SUBSCRIPTION AGREEMENT (Series A-1 — Debt Exchange)
Exhibit 10.71
SUBSCRIPTION AGREEMENT
(Series A-1 — Debt Exchange)
(Series A-1 — Debt Exchange)
THIS SUBSCRIPTION AGREEMENT (this “Agreement”) dated as of April 14, 2008, by and between
Irvine Sensors Corporation, a Delaware corporation (the “Company”) and the Purchasers identified on
the signature page hereto (each a “Purchaser” and collectively, the “Purchasers”).
WHEREAS, the Company and the Purchasers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the provisions of Section 4(2)
and/or Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange
Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”).
WHEREAS, the Company currently has outstanding Term Notes dated December 29, 2006 payable to
the Purchasers (the “Term Notes”) that were issued pursuant to that certain Term Loan and Security
Agreement dated December 29, 2006 between the Company and the Purchasers (the “Loan Agreement”).
WHEREAS, in connection herewith, the Purchasers desire to purchase shares of Series A-1 10%
Cumulative Convertible Preferred Stock (the “Series A-1 Stock”) as described in a Certificate of
Designations of Rights, Preferences, Privileges and Limitations attached hereto as Exhibit A
(“Certificate of Designations”) in exchange solely for a portion of the Term Notes through the
cancellation of part of the principal and/or interest under the Term Notes, as more fully described
herein. Each share of Series A-1 Stock issuable hereunder is initially convertible into 100 shares
of the Company’s Common Stock (the “Common Shares”). The Series A-1 Stock being sold to the
Purchasers hereunder and the Common Shares that are issuable upon conversion of such Series A-1
Stock hereunder shall be referred to hereunder as the “Securities.”
NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in
this Agreement the Company and the Purchasers hereby agree as follows:
1. The Closing.
(a) Closing Date. The “Closing Date” shall be April 14, 2008, or such later date as
the signature pages hereto shall be delivered to the Company by the Purchasers. The consummation
of the transactions contemplated herein shall take place at the offices of Grushko & ▇▇▇▇▇▇▇, P.C.,
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, upon the satisfaction or waiver of all
conditions to closing set forth in this Agreement.
(b) Closing. Subject to the satisfaction or waiver of the terms and conditions of
this Agreement, on the Closing Date, each Purchaser hereby purchases that number of shares of
Series A-1 Stock as set forth opposite such Purchaser’s name on the signature page hereto at a
purchase price per share of $30.00, which purchase price shall be paid solely by surrendering a
portion of such Purchaser’s Term Notes in exchange for such shares of Series A-1 Stock by
cancelling a portion of the principal and/or interest under such Purchaser’s Term Notes, in such
amounts as set forth on the signature pages hereto.
(c) Conditions to Closing. In addition to the satisfaction of all conditions and
requirements to Closing set forth herein, the Closing shall be subject to the verbal confirmation
from
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Nasdaq that the issuance of the Series A-1 Stock in accordance with this Agreement will not
require stockholder approval.
2. Purchasers’ Representations and Warranties. Each Purchaser hereby represents and
warrants to and agrees with the Company only as to such Purchaser that:
(a) Information on Company. The Purchaser has been furnished with or has had access
at the ▇▇▇▇▇ Website of the Commission to the Company’s Form 10-K for the year ended September 30,
2007, and all periodic reports filed with the Commission thereafter, but not later than five days
before the Closing Date (hereinafter referred to as the “Reports”). In addition, the Purchaser has
received in writing from the Company such other information concerning its operations, financial
condition and other matters as the Purchaser has requested in writing (such other information is
collectively, the “Other Written Information”), and considered all factors such Purchaser deems
material in deciding on the advisability of investing in the Series A-1 Stock.
(b) Information on Purchaser. The Purchaser is, and will be at the time of issuance
of the Series A-1 Stock, an “accredited investor,” as such term is defined in Regulation D
promulgated by the Commission under the 1933 Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased securities of United States
publicly-owned companies in private placements in the past and, with its representatives, has such
knowledge and experience in financial, tax and other business matters as to enable the Purchaser to
utilize the information made available by the Company to evaluate the merits and risks of and to
make an informed investment decision with respect to the proposed purchase, which represents a
speculative investment. The Purchaser is not a broker-dealer under Section 15 of the Exchange Act.
The Purchaser has the authority and is duly and legally qualified to purchase and own the
Securities. The Purchaser is able to bear the risk of such investment for an indefinite period and
to afford a complete loss thereof. The information set forth on the signature page hereto
regarding the Purchaser is accurate.
