WARRANT EXERCISE SUBSCRIPTION AGREEMENT
Exhibit
10.48
This
SUBSCRIPTION
AGREEMENT
("Subscription
Agreement")
is
made and entered into as of May 16, 2008 by and between Neonode
Inc.,
a
Delaware corporation ("Company"),
and
the subscribers whose names and addresses are set forth on the signature page
hereto (each a "Subscriber").
Background:
The
Company has issued (i) 5,376,453 warrants, each exercisable to purchase one
share of common stock, par value $.01 per share, of the Company (“Common
Stock”),
exercisable at a price of $2.8313 expiring August 10, 2012 (the “$2.83
Warrants”),
issued pursuant to the Warrant Agreement, dated August 10, 2007 (the
“$2.83
Warrant Agreement”),
(ii)
206,000 warrants, each exercisable to purchase Common Stock, exercisable at
a
price per share of $16.65, expiring July 6, 2010 (the “$16.65
Warrants”),
(iii)
11,000 warrants, each exercisable to purchase Common Stock, exercisable at
a
price per share of $7.50, expiring June 26, 2008 (the “$7.50
Warrants”),
(iv)
11,000 warrants, each exercisable to purchase Common Stock, exercisable at
a
price per share of $8.75, expiring June 26, 2008 (the “$8.75
Warrants”),
(v)
1,432,445 warrants,
each exercisable to purchase Common Stock, exercisable at a price per share
of
$3.92, expiring September 26, 2012 (the “$3.92
Warrants”),
(vi)
213,077 warrants, each exercisable to purchase Common Stock, exercisable at
a
price per share of approximately $3.92, expiring on dates through September
26,
2012 (the “Additional
Warrants”),
and
(vii) 10,000 warrants, each exercisable to purchase Common Stock, exercisable
at
a price per share of $10.00, expiring June 26, 2008 (the “$10.00
Warrants”,
and
collectively with the $2.83 Warrants, the $16.65 Warrants, the $7.50 warrants,
the $3.92 Warrants, the Additional Warrants and the $8.75 Warrants the
“Exercise
Warrants”).
In
order to induce exercise of the Exercise Warrants, the Company is offering
(the
“Warrant
Offering”) to
holders of Exercise Warrants (the “Warrantholders”)
for
a
period expiring at 3:30 p.m. on May 19, 2008
to
reduce the exercise price per Exercise Warrant to $[__]1
(payable
in cash or by surrender of Company debt only) per share of Common Stock and
to
issue two new warrants to purchase Common Stock in the form attached hereto
as
Exhibit
A
(the
“New
Warrants”)
for
each Exercise Warrant exercised. Holders of the $2.83 Warrants are requested
to
amend the Warrant Agreement to eliminate a requirement for a 30 day period
for a
temporary reduction in exercise price and to waive certain notice provisions
contained therein to enable the Company to carry out the Warrant Offering.
The
New Warrants will be exercisable for a term of five (5) years at an exercise
price of $[
]2.
The
aggregate reduced exercise price is hereafter referred to as the “Subscription
Price”.
The
shares of Common Stock issuable upon exercise of the Exercise Warrants are
hereafter referred to as the “New
Shares”.
1
The
price shall be the closing sale price per share of the Common Stock on the
date
hereof (“Market
Value”)
plus
$.01. The closing sale price per share of the Common Stock on May 13, 2008
was
$1.37 per share
2 The
exercise price of the new warrant shall be 115% of Market Value.
1
The
New
Shares and New Warrants are sometimes referred to herein as the “Securities.”
The
Company has also entered into a financial advisory agreement (the “Financial
Advisory Agreement”)
with
Empire Asset Management Company (“Empire”)
in
connection with the transactions contemplated in this Subscription Agreement.
Under the Financial Advisory Agreement, Empire Asset Management Company will
receive cash fees equal to 10% of the gross proceeds from the Warrant offering,
plus warrants (the “Empire
Warrants”)
in
substantially the form of the New Warrants to purchase a number of shares of
Common Stock equal to 10% of the aggregate number of New Shares and New Warrants
issued in the Warrant Offering at an exercise price equal to the Market Value
plus $.01 and the New Warrant Price, respectively, and a non-accountable expense
allowance of $35,000.
Holders
of Exercise Warrants who do not wish to exercise Exercise Warrants pursuant
to
this Subscription Agreement (the
“Transfer
Holders”)
may
transfer the Exercise Warrants to an accredited investor(s) (each, a
“Transferee”)
who
will simultaneously exercise such Exercise Warrants for cash or surrender of
Company debt, in exchange for delivery to the Transfer Holders of one New
Warrant issuable upon exercise per Exercise Warrant transferred, as provided
in
the Warrant Transfer Agreement (the “Transfer
Agreement”)
in the
form attached hereto as Exhibit
B.
Accordingly, Transferees who exercise Exercise Warrants acquired pursuant to
a
Transfer Agreement shall be required to execute this Subscription Agreement
and
shall receive one New Share upon exercise thereof and one New Warrant, with
one
additional New Warrant delivered to the Transfer Holder of the exercised
Exercise Warrant.
The
Company has outstanding $3,250,000 principal amount of 8% convertible notes
(the
“8%
Notes”).
The
8% Notes plus accrued interest are convertible at the option of the holders
exercised prior to November 10, 2007, into Common Stock and warrants.
Simultaneously with the issuance of the 8% Notes, the Company also agreed to
sell up to $750,000 of additional 8% Notes to ▇▇▇▇▇ International at its option,
expiring June 30, 2008. The Company has agreed with holders of the 8% Notes
(the “Warrant
Extension Agreement”) to
issue to them warrants, substantially similar to the New Warrants (the
“Extension
Warrants”),
to
purchase an aggregate of 1,252,998 shares of Common Stock, in exchange for
an
extension of the maturity date of the 8% Notes to December 31, 2008, and has
also agreed to extend the ▇▇▇▇▇ option to December 31, 2008. The foregoing
is a
condition to the Closing hereunder.
This
Subscription Agreement, the New Warrants, the Financial Advisory Agreement
and
the Transfer Agreement are referred to herein as the “Transaction
Documents.”
2
In
connection with this subscription, each Subscriber and the Company agree as
follows:
1.
Subscription;
Closing.
1.1. Purchase
of New Shares and New Warrants; Transfer of Exercise Warrants. The
undersigned Subscriber (which includes both Warrantholders and Transferees
of
New Warrants) hereby irrevocably agrees, represents and warrants with, to and
for the benefit of the Company, that such Subscriber is executing this
Subscription Agreement in connection with the exercise by the Subscriber of
the
number of Exercised Warrants set forth on the signature page hereof. Each
Subscriber shall receive one New Share and two New Warrants for each Exercise
Warrant exercised by the Subscriber; provided that Subscribers who are
Transferees shall deliver one New Warrant to the Applicable Transfer Holder
for
each Exercise Warrant in accordance with the applicable Transfer Agreement.
Subject to the terms and conditions of this Subscription Agreement, upon
execution and delivery hereof by the Subscriber, the Subscriber hereby agrees
to
purchase the Securities pursuant to the terms of this Subscription Agreement,
and against concurrent delivery to the Company of the Exercise Warrants
exercised and the Subscription Price for such Securities.
1.2. Offering.
This
offering of the Securities (the “Offering”)
is
being made to a limited group of Warrantholders and Transferees, all of whom
shall represent to the Company pursuant to this Subscription Agreement that
they
are "accredited investors," as that term is defined in Regulation D promulgated
under the Securities Act of 1933, as amended (the "Securities
Act")
or who
have otherwise been qualified as investors by the Company. All of the Securities
offered hereby are being sold by the Company. The Company is offering the
Securities for the consideration set forth herein. The Company may sell less
than all of the Securities offered hereby, and shall be entitled to accept
subscriptions and receive the Subscription Price for each subscription prior
to
the entire Offering being subscribed for. The Offering is being made on a “best
efforts” no minimum basis, and accordingly the risk to Subscribers may be
greater is only a small amount of Securities are sold hereunder.
1.3. Escrow.
Each
Subscriber subscribing for cash shall deliver to Signature Bank, a New York
State chartered bank and having an office at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇
▇▇▇▇ ▇▇▇▇▇ (the “Escrow
Agent”),
via
wire transfer or a certified check, immediately available funds equal to its
Subscription Price, which proceeds shall remain in escrow until the Closing
(as
defined below) occurs hereunder.
