company, at the addresses set forth
below, or (ii) if to a Purchaser or MAG, to the address set forth for such
party on the signature page hereto, with a copy to Sheppard, Mullin, ▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
If
to the
Company:
M-Wave,
Inc.
▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇ ▇▇▇▇▇
Telephone:
▇▇▇-▇▇▇-▇▇▇▇
Facsimile:
▇▇▇-▇▇▇-▇▇▇▇
with
a
copy to:
Ellenoff
▇▇▇▇▇▇▇▇ & Schole LLP
▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇
▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
-14-
Attn:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone:
▇▇▇-▇▇▇-▇▇▇▇
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. (Pacific time) on a business day, or (v) the business day
following the date of transmission if sent via facsimile at a facsimile number
set forth in this Section or on the signature page hereof after 6:00 p.m.
(Pacific time) or on a date that is not a business day. Change of a party's
address or facsimile number may be designated hereunder by giving notice
to all
of the other parties hereto in accordance with this Section.
12. Survival
Clause.
The respective representations, warranties, agreements and covenants of the
Company and the Purchasers set forth in this Agreement shall survive until
the
first anniversary of the Closing.
13. Fees
and Expenses.
Concurrently with the execution of this Agreement, the Company shall pay,
by
wire transfer of immediately available funds to an account or accounts
designated by MAG, $40,000 for Purchasers' and MAG's legal expenses incurred
in
connection with the preparation and negotiation of the Transaction Documents.
14. Enforcement.
If any action at law or in equity is necessary to enforce or interpret the
terms
of this Agreement or the Certificate of Designations, the prevailing party
or
parties shall be entitled to receive from the other party or parties reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which the prevailing party or parties may be entitled.
15. Successors.
This Agreement shall inure to the benefit of and be binding upon Purchasers,
MAG
and the Company and their respective successors and legal representatives,
and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or
claim
under or in respect of this Agreement, or any provisions herein contained;
this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit
of
no other person. Neither the Company nor any Purchaser may assign this Agreement
or any rights or obligation hereunder without the prior written consent of
the
other party.
16. No
Waiver; Modifications in Writing.
No failure or delay on the part of the Company, MAG or any Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power
or
remedy preclude any other or further exercise thereof or the exercise of
any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company,
MAG
or any Purchaser at law or in equity or otherwise. No waiver of or consent
to
any departure by the Company, MAG or any Purchaser from any provision of
this
Agreement shall be effective unless signed in writing by the party entitled
to
the benefit thereof, provided that
notice of any such waiver shall be given to each party hereto as set forth
below. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless
signed
in writing by or on behalf of each of the Company, MAG and the Purchasers.
Any
amendment, supplement or modification of or to any provision of this Agreement,
any waiver of any provision of this Agreement, and any consent to any departure
by the Company, MAG or any Purchaser from the terms of any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required
by
this Agreement, no notice to or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances.
-15-
17. Entire
Agreement.
This Agreement, together with the other Transaction Documents, constitutes
the entire agreement among the parties hereto and supersedes all prior
agreements, understandings and arrangements, oral or written, among the parties
hereto with respect to the subject matter hereof and thereof. Disclosure
by the
Company in any Schedule to this Agreement shall be deemed applicable to all
applicable provisions hereof.
18. Severability.
If any provision of this Agreement is held to be invalid or unenforceable
in any respect, the validity and enforceability of the remaining terms and
provisions of this Agreement shall not in any way be affected or impaired
thereby.
19. APPLICABLE
LAW.
THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS
SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS
OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO PROVISIONS RELATING
TO
CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY. THE PARTIES HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL COURTS
LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
20. Counterparts.
This Agreement may be executed in two or more counterparts and may be delivered
by facsimile transmission, each of which shall be deemed an original, but
all of
which together shall constitute one and the same instrument.
21. If
the
foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below for that purpose, whereupon
this
Agreement shall constitute a binding agreement among the Company, the Purchasers
and MAG.
-16-
|
Very
truly yours,
|
|||
|
M-Wave,
Inc.
|
|||
|
By:
|
/s/
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
|
||
|
Name:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
|
|||
|
Title:
President and COO
|
|||
|
ACCEPTED
AND AGREED:
|
|||
-17-
|
Mercator
Momentum Fund, LP
|
Mercator
Momentum Fund III, LP
|
||||
|
By:
|
M.A.G.