(c) Purchase of Securities. The Purchaser is acquiring the Securities in the ordinary
course of its business as principal for its own account for investment only and not with a view
toward, or for resale in connection with, the public sale or any distribution thereof. Such
Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities. The Purchaser acquired the Term Notes for purposes of investment
only in order to earn a profit in the form of interest. The Purchaser is not providing any
consideration other than the Term Notes in connection with the exchange of such Term Notes for the
Series A-1 Stock.
(d) Compliance with Securities Act. The Purchaser understands and agrees that the
Securities have not been registered under the 1933 Act or any applicable state securities laws, by
reason of their issuance in a transaction that does not require registration under the 1933 Act
(based in part on the accuracy of the representations and warranties of Purchaser contained
herein), and that such Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is exempt from such
registration. Notwithstanding anything to the contrary contained in this Agreement, such Purchaser
may transfer (without restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate is an “accredited investor”
under Regulation D and such Affiliate agrees to be bound by the terms and conditions of this
Agreement. For the purposes of this Agreement, an “Affiliate” of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. The term “Affiliate” when employed in
connection with the Company includes each Subsidiary (as defined in Section 3(a)) of the Company.
For purposes of this definition, “control” means the power to direct the management and policies of
such
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person or firm, directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.
(e) Restrictive Legend. The shares of Series A-1 Stock issuable hereunder shall bear
the following or similar legend:
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS OR BLUE SKY LAWS. SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR BLUE SKY LAWS, OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IRVINE SENSORS CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.”
(f) Communication of Offer. The offer to sell the Securities was directly
communicated to the Purchaser by the Company. At no time was the Purchaser presented with or
solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any
other form of general advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(g) Authority; Enforceability. If the Purchaser is an entity, it is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization with
the requisite corporate, limited liability company or partnership power and authority to enter into
and to consummate the transactions contemplated by the Transaction Agreements and otherwise to
carry out its obligations hereunder and thereunder. This Agreement and other agreements delivered
together with this Agreement or in connection herewith have been duly authorized, executed and
delivered by the Purchaser and are valid and binding agreements enforceable in accordance with
their 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; and Purchaser has full corporate power and authority necessary to
enter into this Agreement and such other agreements and to perform its obligations hereunder and
under all other agreements entered into by the Purchaser relating hereto.
(h) No Governmental Review. Each Purchaser understands that no United States federal
or state agency or any other governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the Securities.
(i) Correctness of Representations. Each Purchaser represents as to such Purchaser
that the foregoing representations and warranties are true and correct as of the date hereof and,
unless a Purchaser otherwise notifies the Company prior to the Closing Date shall be true and
correct as of the Closing Date.
(j) Survival. The foregoing representations and warranties shall survive the Closing
Date.
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3. Company Representations and Warranties. Except as set forth in a disclosure
schedule delivered to the Purchasers on the date hereof (the “Disclosure Schedule”), the Company
represents and warrants to and agrees with each Purchaser that: as of the date of this Agreement
and the Closing Date:
(a) Due Incorporation. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and has the requisite
corporate power to own its properties and to carry on its business as disclosed in the Reports.
The Company is duly qualified as a foreign corporation to do business and is in good standing in
each jurisdiction where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to so qualify would
not have a Material Adverse Effect. For purpose of this Agreement, a “Material Adverse Effect”
shall mean a material adverse effect on the financial condition, results of operations, properties
or business of the Company taken individually, or in the aggregate, as a whole. For purposes of
this Agreement, “Subsidiary” means, with respect to any entity at any date, any corporation,
limited or general partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 50% of (i) the outstanding capital stock
having (in the absence of contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a partnership or limited
liability company, the interest in the capital or profits of such partnership or limited liability
company or (iii) in the case of a trust, estate, association, joint venture or other entity, the
beneficial interest in such trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more intermediaries, by
such entity. All the Company’s Subsidiaries as of the Closing Date are set forth on Schedule 3(a)
hereto.
(b) Outstanding Stock. All issued and outstanding shares of capital stock of the
Company and each Subsidiary have been duly authorized and validly issued and are fully paid and
nonassessable.
(c) Authority; Enforceability. This Agreement and any other agreements delivered
together with this Agreement or in connection herewith to which the Company is a party
(collectively “Transaction Documents”) have been duly authorized, executed and delivered by the
Company and are valid and binding agreements enforceable against the Company in accordance with
their 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. The Company and Subsidiaries have full corporate power and authority
necessary to enter into and deliver the Transaction Documents and to perform their obligations
thereunder.