1.4. Closing.
The
closing (“Closing”)
of the
purchase and sale of the Securities hereunder shall take place on or about
May
19, 2008 (the “Closing
Date”)
at the
offices of ▇▇▇▇ & Hessen LLP, counsel for the Company (“Counsel”),
in
New York, NY; provided that the Note Extension Agreement shall be executed
and
effective as of Closing. At the Closing:
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(a) The
Subscriber shall deliver the Exercise Warrants to be exercised (or an
appropriate Affidavit of Loss);
(b) The
Escrow Agent shall deliver the Subscription Price to the Company or as otherwise
directed by the Company (and Subscribers subscribing by surrender of Company
debt shall deliver evidence of such debt (or an affidavit of loss and indemnity)
to Counsel);
(c) The
Company shall deliver the New Warrants to the Subscribers; and
(d) The
Company shall cause its transfer agent to deliver the New Shares to the
Subscriber.
2.
Representations
and Warranties of the Subscriber.
The
Subscriber hereby represents and warrants to the Company as of the date
hereof:
2.1. Place
of Business.
The
principal place of business address set forth below is such Subscriber's true
and correct principal place of business and is the only jurisdiction in which
an
offer to sell the Securities was made to such Subscriber and such Subscriber
has
no present intention of moving its principal place of business to or of becoming
a resident of any other state or jurisdiction.
2.2. Sale
or Transfer of the Securities; Unregistered Securities. The
Subscriber understands that the Securities have not been registered under the
Securities Act, or under the laws of any other jurisdiction. The Subscriber
understands and agrees that transfer or sale of the Securities may be restricted
or prohibited unless they are subsequently registered under the Securities
Act
and, where required, under the laws of other jurisdictions or an exemption
from
registration is available. The Subscriber will not offer, sell, transfer or
assign its Securities or any interest therein in contravention of this
Subscription Agreement, the Securities Act or any state or federal law. The
Subscriber understands and acknowledges that, because of the substantial
restrictions on the transferability of the Securities, it may not be possible
for the Subscriber to liquidate the Subscriber's investment in the Company
readily, even in the case of an emergency. Subscriber acknowledges that the
Offering has not been registered with the Securities and Exchange Commission
(the “Commission”) because
the Company is relying on an exemption from registration under Section 4(2)
of
the Securities Act and Regulation D promulgated thereunder.
2.3. Representation
of Accredited Investor Status (if a U.S. person).
If
the Subscriber is a U.S. person (as
defined in Regulation S of the Commission), (i) such Subscriber, if it is a
corporation, a partnership, a limited liability company, a trust or other
business entity, has not been organized for the purpose of purchasing the
Securities and (ii) Subscriber
represents that at the time of the sale of the Securities to Subscriber,
Subscriber (or,
if
Subscriber is a corporation, limited liability company or trust, each of its
equity owners)
qualifies as an "accredited investor" (as
defined under Rule 501 of Regulation D promulgated under the Securities Act)
using the following qualification factors (check all appropriate
items):
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$1,000,000
Net Worth Test:
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I,
Subscriber, am a natural person and my individual net worth, or joint net worth
with my spouse (if any), inclusive
of home,
furnishings and automobiles, at the time of this purchase is in excess of
$1,000,000.
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$200,000
Individual/$300,000 Joint Annual Income
Test:
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I,
Subscriber, am a natural person and my individual annual gross income (exclusive
of my spouse’s income) has been in excess of $200,000 in each of the two most
recent tax years, and I reasonably expect individual annual gross income
(exclusive of my spouse’s income) to be in excess of $200,000 for the current
tax year; or I am a natural person and my joint annual gross income (including
my spouse’s annual gross income) has been in excess of $300,000 in each of the
two most recent tax years, and I reasonably expect our joint annual gross
incomes to be in excess of $300,000 for the current tax year.
(“Income”
under
this test is defined as adjusted gross income for federal income tax purposes
plus
(i)
deductions for long-term capital gains under the Internal Revenue Code; (ii)
deductions for depletion under section 611 et seq. of the Code; (iii) any
exclusion for interest received on tax-exempt securities; and (iv) any losses
of
a Company allocated to the individual limited partners of the Company as
reported on Form 1040).
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Bank
or Investment Company
Test:
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Subscriber
is a bank as defined in section 3(a)(2) of the Securities Act, or any savings
and loan association or other institution as defined in section 3(a)(5)(A)
of
the Securities Act, whether acting in its individual or fiduciary capacity;
or
is a broker or dealer registered pursuant to section 15 of the Securities
Exchange Act of 1934; or is an insurance company as defined in section 2(13)
of
the Securities Act; or is any investment company registered under the Investment
Corporation Act of 1940, or a business development company as defined in section
2(a)(48) of that Act; or is a Small Business Investment Corporation licensed
by
the U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958; is a plan established and maintained by a
state, its political subdivision, or any agency or instrumentality of a state
or
its political subdivisions, for the benefit of its employees, if such plan
has
total assets in excess of $5,000,000; or is an employee benefit plan within
the
meaning of the employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in section 3(21)
of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan
has
total assets in excess of $5,000,000, or, if a self-directed plan, with
investment decisions made solely by persons that are accredited
investors.
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Private
Business Development Corporation
Test:
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Subscriber
is a private business development company as defined in section 202(a)(22)
of
the Investment Advisors Act of 1940.
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IRC
Section 501c(3) Organization
Test:
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Subscriber
is an organization described in Section 501c(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or Company, not formed
for
the specific purpose of acquiring the securities being offered, with total
assets in excess of $5,000,000.
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Direct
Relationship to Issuer
Test:
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Subscriber
is a director, executive officer, partner or manager of the Company of the
securities being offered or sold, or any director, executive officer or manager
of a partner or partner of that issuer.
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$5,000,000
Noninvestment Trust Test:
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Subscriber
is a trust with total assets in excess of $5,000,000 not formed for the specific
purpose of acquiring the securities being offered, whose purchase is directed
by
a “sophisticated person” as described in section 230.506(b)(2)(ii).
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Equity
Entity Comprised of Accredited Investors
Test:
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Subscriber
is any equity entity in which all of the equity owners are accredited investors
as defined above. Subscriber has had one of the persons responsible for
overseeing and/or managing one or more of Subscriber’s financial accounts
complete the attestation in Section 2 hereof in order to verify the information
in this Section 2:
Yes
_________ No
_________
2.4. Non
U.S. Purchasers.
If the Subscriber is not a U.S. person (each, a “Non-U.S.
Purchaser”),
(i) such Non-U.S. Purchaser is not a U.S. person; (ii) such Non-U.S. Purchaser
was outside the United States at the time the offer to sell the Securities
was
made and at the time the buy order for the Securities was originated; (iii)
such
Non-U.S. Purchaser will not offer or sell the Securities, or any securities
of
the Company received in respect thereof, to a U.S. person or for the account
or
benefit of a U.S. person (other than a distributor), for a period of one year
commencing on the Closing.
2.5. Investment
Experience and Ability to Bear Risk.
Subscriber is knowledgeable and experienced with respect to the financial and
business activities contemplated by the Company and is capable of evaluating
the
risks and merits of investing in the Securities and, in making a decision to
proceed with this investment, has not relied upon any representations,
warranties or agreements, other than those set forth in this Subscription
Agreement and can bear the economic risk of an investment in the Company for
an
indefinite period of time, and can afford to suffer the complete loss
thereof.
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2.6. Own
Advice.
In
connection with the Subscriber’s investment in the Company, the Subscriber has
carefully considered and has, to the extent the Subscriber believes such
discussion necessary, discussed with the Subscriber’s professional legal, tax
and financial advisers (the “Investment
Advisors”)
the
suitability of an investment in the Securities for the Subscriber’s particular
tax and financial situation and the Subscriber has determined that the
Securities are a suitable investment for the Subscriber.
