Shares and Warrants to Purchase ____ Shares VIRNETX HOLDING CORPORATION Common Stock PLACEMENT AGENT AGREEMENT
Exhibit 1.1
___ Shares
and Warrants to Purchase ____ Shares
VIRNETX HOLDING CORPORATION
Common Stock
December __, 2008
▇▇▇▇▇ and Company, LLC
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▇▇▇▇▇-▇▇▇▇▇▇ CAPITAL GROUP LLC
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Dear Sirs:
1. Introductory. VirnetX Holding Corporation, a Delaware corporation (the “Company”),
proposes to issue and sell to certain purchasers, pursuant to the terms and conditions of a
subscription agreement in the form of Exhibit A attached hereto (the “Subscription Agreement”) to
be entered into with such purchasers (each a “Purchaser” and collectively, the “Purchasers”), up to
an aggregate of ___ shares of common stock, $0.0001 par value (the “Common Stock”) of the
Company and warrants (the “Warrants”), each warrant to
purchase ____ shares of Common Stock. The
aggregate shares of Common Stock so proposed to be sold is hereinafter referred to as the “Stock”
and the number of shares of Common Stock issuable upon exercise of the Warrants is hereinafter
referred to as the “Warrant Stock.” The Warrant Stock, together with the Stock and the Warrants,
are referred to herein as the “Securities.” The Company hereby confirms that ▇▇▇▇▇ and Company,
LLC, (“Cowen” or the “Lead Placement Agent”) and ▇▇▇▇▇-▇▇▇▇▇▇ Capital Group LLC (“▇▇▇▇▇-▇▇▇▇▇▇” or
the “Co-Placement Agent” and, together with the Lead Placement Agent, the “Placement Agents”) acted
as Placement Agents in the sale of the Stock and the Warrants in accordance with the terms and
conditions of this Placement Agent Agreement (this “Agreement”) and the Subscription Agreement.
2. Agreement to Act as Placement Agents; Placement of Securities. On the basis of the
representations, warranties and agreements of the Company contained herein, and subject to all the
terms and conditions of this Agreement:
(I) The Company hereby acknowledges that the Placement Agents acted as its sole agent to
solicit offers for the purchase of all or part of the Stock and Warrants from the Company in
connection with the proposed offering of the Stock and the Warrants (the “Offering”). Until the
Closing Date (as defined in Section 4 hereof), the Company shall not, without the prior written
consent of the Placement Agents, solicit or accept offers to purchase the Stock or the Warrants
otherwise than through the Placement Agents.
(II) The Company hereby acknowledges that the Placement Agents, as agent of the Company,
used their best efforts to solicit offers to purchase the Stock and Warrants from the Company on
the terms and subject to the conditions set forth in the Prospectus (as defined below). The
Placement Agents shall use reasonable efforts to assist the Company in obtaining performance by
each Purchaser whose offer to purchase the Stock and Warrants was solicited by the Placement
Agents and accepted by the Company, but the Placement Agents shall not, except as otherwise
provided in this Agreement, be obligated to disclose the identity of any
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potential purchaser or have any liability to the Company in the event any such purchase is
not consummated for any reason. Under no circumstances will the Placement Agents be obligated
to underwrite or purchase any Stock and Warrants for its own account and, in soliciting
purchases of Stock and Warrants, the Placement Agents acted solely as the Company’s agents and
not as principals. Notwithstanding the foregoing and except as otherwise provided in this
Section 2(II), it is understood and agreed that the Placement Agents (or their affiliates) may,
solely at their discretion and without any obligation to do so, purchase the Stock and Warrants
as principal.
(III) Offers for the purchase of Stock and Warrants were solicited by the Placement Agents
as agent for the Company at such times and in such amounts as the Placement Agents deemed
advisable. The Placement Agents communicated to the Company, orally or in writing, each
reasonable offer to purchase Stock and Warrants received by them as agents of the Company. The
Company shall have the sole right to accept offers to purchase the Stock and Warrants and may
reject any such offer, in whole or in part. The Placement Agents have the right, in their
discretion, without notice to the Company, to reject any offer to purchase Stock and Warrants
received by them, in whole or in part, and any such rejection shall not be deemed a breach of
this Agreement.
(IV)
The Stock and Warrants are being sold to the Purchasers at a price of
US$ per
share. The purchases of the Stock and Warrants by the Purchasers shall be evidenced by the
execution of Subscription Agreements by each of the Purchasers and the Company.
(V) As compensation for services rendered, on the Closing Date, (A) the Company shall pay
to the Lead Placement Agent, on behalf of the Placement Agents, by wire transfer of immediately
available funds to an account or accounts designated by the Lead Placement Agent a cash fee
equal to 7% of the gross proceeds of the offering of the Securities and (B) 7% of the exercise
price of all Warrants sold to Purchasers upon the exercise of the Warrants.
(VI) No Stock or Warrants which the Company agreed to sell pursuant to the Subscription
Agreements shall be deemed to have been purchased and paid for, or sold by the Company, until
such Stock or Warrants shall have been delivered to the Purchaser thereof against payment by
such Purchaser. If the Company shall default in their obligations to deliver Stock to a
Purchaser whose offer it has accepted, the Company shall indemnify and hold the Placement Agents
harmless against any loss, claim, damage or expense arising from or as a result of such default
by the Company in accordance with the procedures set forth in Section 8 herein.
3. Representations and Warranties of the Company
(I) The Company represents and warrants to the Placement Agents and the Purchasers, as of
the date hereof, and agrees with the Placement Agents and the Purchasers, that:
(a) A registration statement of the Company on Form S-1 (File No. 333-153645) (including all
pre-effective amendments thereto, the “Initial Registration Statement”) in respect of the
Securities has been filed with the Securities and Exchange Commission (the “Commission”)
pursuant to the Securities Act of 1933, as amended (the “Securities Act”). The Company
meets the requirements for use of Form S-1 under the Securities Act, and the rules and
regulations of the Commission thereunder (the “Rules and Regulations”). The Initial
Registration Statement and any post-effective amendment thereto, each in the form heretofore
delivered to the Placement Agents, and, excluding exhibits thereto, have been declared
effective by the Commission in such form and meet the requirements of the Securities Act and
the Rules and Regulations. Other than (i) a registration statement, if any, increasing the
size of the offering filed pursuant to Rule 462(b) under the Securities Act and the Rules
and Regulations (a “Rule 462(b) Registration Statement”) and (ii) the Prospectus (as defined
below) contemplated by this Agreement to be filed pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section 5 hereof and (iii) any Issuer Free Writing Prospectus
(as defined below), no other document with respect to the offer and sale of the Stock or the
Warrants has heretofore been filed with the Commission. No stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective amendment thereto or
the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that
purpose or pursuant to Section 8A of the Securities Act has been initiated or threatened by
the Commission. The prospectus filed as part
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of the registration statement in the form in which it has most recently been filed with the
Commission on or prior to the date of this Agreement and any prospectus subject to
completion included in the Registration Statement or any preliminary prospectus (including
any preliminary prospectus supplement) relating to the Stock and the Warrants filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations is hereinafter called a
“Preliminary Prospectus.” The various parts of the Initial Registration Statement and the
Rule 462(b) Registration Statement, if any, in each case including all exhibits thereto and
(i) the information contained in the Prospectus filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations and (ii) the documents incorporated by reference in the
Rule 462(b) Registration Statement at the time the Rule 462(b) Registration Statement became
effective, are hereinafter collectively called the “Registration Statements.” The
prospectus included in the Initial Registration Statement at the time of effectiveness
thereof, as supplemented by the final prospectus relating to the offer and sale of the Stock
and Warrants, in the form filed pursuant to and within the time limits described in Rule
424(b) under the Rules and Regulations, is hereinafter called the “Prospectus.” Any
reference to any Registration Statement shall be deemed to refer to and include the
documents incorporated by reference therein.
(b) As of the Applicable Time (as defined below) and as of the Closing Date, as the case may
be, neither (i) the General Use Free Writing Prospectus(es) (as defined below) issued at or
prior to the Applicable Time, and, the Pricing Prospectus (as defined below) and the
information included on Schedule [ ] hereto all considered together (collectively, the
“General Disclosure Package”), (ii) any individual Limited Use Free Writing Prospectus (as
defined below), nor (iii) the bona fide electronic road show (as defined in Rule 433(h)(5)
of the Rules and Regulations that has been made available without restriction to any
person), when considered together with the General Disclosure Package, included or will
include any untrue statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from the Pricing
Prospectus, in reliance upon, and in conformity with, written information furnished to the
Company by the Placement Agents specifically for inclusion therein, which information the
parties hereto agree is limited to the Placement Agents’ Information as defined in Section
17. As used in this paragraph (b) and elsewhere in this Agreement:
“Applicable Time” means [___] [A/P].M., New York time, on the date of this Agreement or
such other time as agreed to by the Company and the Placement Agents.
“Pricing Prospectus” means the Preliminary Prospectus, as amended and supplemented immediately
prior to the Applicable Time, including any document incorporated by reference therein and any
prospectus supplement deemed to be a part thereof.
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in
Rule 433 of the Rules and Regulations relating to the Stock and Warrants in the form filed or
required to be filed with the Commission or, if not required to be filed, in the form retained in
the Company’s records pursuant to Rule 433(g) of the Rules and Regulations.
“General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is
identified on Schedule A to this Agreement.
“Limited Use Free Writing Prospectuses” means any Issuer Free Writing Prospectus that is not a
General Use Free Writing Prospectus.
(c) No order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free
Writing Prospectus or the Prospectus relating to the Offering has been issued by the
Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities
Act has been instituted or threatened by the Commission, and each Preliminary Prospectus, if
any, at the time of filing thereof, conformed in all material respects to the requirements
of the Securities Act and the Rules and Regulations, and did not contain an 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, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from any Preliminary Prospectus, in
reliance upon, and in conformity with, written
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information furnished to the Company by the Placement Agents specifically for inclusion
therein, which information the parties hereto agree is limited to the Placement Agents’
Information as defined in Section 17.
(d) At the respective times the Registration Statements and any amendments thereto became or
become effective, at the date of this Agreement and at the Closing Date, each Registration
Statement and any amendments thereto conformed and will conform in all material respects to
the requirements of the Securities Act and the Rules and Regulations and did not and will
not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not misleading;
and the Prospectus and any amendments or supplements thereto, at the time the Prospectus or
any amendment or supplement thereto was issued and at the Closing Date, conformed and will
conform in all material respects to the requirements of the Securities Act and the Rules and
Regulations and did not and will not contain an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however, that the
foregoing representations and warranties in this paragraph (d) shall not apply to
information contained in or omitted from the Registration Statements or the Prospectus, or
any amendment or supplement thereto, in reliance upon, and in conformity with, written
information furnished to the Company by the Placement Agents specifically for inclusion
therein, which information the parties hereto agree is limited to the Placement Agents’
Information (as defined in Section 17). The Prospectus contains all required information
under the Securities Act with respect to the Stock and the distribution of the Stock.
(e) Each Issuer Free Writing Prospectus, if any, as of its issue date and at all subsequent
times through the completion of the offer and sale of the Stock and Warrants or until any
earlier date that the Company notified or notifies the Placement Agents as described in
Section 5, did not, does not and will not include any information that conflicted, conflicts
or will conflict with the information contained in the Registration Statement, Pricing
Prospectus or the Prospectus, including any document incorporated by reference therein and
any prospectus supplement deemed to be a part thereof that has not been superseded or
modified, or included or would include an untrue statement of a material fact or omitted or
would omit to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances prevailing at the subsequent
time, not misleading. The foregoing sentence does not apply to statements in or omissions
from any Issuer Free Writing Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by the Placement Agents specifically for inclusion
therein.
(f) The Company has not, directly or indirectly, distributed and will not distribute any
offering material in connection with the offering and sale of the Stock and Warrants other
than any Preliminary Prospectus, the Prospectus and other materials, if any, permitted under
the Securities Act and consistent with Section 5 below. The Company will file with the
Commission all Issuer Free Writing Prospectuses (other than a “road show,” as described in
Rule 433(d)(8) of the Rules and Regulations), if any, in the
time and manner required under
Rules 163(b)(2) and 433(d) of the Rules and Regulations.
Rules 163(b)(2) and 433(d) of the Rules and Regulations.
(g) The Company and each of its subsidiaries (as defined in Section 15) have been duly
incorporated and are validly existing as corporations or other legal entities in good
standing (or the foreign equivalent thereof) under the laws of their respective
jurisdictions of organization. The Company and each of its subsidiaries are duly qualified
to do business and are in good standing as foreign corporations or other legal entities in
each jurisdiction in which their respective ownership or lease of property or the conduct of
their respective businesses requires such qualification and have all power and authority
(corporate or other) necessary to own or hold their respective properties and to conduct the
businesses in which they are engaged, except where the failure to so qualify or have such
power or authority would not (i) have, singularly or in the aggregate, a material adverse
effect on the condition (financial or otherwise), results of operations, assets, business or
prospects of the Company and its subsidiaries taken as a whole, or (ii) impair in any
material respect the ability of the Company to perform its obligations under this Agreement
or to consummate any transactions contemplated by this Agreement, the General Disclosure
Package or the Prospectus (any such effect as described in clauses (i) or (ii), a “Material
Adverse Effect”). The Company owns or controls, directly or indirectly, only the following
corporations, partnerships, limited liability
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partnerships, limited liability companies, associations or other entities: Alera Systems,
Inc., Network Research Corp., Pacific Acquisition Corporation, PASW Europe Limited and
VirnetX, Inc.
(h) The Company has the full right, power and authority to enter into this Agreement, each
of the Subscription Agreements and that certain Escrow Agreement (the “Escrow Agreement”)
dated as of the date hereof by and among the Company, the Placement Agents and the escrow
agent named therein, and to perform and to discharge its obligations hereunder and
thereunder; and this Agreement, each of the Subscription Agreements, and the Escrow
Agreement has been duly authorized, executed and delivered by the Company, and constitutes a
valid and binding obligation of the Company enforceable in accordance with its terms, except
that such enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect, affecting creditors’ rights
generally.