(d) Additional Issuances. There are no outstanding agreements or preemptive or
similar rights affecting the Company’s common stock or equity and no outstanding rights, warrants
or options to acquire, or instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common stock or equity of the
Company or Subsidiaries or other equity interest in any of the Subsidiaries of the Company except
as described on Schedule 3(d). The Common Stock of the Company on a fully diluted basis
outstanding as of the last Business Day preceding the Closing Date is set forth on Schedule 3(d).
"Business Day” and “trading day” shall mean any day that the New York Stock Exchange is open for
trading for three or more hours.
(e) Consents. No consent, approval, authorization or order of any court, governmental
agency or body or arbitrator having jurisdiction over the Company or any of its Affiliates, the
Nasdaq Capital Market (“NCM”), nor the Company’s shareholders is required for the execution by the
Company of the Transaction Documents, the issuance of the Series B 10% Cumulative Convertible
Preferred Stock (the “Series B Stock”) as contemplated by the form of Series B Term Sheet attached
hereto as Exhibit E (the “Term Sheet”) or pursuant to such terms as subsequently approved by the
Board
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and the Purchasers and to which Nasdaq does not object (the “Series B Financing”) and
compliance and performance by the Company of its obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the Securities, except for the filing by
the Company of a Notice of Sale of Securities on Form D with the Commission under Regulation D of
the Securities Act, the notice by the Company to NCM regarding listing of additional shares, and
applicable Blue Sky filings. The Transaction Documents and the Company’s performance of its
obligations thereunder, and the Term Sheet, have been approved unanimously by the Company’s
directors.
(f) No Violation or Conflict. Except as set forth on Schedule 3(f) or in the Other
Written Information, neither the issuance and sale of the Securities nor the performance of the
Company’s obligations under this Agreement and all other agreements entered into by the Company
relating thereto by the Company will:
(i) violate, conflict with, result in a breach of, or constitute a default (or an event which
with the giving of notice or the lapse of time or both would be reasonably likely to constitute a
default) under (A) the certificate of incorporation, charter or bylaws of the Company, (B) to the
Company’s knowledge, any decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its Subsidiaries or over the properties or assets of the
Company or any of its Subsidiaries, (C) the terms of any bond, debenture, note or any other
evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease,
mortgage, deed of trust or other instrument to which the Company or any of its Subsidiaries is a
party, by which the Company or any of its Subsidiaries is bound, or to which any of the properties
of the Company or any of its Subsidiaries is subject, or (D) the terms of any “lock-up” or similar
provision of any underwriting or similar agreement to which the Company, or any of its Subsidiaries
is a party except the violation, conflict, breach, or default of which would not have a Material
Adverse Effect on the Company; or
(ii) result in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Subsidiaries; or
(iii) result in the activation of any anti-dilution rights or a reset or repricing of any debt
or security instrument of any other creditor or equity holder of the Company, nor result in the
acceleration of the due date of any obligation of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and any applicable state
securities laws;
(ii) have been, or will be, duly and validly authorized and on the date of conversion of the
Series A-1 Stock and issuance of the Common Shares upon conversion therefor will be duly and
validly issued, fully paid and nonassessable, and the holding period for the Common Shares issuable
upon conversion of the Series A-1 Stock to be issued hereunder to Purchaser (provided that no
further consideration be delivered in connection with such conversion and no modifications are
subsequently made to the Series A-1 Stock after the Closing Date), will tack back to the date of
issuance of the related Term Notes (unless after the date hereof the Commission adopts rules or
interpretive guidance to the contrary);
(iii) will not have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company;
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(iv) will not subject the holders thereof to personal liability by reason of being such
holders; and
(v) will have been issued in reliance upon an exemption from the registration requirements of
and will not result in a violation of Section 5 under the 1933 Act, provided that the
representations and warranties of the Purchasers hereunder shall remain true on the date of
issuance of the Securities.
(h) Reporting Company. The Company is a publicly-held company subject to reporting
obligations pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the “1934
Act”) and has a class of common stock registered pursuant to Section 12(g) of the 1934 Act.
Pursuant to the provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Commission during the preceding twelve months.
(i) Information Concerning Company. The Reports contain all material information
relating to the Company and its operations and financial condition as of their respective dates
which information is required to be disclosed therein. Since the date of the latest financial
statements included in the Reports, and except as modified in the Other Written Information or in
the Schedules hereto, there has been no material adverse change in the Company’s business,
financial condition or affairs not disclosed in the Reports (it being understood that by signing
this Agreement, the Purchasers shall be deemed to have agreed in writing to receiving such Other
Written Information and Schedules). The Reports do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
(j) No Market Manipulation. The Company will not take, directly or indirectly, any
action designed to, or that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued or resold.