2.7. Risks.
The
Subscriber represents and warrants that the Subscriber is aware (i) that
the Securities involve a substantial degree of risk of loss of the Subscriber’s
entire investment and that there is no assurance of any income from the
Subscriber’s investment; and (ii) that any federal or State income tax
benefits which may be available to the Subscriber, if any, may be lost through
the adoption of new laws or regulations, to changes to existing laws and
regulations and to changes in the interpretation of existing laws and
regulations. The Subscriber further represents that the Subscriber is relying
solely on the Subscriber’s own conclusions or the advice of the Subscriber’s
Investment Advisors with respect to tax aspects of any investment in the
Securities. The Subscriber further represents that it has read and reviewed
the
SEC Documents (as defined below) and Company Disclosure Letter, including
without limitation the risk factors set forth therein.
2.8. Inquiries.
The
Subscriber and its Investment Advisors have been given access to, and prior
to
the execution of this Subscription Agreement, have been provided with an
opportunity to ask questions of, and receive answers from, the Company officers
concerning the Company and the terms and conditions of the Offering and the
Securities, and to obtain any other information which the Subscriber and the
Subscriber’s Investment Advisors required with respect to the Company and an
investment in the Company in order to evaluate such investment and verify the
accuracy of all information furnished to the Subscriber and its Investment
Advisors regarding the Company. All such questions, if asked, were answered
satisfactorily and all information or documents provided were found to be
satisfactory. Neither the Subscriber nor its Investment Advisors have been
furnished any offering literature on which they have relied on other this
Subscription Agreement and the Subscriber and its Investment Advisors have
relied only on this Subscription Agreement. At no time was the Subscriber
presented with or solicited by any leaflet, public promotion meeting, newspaper
or magazine article, radio or television advertisement or any other form of
general advertising or general solicitation.
2.9. Authority.
The
Subscriber is authorized and has full right and power to subscribe for the
Securities and to perform the Subscriber’s obligations pursuant to the
provisions of this Subscription Agreement; the person signing this Subscription
Agreement and any other instrument executed and delivered herewith on behalf
of
such Subscriber has been duly authorized by such entity and has full power
and
authority to do so. If the Subscriber is a corporation, partnership,
unincorporated association or other entity, the person signing this agreement
has the legal capacity to authorize, deliver and be bound by this Subscription
Agreement and to take all actions required pursuant hereto and further certifies
that all necessary approvals of directors, stockholders or otherwise have been
given and obtained; and if the Subscriber is an individual, it is of the full
age of majority in the jurisdiction in which the Subscriber is resident and
is
legally competent to execute, deliver and be bound by this Subscription
Agreement and take all action pursuant hereto.
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2.10. No
Default.
The
execution and delivery of this Subscription Agreement and the consummation
of
the transactions contemplated hereby and thereby will not conflict with, or
result in any violation of or default pursuant to, any provision of any
governing instrument applicable to the Subscriber, or any agreement or other
instrument to which the Subscriber is a party or by which the Subscriber or
any
of the Subscriber’s properties are bound or any permit, franchise, judgment,
decree, statute, rule or regulation applicable to the Subscriber or any of
the
Subscriber’s business or properties.
2.11. ERISA.
If the
Subscriber is an employee benefit plan subject to ERISA, then such Subscriber
acknowledges that such Subscriber has been informed of and understands the
operations and business of the Company, and represents that such Subscriber’s
investment in the Company (i) is permissible under the documents and instruments
governing such plan; (ii) satisfies the diversification requirements of ERISA;
(iii) is prudent considering all the facts and circumstances, including the
fact
that there is no trading market for the Securities; and (iv) is not a
“prohibited transaction” within the meaning of Section 406 of
ERISA.
2.12. Purchase
Entirely For Own Account.
This
Subscription Agreement is made with the Subscriber in reliance upon the
Subscriber’s representations to the Company, which by the Subscriber’s execution
of this Subscription Agreement, the Subscriber hereby confirms, that the
Securities issuable to the Subscriber will be acquired for investment for the
Subscriber’s own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that the Subscriber has no
present intention of selling, granting any participation in, or otherwise
distributing the same. The Subscriber represents and warrants that the
Subscriber has no contract, understanding, agreement or arrangement with any
person to sell or transfer or pledge to such person or anyone else any of the
Securities for which the Subscriber hereby subscribes (in whole or in part)
or
any interest therein; and the Subscriber represents and warrants that the
Subscriber has no present plans to enter into any such contract, undertaking,
agreement or arrangement.
2.13. Certain
Legal Issues.
The
Subscriber represents and warrants that the funds representing the Subscription
Price which will be advanced by the Subscriber hereunder will not represent
proceeds of crime and the Subscriber acknowledges that the Company may in the
future be required by law to disclose the Subscriber’s name and other
information relating to this Subscription Agreement and the Subscriber’s
subscription hereunder, on a confidential basis, and to the best of the
Subscriber’s knowledge (i) none of the subscription funds to be provided by the
Subscriber (a) have been or will be derived from or related to any activity
that
is deemed criminal under the laws of the United States of America, or any other
jurisdiction, or (b) are being tendered on behalf of a person or entity who
has
not been identified to the Subscriber, and (ii) it shall promptly notify the
Company if the Subscriber discovers that any of such representations ceases
to
be true, and to provide the Company with appropriate information in connection
therewith.
8
The
Subscriber represents and warrants that the current structure of this
transaction and all transactions and activities contemplated hereunder is not
a
plan or scheme to evade the registration provisions of the Securities
Act.
The
Subscriber acknowledges that:
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(i)
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no
securities commission or similar regulatory authority has reviewed
or
passed on the merits of the Securities; and
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(ii)
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There
is no government or other insurance covering the Securities;
and
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(iii)
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there
are risks associated with the purchase of the Securities; and
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(iv)
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there
are restrictions on the Subscriber’s ability to resell the Securities and
it is the responsibility of the Subscriber to find out what those
restrictions are and to comply with them before selling the
Securities; and
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(v)
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the
Company has advised the Subscriber that the Company is relying on
an
exemption from the requirements to provide the Subscriber with a
prospectus and to sell securities through a person or company
registered to sell securities under applicable securities laws and,
as a consequence of acquiring the Securities pursuant to this
exemption, certain protections, rights and remedies provided by
applicable securities laws, including statutory rights of rescission
or damages, will not be available to the
Subscriber.
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The
Subscriber represents and warrants that neither the Company, nor any of their
respective directors, officers, employees or representatives, have made any
representations (oral or written) to the Subscriber regarding the future value
of the Securities.
The
Subscriber acknowledges that (i) the Company may complete secured or unsecured
debt financings or equity financings in the future in order to develop the
Company’s business and to fund its ongoing development, (ii) there is no
assurance that such financings will be available and, if available, on
reasonable terms, (iii) any such future financings may have a dilutive effect
on
current security holders, including the Subscriber, and (iv) if such future
financings are not available, the Company may be unable to fund its ongoing
development and the lack of capital resources may result in the failure of
its
business.
9
The
Subscriber will not, directly or indirectly, except in compliance with (that
is,
only to the extent required to comply with) the Securities Act and such other
securities or “Blue Sky” laws as may be applicable, (i) offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the Securities, (ii) engage in
any
short sale which results in a disposition of any of the Securities by
Subscriber, or (iii) hedge the economic risk of the Subscriber’s investment in
the Securities.
2.14. The
Subscriber hereby covenants with the Company not to make any sale of the
Registrable Shares (as defined below) under the Registration Statement without
effectively causing the prospectus delivery requirement under the Securities
Act
to be satisfied, and the Subscriber acknowledges and agrees that such
Registrable Shares are not transferable on the books of the Company pursuant
to
a sale under a Registration Statement unless the certificate submitted to the
transfer agent evidencing the Registrable Shares is accompanied by a separate
Subscriber’s certificate of subsequent sale in reasonable form, executed by an
officer of, or other authorized person designated by, the Subscriber, to the
effect that (A) the Registrable Shares have been sold in accordance with the
Registration Statement, the Securities Act and any applicable state securities
or Blue Sky laws and (B) if applicable, the requirement of delivering a current
prospectus has been satisfied. The Subscriber acknowledges that there may
occasionally be times when the Company must suspend the use of the prospectus
forming a part of the Registration Statement (a “Suspension”)
until
such time as an amendment to the Registration Statement has been filed by the
Company and declared effective by the Commission, or such time as such
prospectus has been supplemented, or until such time as the Company has filed
an
appropriate report with the Commission pursuant to the Exchange Act. The
Subscriber hereby covenants that it will not sell any Registrable Shares
pursuant to said prospectus during the period commencing at the time at which
it
receives written notice of the Suspension of the use of said prospectus (without
providing any other material information other than at the written request
of
the Subscriber) and ending at the time the Company gives the Subscriber written
notice that the Subscriber may thereafter effect sales pursuant to said
prospectus. The Subscriber shall not be prohibited from selling Registrable
Shares under the Registration Statement as a result of Suspensions on more
than
two occasions of not more than thirty (30) days each in any 12-month period,
unless, in the good faith judgment of the Company’s Board of Directors following
the written advice of counsel, the sale of Registrable Shares under the
Registration Statement in reliance on this paragraph would be reasonably likely
to cause a violation of the Securities Act or the Exchange Act; provided that
the Company shall remain liable for liquidated damages pursuant to Section
7.7
hereof with respect to any Suspensions exceeding the aforementioned two
permitted 30-day Suspensions in any 12-month period.