(i) The Company has an authorized capitalization as set forth in the Pricing Prospectus and
the Stock and Warrant Stock to be issued and sold by the Company to the Purchasers pursuant
to the Subscription Agreements or upon exercise of the Warrants have been duly and validly
authorized and, when issued and delivered against payment therefor as provided in the
Subscription Agreements and Warrants, will be duly and validly issued, and will be fully
paid and nonassessable and free of any preemptive or similar rights and will conform to the
description thereof contained in the General Disclosure Package and the Prospectus.
(j) All of the issued shares of capital stock of the Company, have been duly and validly
authorized and issued, are fully paid and non-assessable, have been issued in compliance
with federal and state securities laws, and conform to the description thereof contained in
the General Disclosure Package and the Prospectus. As of September 30, 2008, there were
34,899,985 shares of Common Stock issued and outstanding and no shares of preferred stock of
the Company issued and outstanding and 4,318,596 shares of Common Stock were issuable upon
the exercise of all options, warrants and convertible securities outstanding as of such
date. Since such date, the Company has not issued any securities other than Common Stock of
the Company issued pursuant to the exercise of stock options previously outstanding under
the Company’s stock option plans or the issuance of restricted Common Stock pursuant to
employee stock purchase plans. All of the Company’s options, warrants and other rights to
purchase or exchange any securities for shares of the Company’s capital stock have been duly
authorized and validly issued and were issued in compliance with federal and state
securities laws. None of the outstanding shares of Common Stock was issued in violation of
any preemptive rights, rights of first refusal or other similar rights to subscribe for or
purchase securities of the Company. There are no authorized or outstanding shares of
capital stock, options, warrants, preemptive rights, rights of first refusal or other rights
to purchase, or equity or debt securities convertible into or exchangeable or exercisable
for, any capital stock of the Company or any of its subsidiaries other than those described
above or accurately described in the General Disclosure Package. The description of the
Company’s stock option, stock bonus and other stock plans or arrangements, and the options
or other rights granted thereunder, as described in the General Disclosure Package and the
Prospectus, accurately and fairly present the information required to be shown with respect
to such plans, arrangements, options and rights.
(k) All the outstanding shares of capital stock (if any) of each subsidiary of the Company
have been duly authorized and validly issued, are fully paid and nonassessable and, except
to the extent set forth in the General Disclosure Package and the Prospectus, are owned by
the Company directly or indirectly through one or more wholly-owned subsidiaries, free and
clear of any claim, lien, encumbrance, security interest, restriction upon voting or
transfer or any other claim of any third party.
(l) The execution, delivery and performance of this Agreement, the Subscription Agreements
and the Escrow Agreement by the Company, the issue and sale of the Stock and Warrants by the
Company and the consummation of the transactions contemplated hereby and thereby will not
(with or without notice or lapse of time or both) conflict with or result in a breach or
violation of any of the terms or provisions of, constitute a default or a Debt Repayment
Triggering Event (as defined below) under, give rise to any right of termination or other
right or the cancellation or acceleration of any right or obligation or loss of a benefit
under, or give rise to the creation or imposition of any lien, encumbrance, security
interest, claim or charge upon any property or assets of the Company or any subsidiary
pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is
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a party or by which the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of the charter or by-laws (or analogous
governing instruments, as applicable) of the Company or any of its subsidiaries or any law,
statute, rule, regulation, judgment, order or decree of any court or governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries
or any of their properties or assets. A “Debt Repayment Triggering Event” means any event
or condition that gives, or with the giving of notice or lapse of time would give the holder
of any note, debenture or other evidence of indebtedness (or any person acting on such
holder’s behalf) the right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company of any of its subsidiaries.
(m) Except for the registration of the Securities under the Securities Act, Exchange Act and
applicable state securities laws, the approvals of the Financial Industry Regulatory
Authority, Inc. and the American Stock Exchange in connection with the purchase of the Stock
and Warrants by the Purchasers and the listing of the Stock on the American Stock Exchange,
no consent, approval, authorization or order of, or filing, qualification or registration
(each an “Authorization”) with, any court, governmental or non-governmental agency or body,
foreign or domestic, which has not been made, obtained or taken and is not in full force and
effect, is required for the execution, delivery and performance of this Agreement, the
Subscription Agreements or the Escrow Agreement by the Company, the offer or sale of the
Stock, the Warrants or the consummation of the transactions contemplated hereby or thereby;
and no event has occurred that allows or results in, or after notice or lapse of time or
both would allow or result in, revocation, suspension, termination or invalidation of any
such Authorization or any other impairment of the rights of the holder or maker of any such
Authorization. All corporate approvals (including those of stockholders) necessary for the
Company to consummate the transactions contemplated by this Agreement have been obtained and
are in effect.
(n) (i) ▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP (the “Predecessor Auditor”), which has certified the
financial statements for VirnetX, Inc. included or incorporated by reference in the
Registration Statements, the General Disclosure Package and the Prospectus, is an
independent registered public accounting firm within the meaning of Article 2-01 of
Regulation S-X and the Public Company Accounting Oversight Board (United States) (the
“PCAOB”). Except as disclosed in the Registration Statement and as pre-approved in
accordance with the requirements set forth in Section 10A of the Exchange Act, the
Predecessor Auditor has not been engaged by the Company to perform any “prohibited
activities” (as defined in Section 10A of the Exchange Act).
(ii) ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ LLP (the “Auditor”), which has certified certain financial
statements included or incorporated by reference in the Registration Statements, the General
Disclosure Package and the Prospectus, is an independent registered public accounting firm
within the meaning of Article 2-01 of Regulation S-X and the PCAOB. Except as disclosed in
the Registration Statement and as pre-approved in accordance with the requirements set forth
in Section 10A of the Exchange Act, the Auditor has not been engaged by the Company to
perform any “prohibited activities” (as defined in Section 10A of the Exchange Act).
(o) The financial statements, together with the related notes, included in the General
Disclosure Package, the Prospectus and in each Registration Statement fairly present the
financial position and the results of operations and changes in financial position of the
Company and its consolidated subsidiaries at the respective dates or for the respective
periods therein specified. Such statements and related notes have been prepared in
accordance with the generally accepted accounting principles in the United States (“GAAP”)
applied on a consistent basis throughout the periods involved except as may be set forth in
the related notes included or incorporated by reference in the General Disclosure Package.
The financial statements, together with the related notes, included in the General
Disclosure Package and the Prospectus comply in all material respects with Regulation S-X.
No other financial statements or supporting schedules or exhibits are required by Regulation
S-X to be described, or included or incorporated by reference in the Registration
Statements, the General Disclosure Package or the Prospectus. The summary and selected
financial data included in the General Disclosure Package, the Prospectus and each
Registration Statement fairly present the information shown therein as at their respective
dates and for the respective periods specified and are derived from the consolidated
financial statements set forth in the Registration Statement,
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the Pricing Prospectus and the Prospectus and other financial information. All information
contained in the Registration Statement, the General Disclosure Package and the Prospectus
regarding “non-GAAP financial measures” (as defined in Regulation G) complies with
Regulation G and Item 10 of Regulation S-K, to the extent applicable.
(p) Neither the Company nor any of its subsidiaries has sustained, since the date of the
latest audited financial statements included in the General Disclosure Package, any material
loss or interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the General
Disclosure Package; and, since such date, there has not been any change in the capital stock
or long-term debt of the Company or any of its subsidiaries, or any material adverse change,
or any development involving a prospective material adverse change, in or affecting the
business, assets, general affairs, management, financial position, prospects, stockholders’
equity or results of operations of the Company and its subsidiaries taken as a whole,
otherwise than as set forth or contemplated in the General Disclosure Package.
(q) There is no legal or governmental proceeding pending to which the Company or any of its
subsidiaries is a party or of which any property or assets of the Company or any of its
subsidiaries is the subject which is required to be described in the Registration Statements
or the General Disclosure Package or a document incorporated by reference therein and is not
described therein, or which, singularly or in the aggregate, if determined adversely to the
Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse
Effect; and to the best of the Company’s knowledge after reasonable investigation and due
diligence inquiry (“Knowledge”), no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(r) Neither the Company nor any of its subsidiaries (i) is in violation of its charter or
by-laws (or analogous governing instrument, as applicable), (ii) is in default in any
respect, and no event has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any term, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it is bound or to which any
of its property or assets is subject or (iii) is in violation in any respect of any law,
ordinance, governmental rule, regulation or court order, decree or judgment to which it or
its property or assets may be subject except, in the case of clauses (ii) and (iii) of this
paragraph (r), for any violations or defaults which, singularly or in the aggregate, would
not have a Material Adverse Effect.
(s) Except as disclosed in the Prospectus, the Company and each of its subsidiaries possess
all licenses, certificates, authorizations and permits issued by, and have made all
declarations and filings or entered into agreements with, the appropriate local, state,
federal, foreign or self-regulatory agencies, bodies or entities which are necessary or
desirable for the ownership of their respective properties or the conduct of their
respective businesses as described in the General Disclosure Package and the Prospectus
(collectively, the “Governmental Permits”) except where any failures to possess or make the
same, singularly or in the aggregate, would not have a Material Adverse Effect. The Company
and its subsidiaries are in compliance with all such Governmental Permits; all such
Governmental Permits are valid and in full force and effect, except where the validity or
failure to be in full force and effect would not, singularly or in the aggregate, have a
Material Adverse Effect. All such Governmental Permits are free and clear of any
restriction or condition that are in addition to, or materially different from those
normally applicable to similar licenses, certificates, authorizations and permits. Neither
the Company nor any subsidiary has received notification of any revocation, modification,
suspension, termination or invalidation (or proceedings related thereto) of any such
Governmental Permit and to the Knowledge of the Company, no event has occurred that allows
or results in, or after notice or lapse of time or both would allow or result in,
revocation, modification, suspension, termination or invalidation (or proceedings related
thereto) of any such Governmental Permit and the Company has no reason to believe that any
such Governmental Permit will not be renewed; and the Company and its subsidiaries are
members in good standing of each federal, state or foreign exchange, board of trade,
clearing house or association and self-regulatory or similar organization, in each case as
necessary to conduct their respective businesses as described in the General Disclosure
Package and the Prospectus.
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(t) Neither the Company nor any of its subsidiaries is or, after giving effect to the
offering of the Stock and Warrants and the application of the proceeds thereof as described
in the General Disclosure Package and the Prospectus, will become an “investment company”
within the meaning of the Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.
(u) Neither the Company nor any of its officers, directors or affiliates has taken or will
take, directly or indirectly, any action designed or intended to stabilize or manipulate the
price of any security of the Company, or which caused or resulted in, or which might in the
future reasonably be expected to cause or result in, stabilization or manipulation of the
price of any security of the Company.
(v) The Company and its subsidiaries own or possess the valid right to use all (i) valid and
enforceable patents, patent applications, trademarks, trademark registrations, service
marks, service ▇▇▇▇ registrations, Internet domain name registrations, copyrights, copyright
registrations, licenses, trade secret rights (“Intellectual Property Rights”) and (ii)
inventions, software, works of authorships, trade marks, service marks, trade names,
databases, formulae, know how, Internet domain names and other intellectual property
(including trade secrets and other unpatented and/or unpatentable proprietary confidential
information, systems, or procedures) (collectively, “Intellectual Property Assets”)
necessary to conduct their respective businesses as currently conducted, and as proposed to
be conducted and described in the General Disclosure Package and the Prospectus. The
Company and its subsidiaries have not received any opinion from their legal counsel
concluding that any activities of their respective businesses infringe, misappropriate, or
otherwise violate, valid and enforceable Intellectual Property Rights of any other person,
and have not received written notice of any challenge, which is to their Knowledge still
pending, by any other person to the rights of the Company and its subsidiaries with respect
to any Intellectual Property Rights or Intellectual Property Assets owned or used by the
Company or its subsidiaries. To the Knowledge of the Company, the Company and its
subsidiaries’ respective businesses as now conducted do not give rise to any infringement
of, any misappropriation of, or other violation of, any valid and enforceable Intellectual
Property Rights of any other person. All licenses for the use of the Intellectual Property
Rights described in the General Disclosure Package and the Prospectus are valid, binding
upon, and enforceable by or against the parties thereto in accordance to its terms. The
Company has complied in all material respects with, and is not in breach nor has received
any asserted or threatened claim of breach of any Intellectual Property license, and the
Company has no knowledge of any breach or anticipated breach by any other person to any
Intellectual Property license. Except as described in the General Disclosure Package, no
claim has been made against the Company alleging the infringement by the Company of any
patent, trademark, service ▇▇▇▇, trade name, copyright, trade secret, license in or other
intellectual property right or franchise right of any person. The Company has taken all
reasonable steps to protect, maintain and safeguard its Intellectual Property Rights,
including the execution of appropriate nondisclosure and confidentiality agreements. The
consummation of the transactions contemplated by this Agreement will not result in the loss
or impairment of or payment of any additional amounts with respect to, nor require the
consent of any other person in respect of, the Company’s right to own, use, or hold for use
any of the Intellectual Property Rights as owned, used or held for use in the conduct of the
business as currently conducted. With respect to the use of the software in the Company’s
business as it is currently conducted or proposed to be conducted, the Company has not
experienced any material defects in such software including any material error or omission
in the processing of any transactions other than defects which have been corrected, and to
the knowledge of the Company, no such software contains any device or feature designed to
disrupt, disable, or otherwise impair the functioning of any software or is subject to the
terms of any “open source” or other similar license that provides for the source code of the
software to be publicly distributed or dedicated to the public. The Company has at all
times complied with all applicable laws relating to privacy, data protection, and the
collection and use of personal information collected, used, or held for use by the Company
in the conduct of the Company’s business. No claims have been asserted or threatened
against the Company alleging a violation of any person’s privacy or personal information or
data rights and the consummation of the transactions contemplated hereby will not breach or
otherwise cause any violation of any law related to privacy, data protection, or the
collection and use of personal information collected, used, or held for use by the Company
in the conduct of the Company’s business. The Company takes reasonable measures to ensure
that such information is protected against unauthorized access, use, modification, or other
misuse. The Company has taken all necessary actions to obtain ownership of all works of
authorship and inventions made by its employees, consultants and contractors during the time
they were employed by or under contract with the Company and which relate to the
9
Company’s business. All founders and key employees have signed confidentiality and invention
assignment agreements with the Company.