(k) Listing. The Company’s common stock is listed on the NCM under the symbol IRSN.
Except for such notices previously publicly reported by the Company, the Company has not received
any oral or written notice that the Common Stock is not eligible nor will become ineligible for
listing on the NCM nor that the Common Stock does not meet all requirements for the continuation of
such listing. As of the date of this Agreement and the Closing Date, after giving effect to the
issuance of the Series A-1 Stock, the Company satisfies the requirements for the continued listing
and trading of the Common Stock on the NCM other than the price per share requirements.
(l) Stop Transfer. The Securities, when issued, will be restricted securities. The
Company will not issue any stop transfer order or other order impeding the sale, resale or delivery
of any of the Securities, except as may be required in order to facilitate compliance with
applicable federal or state securities laws and unless contemporaneous notice of such instruction
is given to the Purchaser.
(m) Not an Integrated Offering. Neither the Company, nor any of its Affiliates, nor
to its knowledge, any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security (other than in
connection with the Series B Financing) under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the NCM which would impair the exemptions relied
upon in this Offering or the Company’s ability to timely
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comply with its obligations hereunder. Nor will the Company or any of its Affiliates take any
action or steps that would cause the offer or issuance of the Securities to be integrated with
other offerings which would impair the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder. Other than the Series B Financing, the
Company will not conduct any offering other than the transactions contemplated hereby that will be
integrated with the offer or issuance of the Securities, which would impair the exemptions relied
upon in this Offering or the Company’s ability to timely comply with its obligations hereunder.
The foregoing notwithstanding, the Company represents that the Series B Financing, if integrated
with this Offering, will not impair the exemptions relied upon for the offer and sale of the
Securities and the Company will not conduct a Series B Financing that would result in a violation
of the rules and regulations of the NCM.
(n) No General Solicitation. Neither the Company, nor any of its Affiliates, nor to
its knowledge, any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under the ▇▇▇▇ ▇▇▇) in
connection with the offer or sale of the Securities.
(o) Dilution. The Company’s executive officers and directors understand the nature
of the Securities being sold hereby and recognize that the issuance of the Securities will have a
potential dilutive effect on the equity holdings of other holders of the Company’s equity or rights
to receive equity of the Company. The board of directors of the Company has unanimously concluded,
in its good faith business judgment, that the issuance of the Securities is in the best interests
of the Company. The Company specifically acknowledges that its obligation to issue the Common
Shares upon conversion of the Series A-1 Stock is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of other stockholders
of the Company or parties entitled to receive equity of the Company.
(p) No Disputes with Accountants. There are no disputes of any kind presently
existing, or reasonably anticipated by the Company to arise, between the Company and the
accountants formerly or presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants.
(q) Subsidiary Representations. The Company makes each of the representations
contained in Sections 3(a), (b), (c), (d), (e), (f) and (p) of this Agreement, as same may relate
to each Subsidiary of the Company, with the same qualifications to each such representation.
(r) DTC Status/Transfer Agent. The Company’s transfer agent is eligible to
participate in and the Common Stock is eligible for transfer through DWAC pursuant to the
Depository Trust Company Automated Securities Transfer Programs, subject to any restrictions
imposed by securities laws. The name, address, telephone number, fax number, contact person and
email address of the Company transfer agent are set forth on Schedule 3(s) hereto.
(s) Correctness of Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all material respects,
and, unless the Company otherwise notifies the Purchasers prior to the Closing Date, shall be true
and correct in all material respects as of the Closing Date.
(t) Bankruptcy. The Company has no plan to file for protection under any federal or
state bankruptcy or debtor protection law or regulation.
(u) Survival. The foregoing representations and warranties shall survive the Closing
Date.
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4. Regulation D Offering/Legal Opinion. The offer and issuance of the Securities to
the Purchasers is being made pursuant to the exemption from the registration provisions of the 1933
Act afforded by Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D
promulgated thereunder. On the Closing Date, the Company will provide an opinion reasonably
acceptable to such Purchasers from the Company’s legal counsel in the form annexed hereto as
Exhibit B opining on the availability of an exemption from registration under the 1933 Act as it
relates to the offer and issuance of the Securities and other matters reasonably requested by the
Purchasers. The Company will provide, at the Company’s expense, such other legal opinions in the
future as are reasonably necessary for the issuance and resale of the Common Stock issuable upon
conversion of the Series A-1 Stock pursuant to an effective registration statement, Rule 144, as
amended, under the 1933 Act (“Rule 144”) or an exemption from registration.