2.15. If
the
Subscriber is exercising $2.83 Warrants, the Subscriber
hereby agrees (i) to amend the definition of "Purchase Price" set
forth in the $2.83 Warrant Agreement to delete the phrase "for a period of
not less than 30 days on not less than 30 days' prior written notice to the
Registered Holders", so that such definition shall read in its
entirety: " 'Purchase Price' shall mean, subject to modification and adjustment
as provided in Section 8, $2.8313 and further subject to the Company's right,
in
its sole discretion, to decrease the Purchase Price on notice to the Registered
Holders."
and
(ii) that such amendment be effective immediately prior to the reduction of
the Purchase Price (as newly defined in the $2.83 Warrant
Agreement) pursuant to the Warrant Offering.
10
3.
Representations
and Warranties of the Company.
3.1. Corporate
Organization; Authority; Due Authorization.
(a) The
Company (A) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of the State of Delaware, (B) has
the corporate power and authority to own or lease its properties as and in
the
places where its business is now conducted and to carry on its business as
now
conducted, and (C) is duly qualified as a foreign corporation authorized to
do
business in every jurisdiction where the failure to so qualify, individually
or
in the aggregate, would have a material adverse effect on the operations,
assets, liabilities, financial condition or business of the Company taken as
a
whole (a “Material
Adverse Effect”).
(b) The
Company (A) has the requisite corporate power and authority to execute, deliver
and perform its obligations under this Subscription Agreement, the Financial
Advisory Agreement and to issue and perform its obligations under the New
Warrants and Empire Warrants (except that the Company is barred from taking
actions that may trigger adjustments under Section 4 of each of the New
Warrants, Empire Warrants and Extension Warrants) and to incur the obligations
herein and therein and (B) has been authorized by all necessary corporate action
to execute, deliver and perform the Transaction Documents and to consummate
the
transactions contemplated hereby and thereby (the “Contemplated
Transactions”).
The
Transaction Documents will be on the Closing Date valid and binding obligations
of the Company enforceable in accordance with their terms except as limited
by
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting the enforcement of creditors’ rights and the availability of equitable
remedies (regardless of whether such enforceability is considered in a
proceeding at law or equity).
11
3.2. Capitalization.
The
authorized capital stock of the Company consists of seventy five million
(75,000,000) shares of common stock, $.01 par value, of which as of May 13,
2008, 25,919,162 shares of Common Stock are outstanding. All outstanding shares
of capital stock of the Company were issued in compliance with all applicable
federal and State securities laws, and the issuance of such shares was duly
authorized by all necessary corporate action on the part of the Company. Except
as contemplated by this Subscription Agreement or as set forth in the SEC
Documents, there are (A) no outstanding subscriptions, warrants, options,
conversion privileges or other rights or agreements obligating the Company
to
purchase or otherwise acquire or issue any shares of capital stock of the
Company (or shares reserved for such purpose), (B) no preemptive rights
contained in the Company’s Certificate of Incorporation, as amended (the
“Certificate
of Incorporation”),
the
By-laws of the Company or contracts to which the Company is a party or rights
of
first refusal with respect to the issuance of additional shares of capital
stock
of the Company, including without limitation the Securities and (C) no
commitments or understandings (oral or written) of the Company to issue any
shares, warrants, options or other rights to acquire any equity securities
of
the Company other than with respect to existing antidilution rights of existing
investors (certain of which antidilution rights will be triggered by the sale
of
Securities hereunder). To the Company’s knowledge, except as set forth in the
SEC Documents, none of the shares of common stock are subject to any
stockholders’ agreement, voting trust agreement or similar arrangement or
understanding. Except as set forth in the SEC Documents, the Company has no
outstanding bonds, debentures, Common Stock or other obligations the holders
of
which have the right to vote (or which are convertible into or exercisable
for
securities having the right to vote) with the stockholders of the Company on
any
matter.
3.3. Due
Execution, Delivery and Performance of the Transaction Documents.
The
Company has all requisite corporate power and authority to enter into each
Transaction Document and perform the transactions contemplated hereby or
thereby. Each Transaction Document has been duly authorized, executed and
delivered by the Company. The execution, delivery and performance of each
Transaction Document by the Company and the consummation of the transactions
contemplated herein or therein will not violate any provision of the
organizational documents of the Company and will not result in the creation
of
any lien, charge, security interest or encumbrance upon any assets of the
Company pursuant to the terms or provisions of, or will not conflict with,
result in the breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a default under, any agreement, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
to which the Company is a party or by which the Company or any of its properties
may be bound or affected or, to the Company’s knowledge, any statute or any
authorization, judgment, decree, order, rule or regulation of any court or
any
regulatory body, administrative agency or other governmental body applicable
to
the Company or any of its properties where such conflict, breach, violation
or
default is reasonably likely to result in a material adverse effect. No consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of the Transaction Documents or the consummation of the
transactions contemplated by the Transaction Documents, except for compliance
with the Blue Sky laws and federal securities laws applicable to the offering
of
the Securities. Upon the execution and delivery of (i) this Subscription
Agreement by the Company, and assuming the valid execution hereof by the
Subscriber, (ii) the New Warrants by the Company and (iii) the Financial
Advisory Agreement and the Transfer Agreement by the applicable parties, each
Transaction Document will constitute a valid and binding obligation of the
Company, enforceable in accordance with its terms, except as (x) enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors’ and contracting parties’ rights generally,
(y) enforceability may be subject to general principles of equity (regardless
of
whether such enforceability is considered in a proceeding in equity or at law)
and (z) the indemnification agreements of the Company in Section 7.3 hereof
may
be legally unenforceable.
12
3.4. Validity
of Securities.
The
issuance of the Securities has been duly authorized by all necessary corporate
action on the part of the Company and, when issued to, delivered to, and paid
for by the Subscribers in accordance with this Subscription Agreement, the
Securities will be validly issued, fully paid and non-assessable.
3.5. Underlying
Securities.
The
issuance of the New Shares has been duly authorized, and the shares issuable
upon exercise of the New Warrants (the “New
Warrant Shares”),
prior
to exercise of the New Warrants, will have been duly reserved for issuance
upon
such exercise and, when so issued, will be validly issued, fully paid and non
assessable.
3.6. Private
Offering.
The
Company agrees that neither the Company nor anyone authorized to act on its
behalf will offer the Securities or any part thereof or any similar securities
for issuance or sale to, or solicit any offer to acquire any of the same from,
anyone so as to make the issuance and sale of the Securities subject to the
registration requirements of Section 5 of the Securities Act.
3.7. Compliance.
Except
as set forth in the SEC Documents (as defined below), the Company is not in
conflict with, or in default or violation of (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or by which any property
or
asset of the Company is bound or affected (“Legal
Requirement”),
or
(ii) any material agreement, in each case except for any such conflicts,
defaults or violations that would not, individually or in the aggregate, have
a
material adverse effect. The Company has not received any written notice or
other communication from any governmental body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement, except any
such
violations or failures that would not, individually or in the aggregate, have
a
material adverse effect.
4. SEC
Documents; Financial Statements.
4.1. (a)The
information contained in the following documents, did not, as of the date of
the
applicable document, include any untrue statement of a material fact or omit
to
state any material fact required to be stated therein or necessary to make
the
statements therein, in the light of the circumstances in which they were made,
not misleading, as of their respective filing dates or, if amended, as so
amended (the following documents, collectively, the “SEC
Documents”),
provided that the representation in this sentence shall not apply to any
misstatement or omission in any SEC Document filed prior to the date of this
Subscription Agreement which was superseded by a subsequent SEC Document filed
prior to the date of this Subscription Agreement:
(i)
the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007;
and
13
(iii)
The
Company’s interim filings on Form 8-K or other appropriate forms filed on any
date after December 31, 2007 and on or before the Closing.