(w) The Company and each of its subsidiaries have good and marketable title in fee simple
to, or have valid rights to lease or otherwise use, all items of real or personal property
which are material to the business of the Company and its subsidiaries taken as a whole, in
each case free and clear of all liens, encumbrances, security interests, claims and defects
that do not, singularly or in the aggregate, materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property by the
Company or any of its subsidiaries; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one enterprise, and under which
the Company or any of its subsidiaries holds properties described in the General Disclosure
Package and the Prospectus, are in full force and effect, and neither the Company nor any
subsidiary has received any notice of any material claim of any sort that has been asserted
by anyone adverse to the rights of the Company or any subsidiary under any of the leases or
subleases mentioned above, or affecting or questioning the rights of the Company or such
subsidiary to the continued possession of the leased or subleased premises under any such
lease or sublease.
(x) There is (A) no significant unfair labor practice complaint pending against the Company,
or any of its subsidiaries, nor to the Knowledge of the Company, threatened against it or
any of its subsidiaries, before the National Labor Relations Board, any state or local labor
relation board or any foreign labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against the Company or any of its subsidiaries, or, to the Knowledge
of the Company, threatened against it and (B) no labor disturbance by the employees of the
Company or any of its subsidiaries exists or, to the Company’s Knowledge, is imminent, and
the Company is not aware of any existing or imminent labor disturbance by the employees of
any of its or its subsidiaries’ principal suppliers, manufacturers, customers or
contractors, that could reasonably be expected, singularly or in the aggregate, to have a
Material Adverse Effect. The Company is not aware that any key employee or significant
group of employees of the Company or any subsidiary plans to terminate employment with the
Company or any such subsidiary.
(y) No “prohibited transaction” (as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published interpretations
thereunder (“ERISA”), or Section 4975 of the Internal Revenue Code of 1986, as amended from
time to time (the “Code”)) or “accumulated funding deficiency” (as defined in Section 302 of
ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than events with
respect to which the thirty (30)-day notice requirement under Section 4043 of ERISA has been
waived) has occurred or could reasonably be expected to occur with respect to any employee
benefit plan of the Company or any of its subsidiaries which could, singularly or in the
aggregate, have a Material Adverse Effect. Each employee benefit plan of the Company or any
of its subsidiaries is in compliance in all material respects with applicable law, including
ERISA and the Code. The Company and its subsidiaries have not incurred and could not
reasonably be expected to incur liability under Title IV of ERISA with respect to the
termination of, or withdrawal from, any pension plan (as defined in ERISA). Each pension
plan for which the Company or any of its subsidiaries would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified, and nothing has
occurred, whether by action or by failure to act, which could, singularly or in the
aggregate, cause the loss of such qualification.
(z) The Company and its subsidiaries are in compliance with all foreign, federal, state and
local rules, laws and regulations relating to the use, treatment, storage and disposal of
hazardous or toxic substances or waste and protection of health and safety or the
environment which are applicable to their businesses (“Environmental Laws”). There has been
no storage, generation, transportation, handling, treatment, disposal, discharge, emission,
or other release of any kind of toxic or other wastes or other hazardous substances by, due
to, or caused by the Company or any of its subsidiaries (or, to the Company’s Knowledge, any
other entity for whose acts or omissions the Company or any of its subsidiaries is or may
otherwise be liable) upon any of the property now or previously owned or leased by the
Company or any of its subsidiaries, or upon any other property, in violation of any law,
statute, ordinance, rule, regulation, order, judgment, decree or permit or which would,
under any law, statute, ordinance, rule (including rule of common law), regulation, order,
judgment, decree or permit, give rise to any liability; and there has been
10
no disposal, discharge, emission or other release of any kind onto such property or into the
environment surrounding such property of any toxic or other wastes or other hazardous
substances with respect to which the Company or any of its subsidiaries has Knowledge. In
the ordinary course of business, the Company and its subsidiaries conduct periodic reviews
of the effect of Environmental Laws on their business and assets, in the course of which
they identify and evaluate associated costs and liabilities (including, without limitation,
any capital or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or Governmental Permits issued thereunder, any related
constraints on operating activities and any potential liabilities to third parties). On the
basis of such reviews, the Company has reasonably concluded that such associated costs and
liabilities would not have, singularly or in the aggregate, a Material Adverse Effect.
(aa) The Company and its subsidiaries each (i) have timely filed all necessary federal,
state, local and foreign tax returns, and all such returns were true, complete and correct,
(ii) have paid all federal, state, local and foreign taxes, assessments, governmental or
other charges due and payable for which it is liable, including, without limitation, all
sales and use taxes and all taxes which the Company or any of its subsidiaries is obligated
to withhold from amounts owing to employees, creditors and third parties, and (iii) do not
have any tax deficiency or claims outstanding or assessed or, to its Knowledge, proposed
against any of them, except those, in each of the cases described in clauses (i), (ii) and
(iii) of this paragraph (aa), that would not, singularly or in the aggregate, have a
Material Adverse Effect. The Company and its subsidiaries have not engaged in any
transaction which is a corporate tax shelter or which could be characterized as such by the
Internal Revenue Service or any other taxing authority. The accruals and reserves on the
books and records of the Company and its subsidiaries in respect of tax liabilities for any
taxable period not yet finally determined are adequate to meet any assessments and related
liabilities for any such period, and since December 31, 2007 the Company and its
subsidiaries have not incurred any liability for taxes other than in the ordinary course.
(bb) The Company and each of its subsidiaries carry, or are covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and as is customary for companies
engaged in similar businesses in similar industries. Neither the Company nor any of its
subsidiaries has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that would not have
a Material Adverse Effect. All policies of insurance owned by the Company or any of its
subsidiaries are, to the Company’s Knowledge, in full force and effect and the Company and
its subsidiaries are in compliance with the terms of such policies. Neither the Company nor
any of its subsidiaries has received written notice from any insurer, agent of such insurer
or the broker of the Company or any of its subsidiaries that any material capital
improvements or any other material expenditures (other than premium payments) are required
or necessary to be made in order to continue such insurance. None of the Company or any of
its subsidiaries insures risk of loss through any captive insurance, risk retention group,
reciprocal group or by means of any fund or pool of assets specifically set aside for
contingent liabilities other than as described in the General Disclosure Package.
(cc) The Company and each of its subsidiaries maintains a system of internal control over
financial reporting (as such term is defined in Rule 13a-15 of the General Rules and
Regulations under the Exchange Act (the “Exchange Act Rules”)) that complies with the
requirements of the Exchange Act and has been designed by the Company’s principal executive
officer and principal financial officer, or under their supervision, to provide reasonable
assurances that (i) transactions are executed in accordance with management’s general or
specific authorizations; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management’s general or specific
authorization; and (iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect to any
differences. The Company’s internal control over financial reporting is effective. Except
as described in the General Disclosure Package, since the end of the Company’s most recent
audited fiscal year, there has been (A) no material weakness in the Company’s internal
control over financial reporting (whether or not remediated) and (B) no change in the
Company’s internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial
reporting. The Company’s internal control over
11
financial reporting is, or upon consummation of the offering of the Stock will be, overseen
by the Audit Committee of the Board of Directors of the Company (the “Audit Committee”) in
accordance with the Exchange Act Rules. The Company has not publicly disclosed or reported
to the Audit Committee or to the Board, and within the next 90 days the Company does not
reasonably expect to publicly disclose or report to the Audit Committee or the Board, a
significant deficiency, material weakness, change in internal control over financial
reporting or fraud involving management or other employees who have a significant role in
the internal control over financial reporting (each an “Internal Control Event”), any
violation of, or failure to comply with, the U.S. Securities Laws, or any matter which if
determined adversely, would have a Material Adverse Effect.
(dd) A member of the Audit Committee has confirmed to the Chief Executive Officer, Chief
Financial Officer or General Counsel that, except as set forth in the General Disclosure
Package, the Audit Committee is not reviewing or investigating, and neither the Company’s
independent auditors nor its internal auditors have recommended that the Audit Committee
review or investigate, (i) adding to, deleting, changing the application of or changing the
Company’s disclosure with respect to, any of the Company’s material accounting policies,
(ii) any matter which could result in a restatement of the Company’s financial statements
for any annual or interim period during the current or prior three fiscal years, or (iii)
any Internal Control Event.
(ee) The Company and each of its subsidiaries have made and keep books, records and
accounts, which, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company and its subsidiaries in all material respects.
(ff) The Company maintains disclosure controls and procedures (as such is defined in Rule
13a-15 of the Exchange Act Rules) that comply with the requirements of the Exchange Act;
such disclosure controls and procedures have been designed to ensure that information
required to be disclosed by the Company and its subsidiaries is accumulated and communicated
to the Company’s management, including the Company’s principal executive officer and
principal financial officer by others within those entities, such disclosure controls and
procedures are effective.
(gg) The minute books of the Company and each of its subsidiaries that would be a
“significant subsidiary” within the meaning of Rule 1-02(w) of Regulation S-X have been made
available to the Placement Agents and counsel for the Placement Agents, and such books (i)
contain a complete summary of all meetings and actions of the board of directors (including
each board committee) and shareholders of the Company (or analogous governing bodies and
interest holders, as applicable), and each of its subsidiaries since the time of its
respective incorporation or organization through the date of the latest meeting and action,
and (ii) accurately in all material respects reflect all transactions referred to in such
minutes.
(hh) There is no franchise agreement, lease, contract, or other agreement or document
required by the Securities Act or by the Rules and Regulations to be described in the
General Disclosure Package and in the Prospectus or a document incorporated by reference
therein or to be filed as an exhibit to the Registration Statements or a document
incorporated by reference therein which is not so described or filed therein as required;
and all descriptions of any such franchise agreements, leases, contracts, or other
agreements or documents contained in the General Disclosure Package and in the Prospectus or
in a document incorporated by reference therein are accurate and complete descriptions of
such documents in all material respects. Other than as described in the General Disclosure
Package, no such franchise agreement, lease, contract or other agreement has been suspended
or terminated for convenience or default by the Company or any of the other parties thereto,
and neither the Company nor any of its subsidiaries has received notice of and the Company
does not have Knowledge of any such pending or threatened suspension or termination.
(ii) No relationship, direct or indirect, exists between or among the Company on the one
hand, and the directors, officers, stockholders (or analogous interest holders), customers
or suppliers of the Company or any of its affiliates on the other hand, which is required to
be described in the General Disclosure Package and the Prospectus or a document incorporated
by reference therein and which is not so described.
12
(jj) No person or entity has the right to require registration of shares of Common Stock or
other securities of the Company or any of its subsidiaries because of the filing or
effectiveness of the Registration Statements or otherwise, except for persons and entities
who have expressly waived such right in writing or who have been given timely and proper
written notice and have failed to exercise such right within the time or times required
under the terms and conditions of such right. Except as described in the General Disclosure
Package, there are no persons with registration rights or similar rights to have any
securities registered by the Company or any of its subsidiaries under the Securities
Act.
(kk) Neither the Company nor any of its subsidiaries own any “margin securities” as that
term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the
“Federal Reserve Board”), and none of the proceeds of the sale of the Stock will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin security, for
the purpose of reducing or retiring any indebtedness which was originally incurred to
purchase or carry any margin security or for any other purpose which might cause any of the
Stock to be considered a “purpose credit” within the meanings of Regulation T, U or X of the
Federal Reserve Board.
(ll) Other than any contracts or agreements between the Company and the Placement Agents,
neither the Company nor any of its subsidiaries is a party to any contract, agreement or
understanding with any person that would give rise to a valid claim against the Company or
the Placement Agents for a brokerage commission, finder’s fee or like payment in connection
with the offering and sale of the Stock and Warrants or any transaction contemplated by this
Agreement, the Subscription Agreements, the Registration Statements, the General Disclosure
Package or the Prospectus.
(mm) The exercise price of each option issued under the Company’s stock option or other
employee benefit plans has been no less than the fair market value of a share of Common
Stock as determined on the date of grant of such option. All grants of options were validly
issued and properly approved by the board of directors of the Company (or a duly authorized
committee thereof) in material compliance with all applicable laws and regulations and
recorded in the Company’s financial statements in accordance with GAAP and, to the Company’s
Knowledge, no such grants involved “back dating,” “forward dating” or similar practice with
respect to the effective date of grant.
(nn) Except as described in the General Disclosure Package and the Prospectus, no subsidiary
of the Company is currently prohibited, directly or indirectly, under any agreement or other
instrument to which it is a party or is subject, from paying any dividends to the Company,
from making any other distribution on such subsidiary’s capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from transferring any
of such subsidiary’s properties or assets to the Company or any other subsidiary of the
Company.
(oo) Since the date as of which information is given in the General Disclosure Package and
the Prospectus through the date hereof, and except as set forth in the General Disclosure
Package, neither the Company nor any of its subsidiaries has (i) issued or granted any
securities other than options to purchase Common Stock pursuant to the Company’s stock
option plan or shares of Common Stock issued or issuable upon exercise thereof, (ii)
incurred any material liability or obligation, direct or contingent, other than liabilities
and obligations which were incurred in the ordinary course of business, (iii) entered into
any material transaction other than in the ordinary course of business or (iv) declared or
paid any dividend on its capital stock.
(pp) If applicable, all of the information provided to the Placement Agents or to counsel
for the Placement Agents by the Company, its officers and directors and the holders of any
securities (debt or equity) or options to acquire any securities of the Company in
connection with letters, filings or other supplemental information provided to the Financial
Industry Regulation Authority (“FINRA”) pursuant to FINRA Conduct rule 2710 or 2720 is true,
correct and complete.
13
(qq) The Company is not a Passive Foreign Investment Company (“PFIC”) within the meaning of
Section 1296 of the United States Internal Revenue Code of 1966, and the Company is not
likely to become a PFIC.
(rr) No forward-looking statement (within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act) contained in either the General Disclosure Package or
the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed
other than in good faith.