5. Covenants of the Company. The Company covenants and agrees with the Purchasers as
follows:
(a) Stockholder Approval. Notwithstanding the fact that stockholder approval is not
required for the issuance of Series A-1 Stock and the performance by the Company of its obligations
under the Transaction Documents (the “Approval”), the Company will diligently attempt to obtain the
Approval. Among others, the Company will state that the Approval is in the best interests of the
shareholders of the Company and recommend that the shareholders of the Company vote in favor of the
Approval, provided that such recommendation shall not as a result of events occurring after the
date hereof, in the sole determination of the Company’s Board of Directors, constitute a breach of
a director’s fiduciary duties to the Company or its stockholders. Failure to submit the Approval
to the Company’s shareholders on or before July 31, 2008, or failure by any of the holders of
Company Common Stock set forth on Schedule 5(a) to vote such Common Stock and any other Common
Stock over which they exercise voting control in favor of the Approval shall be deemed an Event of
Default as that terms is employed in the Certificate of Designations. Prior to Closing, the
Company will provide to Purchasers a signed agreement from each of the persons and entities set
forth on Schedule 5(a), in the form annexed hereto as Exhibit C in connection with their agreement
to vote in favor of the Approval. The Company agrees that it will, as soon as reasonably
practicable following the Closing Date, submit the terms of the Series A-1 Stock offering pursuant
to the Transaction Documents and the Series B Financing to the Company’s stockholders for approval
of the Company’s obligations under the Transaction Documents including the issuance of such number
of shares of Common Stock issuable upon conversion of the Series A Stock and Series B Stock as may
be required by the antidilution provisions of the Certificate of Designations, which could be
issued for the Company to allow for full-ratchet anti-dilution.
(b) Stop Orders. The Company will advise the Purchasers, within twenty-four hours
after the Company receives notice of issuance by the Commission, the Principal Market or any other
trading or listing market, any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any Securities, or of the
suspension of the qualification of the Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
(c) Listing. The Company will maintain the listing or quotation of its Common Stock
on the American Stock Exchange, NCM, Nasdaq Global Market, Nasdaq Global Select Market, or New York
Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market
for the Common Stock (the “Principal Market”)), and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the Principal Market, as
applicable. The Company will provide the Purchasers copies of all notices it receives notifying the
Company of the threatened and actual delisting of the Common Stock from any Principal Market. As
of the date of this Agreement, the NCM is the Principal Market. The Company agrees to use its
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commercially reasonable best efforts to maintain its listing on the NCM, including undertaking
a timely reverse stock spit, if necessary to regain compliance with the NCM’s trading price per
share requirements. The Company shall seek the approval of its shareholders for the board of
directors of the Company to exercise its discretion to effectuate such reverse split. Failure to
obtain approval for such stock split from the Company’s shareholders on or before July 31, 2008 is
an Event of Default as that term is employed in the Certificate of Designations.
(d) Market Regulations. The Company shall notify the Commission, Principal Market and
applicable state authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and valid issuance of
the Securities to the Purchasers and promptly provide copies thereof to Purchasers.
(e) Reservation. Prior to the Closing Date, the Company will reserve from its
authorized but unissued Common Stock, on behalf of the Purchasers, 100% of the amount of Common
Stock required to allow conversion of all of the Series A-1 Stock issued pursuant to this Agreement
at the conversion price in effect on the Closing Date (“Initial Reservation”). After the Closing
Date, the Company undertakes to use its commercially reasonable best efforts to amend its
Certificate of Incorporation to reserve on behalf of each holder of Series A-1 Stock, from its
authorized but unissued Common Stock, a number of Common Shares equal to 150% of the amount of
Common Shares issuable upon conversion of all then outstanding Series A-1 Stock (“Subsequent
Reservation”). Failure to have reserved the Initial Reservation on or prior to the Closing Date,
or failure to have reserved the Subsequent Reservation, pursuant to this Section 5(e) for three (3)
consecutive business days or ten (10) days in the aggregate after July 31, 2008 (or such later date
as may be approved with the consent of the holders of Series A-1 Stock) shall be a material default
of the Company’s obligations under this Agreement and an Event of Default under the Certificate of
Designations.
(f) Further Registration Statements. Except as described on Schedule 3(f), the
Company will not file any registration statements, including but not limited to Forms S-8 (other
than with respect to an S-8 each year covering the Company’s existing evergreen provision in its
stock option plan, with the Commission or with state regulatory authorities without the consent of
the Purchaser until the expiration of the “Exclusion Period,” which shall be until 180 days
following the Closing Date. The Exclusion Period will be tolled during the pendency of an Event of
Default (as defined in Article 10 of the Loan Agreement among the Company and Purchasers or in the
Certificate of Designations which default has not been waived or cured.