Capital, LLC
|
By:
|
M.A.G.
Capital, LLC
|
||
|
Its:
|
General
Partner
|
Its:
|
General
Partner
|
||
|
/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
|
/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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|
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
||||
|
Managing
Member
|
Managing
Member
|
||||
|
M.A.G.
Capital, LLC
|
Monarch
Pointe Fund, Ltd.
|
||||
|
/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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||||
|
By:
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
By:
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
||
|
Its:
|
Managing
Member
|
Its:
|
Managing
Member
|
||
|
M.A.G.
Capital, LLC
|
Addresses
for Notice:
|
||
|
By:
|
/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
|
M.A.G.
Capital, LLC
|
|
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
|
||
| Managing Member |
▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
|
||
|
|
Attention:
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
||
|
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|||
|
with
copy to:
|
|||
|
▇▇▇▇▇
▇. ▇▇▇▇▇, Esq.
|
|||
|
Sheppard,
Mullin, ▇▇▇▇▇▇▇ & Hampton LLP
|
|||
|
▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
|
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▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
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-18-
Schedule
A
Direct
and Indirect Subsidiaries of M-Wave, Inc.
M-Wave
DBS, Inc., an Illinois corporation (not in good standing)
-1-
Schedule
B
Company
Capitalization
See
the
Balance Sheet of the Company set forth in the Form 10-QSB for the period
ended
September 30, 2005 included in the Disclosure Documents.
-1-
Schedule
C
Agreements
regarding ownership or disposition of capital stock
None
-1-
Schedule
D
Violations/Breaches
None
-1-
Exhibit
A
Certificate
of Designations of
Series
B
Convertible Preferred Stock
of
M-Wave,
Inc.
-1-
Exhibit
B
Registration
Rights Agreement
-1-
Exhibit
C
Form
of
Legal Opinion
(Delivered
to Purchasers at the Closing)
1. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, with corporate power to
own
its properties and to conduct its business.
2. The
Company has the corporate power to execute, deliver and perform the transaction
documents, including the Exhibits thereto (the "Transaction Documents").
The
Transaction Documents have been duly authorized by all requisite corporate
action by the Company and constitute the valid and binding obligations of
the
Company, enforceable in accordance with their terms (subject to bankruptcy,
equitable principles and other customary exceptions).
(a) As
of the
date hereof, in accordance with its Certificate of Incorporation on file
with
the Secretary of State of Delaware, the authorized capital stock of the Company
consists of 1,000,000 shares of Preferred Stock, and 20,000,000 shares of
Common
Stock.
(b) The
shares of the Company's Series B Stock have been duly authorized and, upon
issuance, delivery, and payment therefor as described in the Subscription
Agreement, will be validly issued, fully paid and nonassessable.
(c) The
shares of the Company's Common Stock initially issuable upon conversion of
the
shares of Series B Stock sold have been duly authorized and reserved for
issuance and, upon issuance and delivery upon conversion of the Shares as
described in the Certificate of Designations, will be validly issued, fully
paid
and nonassessable.
3. The
Company's execution and delivery of the Transaction Documents and the issue
and
sale of the Shares, on the terms and conditions set forth in the Subscription
Agreement, will not violate any law of the United States or the State of
Delaware any rule or regulation of any governmental authority or regulatory
body
of the United States or the State of Delaware or any provision of the Company's
Certificate of Incorporation or Bylaws.
4. No
consent, approval, order or authorization of, and no notice to or filing
with,
any governmental agency or body or any court is required to be obtained or
made
by the Company for the issuance and sale of the Shares pursuant to the
Transaction Documents or Agreement, except such as have been obtained or
made
and such as may be required under applicable securities laws.
5. On
the
assumption that the representations of the Company and the Purchasers in
the
Subscription Agreement are correct and complete, the offer and sale of the
Shares pursuant to the terms of the Subscription Agreement are exempt from
the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, and, under such securities laws as they presently exist, the issuance
of the Company's Common Stock upon conversion of the Shares would also be
exempt
from such registration.
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6. We
know
of no pending or overtly threatened action, proceeding or governmental
investigation with respect to the Company's sale of Series B Stock pursuant
to the Transaction Documents.
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