(ss) The Company is subject to and in compliance in all material respects with the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act and is listed on the
American Stock Exchange (the “Exchange”), and the Company has taken no action designed to,
or reasonably likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or delisting the Common Stock from the Exchange, nor has the Company
received any notification that the Commission or FINRA is contemplating terminating such
registration or listing.
(tt) The Company is in compliance with all applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act
of 2002 and all rules and regulations promulgated thereunder or implementing the provisions
thereof (the “▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act”) that are then in effect and is actively taking steps to
ensure that it will be in compliance with other applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act not currently in effect upon it and at all times after the effectiveness of such
provisions.
(uu) The Company is in compliance with all applicable corporate governance requirements set
forth in the rules of the Exchange that are then in effect and is actively taking steps to
ensure that it will be in compliance with other applicable corporate governance requirements
set forth in the rules of the Exchange not currently in effect upon and all times after the
effectiveness of such requirements.
(vv) Neither the Company nor any of its subsidiaries nor, to the Company’s Knowledge, any
employee or agent of the Company or any subsidiary, has (i) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns from
corporate funds, (iii) violated any provision of the Foreign Corrupt Practices Act of 1977,
as amended or (iv) made any other unlawful payment.
(ww) There are no transactions, arrangements or other relationships between and/or among the
Company, any of its affiliates (as such term is defined in Rule 405 of the Rules and
Regulations) and any unconsolidated entity, including, but not limited to, any structured
finance, special purpose or limited purpose entity that could reasonably be expected to
materially affect the Company’s liquidity or the availability of or requirements for its
capital resources required to be described in the General Disclosure Package and the
Prospectus or a document incorporated by reference therein which have not been described as
required.
(xx) There are no outstanding loans, advances (except normal advances for business expenses
in the ordinary course of business) or guarantees of indebtedness by the Company or any of
its subsidiaries to or for the benefit of any of the officers or directors of the Company,
any of its subsidiaries or any of their respective family members, except as disclosed in
the Registration Statements, the General Disclosure Package and the Prospectus. All
transactions by the Company with office holders or control persons of the Company have been
duly approved by the board of directors of the Company, or duly appointed committees or
officers thereof, if and to the extent required under U.S. law.
(yy) The statistical and market related data included in the Registration Statement, the
General Disclosure Package and the Prospectus are based on or derived from sources that the
Company believes to be reliable and accurate, and such data agree with the sources from
which they are derived.
(zz) The operations of the Company and its subsidiaries are and have been conducted at all
times in compliance with applicable financial recordkeeping and reporting requirements of
the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money
laundering statutes and applicable rules and regulations thereunder (collectively, the
“Money Laundering Laws”), and no action,
14
suit or proceeding by or before any court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries with respect to the Money
Laundering Laws is pending, or to the Company’s Knowledge, threatened.
(aaa) Neither the Company nor any of its subsidiaries nor, to the Company’s Knowledge, any
director, officer, agent, employee or affiliate of the Company or any of its subsidiaries is
currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control
of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly
use the proceeds of the offering, or lend, contribute or otherwise make available such
proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose
of financing the activities of any person currently subject to any U.S. sanctions
administered by OFAC.
(bbb) Neither the Company nor any of its affiliates (within the meaning of FINRA Conduct
Rule 2720(b)(1)(a)) directly or indirectly controls, is controlled by, or is under common
control with, or is an associated person (within the meaning of Article I, Section 1(ee) of
the By-laws of the FINRA) of, any member firm of the FINRA.
(ccc) No approval of the shareholders of the Company is required for the Company to issue
and deliver to the Purchasers the Stock.
Any certificate signed by or on behalf of the Company and delivered to the Placement Agents or to
counsel for the Placement Agents shall be deemed to be a representation and warranty by the Company
to the Placement Agents and the Purchasers as to the matters covered thereby.
4. The Closing. The time and date of closing and delivery of the documents required to be
delivered to the Placement Agents pursuant to Sections 5 and 7 hereunder shall be at [ ]
[A./P.]M., New York time, on _________ ___, 2008 (the “Closing Date”) at the office of DLA Piper LLP
(US), ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇.
5.
Further Agreements Of The
Company. The Company agrees with the Placement
Agents and the Purchasers:
(a) to prepare the Rule 462(b) Registration Statement, if necessary, in a form approved by
the Lead Placement Agent and file such Rule 462(b) Registration Statement with the
Commission by 10:00 P.M., New York time, on the date hereof, and the Company shall at the
time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration
Statement or give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Rules and Regulations; to prepare the Prospectus in
a form approved by the Lead Placement Agent containing information previously omitted at the time of effectiveness
of the Registration Statement in reliance on Rule 430A of the Rules and Regulations and to
file such Prospectus pursuant to Rule 424(b) of the Rules and Regulations not later than the
second business (2nd) day following the execution and delivery of this Agreement
or, if applicable, such earlier time as may be required by Rule 430A of the Rules and
Regulations; to notify the Placement Agents immediately of the Company’s intention to file
or prepare any supplement or amendment to any Registration Statement or to the Prospectus
and to make no amendment or supplement to the Registration Statements, the General
Disclosure Package or to the Prospectus to which the Placement Agents shall reasonably
object by notice to the Company after a reasonable period to review; to advise the Placement
Agents, promptly after it receives notice thereof, of the time when any amendment to any
Registration Statement has been filed or becomes effective or any supplement to the General
Disclosure Package or the Prospectus or any amended Prospectus has been filed and to furnish
the Placement Agents with copies thereof; to file promptly all material required to be filed
by the Company with the Commission pursuant to Rules 433(d) or 163(b)(2) of the Rules and
Regulations, as the case may be; to file promptly all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the
Prospectus and for so long as the delivery of a prospectus (or in lieu thereof, the notice
referred to in Rule 173(a) of the Rules and Regulations) is required in connection with the
offering or sale of the Stock and Warrants; to advise the Placement Agents, promptly after
it receives notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free
Writing Prospectus or the Prospectus, of the suspension of the qualification of the
Securities for
15
offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or supplementing of
the Registration Statements, the General Disclosure Package or the Prospectus or for
additional information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing
Prospectus or the Prospectus or suspending any such qualification, and promptly to use its
best efforts to obtain the withdrawal of such order.
(b) The
Company represents and agrees that, unless it obtains the prior
consent of the Lead Placement Agent, it has not made and will not, hereof, make any offer relating to the Stock
and Warrants that would constitute a “free writing prospectus” as defined in Rule 405 of the
Rules and Regulations unless the prior written consent of the Lead Placement Agent has been
received (each, a “Permitted Free Writing Prospectus”); provided that the prior written
consent of the Lead Placement Agent shall be deemed to have been given in respect of the
General Use Free Writing Prospectus, if any. The Company represents that it has treated and
agrees that it will treat each Permitted Free Writing Prospectus as an Issuer Free Writing
Prospectus, comply with the requirements of Rules 164 and 433 of the Rules and Regulations
applicable to any Issuer Free Writing Prospectus, including the requirements relating to
timely filing with the Commission, legending and record keeping and will not take any action
that would result in the Placement Agents or the Company being required to file with the
Commission pursuant to Rule 433(d) of the Rules and Regulations a free writing prospectus
prepared by or on behalf of the Placement Agents that the Placement Agents otherwise would
not have been required to file thereunder.
(c) If at any time prior to the expiration of nine (9) months after the date of the
Prospectus, when a prospectus relating to the Stock and Warrants is required to be delivered
(or in lieu thereof, the notice referred to in Rule 173(a) of the Rules and Regulations) any
event occurs or condition exists as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact, or omit to state any
material fact necessary to make the statements therein, in light of the circumstances under
which they were made when the Prospectus is delivered (or in lieu thereof, the notice
referred to in Rule 173(a) of the Rules and Regulations), not misleading, or if it is
necessary at any time to amend or supplement any Registration Statement or the Prospectus or
to file under the Exchange Act any document incorporated by reference in the Prospectus to
comply with the Securities Act or the Exchange Act, that the Company will promptly notify
the Placement Agents thereof and upon their request will prepare an appropriate amendment or
supplement or upon their request make an appropriate filing pursuant to Section 13 or 14 of
the Exchange Act in form and substance satisfactory to the Lead Placement Agent which will
correct such statement or omission or effect such compliance and will use its best efforts
to have any amendment to any Registration Statement declared effective as soon as possible.
The Company will furnish without charge to the Placement Agents and to any dealer in
securities as many copies as the Placement Agents may from time to time reasonably request
of such amendment or supplement. In case the Placement Agents are required to deliver a
prospectus (or in lieu thereof, the notice referred to in Rule 173(a) of the Rules and
Regulations) relating to the Stock and Warrants nine (9) months or more after the date of
the Prospectus, the Company upon the request of the Placement Agents will prepare promptly
an amended or supplemented Prospectus as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Securities Act and deliver to the Placement Agents
as many copies as the Placement Agents may request of such amended or supplemented
Prospectus complying with Section 10(a)(3) of the Securities Act.
(d) If the General Disclosure Package is being used to solicit offers to buy the Stock at a
time when the Prospectus is not yet available to prospective purchasers and any event shall
occur as a result of which, in the judgment of the Company or in the reasonable opinion of
the Lead Placement Agent, it becomes necessary to amend or supplement the General Disclosure
Package in order to make the statements therein, in the light of the circumstances then
prevailing, not misleading, or to make the statements therein not conflict with the
information contained or incorporated by reference in the Registration Statement then on
file and not superseded or modified, or if it is necessary at any time to amend or
supplement the General Disclosure Package to comply with any law, the Company promptly will
either (i) prepare, file with the Commission (if required) and furnish to the Placement
Agents and any dealers an appropriate amendment or supplement to the General Disclosure
Package or (ii) prepare and file with the Commission an appropriate filing under the
Exchange Act which shall be incorporated by reference in the General Disclosure Package so
that the General Disclosure Package as so amended or supplemented will not, in the
16
light of the circumstances then prevailing, be misleading or conflict with the Registration
Statement then on file, or so that the General Disclosure Package will comply with law.
(e) If at any time following issuance of an Issuer Free Writing Prospectus there occurred or
occurs an event or development as a result of which such Issuer Free Writing Prospectus
conflicted or will conflict with the information contained in the Registration Statement,
Pricing Prospectus or Prospectus, including any document incorporated by reference therein
and any prospectus supplement deemed to be a part thereof and not superseded or modified or
included or would include an untrue statement of a material fact or omitted or would omit to
state a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances prevailing at the subsequent time, not
misleading, the Company will promptly notify the Placement Agents so that any use of the
Issuer Free Writing Prospectus may cease until it is amended or supplemented and has
promptly amended or will promptly amend or supplement, at its own expense, such Issuer Free
Writing Prospectus to eliminate or correct such conflict, untrue statement or omission to
furnish promptly to the Placement Agents and to counsel for the Placement Agents a signed
copy of each of the Registration Statements as originally filed with the Commission, and of
each amendment thereto filed with the Commission, including all consents and exhibits filed
therewith.
(f) To deliver promptly to the Placement Agents such number of the following documents as
the Placement Agents shall reasonably request: (i) conformed copies of the Registration
Statements as originally filed with the Commission (in each case excluding exhibits), (ii)
each Preliminary Prospectus, (iii) any Issuer Free Writing Prospectus, (iv) the Prospectus
(the delivery of the documents referred to in clauses (i), (ii), (iii) and (iv) of this
paragraph (f) to be made not later than 10:00 A.M., New York time, on the business day
following the execution and delivery of this Agreement), (v) conformed copies of any
amendment to the Registration Statement (excluding exhibits), (vi) any amendment or
supplement to the General Disclosure Package or the Prospectus (the delivery of the
documents referred to in clauses (v) and (vi) of this paragraph (f) to be made not later
than 10:00 A.M., New York City time, on the business day following the date of such
amendment or supplement) and (vii) any document incorporated by reference in the General
Disclosure Package or the Prospectus (excluding exhibits thereto) (the delivery of the
documents referred to in clause (vii) of this paragraph (f) to be made not later than 10:00
A.M., New York City time, on the business day following the date of such document).
(g) To make generally available to its shareholders as soon as practicable, but in any event
not later than sixteen (16) months after the effective date of each Registration Statement
(as defined in Rule 158(c) of the Rules and Regulations), an earnings statement of the
Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the
Securities Act and the Rules and Regulations (including, at the option of the Company, Rule
158).
(h) To
take promptly from time to time such actions as the Lead Placement Agent may
reasonably request to qualify the Securities for offering and sale under the securities or
Blue Sky laws of such jurisdictions (domestic or foreign) as the Lead Placement Agent may
designate and to continue such qualifications in effect, and to comply with such laws, for
so long as required to permit the offer and sale of Securities in such jurisdictions;
provided that the Company and its subsidiaries shall not be obligated to qualify as foreign
corporations in any jurisdiction in which they are not so qualified or to file a general
consent to service of process in any jurisdiction.
(i) Upon request, during the period of five (5) years from the date hereof, to deliver to
the Placement Agents, (i) as soon as they are available, copies of all reports or other
communications furnished to shareholders, and (ii) as soon as they are available, copies of
any reports and financial statements furnished or filed with the Commission or any national
securities exchange on which the Stock is listed. However, so long as the Company is
subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange
Act and is timely filing reports with the Commission on its Electronic Data Gathering,
Analysis and Retrieval system (“▇▇▇▇▇”), it is not required to furnish such reports or
statements to the Placement Agents.