(b) In
addition, as of the date of this Subscription Agreement, when read together
with
the SEC Documents and the Company Disclosure Letter in the form attached hereto
as Exhibit
C
(the
“Company
Disclosure Letter”),
the
information, qualifications and exceptions contained in this Subscription
Agreement do not include any untrue statement of a material fact or omit to
state a material fact in light of the circumstances in which such written
disclosures were made.
(c) The
Company has filed all forms, reports and documents required to be filed by
it
with the SEC for the 12 months preceding the date of this Subscription
Agreement, including without limitation the SEC Documents. As of their
respective dates, the SEC Documents filed prior to the date hereof complied
as
to form in all material respects with the applicable requirements of the
Securities Act, the Exchange Act, and the rules and regulations
thereunder.
(d) The
Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007,
includes consolidated balance sheets as of December 31, 2006 and 2007 and
consolidated statements of income for the one year periods then ended
(collectively, the “Form
10-K Financial Statements”).
(e) The
Company Disclosure Letter includes consolidated balance sheets as of March
31,
2008 and consolidated statements of income for the quarters ended March 31,
2007
and 2008 (the “Interim
Financial Statements”
and
together with the Form 10-K Financial Statements, the “Financial
Statements”).
(f) The
Financial Statements (including the related notes and schedules thereto) fairly
present in all material respects the consolidated financial position, the
results of operations, retained earnings or cash flows, as the case may be,
of
the Company for the periods set forth therein (subject, in the case of unaudited
statements, to normal year-end audit adjustments that would not be material
in
amount or effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may
be
noted therein.
4.2. Use
of
Proceeds.
The net
proceeds received by the Company from the sale of the Securities shall be used
by the Company for working capital and general corporate purposes. The Company
will use its best efforts to reduce its burn rate to less than $600,000 per
month through at least December 31, 2008.
4.3. Legend.
The
certificates representing the Securities issued by the Company shall bear the
following (or similar) legends:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS
FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION THEREFROM.
14
5. Variable
Securities; Dilutive Issuances.
5.1. So
long
as any Subscriber beneficially owns any New Warrants, (a) the Company will
not
issue any, the Company shall not, in any manner, issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock or directly or
indirectly convertible into or exchangeable or exercisable for Common Stock
at a
price which varies or may vary with the market price of the Common Stock,
including by way of one or more reset(s) to any fixed price unless the
conversion, exchange or exercise price of any such security cannot be less
than
the then applicable Exercise Price (as defined in the New Warrants), and (b)
the
Company shall not, in any manner, enter into or effect any issuance of
securities (a “Dilutive
Issuance”)
if the
effect of such Dilutive Issuance is to cause, or but for the Securities
Limitations (as defined below) would cause, the Company to be required to issue
upon exercise of the New Warrants any shares of Common Stock in excess of that
number of shares of Common Stock which the Company may issue upon exercise
of
the New Warrants without breaching the Company's obligations under the rules
or
regulations of the NASDAQ Capital Market (the "Securities
Limitations")
unless
or until the Stockholder Approval (as defined below) has been
obtained.
5.2. Stockholder
Approval.
The
Company shall provide each stockholder entitled to vote at either (x) the next
annual meeting of stockholders of the Company or (y) a special meeting of
stockholder of the Company (the "Stockholder
Meeting"),
which
shall be promptly called and held not later than September 1, 2008 (the
"Stockholder
Meeting Deadline"),
a
proxy statement, soliciting each such stockholder's affirmative vote at the
Stockholder Meeting for approval of resolutions ("Stockholder
Resolutions")
ratifying the issuance of all of the Securities as described in the Transaction
Documents and, without limitation on the foregoing, the antidilution provisions
of the New Warrants, Empire Warrants and the Extension Warrants, in accordance
with applicable law and the rules and regulations of the NASDAQ Capital Market
(such affirmative approval being referred to herein as the “Stockholder
Approval”),
and
the Company shall use its reasonable best efforts to solicit its stockholders’
approval of such resolutions and to cause the Board of Directors of the Company
to recommend to the stockholders that they approve such resolutions. The Company
shall be obligated to seek to obtain the Stockholder Approval by the Stockholder
Meeting Deadline. If, despite the Company’s reasonable best efforts, the
Stockholder Approval is not obtained on or prior to the Stockholder Meeting
Deadline, the Company shall cause an additional Stockholder Meeting to be held
once in each twelve month period thereafter until such Stockholder Approval
is
obtained, provided that if the Board of Directors of the Company does not
recommend to the stockholders that they approve the Resolutions at any such
Stockholder Meeting and the Stockholder Approval is not obtained, the Company
shall cause an additional Stockholder Meeting to be held each calendar quarter
thereafter until such Stockholder Approval is obtained.
15
6. Assignability.
This
Subscription Agreement and the rights and obligations hereunder are not
transferable or assignable by the Subscriber.
7. Registration;
Compliance with the Securities Act.
7.1. Registration
Procedures and Expenses.
The
Company shall:
(a) Subject
to receipt of necessary information in writing from the Subscribers that may
be
requested by the Company, as soon as reasonably practicable, but in no event
later than forty five (45) days following the Closing Date (the “Filing
Date”),
prepare and file with the Securities and Exchange Commission (the “Commission”)
a
Registration Statement on Form S-3 (or such other form which is available to
the
Company) relating to the resale of the New Shares and New Warrant Shares
(collectively, with shares issuable upon exercise of the Extension Warrants
and
the Empire Warrants, the “Registrable
Shares”)
by the
Subscribers from time to time on NASDAQ Capital Market or the facilities of
any
national securities exchange on which the Common Stock is then traded or in
privately negotiated transactions (the “Registration
Statement”)
and
will use its best efforts to list such Registrable Shares on NASDAQ Capital
Market or the facilities of any other national securities exchange on which
the
Common Stock is then traded;
(b) use
its
commercially reasonable efforts, subject to receipt of necessary information
from the Subscribers, to cause the Commission to declare the Registration
Statement effective within seventy five (75) calendar days after the Closing
Date (the “Required
Effective Date”).
However, so long as the Company filed the Registration Statement by the Filing
Date, if the Registration Statement receives Commission review, then the
Required Effective Date will be the one hundred and twenty (120) calendar days
after the Closing Date. The Company’s commercially reasonable efforts will
include, but not be limited to, promptly responding to all comments received
from the staff of the Commission. If the Company receives notification from
the
Commission that the Registration Statement will receive no action or review
from
the Commission, then the Company will, subject to its rights under this
Agreement, use its commercially reasonable efforts to cause the Registration
Statement to become effective within three business days after such Commission
notification;
(c) use
its
commercially reasonable efforts to promptly prepare and file with the Commission
such amendments and supplements to the Registration Statement and the prospectus
used in connection therewith as may be necessary to keep the Registration
Statement effective until the earliest of (i) the date on which the Subscribers
may sell all of the Registrable Shares then held by the Subscribers, without
registration pursuant to Rule 144 of the Securities Act, without any restriction
as to the number of securities as of a particular date that can then be
immediately sold and the adequate current public information requirement of
Rule
144(c)(1) promulgated under the Securities Act no longer applies to the sale
of
such shares without registration or (ii) such time as all Registrable Shares
issuable to all holders of Securities have been sold pursuant to a Registration
Statement or Rule 144 promulgated under the Securities Act. Thereafter, the
Company shall be entitled to withdraw the Registration Statement and the
Subscribers shall have no further right to offer or sell any of the Registrable
Shares pursuant to the Registration Statement. The Company shall not file any
registration statements with the Commission relating to securities other than
the Registrable Shares until ninety (90) days after the Required Effective
Date;
provided nothing herein will prohibit the filing of amendments or supplements
to
already filed registration statements;
16
(d) use
commercially reasonably efforts to furnish (i) to the Subscribers with respect
to the Registrable Shares registered under the Registration Statement by fax
or
email (in each case with answerback confirmed) or other prompt means one copy
of
the prospectus promptly after effectiveness of the Registration Statement and
in
any case before the next opening of the principal market for the Registrable
Shares and (ii) to the Subscribers with respect to the Registrable Shares
registered under the Registration Statement (and to each underwriter, if any,
of
such Registrable Shares) such number of copies of prospectuses and such other
documents as the Subscribers may reasonably request within a reasonable time,
in
order to facilitate the public sale or other disposition of all or any of the
Registrable Shares by the Subscribers;
(e) file
documents required of the Company for normal Blue Sky clearance in states
specified in writing by the Subscribers and reasonably acceptable to the
Company; provided,
however,
that the
Company shall not be required to (i) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 7.1;
(ii) file a general consent to service of process in any such jurisdiction;
(iii) subject itself to taxation in any such jurisdiction; (iv) provide any
undertakings that cause material expense or burden to the Company; or (v) make
any change to its organizational documents, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of
the
Company and its stockholders;
(f) bear
all
expenses in connection with the procedures in paragraphs (a) through (e) of
this
Section 7.1 and the registration of the Registrable Shares pursuant to the
Registration Statement, other than fees and expenses, if any, of counsel or
other advisers to the Subscribers or underwriting discounts, brokerage fees
and
commissions incurred by the Subscribers, if any; and
(g) promptly
notify the Subscribers of the effectiveness of a Registration Statement, and
any
post-effective amendments thereto, as well as of the receipt by the Company
of
any stop orders of the Commission with respect to a Registration Statement
and
the lifting of any such order.