(g) Confidentiality/Public Announcement. From the date of this Agreement and until
the sooner of (i) three (3) years after the Closing Date, or (ii) until all the Common Shares have
been resold or transferred by all the Purchasers pursuant to the Registration Statement or pursuant
to Rule 144, without regard to volume limitations, the Company agrees that except in connection
with a Form 8-K, Form 10-K, Form 10-Q, Form D, Principal Market notices, Proxy or the Registration
Statement, it will not disclose publicly or privately the identity of the Purchasers unless
expressly agreed to in writing by a Purchaser (which approval will not be unreasonably withheld or
delayed) or only to the extent required by law and then only upon five days prior notice to
Purchaser. Notwithstanding the foregoing, the Company and Purchasers agree that a copy of this
Agreement may be required to be filed with the Commission. In any event and subject to the
foregoing, the Company undertakes to file a Form 8-K or make a public announcement describing the
Offering not later than the fourth business day after the Closing Date. In the Form 8-K or public
announcement, the Company will specifically disclose the amount of Common Stock outstanding
immediately after the Closing.
(Subscription Agreement)
9
(h) Non-Public Information. The Company covenants and agrees that neither it nor any
other person acting on its behalf will provide any Purchaser with any information that the Company
believes constitutes material non-public information, unless prior thereto such Purchaser shall
have agreed in writing to receive such information or has designated an agent of Purchaser to
receive such information on its behalf. The Company understands and confirms that each Purchaser
shall be relying on the foregoing representations in effecting transactions in securities of the
Company.
(i) Offering Restrictions. Until the expiration of the Exclusion Period, except for
the Excepted Issuances, the Company will not enter into an agreement to nor issue any equity,
convertible debt or other securities convertible into Common Stock or equity of the Company nor
modify any of the foregoing which may be outstanding at anytime, without the prior written consent
of the Purchasers, which consent may be withheld for any reason. For so long as the Series A-1
Stock remains outstanding, except for the Excepted Issuances, the Company will not enter into any
equity line of credit or similar bank financing agreement, nor issue nor agree to issue any
floating or variable priced equity linked instruments nor any of the foregoing or equity with price
reset rights, except with the consent of the Purchasers. The restriction described in the previous
sentence shall only apply for 365 calendar days following the date hereof.
(j) Transfer Agent. On or before the Closing Date, the Company’s attorneys will
deliver a letter to the Company’s transfer agent in the form annexed hereto as Exhibit D, stating
that the holding period of the Common Shares for purposes of Rule 144 under the 1933 Act tacks back
to the issue date of the Term Notes, subject only to the qualifications set forth in Section
3(g)(ii) above.
(k) Delivery of Unlegended Shares. Within three (3) business days (such third
business day being the “Unlegended Shares Delivery Date”) after the business day on which the
Company has received (i) a notice that Common Shares held by a Purchaser have been sold pursuant to
Rule 144, (ii) a representation that the requirements of Rule 144 have been satisfied, and (iii)
the original share certificates representing the Common Shares that have been sold, and (iv)
customary representation letters of the Purchaser and/or Purchaser’s broker regarding compliance
with the requirements of Rule 144, the Company at its expense, (y) shall deliver, and shall cause
legal counsel selected by the Company to deliver to its transfer agent (with copies to Purchaser)
an appropriate instruction and opinion of such counsel, directing the delivery of shares of Common
Stock without any legends including the legend set forth in Section 2(e) above (the “Unlegended
Shares”); and (z) cause the transmission of the certificates representing the Unlegended Shares
together with a legended certificate representing the balance of the submitted Common Shares
certificate, if any, to the Purchaser at the address specified in the notice of sale, via express
courier, by electronic transfer or otherwise on or before the Unlegended Shares Delivery Date. In
lieu of delivering physical certificates representing the Unlegended Shares, if the Company’s
transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer program, upon request of a Purchaser, so long as the certificates therefor do not bear a
legend and such Purchaser is not obligated to return such certificate for the placement of a legend
thereon, the Company shall cause its transfer agent to electronically transmit the Unlegended
Shares by crediting the account of Purchaser’s prime broker with DTC through its Deposit Withdrawal
Agent Commission system. Such delivery must be made on or before the Unlegended Shares Delivery
Date.
6. Broker. The Company on the one hand, and each Purchaser (for himself only) on the
other hand, agrees to indemnify the other against and hold the other harmless from any and all
liabilities to any persons claiming brokerage commissions or finder’s fees on account of services
purported to have been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such party’s actions. The
Company and each Purchaser represents that there are no parties entitled to receive fees,
commissions, or similar payments in connection with the sale of the Series A-1 Stock to the
Purchasers.