(j) That the Company will not, for a period of ninety (90) days from the date of this
Agreement, (the “Lock-Up Period”) without the prior written consent of the Lead Placement Agent, directly or indirectly offer, sell, assign, transfer, pledge, contract to sell, or
otherwise dispose of, any shares of Common Stock or
17
any securities convertible into or exercisable or exchangeable for Common Stock, other than
the Company’s sale of the Stock and Warrants hereunder and the issuance of the Warrant Stock
upon execution of the Warrants and restricted Common Stock or options to acquire Common
Stock pursuant to the Company’s employee benefit plans, qualified stock option plans or
other employee compensation plans as such plans are in existence on the date hereof and
described in the Prospectus and the issuance of Common Stock pursuant to the valid exercises
of options, warrants or rights outstanding on the date hereof. The Company will cause each
officer, director, shareholder, optionholder and warrantholder listed in Schedule B to
furnish to the Lead Placement Agent, prior to the date of this Agreement, a letter,
substantially in the form of Exhibit I hereto, pursuant to which each such person shall
agree, among other things, not to directly or indirectly offer, sell, assign, transfer,
pledge, contract to sell, or otherwise dispose of, or announce the intention to otherwise
dispose of, any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, not to engage in any swap, hedge or similar agreement or
arrangement that transfers, in whole or in part, directly or indirectly, the economic risk
of ownership of Common Stock or any such securities and not to engage in any short selling
of any Common Stock or any such securities, during the Lock-Up Period, without the prior
written consent of the Lead Placement Agent. The Company also agrees that during such
period, other than for the sale of the Stock and Warrants hereunder, the Company will not
file any registration statement, preliminary prospectus or prospectus, or any amendment or
supplement thereto, under the Securities Act for any such transaction or which registers, or
offers for sale, Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, except for a registration statement on Form S-8 relating to
employee benefit plans. The Company hereby agrees that (i) if it issues an earnings release
or material news, or if a material event relating to the Company occurs, during the last
seventeen (17) days of the Lock-Up Period, or (ii) if prior to the expiration of the Lock-Up
Period, the Company announces that it will release earnings results during the sixteen
(16)-day period beginning on the last day of the Lock-Up Period, the restrictions imposed by
this paragraph (j) or the letter shall continue to apply until the expiration of the
eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence
of the material news or material event. The Company will provide the Placement Agents and
each stockholder subject to the Lock-Up Period with prior notice (in accordance with Section
14 herein) of any such announcement that gives rise to an extension of the Lock-Up Period.
(k) To supply the Placement Agents with copies of all correspondence to and from, and all
documents issued to and by, the Commission in connection with the registration of the
Securities under the Securities Act or any of the Registration Statements, any Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto or document
incorporated by reference therein.
(l) Prior to the Closing Date, to furnish to the Placement Agents, as soon as they have been
prepared, copies of any unaudited interim consolidated financial statements of the Company
for any periods subsequent to the periods covered by the financial statements appearing in
the Registration Statements and the Prospectus.
(m) Prior to the Closing Date, not to issue any press release or other communication
directly or indirectly or hold any press conference with respect to the Company, its
condition, financial or otherwise, or earnings, business affairs or business prospects
(except for routine oral marketing communications in the ordinary course of business and
consistent with the past practices of the Company and of which the Lead Placement Agent is
notified), without the prior written consent of the Lead Placement Agent, unless in the
judgment of the Company and its counsel, and after notification to the Placement Agents,
such press release or communication is required by law.
(n) Until the Lead Placement Agent shall notify the Company of the completion of the
Offering, the Company will not, and will cause its affiliated purchasers (as defined in
Regulation M under the Exchange Act) not to, either alone or with one or more other persons,
bid for or purchase, for any account in which it or any of its affiliated purchasers has a
beneficial interest, any Common Stock, or attempt to induce any person to purchase any
Common Stock; and not to, and to cause its affiliated purchasers not to, make bids or
purchase for the purpose of creating actual, or apparent, active trading in or of raising
the price of the Common Stock.
18
(o) Not to take any action prior to the Closing Date which would require the Prospectus to
be amended or supplemented.
(p) To at all times comply with all applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act in
effect from time to time.
(q) To maintain, at its expense, a registrar and transfer agent for the Common Stock.
(r) To apply the net proceeds from the sale of the Stock and Warrants as set forth in the
Registration Statement, the General Disclosure Package and the Prospectus under the heading
“Use of Proceeds.” The Company shall manage its affairs and investments in such a manner as
not to be or become an “investment company” within the meaning of the Investment Company Act
and the rules and regulations thereunder.
(s) To use its best efforts to list, subject to notice of issuance, and to maintain the
listing of the Stock and Warrant Stock on the Exchange.
(t) To use its best efforts to do and perform all things required to be done or performed
under this Agreement by the Company prior to the Closing Date and to satisfy all conditions
precedent to the delivery of the Stock and Warrants.
6. Payment of Expenses. The Company agrees to pay, or reimburse if paid by the Placement
Agents, whether or not the transactions contemplated hereby are consummated or this Agreement is
terminated: (a) the costs incident to the authorization, issuance, sale, preparation and delivery
of the Stock and Warrants to the Purchasers and any taxes payable in that connection; (b) the costs
incident to the registration of the Securities under the Securities Act; (c) the costs incident to
the preparation, printing and distribution of the Registration Statements any Preliminary
Prospectus, any Issuer Free Writing Prospectus, the General Disclosure Package, the Prospectus, any
amendments, supplements and exhibits thereto or any document incorporated by reference therein and
the costs of printing, reproducing and distributing this Agreement, the Subscription Agreements,
and any closing documents by mail, telex or other means of communications; (d) the fees and
expenses (including related fees and expenses of counsel for the Placement Agents, which fees and
expenses, together with the fees and expenses of counsel for the Placement Agents referenced in
clause (f) below, shall not exceed $15,000 in aggregate) incurred in connection with securing any
required review by FINRA of the terms of the sale of the Stock and any filings made with FINRA, if
applicable; (e) any applicable listing or other fees; (f) the fees and expenses (including related
fees and expenses of counsel to the Placement Agents) of qualifying the Securities under the
securities laws of the several jurisdictions as provided in Section 5(h) and of preparing, printing
and distributing wrappers, Blue Sky Memoranda and Legal Investment Surveys; (g) the cost of
preparing and printing stock certificates; (h) all fees and expenses of the registrar and transfer
agent of the Stock; (i) travel and all other reasonable out-of-pocket expenses (including the
reasonable fees and disbursements of ▇▇▇▇▇’▇ and ▇▇▇▇▇-▇▇▇▇▇▇’▇ respective counsel); provided that
such expense reimbursement shall not exceed $250,000 (in the case of ▇▇▇▇▇) and $35,000 (in the
case of ▇▇▇▇▇-▇▇▇▇▇▇); (j) the costs and expenses of the Company relating to investor presentations
on any “road show” undertaken in connection with the marketing of the offering of the Stock and
Warrants, including, without limitation, expenses associated with the preparation or dissemination
of any electronic road show, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with the road show
presentations with the prior approval of the Company, travel and lodging expenses of the officers
of the Company and such consultants, including the cost of any aircraft chartered in connection
with the road show, and (k) all other costs and expenses incident to the offering of the Stock and
Warrants or the performance of the obligations of the Company under this Agreement (including,
without limitation, the fees and expenses of the Company’s counsel and the Company’s independent
accountants provided that, except to the extent otherwise provided in this Section 6 and in Section
10, the Placement Agents shall pay their own costs and expenses, including the fees and expenses of
their counsel and the expenses of advertising any offering of the Stock and Warrants made by the
Placement Agents.
7. Conditions to the obligations of the Placement Agents and the Purchasers, and the Sale of
the Stock and WARRANTS. The respective obligations of the Placement Agents hereunder and the
Purchasers under the Subscription Agreements are subject to the accuracy, when made and as of the
Applicable Time and on the Closing Date, of the representations and warranties of the Company
contained herein, to the accuracy of the statements of the Company made in any certificates
pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder,
and to each of the following additional terms and conditions:
19
(a) The Registration Statement is effective under the Securities Act, and no stop order
suspending the effectiveness of any Registration Statement or any part thereof, preventing
or suspending the use of Preliminary Prospectus, the Prospectus or any Permitted Free
Writing Prospectus or any part thereof shall have been issued and no proceedings for that
purpose or pursuant to Section 8A under the Securities Act shall have been initiated or
threatened by the Commission, and all requests for additional information on the part of the
Commission (to be included or incorporated by reference in the Registration Statements or
the Prospectus or otherwise) shall have been complied with to the reasonable satisfaction of
the Lead Placement Agent; and the Rule 462(b) Registration Statement, if any, each Issuer
Free Writing Prospectus (except for a “road show”) and the Prospectus shall have been filed
with, the Commission within the applicable time period prescribed for such filing by, and in
compliance with, the Rules and Regulations and in accordance with Section 5(a), and the Rule
462(b) Registration Statement, if any, shall have become effective immediately upon its
filing with the Commission; and, if applicable, FINRA shall have raised no objection to the
fairness and reasonableness of the terms of this Agreement or the transactions contemplated
hereby.
(b) The Placement Agents shall not have discovered and disclosed to the Company on or prior
to the Closing Date that any Registration Statement or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of counsel for the Placement
Agents, is material or omits to state any fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make the statements therein
not misleading, or that the General Disclosure Package, any Issuer Free Writing Prospectus
or the Prospectus or any amendment or supplement thereto contains an untrue statement of
fact which, in the opinion of such counsel, is material or omits to state any fact which, in
the opinion of such counsel, is material and is necessary in order to make the statements,
in the light of the circumstances in which they were made, not misleading.
(c) All corporate proceedings and other legal matters incident to the authorization, form
and validity of each of this Agreement, the Subscription Agreements, the Escrow Agreement,
the Stock, the Warrants, the Registration Statements, the General Disclosure Package, each
Issuer Free Writing Prospectus and the Prospectus and all other legal matters relating to
this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in
all material respects to counsel for the Placement Agents, and the Company shall have
furnished to such counsel all documents and information that they may reasonably request to
enable them to pass upon such matters.
(d) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ & Sutcliffe LLP shall have furnished to the Placement Agents such
counsel’s written opinion, as counsel to the Company, addressed to the Placement Agents and
dated the Closing Date, in form and substance reasonably satisfactory to the Placement
Agents, to the effect that:
| (i) | The Company and VirnetX, Inc. have been duly incorporated and are validly existing as corporations or other legal entities in good standing under the laws of their respective jurisdictions of organization and have all power and authority necessary to own their respective properties and to conduct the businesses in which they are engaged as described in the General Disclosure Package and the Prospectus and to enter into and perform its obligations under this Agreement. | ||
| (ii) | The Company and VirnetX, Inc. are duly qualified to do business and are in good standing as foreign corporations in California and Delaware. | ||
| (iii) | The Company has an authorized capitalization as set forth in under the heading “capitalization” in the Pricing Prospectus and the Prospectus; and the authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the General Disclosure Package and the Prospectus. | ||
| (iv) | The Stock, the Warrants and Warrant Stock have been duly and validly authorized for issuance and sale to the Purchasers pursuant to the Subscription Agreements; when issued and delivered by the Company pursuant to the Subscription Agreements and Warrants against payment of the consideration set forth herein, the Stock and Warrant Stock will |
20
| be validly issued and fully paid and nonassessable. The form of certificate used to evidence the Stock complies in all material respects with all applicable statutory requirements, all applicable requirements of the charter and by-laws of the Company and all applicable requirements of the American Stock Exchange. | |||
| (v) | All the issued shares of capital stock (or analogous ownership interests, as applicable) of VirnetX, Inc. have been duly and validly authorized and issued, are fully paid and nonassessable and, except to the extent set forth in the General Disclosure Package, are owned by the Company directly or indirectly through one or more wholly-owned subsidiaries, free and clear of any claim, lien, encumbrance, security interest, restriction upon voting or transfer or any other claim of any third party; and none of the outstanding shares of capital stock (or analogous ownership interests, as applicable) of any subsidiary of the Company was issued in violation of the preemptive or similar rights of any securityholder of such subsidiary. | ||
| (vi) | There are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any shares of the Stock, the Warrants, or the Warrant Stock pursuant to the Company’s charter or by-laws or any agreement or other instrument known to such counsel. | ||
| (vii) | The Placement Agent Agreement has been duly authorized, executed and delivered by the Company. | ||
| (viii) | The Subscription Agreements have been duly authorized, executed and delivered by the Company and are valid and binding agreements of the Company, enforceable against the Company in accordance with their terms. | ||
| (ix) | The Escrow Agreement has been duly authorized, executed and delivered by the Company is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms. | ||
| (x) | The execution, delivery and performance of this Agreement or the Subscription Agreements by the Company, the issuance and sale of the Stock, the Warrants and the Warrant Stock and the consummation by the Company of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the properties or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the charter or by-laws (or analogous governing instruments, as applicable) of the Company or of any of its subsidiaries or any law, statute, rule, regulation, judgment, order or decree of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets. | ||
| (xi) | Except for the registration of the Securities under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state securities laws in connection with the sale of the Stock and the Warrants to the Purchasers, no consent, approval, authorization or order of, or filing, qualification or registration with, any court or governmental or non-governmental agency or body, which has not been obtained or taken and is not in full force and effect, is required for the execution, delivery and performance of this Agreement or the Subscription Agreements by the Company, the offer, issue and sale of the Stock and the Warrants or the consummation by the Company of the transactions contemplated hereby or thereby. |
21
| (xii) | The statements under the heading “ Risk Factors—Risks relating to existing and future litigation—We have commenced legal proceedings against Microsoft, and we expect such litigation to be time-consuming and costly, which may adversely affect our financial condition and our ability to operate our business,” “—If we fail to meet our obligations to SAIC, we may lose our rights to key technologies on which our business depends,” “—When we attempt to implement our secure domain name registry services business, we may be subject to government and industry regulation and oversight which may impede our ability to achieve our business strategy,” “—The laws governing online secure communications are largely unsettled, and if we become subject to various government regulations, costs associated with those regulations may materially adversely affect our business,” “—Risks related to our stock—Our protective provisions could make it more difficult for a third party to successfully acquire us even if you would like to sell your shares to them,” “Business—Assignment of Patents,” “Litigation,” “Government Regulation,” “Executive Compensation—Transactions with Related Persons—Indemnification Agreements,” “—Registration Rights Agreement,” “—Lockup Agreements,” “Corporate Governance,” “Description of Securities,” “Legal Proceedings,” “Indemnification of Officers and Directors” and “Plan of Distribution” in the Prospectus (and any similar section or information contained in the General Disclosure Package), to the extent that such statements purport to constitute summaries of matters of law or regulation, legal conclusions or legal proceedings or summaries of documents referred to therein, fairly summarize the matters described therein in all material respects. | ||