17
Notwithstanding
the foregoing, it shall be a condition precedent to the obligations of the
Company to take any action pursuant to paragraphs (a) through (f) of this
Section 7.1, that each Subscriber shall furnish to the Company such information
regarding itself, the Registrable Shares to be sold by the Subscriber, and
the
intended method of disposition of such Registrable Shares as shall be required
to effect the registration of the Registrable Shares, all of which information
shall be furnished to the Company in writing specifically for use in the
Registration Statement.
The
Registration Statement may include additional securities pursuant to existing
registration rights.
The
Company understands that each Subscriber disclaims being an underwriter, but
a
Subscriber being deemed an underwriter shall not relieve the Company of any
obligations it has hereunder, provided,
however,
that if
the Company receives notification from the Commission that the Subscriber is
deemed an underwriter, then the period in which the Company is obligated to
submit an acceleration request to the Commission shall be extended to the
earlier of (i) the sixtieth (60th) day after such Commission notification,
or
(ii) ninety (90) days after the initial filing of the Registration Statement
with the Commission. Notwithstanding the foregoing, the parties understand
and
agree that the Company shall not be obligated to retain an underwriter with
respect to the offer and sale of Registrable Shares pursuant to the Registration
Statement
7.2. Transfer
of Securities After Registration.
While
the Registration Statement is effective and available for resale, each
Subscriber agrees that it will not effect any disposition of New Warrants or
Registrable Shares that would constitute a sale within the meaning of the
Securities Act, except as contemplated in the Registration Statement referred
to
in Section 7.1 hereof in the section titled “Plan of Distribution” or pursuant
to an applicable exemption from registration, the availability of which is
confirmed in writing by counsel to the Subscriber (the form, substance and
scope
of which opinion shall be reasonably acceptable to the Company) and delivered
to
the Company, and that it will promptly notify the Company of any changes in
the
information set forth in the Registration Statement regarding the Subscriber
or
its plan of distribution.
7.3. Indemnification.
(a) For
purpose of this Agreement, the term “Subscriber/Affiliate”
shall
mean any affiliate of a Subscriber (as defined in Rule 405 under the Securities
Act) and any person who controls the Subscriber or any affiliate of the
Subscriber within the meaning of Section 15 of the Securities Act or Section
20
of the Exchange Act; and
(b) For
purpose of this Section 7.3, the term “Registration
Statement”
shall
include any final prospectus, exhibit, supplement or amendment included in
or
relating to, and any document incorporated by reference in, the Registration
Statement referred to in Section 7.1 hereof.
18
The
Company agrees to indemnify and hold harmless each Subscriber and each
Subscriber/Affiliate against any losses, claims, damages, liabilities or
expenses, joint or several, to which the Subscriber or Subscriber/Affiliate
may
become subject, under the Securities Act, the Exchange Act, or any other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims, damages, liabilities
or
expenses (or actions in respect thereof as contemplated below) arise out of
or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, including the prospectus,
financial statements and schedules, and all other documents filed as a part
thereof, as amended at the time of effectiveness of the Registration Statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434,
of the Rules and Regulations, or the prospectus, in the form first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations, or filed
as
part of the Registration Statement at the time of effectiveness if no Rule
424(b) filing is required (the “Prospectus”),
or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state in any of them a material fact required
to
be stated therein or necessary to make the statements in the Registration
Statement or any amendment or supplement thereto not misleading or in the
Prospectus or any amendment or supplement thereto not misleading in the light
of
the circumstances under which they were made, or arise out of or are based
in
whole or in part on any material breach of the representations and warranties
of
the Company contained in this Agreement (except that where representations
and
warranties are qualified by materiality, any breach), or any material breach
by
the Company of its obligations hereunder, and will reimburse the Subscriber
or
Subscriber/Affiliate for any legal and other expenses as such expenses are
reasonably incurred by the Subscriber or Subscriber/Affiliate in connection
with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the Company will
not be liable in any such case to the extent, but only to the extent, that
any
such loss, claim, damage, liability or expense arises out of or is based upon
(i) an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, the Prospectus or any amendment
or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Subscriber expressly for use
therein, or (ii) the failure of the Subscriber to comply with the covenants
and
agreements contained in Section 2.12 or Section 7.2 hereof respecting the sale
of the Registrable Shares, or (iii) the inaccuracy of any representations made
by the Subscriber herein or (iv) any statement or omission in any Prospectus
that is corrected in any subsequent Prospectus that was delivered to the
Subscriber prior to the pertinent sale or sales by the Subscriber.
19
Each
Subscriber will severally, but not jointly, indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act, against
any losses, claims, damages, liabilities or expenses to which the Company,
each
of its directors, each of its officers who signed the Registration Statement
or
controlling person may become subject, under the Securities Act, the Exchange
Act, or any other federal or state statutory law or regulation, or at common
law
or otherwise (including in settlement of any litigation, if such settlement
is
effected with the written consent of the Subscriber) insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon (i) any failure to comply
with the covenants and agreements contained in Sections 2.12 or 7.2 hereof
respecting the sale of the Registrable Shares or (ii) any material breach of
any
representation made by the Subscriber herein or (iii) any untrue or alleged
untrue statement of any material fact contained in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or arise out of or
are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements in the
Registration Statement or any amendment or supplement thereto not misleading
or
in the Prospectus or any amendment or supplement thereto not misleading in
the
light of the circumstances under which they were made, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by
the
Subscriber expressly for use therein, and the Subscriber will reimburse the
Company, each of its directors, each of its officers who signed the Registration
Statement or controlling person for any legal and other expense reasonably
incurred by the Company, each of its directors, each of its officers who signed
the Registration Statement or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the obligations
of
the Subscriber under this Section 7.3 shall not exceed the net proceeds to
such
Subscriber from the sale of Registrable Shares pursuant to such Registration
Statement.
Promptly
after receipt by an indemnified party under this Section 7.3 of notice of the
threat or commencement of any action, such indemnified party will, if a claim
in
respect thereof is to be made against an indemnifying party under this Section
7.3, promptly notify the indemnifying party in writing thereof; but the omission
so to notify the indemnifying party will not relieve it from any liability
which
it may have to any indemnified party for contribution or otherwise under the
indemnity agreement contained in this Section 7.3 (except to the extent that
such omission materially and adversely affects the indemnifying person’s ability
to defend such action). Subject to provisions hereinafter stated, in case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party, and the indemnifying party and
the
indemnified party, based upon the advice of such indemnified party’s counsel,
shall have reasonably concluded that there may be a conflict of interest between
the positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses available
to
it and/or other indemnified parties which are different from or additional
to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party
to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 7.3 for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall
have
employed such counsel in connection with the assumption of legal defenses in
accordance with the proviso to the preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel, approved by such indemnifying party in the
case
of paragraph (a), representing the indemnified parties who are parties to such
action (including indemnified parties under Agreements with Other Subscribers,
plus local counsel, if appropriate) or (ii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of action, in each of which cases the reasonable fees and expenses
of counsel shall be at the expense of the indemnifying party. In no event shall
any indemnifying person be liable in respect of any amounts paid in settlement
of any action unless the indemnifying person shall have approved the terms
of
such settlement; provided that such consent shall not be unreasonably withheld.