(Subscription Agreement)
10
7. Legal Fees. The Company shall pay to Grushko & ▇▇▇▇▇▇▇, P.C. their fees and
expenses incurred in connection with the Offering (the “Offering”) in the amount of $40,000. The
Legal Fees will be payable on the closing of the Series B Financing.
8. Covenants of the Company and Purchaser Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and defend the Purchasers, the
Purchasers’ officers, directors, agents, Affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Purchaser or any such person which results,
arises out of or is based upon (i) any material misrepresentation by Company or breach of any
warranty by Company in this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or cure periods, any
breach or default in performance by the Company of any covenant or undertaking to be performed by
the Company hereunder, or any other agreement entered into by the Company and Purchaser relating
hereto.
(b) In no event shall the liability of any Purchaser or permitted successor hereunder or under
any other agreement delivered in connection herewith be greater in amount than the dollar amount of
the net proceeds actually received by such Purchaser upon the sale of the Common Shares.
9. Right of First Refusal. Subject to the rights described on Schedule 3(f) hereto,
for 365 days following the Closing Date or until the Term Notes are no longer outstanding,
whichever is later, the Purchasers shall be given not less than seven (7) business days prior
written notice of any proposed sale by the Company of its common stock or other securities or debt
obligations, except in connection with (i) full or partial consideration in connection with a
strategic merger, acquisition, consolidation or purchase of substantially all of the securities or
assets of corporation or other entity provided such issuances are not for the purpose of raising
capital, (ii) the Company’s issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the purpose of raising
capital, (iii) the Company’s issuance of Common Stock or the issuances or grants of options or
other awards to purchase Common Stock, restricted stock, or stock appreciation rights, pursuant to
stock option plans, stock incentive plans and employee stock purchase plans described on Schedule
3(f) hereto at prices equal to or higher than the fair market value of the Common Stock on the
issue or grant date of any of the foregoing, (iv) the Company’s issuance of Common Stock or similar
rights pursuant to the Company’s Non-Qualified Deferred Compensation Plan or the Company’s Cash or
Deferred & Stock Bonus Plan; (v) the Company’s issuance of Common Stock upon exercise of
outstanding warrants or conversion of the notes listed on Schedule 9; (vi) underwritten public
offerings; or (vii) such other offerings with the consent of the Purchasers (collectively the
foregoing are “Excepted Issuances”). The Purchasers who exercise their rights pursuant to this
Section 9 shall have the right during the seven (7) business days following receipt of the notice to
purchase in proportion to their holdings of Series A-1 Stock on the Closing Date, such offered
common stock, debt or other securities in accordance with the terms and conditions set forth in the
notice of sale and pay for same by crediting the Company for amounts outstanding on the
Obligations. In the event the principal terms and conditions are materially modified during the
notice period, the Purchasers shall be given prompt notice of such modification and shall have the
right during the seven (7) business days following the notice of modification to exercise such
right.
10. Miscellaneous.
(a) Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless otherwise specified
herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return
receipt
(Subscription Agreement)
11
requested, postage prepaid, (iii) delivered by reputable overnight courier service with
charges prepaid, or (iv) transmitted by hand delivery, electronic mail, or facsimile, addressed as
set forth below or to such other address as such party shall have specified most recently by
written notice. Any notice or other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery by electronic mail or facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal business hours where such notice is
to be received), or the first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully prepaid, addressed to
such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses
for such communications shall be: (i) if to the Company, to: Irvine Sensors Corporation, ▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn: Chief Financial Officer, facsimile: (▇▇▇) ▇▇▇-▇▇▇▇, with a
copy by facsimile only to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, Esq., facsimile: (▇▇▇) ▇▇▇-▇▇▇▇, and (ii) if to the Purchasers, to: the one or more
addresses and facsimile numbers indicated on the signature pages hereto, with an additional copy by
facsimile only to: Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
facsimile: (▇▇▇) ▇▇▇-▇▇▇▇.
(b) Entire Agreement; Assignment; Waiver. This Agreement and other documents
delivered in connection herewith represent the entire agreement between the parties hereto with
respect to the subject matter hereof and may be amended only by a writing executed by both parties.
Neither the Company nor the Purchasers have relied on any representations not contained or
referred to in this Agreement and the documents delivered herewith. No right or obligation of the
Company shall be assigned or waived without prior notice to and the written consent of the
Purchasers.
(c) Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by the different signatories hereto on separate counterparts, each of which, when
so executed, shall be deemed an original, but all such counterparts shall constitute but one and
the same instrument. This Agreement may be executed by facsimile signature and delivered by
facsimile transmission.