| (xiii) | The description in the Registration Statement, the General Disclosure Package and the Prospectus of statutes, legal or governmental proceedings and contracts and other documents are fairly summarized in all material respects and there are no pending legal or governmental proceedings or contracts or other documents to which the Company or any of its subsidiaries is a party or to which the property of the Company or any of its subsidiaries is subject that are required to be described in the General Disclosure Package or the Prospectus or a document incorporated by reference therein or to be filed as exhibits to the Registration Statements or a document incorporated by reference therein which are not described or filed as required. | ||
| (xiv) | Neither the Company nor VirnetX, Inc. (i) is in violation of its charter or by-laws (or analogous governing instrument, as applicable), (ii) is in default, and no event has occurred, which, with notice or lapse of time or both, would constitute a default, in the due performance or observance of any term, covenant or condition contained in any agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject [that is listed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 or any Quarterly Report on Form 10-K for any quarters in 2008 or any Current Report on Form 8-K in 2008] or (iii) is in violation of any law, statute, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject or has failed to obtain any license, permit, certificate, franchise or other governmental or non-governmental authorization or permit necessary for the ownership of its property or to the conduct of its business as described in the General Disclosure Package and the Prospectus. | ||
| (xv) | Other than as set forth in the General Disclosure Package, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or asset of the Company or any of its subsidiaries is the subject which, singularly or in the aggregate, if determined adversely to the Company or any of its subsidiaries, might have a Material Adverse Effect or would prevent or adversely affect the ability of the Company to perform its obligations under this Agreement or the Subscription Agreements; and, to the best of such counsel’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. |
22
| (xvi) | Each Registration Statement was declared effective under the Securities Act as of the date and time specified in such opinion, the Rule 462(b) Registration Statement, if any, was filed with the Commission on the date specified therein and became effective immediately upon such filing, the Prospectus was filed with the Commission pursuant to the subparagraph of Rule 424(b) and in compliance with Rules 430A of the Rules and Regulations on the date specified in such opinion and no stop order suspending the effectiveness of any Registration Statement or any part thereof has been issued and, to the knowledge of such counsel, no proceeding for that purpose is pending or threatened by the Commission. | ||
| (xvii) | The Registration Statements and any amendments thereto made by the Company prior to the Closing Date (other than the financial statements and other financial data contained therein, as to which such counsel need express no opinion), at the Applicable Time and as of the date of this Agreement, complied as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations; the Pricing Prospectus (other than the financial statements and other financial data contained therein, as to which such counsel need express no opinion), as of the Applicable Time, complied as to form in all material respects with the requirements of the Securities Act; and the Prospectus and any amendments or supplements thereto made by the Company prior to the Closing Date (other than the financial statements and other financial data contained therein, as to which such counsel need express no opinion), as of the respective date thereof, complied as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations; and the documents incorporated by reference in the Pricing Prospectus and the Prospectus when they were filed with the Commission complied as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder. | ||
| (xviii) | To the best of such counsel’s knowledge, no person or entity has the right to require registration of shares of Common Stock or other securities of the Company because of the filing or effectiveness of the Registration Statements or otherwise, except for persons and entities who have expressly waived such right or who have been given proper notice and have failed to exercise such right within the time or times required under the terms and conditions of such right. | ||
| (xix) | The Company is not, and after giving effect to the offering and sale of the Stock and Warrants and the application of the proceeds thereof as described in the General Disclosure Package and the Prospectus will not be, an “investment company” within the meaning of such term as defined in the Investment Company Act and the rules and regulations of the Commission thereunder. | ||
| (xx) | Any required filing of each Issuer Free Writing Prospectus pursuant to Rule 433 under the Securities Act has been made within the time period required by Rule 433(d) under the Securities Act. |
Such counsel shall also have furnished to the Placement Agents a written statement,
addressed to the Placement Agents and dated the Closing Date, in form and substance
satisfactory to the Placement Agents, to the effect that (x) such counsel has acted as
counsel to the Company in connection with the preparation of the Registration Statements,
the General Disclosure Package and the Prospectus, and each amendment or supplement thereto
made by the Company prior to the Closing Date, (y) based on such counsel’s examination of
the Registration Statements, the General Disclosure Package and the Prospectus, and each
amendment or supplement thereto made by the Company prior to the Closing Date and the
documents incorporated by reference in the General Disclosure Package or the Prospectus and
any further amendment or supplement to any such incorporated document made by the Company
prior to the Closing Date, and such counsel’s investigations made in connection with the
preparation of the Registration Statements, the General Disclosure Package and the
Prospectus, and each amendment or supplement thereto made by the Company prior to the
Closing Date, and conferences with certain officers and
23
employees of and with auditors for and counsel to the Company, such counsel has no
reason to believe that (I) the Registration Statements or any amendment thereto, at the
Applicable Time, contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectus or any amendment or supplement thereto, at
the respective date thereof or at the Closing Date, contained or contains any untrue
statement of a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were made, not
misleading, or that the documents included in the General Disclosure Package, all considered
together, as of the Applicable Time contained or contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading; or (II) any
document incorporated by reference in the Prospectus, when they were filed with the
Commission, contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; it being understood that such
counsel need express no opinion as to the financial statements or other financial data
contained in the Registration Statements, the General Disclosure Package, the Prospectus or
an incorporated document. The foregoing statement may be qualified by a statement to the
effect that such counsel has not independently verified the accuracy, completeness or
fairness of the statements contained in the Registration Statements, the General Disclosure
Package or the Prospectus and takes no responsibility therefor except to the extent set
forth in the opinion described in clauses (xii) and (xiii) above.
(e) ▇▇▇▇▇▇▇▇▇ Will & ▇▇▇▇▇ LLP, special patent counsel to the Company, shall have furnished
to the Placement Agents such counsel’s written opinion, addressed to the Placement Agents
and dated the Closing Date, in form and substance reasonably satisfactory to the Placement
Agents, to the effect that to the best of such counsel’s knowledge, the statements in the
Registration Statement, the Preliminary Prospectus, the Pricing Prospectus and the
Prospectus under the captions “Risk Factors-Risks related to existing and future
litigation—We have commenced legal proceedings against Microsoft, and we expect such
litigation to be time-consuming and costly, which may adversely affect our financial
condition and our ability to operate our business,” “Business—Intellectual Property and
Patent Rights,” “—Assignment of Patents,” “—Litigation,” and “Legal Proceedings” in so far
as such statements describe certain legal proceedings or specified documents, fairly
describe in all material respects the matters referred to therein, and nothing has come to
their attention that causes them to believe that such material contains any untrue statement
of a material fact, or omits to state a material fact that is required to be stated therein
or necessary in order to make the statements made therein not misleading.
(f) The Placement Agents shall have received from DLA Piper LLP (US), counsel for the
Placement Agents, such opinion or opinions, dated the Closing Date, with respect to such
matters as the Lead Placement Agent may reasonably require, and the Company shall have
furnished to such counsel such documents as they request for enabling them to pass upon such
matters.
(g) At the time of the execution of this Agreement, the Placement Agents shall have received
from ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ LLP a letter, addressed to the Placement Agents, executed and dated
such date, in form and substance satisfactory to the Lead Placement Agent (i) confirming
that it is an independent registered accounting firm with respect to the Company and its
subsidiaries within the meaning of the Securities Act and the Rules and Regulations and
PCAOB and (ii) stating the conclusions and findings of such firm, of the type ordinarily
included in accountants’ “comfort letters” to underwriters, with respect to the financial
statements and certain financial information contained or incorporated by reference in the
Registration Statements, the General Disclosure Package and the Prospectus.
(h) On the effective date of any post-effective amendment to any Registration Statement and
on the Closing Date, the Placement Agents shall have received a letter (the “bring-down
letter”) from ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ LLP addressed to the Placement Agents and dated the Closing
Date confirming, as of the date of the bring-down letter (or, with respect to matters
involving changes or developments since the respective dates as of which specified financial
information is given in the General Disclosure Package and the Prospectus, as the case may
be, as of a date not more than three (3) business days prior to the date of the bring-down
letter), the conclusions and findings of such firm, of the type ordinarily included in
accountants’ “comfort letters” to underwriters, with respect to the financial information
and other matters covered by its letter
24
delivered to the Placement Agents concurrently with the execution of this Agreement pursuant
to paragraph (g) of this Section 7.
(i) The Company shall have furnished to the Placement Agents and the Purchasers a
certificate, dated the Closing Date, of its Chairman of the Board or President and its Chief
Financial Officer stating that (i) such officers have carefully examined the Registration
Statement, the General Disclosure Package, any Permitted Free Writing Prospectus and the
Prospectus and, in their opinion, the Registration Statements and each amendment thereto, at
the Applicable Time, as of the date of this Agreement and as of the Closing Date did not
include any untrue statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements therein not misleading,
and the General Disclosure Package, as of the Applicable Time and as of the Closing Date,
any Permitted Free Writing Prospectus as of its date and as of the Closing Date, the
Prospectus and each amendment or supplement thereto, as of the respective date thereof and
as of the Closing Date, did not include any untrue statement of a material fact and did not
omit to state a material fact necessary in order to make the statements therein, in the
light of the circumstances in which they were made, not misleading, (ii) since the effective
date of the Initial Registration Statement, no event has occurred which should have been set
forth in a supplement or amendment to the Registration Statements, the General Disclosure
Package or the Prospectus, that was not so set forth, (iii) to their Knowledge, as of the
Closing Date, the representations and warranties of the Company in this Agreement are true
and correct and the Company has complied with all agreements and satisfied all conditions on
its part to be performed or satisfied hereunder at or prior to the Closing Date, and (iv)
there has not been, subsequent to the date of the most recent audited financial statements
included or incorporated by reference in the General Disclosure Package, any material
adverse change in the financial position or results of operations of the Company and its
subsidiaries, or any change or development that, singularly or in the aggregate, would
involve a material adverse change or a prospective material adverse change, in or affecting
the condition (financial or otherwise), results of operations, business, assets or prospects
of the Company and its subsidiaries taken as a whole, except as set forth in the Prospectus.
(j) At the time of the execution of this Agreement, the Placement Agents shall have received
copies of the Subscription Agreements.
(k) Since the date of the latest audited financial statements included in the General
Disclosure Package or incorporated by reference in the General Disclosure Package as of the
date hereof, (i) neither the Company nor any of its subsidiaries shall have sustained any
loss or interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth in the General Disclosure Package, and
(ii) there shall not have been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries, or any change, or any development involving a
prospective change, in or affecting the business, general affairs, management, financial
position, stockholders’ equity or results of operations of the Company and its subsidiaries,
otherwise than as set forth in the General Disclosure Package, the effect of which, in any
such case described in clause (i) or (ii) of this paragraph (k), is, in the judgment of the Lead Placement Agent, so material and adverse as to make it impracticable or inadvisable to
proceed with the sale or delivery of the Stock and Warrants on the terms and in the manner
contemplated in the General Disclosure Package.
(l) No action shall have been taken and no law, statute, rule, regulation or order shall
have been enacted, adopted or issued by any governmental agency or body which would prevent
the issuance or sale of the Stock and Warrants or materially and adversely affect or
potentially materially and adversely affect the business or operations of the Company; and
no injunction, restraining order or order of any other nature by any federal or state court
of competent jurisdiction shall have been issued which would prevent the issuance or sale of
the Stock and Warrants or materially and adversely affect or potentially materially and
adversely affect the business or operations of the Company.
(m) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have
occurred in the Company’s corporate credit rating or the rating accorded the Company’s debt
securities by any “nationally recognized statistical rating organization,” as that term is
defined by the Commission for purposes of Rule 436(g)(2) of the Rules and Regulations and
(ii) no such organization shall have publicly announced that it has under surveillance or
review (other than an announcement with positive implications
25
of a possible upgrading), the Company’s corporate credit rating or the rating of any of the
Company’s debt securities.
(n) Subsequent to the execution and delivery of this Agreement there shall not have occurred
any of the following: (i) trading in securities generally on the New York Stock Exchange,
Nasdaq Global Market or the American Stock Exchange or in the over-the-counter market, or
trading in any securities of the Company on any exchange or in the over-the-counter market,
shall have been suspended or materially limited, or minimum or maximum prices or maximum
range for prices shall have been established on any such exchange or such market by the
Commission, by such exchange or market or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been declared by Federal
or state authorities or a material disruption has occurred in commercial banking or
securities settlement or clearance services in the United States, (iii) the United States
shall have become engaged in hostilities, or the subject of an act of terrorism, or there
shall have been an outbreak of or escalation in hostilities involving the United States, or
there shall have been a declaration of a national emergency or war by the United States or
(iv) there shall have occurred such a material adverse change in general economic, political
or financial conditions (or the effect of international conditions on the financial markets
in the United States shall be such) as to make it, in the judgment of
the Lead Placement Agent, impracticable or inadvisable to proceed with the sale or delivery of the Stock and
Warrants on the terms and in the manner contemplated in the General Disclosure Package and
the Prospectus.
(o) The Exchange shall have approved the Stock for listing therein, subject only to official
notice of issuance.
(p) The Placement Agents shall have received on and as of the Closing Date satisfactory
evidence of the good standing of the Company and its subsidiaries in their respective
jurisdictions of organization and their good standing as foreign entities in such other
jurisdictions as the Placement Agents may reasonably request, in each case in writing or any
standard form of telecommunication from the appropriate Governmental Authorities of such
jurisdictions.
(q) The Placement Agents shall have received the written agreements, substantially in the
form of Exhibit I hereto, of the officers, directors, shareholders, optionholders and
warrantholders of the Company listed in Schedule B to this Agreement.
(r) The Company shall have entered into Subscription Agreements with each of the Purchasers
and such agreement shall be in full force and effect.
(s) The Company shall have entered into the Escrow Agreement and such agreement shall be in
full force and effect.
(t) The Company shall have prepared and filed with the Commission a Current Report on Form
8-K including as an exhibit thereto this Agreement.