No indemnifying person shall, without the prior written consent of the
indemnified person, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified person is or could have been
a
party and indemnification could have been sought hereunder by such indemnified
person, unless such settlement includes an unconditional release of such
indemnified person from all liability on claims that are the subject matter
of
such proceeding.
20
If
the
indemnification provided for in this Section 7.3 is required by its terms but
is
for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party under paragraphs (a), (b) or (c) of this Section
7.3 in respect to any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Subscriber from the sale of securities contemplated by this
Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not
only the relative benefits referred to in clause (i) above but the relative
fault of the Company and the Subscriber in connection with the statements or
omissions or inaccuracies in the representations and warranties in this
Agreement that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and the Subscriber on the other shall
be
determined by reference to, among other things, whether the untrue or alleged
statement of a material fact or the omission or alleged omission to state a
material fact or the inaccurate or the alleged inaccurate representation and/or
warranty relates to information supplied by the Company or by the Subscriber
and
the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities
and
expenses referred to above shall be deemed to include, subject to the
limitations set forth in paragraph (c) of this Section 7.3, any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
paragraph (c) of this Section 7.3 with respect to the notice of the threat
or
commencement of any threat or action shall apply if a claim for contribution
is
to be made under this paragraph (d); provided,
however,
that no
additional notice shall be required with respect to any threat or action for
which notice has been given under paragraph (c) for purposes of indemnification.
The Company and the Subscriber agree that it would not be just and equitable
if
contribution pursuant to this Section 7.3 were determined solely by pro rata
allocation (even if the Subscriber were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to in this paragraph. Notwithstanding the
provisions of this Section 7.3, the Subscriber shall not be required to
contribute any amount in excess of the amount by which the amount realized
by
the Subscriber on Sale of Registrable Shares exceeds the amount of any damages
which such Subscriber has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Subscriber’s obligation to
contribute pursuant to this Section 7.3 is several and not joint.
Each
Subscriber hereby acknowledges that it is a sophisticated business person who
was represented by counsel during the negotiations regarding the provisions
hereof including, without limitation, the provisions of this Section 7.3, and
is
fully informed regarding said provisions. Each of the Company and the Subscriber
is advised that federal or state public policy as interpreted by the courts
in
certain jurisdictions may be contrary to certain of the provisions of this
Section 7.3, and each of the Company and the Subscriber hereby expressly waives
and relinquishes any right or ability to assert such public policy as a defense
to a claim under this Section 7.3 and further agrees not to attempt to assert
any such defense.
7.4. Termination
of Conditions and Obligations.
The
conditions precedent imposed by Section 2 or this Section 7 upon the
transferability of Securities or the Registrable Shares shall cease and
terminate as to any particular number of the Registrable Shares upon the
earliest to occur of (i) the sale of such Registrable Shares pursuant to the
Registration Statement, (ii) the sale of such Registrable Shares pursuant to
Rule 144 under the Securities Act or (iii) the passage of one year from the
effective date of the Registration Statement covering such Registrable Shares,
provided that the holder of such Securities is not at such time, and was not
for
the 90 days immediately prior thereto, an affiliate of the Company (as such
term
is defined in Rule 144) or at such time as an opinion of counsel satisfactory
in
form and substance to the Company shall have been rendered to the effect that
such conditions are not necessary in order to comply with the Securities
Act.
21
7.5. Information
Available.
As long
as any Subscriber owns New Warrants and the Company is subject to the filing
requirements of the Exchange Act, 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
pursuant to the Exchange Act. So long as the Registration Statement is effective
covering the resale of Registrable Shares, the Company will furnish to the
Subscriber upon such Subscriber’s request:
(a) as
soon
as practicable after available (but in the case of the Company’s Annual Report
to Stockholders, concurrently with delivery to its stockholders generally)
one
copy of (i) its Annual Report to Stockholders (which Annual Report shall contain
financial statements audited in accordance with U.S. generally accepted
accounting principles by a nationally recognized firm of certified public
accountants), (ii) if not included in substance in the Annual Report to
Stockholders, upon the request of the Subscriber, its Annual Report on Form
▇▇-▇▇▇ ▇▇ ▇▇-▇, (▇▇▇) upon the request of the Subscriber, its Quarterly Reports
on Form 10-QSB or 10-Q, (iv) upon the request of the Subscriber, its Current
Reports on Form 8-K, and (v) a full copy of the particular Registration
Statement covering the Registrable Shares (the foregoing, in each case,
excluding exhibits);
(b) all
exhibits excluded by the parenthetical to subparagraph (a)(v) of this Section
7.5; and
(c) upon
the
reasonable request of the Subscriber, a reasonable number of copies of the
prospectuses and supplements thereto to supply to any other party requiring
such
prospectuses and supplements.
7.6. Assignment
of Registration Rights.
The
rights of a Subscriber hereunder, including the right to have the Company
register the Registrable Shares pursuant to this Agreement, will be
automatically assigned by the Subscriber to transferees or assignees of
Securities, but only if (a) the Subscriber agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished
to
the Company within a reasonable time after such assignment, (b) the Company
is,
within a reasonable time after such transfer or assignment, furnished with
written notice of the name and address of such transferee or assignee and the
Securities with respect to which such registration rights are being transferred
or assigned, (c) after such transfer or assignment, the further disposition
of
such Securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, (d) at or before the time the Company
received the written notice contemplated by clause (b) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all
of
the provisions contained herein, (e) the transferee is an “accredited investor”
as that term is defined in Rule 501 of Regulation D, and (f) the transfer of
the
Securities is made in accordance with the provisions of Section 5 and Section
7.2 hereof.
22
7.7. Delay
in Filing or Effectiveness of Registration Statement.
If the
Registration Statement is not filed by the Company with the Commission on or
prior to the Filing Date, then for each day following the Filing Date, until
but
excluding the date the Registration Statement is filed, or if a prospectus
included in the Registration Statement which has been declared effective by
the
Commission, is not delivered to the Subscribers (as set forth in Section 7.1(d))
by the Required Effective Date, then for each day following the Required
Effective Date, until but excluding the date the Commission declares the
Registration Statement effective, the Company shall, for each such day, pay
the
Subscriber with respect to any such failure, as liquidated damages and not
as a
penalty, an amount equal to 0.0333% of the purchase price paid by such
Subscriber for its Securities pursuant to this Agreement; and for any such
day,
such payment shall be made no later than the first business day of the calendar
month next succeeding the month in which such day occurs. If the Subscriber
shall be prohibited from selling Registrable Shares under the Registration
Statement as a result of a Suspension of more than thirty (30) days or
Suspensions on more than two occasions of not more than thirty (30) days each
in
any 12-month period, then for each day on which a Suspension is in effect that
exceeds the maximum allowed period for a Suspension or Suspensions, but not
including any day on which a Suspension is lifted, the Company shall pay the
Subscriber, as liquidated damages and not as a penalty, an amount equal to
0.0333% of the purchase price paid by such Subscriber for the Securities
pursuant to this Agreement for each such day, and such payment shall be made
no
later than the first business day of the calendar month next succeeding the
month in which such day occurs. For purposes of this Section 7.7, a Suspension
shall be deemed lifted on the date that notice that the Suspension has been
lifted is delivered to the Subscriber pursuant to Section 17 of this
Subscription Agreement. Any payments made pursuant to this Section 7.7 shall
not
constitute the Subscriber’s exclusive remedy for such events. Notwithstanding
the foregoing provisions, in no event shall the Company be obligated to pay
such
liquidated damages to more than one Subscriber in respect of the same Securities
for the same period of time. The liquidated damage payments imposed hereunder
shall be made to the Subscriber in cash.
7.8. Integration
with Subsequent Transactions.