(d) Law Governing this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to principles of conflicts of
laws. Any action brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the State of New York. The parties and the individuals executing this
Agreement and other agreements referred to herein or delivered in connection herewith on behalf of
the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees
and costs. In the event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict therewith and shall
be deemed modified to conform with such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity or enforceability of any other
provision of any agreement.
(e) Specific Enforcement, Consent to Jurisdiction. The Company and each Purchaser
acknowledge and agree that irreparable damage would occur in the event that any of the provisions
of this Agreement were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any other remedy to which
any of them may be
(Subscription Agreement)
12
entitled by law or equity. Subject to Section 10(d) hereof, each of the Company, the
Purchasers and any signatory hereto in his personal capacity hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction in New York of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is improper. Nothing in
this Section shall affect or limit any right to serve process in any other manner permitted by law.
(f) Independent Nature of Purchasers. The Company acknowledges that the obligations
of each Purchaser under the Transaction Documents are several and not joint with the obligations of
any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under the Transaction Documents. The Company acknowledges that
the decision of each Purchaser to purchase Securities has been made by such Purchaser independently
of any other Purchaser and independently of any information, materials, statements or opinions as
to the business, affairs, operations, assets, properties, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Company which may have been made or given by
any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of
its agents or employees shall have any liability to any Purchaser (or any other person) relating to
or arising from any such information, materials, statements or opinions. The Company acknowledges
that nothing contained in any Transaction Document, and no action taken by any Purchaser pursuant
hereto or thereto shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including without limitation, the rights
arising out of the Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. The Company acknowledges that
it has elected to provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because Company was required or requested to do so by the
Purchasers. The Company acknowledges that such procedure with respect to the Transaction Documents
in no way creates a presumption that the Purchasers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions contemplated thereby.
(g) Consent. As used in the Agreement, “consent of the Purchasers” or similar
language means the consent of holders of not less than 80% of the Series A-1 Stock then
outstanding.
(h) Equal Treatment. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of the Transaction Documents unless
the same consideration is also offered and paid to all the parties to the Transaction Documents.
(i) No Waiver. Nothing in the Transaction Documents shall be deemed a waiver,
extension or modification by Purchasers of any of their rights under any other agreement between or
among them and the Company. Nothing in the Transaction Documents shall be deemed extension of any
time period, waiver or forebearance of any obligation of the Company in any such other agreement.
All such other agreements remain in full force and effect. Without limiting the foregoing, the
Purchasers are specifically not waiving any anti-dilution, ratchet or similar rights in connection
with the Company.
[THIS SPACE INTENTIONALLY LEFT BLANK]
(Subscription Agreement)
13
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and
returning a copy to the undersigned whereupon it shall become a binding agreement between us.
| IRVINE SENSORS CORPORATION, | ||||||
| a Delaware corporation | ||||||
| By: | /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
|
|||||
| Title: President and Chief Executive Officer | ||||||
| Dated: April 14, 2008 | ||||||
| No. of Shares | ||||||||||||||||
| of Series A-1 | Debt Converted | |||||||||||||||
| Stock | Total Purchase | |||||||||||||||
| Purchaser | Purchased | Price | Principal | Interest | ||||||||||||
LONGVIEW FUND, LP ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇ |
116,666 | $ | 3,500,000 | $ | 2,471,240.27 | $ | 1,028,759.73 | |||||||||
By:
|
/s/ S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
|
|||
| (Signature) | ||||
| Print Name: S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ | ||||
| Title: CFO Investment Advisor | ||||
| * | Interest through April 10, 2008, compounded monthly since September 30, 2007 |
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
Please acknowledge your acceptance of the foregoing Stock Purchase Agreement by signing and
returning a copy to the undersigned whereupon it shall become a binding agreement between us.
| IRVINE SENSORS CORPORATION | ||||||
| a Delaware corporation | ||||||
| By: | /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ | |||||
| Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇ | ||||||
| Title: President and Chief Executive Officer | ||||||
| Dated: April 14, 2008 | ||||||
| No. of Shares of | Debt Converted | |||||||||||||||
| Series A-1 Stock | Total | |||||||||||||||
| Purchaser | Purchased | Purchase Price | Principal | Interest | ||||||||||||
ALPHA CAPITAL ANSTALT Pradafant 7 9490 Furstentums Vaduz, Lichtenstein Fax: ▇▇▇-▇▇-▇▇▇▇▇▇▇▇ |
16,666 | $ | 500,000 | $ | 340,247.60 | $ | 159,752.32 | |||||||||
By:
|
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
|
|||
| (Signature) | ||||
| Print Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ | ||||
| Title:Director | ||||