(u) On or prior to the Closing Date, the Company shall have furnished to the Placement Agent
such further certificates and documents as the Lead Placement Agent may reasonably request.
All opinions, letters, evidence and certificates mentioned above or elsewhere in this
Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form
and substance reasonably satisfactory to counsel for the Placement Agents.
8. Indemnification and Contribution.
(a) The Company and VirnetX, Inc. (the “Principal Subsidiary”), jointly and severally, shall
indemnify and hold harmless:
each Placement Agent, its directors, officers, managers, members, employees,
representatives and agents and each person, if any, who controls the Placement
Agents within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (collectively the “Placement Agent
26
Indemnified Parties,” and each a “Placement Agent Indemnified Party”) against any
loss, claim, damage, expense or liability whatsoever (or any action, investigation
or proceeding in respect thereof), joint or several, to which such Placement Agent
Indemnified Party may become subject, under the Securities Act or otherwise, insofar
as such loss, claim, damage, expense, liability, action, investigation or proceeding
arises out of or is based upon (A) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, any Issuer Free Writing
Prospectus, any “issuer information” filed or required to be filed pursuant to Rule
433(d) of the Rules and Regulations, any Registration Statement or the Prospectus,
or in any amendment or supplement thereto or document incorporated by reference
therein, or (B) the omission or alleged omission to state in any Preliminary
Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or
required to be filed pursuant to Rule 433(d) of the Rules and Regulations, any
Registration Statement or the Prospectus, or in any amendment or supplement thereto
or document incorporated by reference therein, a material fact required to be stated
therein or necessary to make the statements therein, in light of (other than in the
case of any Registration Statement) the circumstances under which they are made, not
misleading, or (C) any breach of the representations and warranties of the Company
contained herein or the failure of the Company to perform its obligations hereunder
or pursuant to any law or any act or failure to act, or any alleged act or failure
to act, by such Placement Agent in connection with, or relating in any manner to,
the Stock and Warrants or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage expense, liability, action,
investigation or proceeding arising out of or based upon matters covered by
subclause (A), (B) or (C) above of this Section 8(a) (provided that the Company
shall not be liable in the case of any matter covered by this subclause (C) to the
extent that it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, expense or liability resulted primarily
from any such act or failure to act undertaken or omitted to be taken by such
Placement Agent through its gross negligence or willful misconduct) and shall
reimburse Placement Agent Indemnified Party promptly upon demand for any legal fees
or other expenses reasonably incurred by that Placement Agent Indemnified Party in
connection with investigating, or preparing to defend, or defending against, or
appearing as a third party witness in respect of, or otherwise incurred in
connection with, any such loss, claim, damage, expense, liability, action,
investigation or proceeding, as such fees and expenses are incurred; provided,
however, that the Company and the Principal Subsidiary shall not be liable in any
such case to the extent that any such loss, claim, damage, expense or liability
arises out of or is based upon an untrue statement or alleged untrue statement in,
or omission or alleged omission from any Preliminary Prospectus, any Registration
Statement or the Prospectus, or any such amendment or supplement thereto, or any
Issuer Free Writing Prospectus made in reliance upon and in conformity with written
information furnished to the Company by such Placement Agent specifically for use
therein, which information the parties hereto agree is limited to such Placement
Agent’s Information (as defined in Section 17).
The indemnity agreement in this Section 8(a) is not exclusive and is in addition to each
other indemnity agreement in this Section 8(a) and each other liability which the Company
and Principal Subsidiary might have under this Agreement or otherwise, and shall not limit
any rights or remedies which may otherwise be available under this Agreement, at law or in
equity to any Placement Agent Indemnified Party.
(b) The Placement Agents shall severally indemnify and hold harmless the Company and its
directors, 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 (collectively the “Company Indemnified Parties” and each a “Company
Indemnified Party”) against any loss, claim, damage, expense or liability whatsoever (or any
action, investigation or proceeding in respect thereof), joint or several, to which such
Company Indemnified Party may become subject, under the Securities Act or otherwise, insofar
as such loss, claim, damage, expense, liability, action, investigation or proceeding arises
out of or is based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any
“issuer information” filed or required to be filed pursuant to Rule 433(d) of the Rules and
Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or (ii) the omission or alleged omission to state in any Preliminary Prospectus,
any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed
pursuant to Rule 433(d) of the Rules and Regulations, any Registration Statement or the
27
Prospectus, or in any amendment or supplement thereto, a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each case only to
the extent that the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information furnished to
the Company by the Placement Agents specifically for use therein, which information the
parties hereto agree is limited to the Placement Agents’ Information as defined in Section
17, and shall severally reimburse the Company Indemnified Parties for any legal or other
expenses reasonably incurred by such party in connection with investigating or preparing to
defend or defending against or appearing as third party witness in connection with any such
loss, claim, damage, liability, action, investigation or proceeding, as such fees and
expenses are incurred. This indemnity agreement is not exclusive and will be in addition to
any liability which the Placement Agents might otherwise have and shall not limit any rights
or remedies which may otherwise be available under this Agreement, at law or in equity to
the Company Indemnified Parties.
(c) Promptly after receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, the indemnified party shall, if a claim in respect thereof is to
be made against an indemnifying party under this Section 8, notify such indemnifying party
in writing of the commencement of that action; provided, however, that the failure to notify
the indemnifying party shall not relieve it from any liability which it may have under this
Section 8 except to the extent it has been materially prejudiced by such failure; and,
provided, further, that the failure to notify an indemnifying party shall not relieve it
from any liability which it may have to an indemnified party otherwise than under this
Section 8. If any such action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense of such action with counsel reasonably
satisfactory to the indemnified party (which counsel shall not, except with the written
consent of the indemnified party, be counsel to the indemnifying party). After notice from
the indemnifying party to the indemnified party of its election to assume the defense of
such action, except as provided herein, the indemnifying party shall not be liable to the
indemnified party under Section 8 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense of such action other than reasonable
costs of investigation; provided, however, that any indemnified party shall have the right
to employ separate counsel in any such action and to participate in the defense of such
action but the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be at the expense of such indemnified party unless (i) the employment
thereof has been specifically authorized in writing by the Company in the case of a claim
for indemnification under Section 8(a) or the Lead Placement Agent in the case of a claim
for indemnification under Section 8(b), (ii) such indemnified party shall have been advised
by its counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party or (iii) the
indemnifying party has failed to assume the defense of such action and employ counsel
reasonably satisfactory to the indemnified party within a reasonable period of time after
notice of the commencement of the action or the indemnifying party does not diligently
defend the action after assumption of the defense, in which case, if such indemnified party
notifies the indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the right to assume
the defense of (or, in the case of a failure to diligently defend the action after
assumption of the defense, to continue to defend) such action on behalf of such indemnified
party and the indemnifying party shall be responsible for legal or other expenses
subsequently incurred by such indemnified party in connection with the defense of such
action; provided, however, that the indemnifying party shall not, in connection with any one
such action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any time for all
such indemnified parties (in addition to any local counsel), which firm shall be designated
in writing by the Lead Placement Agent if the indemnified parties under this Section 8
consist of any Placement Agent Indemnified Party or by the Company if the indemnified
parties under this Section 8 consist of any Company Indemnified Parties. Subject to this
Section 8, the amount payable by an indemnifying party under Section 8 shall include, but
not be limited to, (x) reasonable legal fees and expenses of counsel to the indemnified
party and any other expenses in investigating, or preparing to defend or defending against,
or appearing as a third party witness in respect of, or otherwise incurred in connection
with, any action, investigation, proceeding or claim, and (y) all amounts paid in settlement
of any of the foregoing. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of judgment with
respect to any pending or threatened
28
action or any claim whatsoever, in respect of which indemnification or contribution could be
sought under this Section 8 (whether or not the indemnified parties are actual or potential
parties thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party in form and substance reasonably
satisfactory to such indemnified party from all liability arising out of such action or
claim and (ii) does not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any indemnified party. Subject to the provisions of the
following sentence, no indemnifying party shall be liable for settlement of any pending or
threatened action or any claim whatsoever that is effected without its written consent
(which consent shall not be unreasonably withheld or delayed), but if settled with its
written consent, if its consent has been unreasonably withheld or delayed or if there be a
judgment for the plaintiff in any such matter, the indemnifying party agrees to indemnify
and hold harmless any indemnified party from and against any loss or liability by reason of
such settlement or judgment. In addition, if at any time an indemnified party shall have
requested that an indemnifying party reimburse the indemnified party for fees and expenses
of counsel, such indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 8(a) effected without its written consent if (i) such
settlement is entered into more than forty-five (45) days after receipt by such indemnifying
party of the request for reimbursement, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least thirty (30) days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such settlement.
(d) If the indemnification provided for in this Section 8 is unavailable or insufficient to
hold harmless an indemnified party under Section 8(a) then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid, payable or
otherwise incurred by such indemnified party as a result of such loss, claim, damage,
expense or liability (or any action, investigation or proceeding in respect thereof), as
incurred, (i) in such proportion as shall be appropriate to reflect the relative benefits
received by the Company, and the Principal Subsidiary on the one hand and the Placement
Agents on the other from the offering of the Stock, or (ii) if the allocation provided by
clause (i) of this Section 8(d) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i) of this
Section 8(d) but also the relative fault of the Company, and the Principal Subsidiary on the
one hand and the Placement Agents on the other with respect to the statements, omissions,
acts or failures to act which resulted in such loss, claim, damage, expense or liability (or
any action, investigation or proceeding in respect thereof) as well as any other relevant
equitable considerations. The relative benefits received by the Company, and the Principal
Subsidiary on the one hand and the Placement Agents on the other with respect to such
offering shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Stock and Warrants purchased pursuant to the Subscription Agreements (before
deducting expenses) received by the Company, and the Principal Subsidiary bear to the total
fees received by the Placement Agents with respect to the Stock and Warrants purchased
pursuant to this Agreement and the Subscription Agreements, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company, and the
Principal Subsidiary on the one hand and the Placement Agents on the other shall be
determined by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, and the Principal Subsidiary on the one hand
or the Placement Agents on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such untrue
statement, omission, act or failure to act; provided that the parties hereto agree that the
written information furnished to the Company by the Placement Agents for use in the
Preliminary Prospectus, any Registration Statement or the Prospectus, or in any amendment or
supplement thereto, consists solely of the Placement Agents’ Information as defined in
Section 17.
(e) The Company, the Principal Subsidiary and the Placement Agents agree that it would not
be just and equitable if contributions pursuant to Section 8(d) above were to be determined
by pro rata allocation or by any other method of allocation which does not take into account
the equitable considerations referred to Section 8(d) above. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage, expense, liability, action,
investigation or proceeding referred to in Section 8(d) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating, preparing to defend or defending
against or appearing as a third party witness in respect of, or otherwise incurred in
connection with, any
29
such loss, claim, damage, expense, liability, action, investigation or proceeding.
Notwithstanding the provisions of this Section 8(e), neither Placement Agent shall be
required to contribute any amount in excess of the total compensation received by it in
accordance with Section 2(V) less the amount of any damages which such Placement Agent has
otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement,
omission or alleged omission, act or alleged act or failure to act or alleged failure to
act. 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.
9. Termination. The obligations of the Placement Agents and the Purchasers hereunder and
under the Subscription Agreements may be terminated by the Lead
Placement Agent, in its absolute
discretion by notice given to the Company prior to delivery of and payment for the Stock and
Warrants if, prior to that time, any of the events described in Sections 7(k), 7(m) or 7(n) have
occurred or if the Purchasers shall decline to purchase the Stock and Warrants for any reason
permitted under this Agreement or the Subscription Agreements. The Company hereby acknowledges
that in the event that this Agreement is terminated by the Placement Agents pursuant to the terms
hereof, the Subscription Agreements shall automatically terminate without any further action on the
part of the parties thereto.
10. Reimbursement of Placement Agents’ Expenses. Notwithstanding anything to the contrary
in this Agreement, if (a) this Agreement shall have been terminated pursuant to Section 9, (b) the
Company shall fail to tender the Stock and Warrants for delivery to the Purchasers for any reason
not permitted under this Agreement or the Subscription Agreements, (c) the Purchasers shall decline
to purchase the Stock and Warrants for any reason permitted under this Agreement or the
Subscription Agreements or (d) the sale of the Stock and Warrants is not consummated because any
condition to the obligations of the Placement Agents or the Purchasers set forth herein is not
satisfied or because of the refusal, inability or failure on the part of the Company to perform any
agreement herein or to satisfy any condition or to comply with the provisions hereof, then in
addition to the payment of amounts in accordance with Section 6, the Company shall reimburse the
Placement Agents for the fees and expenses of Placement Agents’ counsel and for such other
out-of-pocket expenses as shall have been reasonably incurred by them in connection with this
Agreement and the proposed purchase of the Stock and Warrants, including, without limitation,
travel and lodging expenses of the Placement Agents, without giving effect to any limitations
thereon contained in Section 6(i), and upon demand the Company shall pay the full amount borne by
each of the Placement Agents to such Placement Agent. Notwithstanding the foregoing, if any of the
conditions precedent set forth in Sections 7(k), (m) or (n) shall fail to be satisfied, the
Company’s reimbursement obligations to the Placement Agents shall be limited to the respective
amounts as set forth in Section 6(i).
11. Absence of Fiduciary Relationship. The Company acknowledges and agrees that:
(a) the Placement Agents’ responsibilities to the Company are solely contractual in nature,
the Placement Agents have been retained solely to act as Placement Agents in connection with
the sale of the Stock and Warrants and no fiduciary, advisory or agency relationship between
the Company and the Placement Agents has been created in respect of any of the transactions
contemplated by this Agreement, irrespective of whether the Placement Agents have advised or
are advising the Company on other matters;
(b) the price of the Stock and Warrants set forth in this Agreement was established by the
Company following discussions and arms-length negotiations with the Purchasers, and the
Company is capable of evaluating and understanding, and understands and accepts, the terms,
risks and conditions of the transactions contemplated by this Agreement;
(c) they have been advised that the Placement Agents and their affiliates are engaged in a
broad range of transactions which may involve interests that differ from those of the
Company and that the Placement Agents have no obligation to disclose such interests and
transactions to the Company by virtue of any fiduciary, advisory or agency relationship; and
(d) they waive, to the fullest extent permitted by law, any claims they may have against the
Placement Agents for breach of fiduciary duty or alleged breach of fiduciary duty and agrees
that the Placement Agents shall have no liability (whether direct or indirect) to the
Company in respect of such a fiduciary
30
duty claim or to any person asserting a fiduciary duty claim on behalf of or in right of the
Company, including stockholders, employees or creditors of the Company.