The
Company shall not, indirectly or directly, sell, offer for sale or solicit
offers to buy or otherwise negotiate with respect of any security (as defined
in
Section 2 of the Securities Act) that would be integrated with the offer or
sale
of the Securities or the issuance of the New Warrant Shares in a manner that
would require the registration under the Securities Act of the sale of the
Securities or the issuance of the New Warrant Shares to the Subscriber or that
would be integrated with the offer or sale of the Securities or the issuance
of
the New Warrant Shares for purposes of the rules or regulations of NASDAQ
Capital Market or any national securities exchange on which the Common Stock
are
listed or designated such that it would require stockholder approval prior
to
the closing of such other transaction unless stockholder approval is obtained
prior to the closing of such subsequent transactions.
23
8. Broker’s
Fees.
The
Subscriber acknowledges that the Company intends to pay fees and expenses to
the
Financial Advisor in respect of the Financial Advisory Agreement. Each
Subscriber and the Company hereby agree that the Subscriber shall not be
responsible for such fees and expenses. Each of the parties hereto hereby
represents that, on the basis of any actions and agreements by it, there are
no
other brokers or finders entitled to compensation in connection with the
transactions contemplated by the Transaction Documents.
9. Independent
Nature of Subscribers’ Obligations and Rights.
The
obligations of each Subscriber under this Subscription Agreement are several
and
not joint with the obligations of any other Subscriber, and no Subscriber shall
be responsible in any way for the performance of the obligations of any other
Subscriber under this Subscription Agreement. The decision of each Subscriber
to
purchase Securities pursuant to this Subscription Agreement or a Transfer
Agreement, has been made independently of any other Subscriber.
Nothing
contained herein, and no action taken by any Subscriber thereto, shall be deemed
to constitute the Subscribers as a partnership, an association, a joint venture
or any other kind of group or entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to
such
obligations or transactions contemplated by this Agreement.
Each
Subscriber shall be entitled to independently protect and enforce its rights,
including without limitation, its rights arising out of this Subscription
Agreement, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. No Subscriber shall
incur any liability to any other Subscriber with respect to exercising or
refraining from exercising any right or rights that such Subscriber may have
by
reason of this Subscription Agreement.
Each
Subscriber has been represented or had the opportunity to be represented by
its
own separate legal counsel, at such Subscriber’s own expense, in review and
negotiation of this Subscription Agreement.
Each
Subscriber agrees that neither a Subscriber nor any affiliate of a Subscriber
shall be liable to any other Subscriber or such other Subscriber’s affiliate for
any action heretofore or hereafter taken or omitted to be taken by any of them
in connection with the Securities.
10. Governing
Law; Jurisdiction.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without giving effect to the principles of conflicts of law.
Any legal suit, action or proceeding arising out of or based upon this Agreement
or the transactions contemplated hereby (“Related
Proceedings”)
may be
instituted in the federal courts of the United States of America or the state
courts of New York State located in New York, New York (collectively, the
“Specified
Courts”),
and
each party irrevocably submits to the non-exclusive jurisdiction of such
Specified Courts of such courts in any such suit, action or proceeding. Service
of any process, summons, notice or document by mail to such party’s address set
forth above shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit, action
or other proceeding in the Specified Courts and irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such suit,
action or other proceeding brought in any such court has been brought in an
inconvenient forum. With respect to any Related Proceeding, each party
irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution
to
which it might otherwise be entitled in the Specified Courts or any other court
of competent jurisdiction.
24
11. Amendments
and Waivers.
Unless
a particular provision or section of this Subscription Agreement requires
otherwise explicitly in a particular instance, any provision of this
Subscription Agreement may be amended and the observance of any provision of
this Agreement may be waived (either generally or in a particular instance
and
either retroactively or prospectively), only with the written consent of the
Company and the holders of a majority of the New Shares (not including for
this
purpose any New Shares which have been sold to the public pursuant to a
Registration Statement under the Securities Act or an exemption therefrom).
Any
amendment or waiver effected in accordance with this Section 11 shall be binding
upon each Subscriber, each holder of any Securities at the time outstanding
(including without limitation securities into which any such Securities are
convertible or exercisable), each future holder thereof, and the
Company.
12. Survival
of Representations and Warranties.
All
representations and warranties made by the Subscriber and Company in this
Subscription Agreement shall survive the execution and delivery of this
Subscription Agreement, as well as any investigation at any time made by or
on
behalf of the Company and the issue and sale of the Securities.
13. Reliance.
The
Subscriber understands and acknowledges that the Subscriber's representations,
warranties, acknowledgements and agreements in this Subscription Agreement
will
be relied upon by the Company in determining the Subscriber's suitability as
a
Subscriber of the Securities.
14. Further
Assurances.
The
Subscriber agrees to provide, if requested, any additional information that
may
be requested or required to determine the Subscriber's eligibility to purchase
the Securities.
15. Entire
Agreement.
This
Subscription Agreement, with the other Transaction Documents, constitutes the
full and entire understanding and agreement between the parties with regard
to
the subject matter hereof and no party shall be liable or bound to any other
in
any manner by any representations, warranties, covenants and agreements except
as specifically set forth herein and therein.
25
16. Severability.
In the
event one or more of the provisions of this Subscription Agreement should,
for
any reason, be held to be invalid, illegal or unenforceable in any respect,
such
invalidity, illegality, or unenforceability shall not affect any other
provisions of this Subscription Agreement, and this Subscription Agreement
shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
17. Notices.
Any
notice or other communication required or permitted to be given hereunder (each
a “Notice”)
shall
be given in writing and shall be made by personal delivery, sent by fax (with
answerback confirmed) or sent by courier or certified or registered first-class
mail (postage prepaid), addressed to a party at its address shown below or
at
such other address as such party may designate by three days’ advance Notice to
the other parties.
Any
Notice to any of the Subscribers shall be sent to the addresses for such
Subscriber set forth on the signature pages hereof.
Any
Notice to the Company shall be sent to:
Neonode
Inc.
Attn:
CFO
▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
with
a
copy to:
▇▇▇▇
& Hessen LLP
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
Attention:
▇▇▇▇▇ ▇▇▇▇▇▇
Each
Notice shall be deemed given and effective upon receipt (or refusal of receipt).
18. Conflicts.
The
Company and each Subscriber (i) acknowledge that ▇▇▇▇ & Hessen LLP,
counsel to the Company in the transactions contemplated in this
Subscription Agreement, has acted, and from time to time continues to act,
as
counsel to (A) certain Subscribers, or affiliates thereof, in connection
with the acquisition of the Existing Warrants, and (B) AIGH Investment
Partners, LLC in connection with its investments in the Company, and
in unrelated matters, (ii) consent to the representation of the Company and
such
other representation of the Subscribers and AIGH, or affiliates thereof, by
▇▇▇▇ & Hessen LLP, (iii) acknowledge that partners of ▇▇▇▇ & Hessen LLP
own securities of the Company constituting less than 0.1% of
outstanding stock of the Company, and (iv) waive any conflicts of interest
claim which may arise from any or all of the foregoing.
26
19. Third
Party Beneficiary.
The
Company and each Subscriber agree that Empire is an intended third
party beneficiary of the representations and warranties made by (x) the
Subscribers in Section 2 hereto and (y) the Company in Section 3 hereto and
the
covenants of the Company set forth in Section 7 hereto.
20. Counterparts.
This
Agreement may be executed (including by facsimile transmission) with counterpart
signature pages or 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.
27
IN
WITNESS WHEREOF, the undersigned has executed this Warrant Exercise Subscription
Agreement as of the date set forth on this signature page.
Subscription
Price: $____________________________
Manner
of
exercise: Check applicable box:
o
Cash o
Surrender of Company debt (as described
below)
_______________________________________________
Number
of
Exercise Warrants exercised: ___________
Check
applicable box:
o
Warrant Holder
o
Transferee
Name
of
Subscriber:
[___________________________]
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
U.S.
person [please initial]: yes o no o
Date: _____________
Address:
______________________________________
______________________________________
SSN
or
U.S. Tax ID No: ___________________________
|
SUBSCRIPTION
ACCEPTED:
NEONODE
INC., a Delaware corporation
|
|
|
By:
|
Date:
|
,
2008
|
|||
|
Name:
|
|||||
|
Title:
|
|||||
28
EXHIBIT
A
FORM
OF
NEW
WARRANTS
EXHIBIT
B
FORM
OF
WARRANT TRANSFER AGREMENT
EXHIBIT C
COMPANY
DISCLOSURE LETTER