12. Successors; Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Placement Agents, the Company, and the Principal
Subsidiary and their respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, other than those persons mentioned
in the preceding sentence or otherwise explicitly mentioned in this Agreement, any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being intended to be and being
for the sole and exclusive benefit of such persons and for the benefit of no other person; except
that the representations, warranties, covenants, agreements and indemnities of the Company, and the
Principal Subsidiary contained in this Agreement shall also be for the benefit of the Placement
Agent Indemnified Parties, and the indemnities of the Placement Agents shall be for the benefit of
the Company Indemnified Parties. It is understood that Placement Agents’ responsibilities to the
Company are solely contractual in nature and the Placement Agents do not owe the Company, or any
other party, any fiduciary duty as a result of this Agreement. No Purchaser shall be deemed to be
a successor or assign by reason merely of such purchase.
13. Survival of Indemnities, Representations, Warranties, etc. The respective
indemnities, covenants, agreements, representations, warranties and other statements of the
Company, and the Principal Subsidiary and the Placement Agents, as set forth in this Agreement or
made by them respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Placement Agents, the Principal
Subsidiary, the Company, the Purchasers or any person controlling any of them and shall survive
delivery of and payment for the Stock and Warrants. Notwithstanding any termination of this
Agreement, including without limitation any termination pursuant to Section 9, the indemnities,
contribution, covenants, agreements, representations, warranties and other statements forth in
Sections 3, 6, 8, and 10 and Sections 11 through 20, inclusive, of this Agreement shall not
terminate and shall remain in full force and effect at all times.
14. Notices. All statements, requests, notices and agreements hereunder shall be in
writing, and:
(a) if to the Placement Agents, shall be delivered or sent by mail, telex, facsimile
transmission or email to ▇▇▇▇▇ and Company, LLC, Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Managing
Director and Head of Equity Capital Markets, Fax: ▇▇▇ ▇▇▇-▇▇▇▇ with a copy to the General
Counsel, Fax: ▇▇▇ ▇▇▇-▇▇▇▇ and to ▇▇▇▇▇-▇▇▇▇▇▇ Capital Group LLC, Attention: ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇▇, Fax: ▇▇▇ ▇▇▇-▇▇▇▇; and
(b) if to the Company or any Principal Subsidiary shall be delivered or sent by mail, telex,
facsimile transmission or email to VirnetX Holding Corporation Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
President and Chief Executive Officer, Fax: ▇▇▇-▇▇▇-▇▇▇▇ and to ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇ LLP, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Fax: ▇▇▇ ▇▇▇-▇▇▇▇.
Any such statements, requests, notices or agreements shall take effect at the time of receipt
thereof.
15. Definition of Certain Terms. For purposes of this Agreement, (a) “business day” means
any day on which the New York Stock Exchange, Inc. is open for trading and (b) “subsidiary” has the
meaning set forth in Rule 405 of the Rules and Regulations.
16. Governing Law, Agent For Service and Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, including without limitation
Section 5-1401 of the New York General Obligations. Each of the Company and the Principal
Subsidiary irrevocably (a) submits to the non-exclusive jurisdiction of the Federal and state
courts in the Borough of Manhattan in The City of New York for the purpose of any suit, action or
other proceeding arising out of this Agreement or the transactions contemplated by this Agreement,
the Registration Statements and any Preliminary Prospectus or the Prospectus, (b) agrees that all
claims in respect of any such suit, action or proceeding may be heard and determined by any such
court, (c) waives to the fullest extent permitted by applicable law, any immunity from the
jurisdiction of any such court or from any legal process, (d) agrees not to commence any such suit,
action or proceeding other than in such courts, and (e) waives, to the fullest extent permitted by
applicable law, any claim that any such suit, action or proceeding is brought in an inconvenient
forum.
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17. Placement Agents’ Information. The parties hereto acknowledge and agree that, for all
purposes of this Agreement, the Placement Agents’ Information consists solely of the following
information in the Prospectus contained in the first paragraph of the text (concerning the terms of
the offering by the Placement Agents), the third paragraph of the text (concerning hedging, short
sale or derivative transactions) and the eighth paragraph of the text (concerning stabilizing
transactions) under the heading “Plan of Distribution .”
18. Partial Unenforceability. The invalidity or unenforceability of any section,
paragraph, clause or provision of this Agreement shall not affect the validity or enforceability of
any other section, paragraph, clause or provision hereof. If any section, paragraph, clause or
provision of this Agreement is for any reason determined to be invalid or unenforceable, there
shall be deemed to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
19. General. This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof. In this Agreement, the
masculine, feminine and neuter genders and the singular and the plural include one another. The
section headings in this Agreement are for the convenience of the parties only and will not affect
the construction or interpretation of this Agreement. This Agreement may be amended or modified,
and the observance of any term of this Agreement may be waived, only by a writing signed by the
Company, [the Principal Subsidiary] and the Placement Agents.
20. Counterparts. This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto and hereto were upon
the same instrument.
32
If the foregoing is in accordance with your understanding of the agreement among the Company,
the Principal Subsidiary and the Placement Agents, kindly indicate your acceptance in the space
provided for that purpose below.
| Very truly yours, | ||||
| VIRNETX HOLDING CORPORATION | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| VIRNETX, INC. | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Accepted as of the date first above written: |
||
▇▇▇▇▇ and Company, LLC |
||
By: |
||
| Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ | ||
| Title: Managing Director and Head of Equity Capital Markets | ||
▇▇▇▇▇-▇▇▇▇▇▇ Capital Group LLC |
||
By: |
||
| Name: | ||
| Title: Managing Partner | ||
SCHEDULE A
[General Use Free Writing Prospectuses]
SCHEDULE B
[List of officers, directors, shareholders, optionholders and warrantholders subject to Lock-up]
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇’▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇’▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Exhibit I
[Form of Lock-Up Agreement]
_________ __, 2008
▇▇▇▇▇ and Company, LLC
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇▇▇ Capital Group LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: VIRNETX HOLDING CORPORATION — Registration Statement on Form S-1
Dear Sirs:
This Agreement is being delivered to you in connection with the proposed Placement Agent Agreement
(the “Placement Agent Agreement”) among VirnetX Holding Corporation, a Delaware corporation (the
“Company”), and ▇▇▇▇▇ and Company, LLC (“Cowen”
or the “Lead Placement Agent”) and ▇▇▇▇▇-▇▇▇▇▇▇
Capital Group LLC (“▇▇▇▇▇-▇▇▇▇▇▇” or the “Co-Placement
Agent” and, together with the Lead Placement Agent, the “Placement Agents”), and the other parties thereto (if any), relating to the proposed
public offering of shares of the common stock, par value $0.0001 per share (the “Common Stock”), of
the Company and warrants (the “Warrants”), each warrant to purchase ___shares of Common Stock. The
aggregate shares of Common Stock so proposed to be sold is hereinafter referred to as the “Stock”
and the number of shares of Common Stock issuable upon exercise of the Warrants is hereinafter
referred to as the “Warrant Stock.” The Warrant Stock, together with the Stock and the Warrants,
is referred to herein as the “Securities.”
In order to induce you to enter into the Placement Agent Agreement, and in light of the benefits
that the offering of the Securities will confer upon the undersigned in its capacity as a
securityholder and/or an officer, director or employee of the Company, and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with the Placement Agents that, during the period beginning on and including the date of the
Placement Agent Agreement through and including the date that is the 90th day after the date of the
Placement Agent Agreement (the “Lock-Up Period”), the undersigned will not, without the prior
written consent of the Lead Placement Agent, directly or indirectly, (i) offer, sell, assign,
transfer, pledge, contract to sell, or otherwise dispose of, or announce the intention to otherwise
dispose of, any shares of Common Stock (including, without
2
limitation, Common Stock which may be deemed to be beneficially owned by the undersigned in
accordance with the rules and regulations promulgated under the Securities Act of 1933, as the same
may be amended or supplemented from time to time (such shares, the “Beneficially Owned Shares”)) or
securities convertible into or exercisable or exchangeable for Common Stock, (ii) enter into any
swap, hedge or similar agreement or arrangement that transfers in whole or in part, the economic
risk of ownership of the Beneficially Owned Shares or securities convertible into or exercisable or
exchangeable for Common Stock, whether now owned or hereafter acquired by the undersigned or with
respect to which the undersigned has or hereafter acquires the power of disposition, or (iii)
engage in any short selling of the Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock. If (i) the Company issues an earnings release or material news or a
material event relating to the Company occurs during the last 17 days of the Lock-Up Period, or
(ii) prior to the expiration of the Lock-Up Period, the Company announces that it will release
earnings results during the 16-day period beginning on the last day of the Lock-Up Period, the
Lock-Up Period shall be extended and the restrictions imposed by this Agreement shall continue to
apply until the expiration of the 18-day period beginning on the issuance of the earnings release
or the occurrence of the material news or material event.
The restrictions set forth in the immediately preceding paragraph shall not apply to:
(1) if the undersigned is a natural person, any transfers made by the undersigned (a) as a
bona fide gift to any member of the immediate family (as defined below) of the undersigned
or to a trust the beneficiaries of which are exclusively the undersigned or members of the
undersigned’s immediate family, (b) by will or intestate succession upon the death of the
undersigned or (c) as a bona fide gift to a charity or educational institution,
(2) if the undersigned is a corporation, partnership, limited liability company or other
business entity, any transfers to any shareholder, partner or member of, or owner of a
similar equity interest in, the undersigned, as the case may be, if, in any such case, such
transfer is not for value, and
(3) if the undersigned is a corporation, partnership, limited liability company or other
business entity, any transfer made by the undersigned (a) in connection with the sale or
other bona fide transfer in a single transaction of all or substantially all of the
undersigned’s capital stock, partnership interests, membership interests or other similar
equity interests, as the case may be, or all or substantially all of the undersigned’s
assets, in any such case not undertaken for the purpose of avoiding the restrictions imposed
by this agreement or (b) to another corporation, partnership, limited liability company or
other business entity so long as the transferee is an affiliate (as defined below) of the
undersigned and such transfer is not for value;
provided, however, that in the case of any transfer described in clause (1), (2) or (3) above, it
shall be a condition to the transfer that (A) the transferee executes and delivers to the Lead Placement Agent, not later than one business day prior to such transfer, a written agreement, in
substantially the form of this agreement (it being understood that any references to “immediate
family” in the agreement executed by such transferee shall expressly refer only to the immediate
family of the undersigned and not to the immediate family of the transferee) and otherwise
satisfactory in form and substance to the Lead Placement Agent, and (B) if the undersigned is
required to file a report under Section 16(a) of the Securities Exchange Act of 1934, as amended,
reporting a reduction in beneficial ownership of shares of Common Stock or Beneficially Owned
Shares or any securities convertible into or exercisable or exchangeable for Common Stock or
Beneficially Owned Shares during the Lock-Up Period (as the same may be extended as described
above), the undersigned shall include a statement in such report to the effect that, in the case of
any transfer pursuant to clause (1) above, such transfer is being made as a gift or by will or
intestate succession or, in the case of any transfer pursuant to clause (2) above, such transfer is
being made to a shareholder, partner or member of, or owner of a similar equity interest in, the
undersigned and is not a transfer for value or, in the case of any transfer pursuant to clause (3)
above, such transfer is being made either (a) in connection with the sale or other bona fide
transfer in a single transaction of all or substantially all of the undersigned’s capital stock,
partnership interests, membership interests or other similar equity interests, as the case may be,
or all or substantially all of the undersigned’s assets or (b) to another corporation, partnership,
limited liability company or other business entity that is an affiliate of the undersigned and such
transfer is not for value. For purposes of this paragraph, “immediate family” shall mean a spouse,
child, grandchild or other lineal descendant (including by adoption), father, mother, brother or
sister of the undersigned; and “affiliate” shall have the meaning set forth in Rule 405 under the
Securities Act of 1933, as amended.
3
In order to enable this covenant to be enforced, the undersigned hereby consents to the placing of
legends or stop transfer instructions with the Company’s transfer agent with respect to any Common
Stock or securities convertible into or exercisable or exchangeable for Common Stock.
The undersigned further agrees that (i) it will not, during the Lock-Up Period (as the same may be
extended as described above), make any demand or request for or exercise any right with respect to
the registration under the Securities Act of 1933, as amended, of any shares of Common Stock or
other Beneficially Owned Shares or any securities convertible into or exercisable or exchangeable
for Common Stock or other Beneficially Owned Shares, and (ii) the Company may, with respect to any
Common Stock or other Beneficially Owned Shares or any securities convertible into or exercisable
or exchangeable for Common Stock or other Beneficially Owned Shares owned or held (of record or
beneficially) by the undersigned, cause the transfer agent or other registrar to enter stop
transfer instructions and implement stop transfer procedures with respect to such securities during
the Lock-Up Period (as the same may be extended as described above).
The undersigned hereby represents and warrants that the undersigned has full power and authority to
enter into this agreement and that this agreement has been duly authorized (if the undersigned is
not a natural person), executed and delivered by the undersigned and is a valid and binding
agreement of the undersigned. This agreement and all authority herein conferred are irrevocable
and shall survive the death or incapacity of the undersigned (if a natural person) and shall be
binding upon the heirs, personal representatives, successors and assigns of the undersigned.
The undersigned acknowledges and agrees that whether or not any public offering of Securities
actually occurs depends on a number of factors, including market conditions.
| Very truly yours, | ||||
| (Name of Stockholder — Please Print) | ||||
| (Signature) | ||||
| (Name of Signatory if Stockholder is an entity — Please Print) | ||||
| (Title of Signatory if Stockholder is an entity — Please Print) | ||||
| Address: | ||||